- If You Like To Sleep, Move To Holland
If You Like To Sleep, Move To Holland
Getting 7-9 hours sleep is essential for our physical and mental well-being.
To celebrate World Sleep Day, Statista’s Niall McCarthy takes a look at the countries which are getting the most sleep on average.
If you live in the Netherlands or New Zealand, you’ll probably manage to get slightly more than eight hours per night, according to a study published in the journal Science Advances.
You will find more infographics at Statista
However, if you live in Japan or Singapore, you’ll probably sleep about a half hour less then eight hours.
While that might not seem like much, the study claims that even a half hour of less sleep can have a detrimental effect on your health over time.
The sleeping gap between countries is more than likely due to cultural and social factors.
Tyler Durden
Mon, 03/22/2021 – 02:45 - Nord Stream 2 Behind Biden's Gratuitous Slander Of Putin
Nord Stream 2 Behind Biden’s Gratuitous Slander Of Putin
Via The Strategic Culture Foundation,
Relations between the United States and Russia have reached a dangerous watershed following an unprecedented personal insult by American President Joe Biden to Russian counterpart Vladimir Putin.
But note the sequence here. Biden’s insults were then followed by U.S. threats of draconian sanctions to kill the Nord Stream 2 gas project between Russia and Europe. Just who is the killer here?
The world may be thankful that Russia is being so magnanimous in its response to Biden’s puerile and slanderous sniping. The crisis in bilateral relations provoked by the U.S. president has the potential to escalate, but it is only down to Moscow’s restraint that further deterioration in relations is being checked – for now.
In an interview with ABC News, aired on Wednesday, Biden was asked if he agreed that Russia’s leader was a “killer”. To which the American president replied in the affirmative, “I do.” He also warned that Russia “would pay a price” over allegations of interfering in the U.S. elections and other supposed malpractices.
One can safely assume that the Biden administration is hellbent on making relations with Russia even worse as its intelligence agencies “review” over the next few weeks already-made presumptions about Russia’s purported culpability.
For his part, the Russian president responded calmly and generously, saying that he wished Biden good health. Putin even offered to hold a live conversation with his American counterpart on a range of issues. One might infer that these are oblique references to suspicions about Biden’s mental health and his apparent loss of cognitive powers when speaking in public.
One other comment by Putin was telling. He said of Biden’s “killer” remark, “it takes one to know one”.
Joseph Biden’s career as a politician spans nearly half a century, first as a long-time senator, then as vice president in two administrations and now the 46th president of the United States. During that period, Biden has been a key player in facilitating countless U.S. overseas wars and military operations which have resulted in millions of deaths and destruction of whole nations. As a senior senator on the foreign affairs committee, it was Biden who was instrumental in drumming up congressional support for the American war on Iraq beginning in 2003. That war alone – based on lies and fabrications concerning weapons of mass destruction – led to at least one million dead and unleashed terrorism across the Middle East and beyond.
More recently, just four weeks after his inauguration, Biden ordered airstrikes on Syria on February 26 causing multiple deaths. It was a murderous act of illegal aggression.
So indeed the American president knows what it is to be a killer. He sees it every time he looks in the mirror.
The casual arrogance and ignorance of the American political class is astounding. They make accusations against Putin based on flimsy rumors, such as the alleged poisoning of conman Alexei Navalny. And then they have no decency or decorum by bandying about vulgar labels. Meanwhile, the piles of dead bodies lying under American politicians’ feet are mountainous. They have no shame.
Following the latest outburst from the American president and his intelligence agency groundlessly accusing Russia of interfering in the 2020 election, Moscow has temporarily recalled its ambassador to reassess bilateral relations. It is the first time this has happened in over 20 years. There is no factual or diplomatic precedent for the evident American attempt to provoke a crisis. Not even during the frozen Cold War decades did U.S. leaders stoop to such gross and offensive rhetoric. There seems to be a more general degeneration in Washington’s diplomatic conduct over recent administrations. America no longer has statesmen. Its political ranks are full of hacks and hicks and mumbo-jumbo conspiracists.
When Biden won the election, he promised to revamp American diplomacy with intelligent statecraft and skillful negotiators. An early positive sign was his prompt contact with Russia to extend the New START treaty governing nuclear weapons. But apart from that move, the Biden administration has sought to undermine bilateral relations with Russia. The prospects of a new detente or reset have been jettisoned. (The same is also apparent regarding U.S. relations with China and Iran.)
It seems likely that Biden and his team are deliberately provoking a crisis with Russia in order to justify a geopolitical policy of hardening hostility towards Moscow.
Foremost in this context is the Nord Stream 2 gas pipeline and the American objective to terminate that project. The day after Biden sent relations with Russia into a downward spiral, his Secretary of State Antony Blinken announced that the U.S. would be imposing tough new sanctions on “any entity involved the Nord Stream 2 pipeline”. Blinken stated there was “a whole of government commitment in the United States to stopping” the gas supply project between Russia and Europe.
It cannot be overstated that the $11 billion pipeline is a huge geopolitical issue. It is front and center to Washington’s global ambitions. The Americans want to kill it in order to sell their own more expensive gas to Europe for decades to come. Washington also views the energy partnership between Russia and Europe as an obstacle to its hegemonic position.
Germany and other European states have remained steadfast in their support for completing the construction of Nord Stream 2 which is about 95 per cent finished, nearly 1,200 kilometers of pipeline under the Baltic Sea from Russia to Germany’s coast. When it becomes operational the flow of gas to Germany from Russia will double in volume. Thus it is vital for Germany and Europe’s long-term growth.
In a desperate bid to thwart the strategic partnership between Russia and Europe, Washington is resorting to ever-more frantic threats of sanctions and other disruptive measures. Biden is playing the personal insult card in a gambit for blowing up bilateral relations with Russia as a way to sabotage Nord Stream 2.
It’s a pathetic move, one that actually speaks more of America’s historic enfeeblement rather than pretensions of power. Russia would do well to stay calm and let the Americans make fools of themselves.
Tyler Durden
Mon, 03/22/2021 – 02:00 - China: What To Do About It?
China: What To Do About It?
By Gordon G. Chang, via The Gatestone Institute,
What does China really want?
Well, China really wants to rule planet Earth. It also wants to possess and rule the near portions of the solar system. No, I am not exaggerating. No nation in history has been this ambitious.
With regard to our planet, Xi Jinping wants the world to reject the current Westphalian international system, in place since 1648. In its place, he wants China’s imperial-era system, where Chinese emperors believed they not only had the right to rule tianxia, all under heaven, but also the heavens compelled them to do so.
Xi has been grabbing territory from his neighbors. In just the past few months, the Chinese have been encroaching on India’s Sikkim as well as Nepalese territory.
With regard to Nepal, let us talk about how China actually moves against its neighbors. In January, Beijing’s propagandists, as they have in the past, bragged about how Chinese scientists were able to come up with the exact measurement of a mountain in Nepal. Not in China, in Nepal.
Now, the Chinese, and only the Chinese, call this feature Mount Qomolangma. The rest of the world, all of us, know it as Mount Everest.
What is China doing by bragging about its measurement? It is establishing the basis for a territorial claim to this mountain, which happens to be close to China. They are eventually going to say, “Well, look, we named the place, we measured it, therefore, it’s ours.”
This is subtle, but that is the way Beijing has been working. Of course, sometimes Beijing is not so indirect. We have also seen in recent months China’s encroachments into India’s Ladakh, high in the Himalayas, and its killing of Indian soldiers.
Chinese planes have regularly been flying through Taiwan’s air defense identification zone. China’s armed ships have been intruding into Japanese waters in the East China Sea around those uninhabited islets, the Senkakus. Beijing has been trying to take territory from its neighbors. It is acting especially provocatively. We have got to be concerned.
Amendments to China’s National Defense Law, effective the beginning of this year, take sweeping powers from the State Council, which leads China’s civilian government, and give them to the Communist Party’s Central Military Commission. These powers include the power to mobilize all of society for war.
Moreover, Xi Jinping himself in January told the troops of the People’s Liberation Army that they must be prepared for conflict “at any second.” Beijing could well start history’s next great conflict.
Many people will tell you that China is just bluffing, but we know from history that countries that continually talk about war, that continually bluff about it, usually manage to start them. This is the situation in which we find ourselves.
On the topic of controlling the solar system, China will land a rover, its rover, on Mars in either May or June. Mere exploration for the good of humanity? China’s officials have been talking about the moon and Mars as if they are sovereign Chinese territory — part of the People’s Republic.
They look at near heavenly bodies the same way they do the South China Sea, something that should be theirs. This means that if they get there, China believes it has the right to exclude other nations.
Everything they do, whether it is seemingly innocuous, such as measuring a mountain or putting a rover on Mars, is a means of claiming sovereignty, of enlarging the People’s Republic.
Now, of course, there are, in addition to these acts, China’s militant, hostile, belligerent actions. We see these all the time.
We all have heard about China’s behavior, but today let’s focus on three things that China is doing relating to genetics.
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First, China is collecting the world’s DNA.
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Second, China is genetically engineering the Chinese to become a superhuman race, in other words, eugenics.
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Third, Chinese researchers are working on pathogens, new pathogens, artificial ones, to create the world’s next pandemic.
First, China is gobbling up the world’s DNA. So far, it has amassed the world’s largest collection of DNA profiles of humans. It claims about 80 million of them. Of course, it wants more. We need to be concerned about the way China is doing this.
Chinese hackers, for instance, are going after insurance and healthcare companies to get DNA profiles. We saw this in January 2015, when we learned that China had hacked Anthem, America’s second‑largest insurance company. It got health information on 80 million Americans who were either insured or Anthem employees.
Beijing is building this massive database also with its Phase 3 trials for its two vaccines, especially in Africa, both north and south of the Sahara. Think of Morocco as well as Nigeria.
China is also getting DNA by buying American businesses. For instance, China’s BGI Group, the world’s largest genomic sequencing company, collected the largest group of DNA profiles of Americans when it purchased Complete Genomics in 2013. In January, China’s Harbin Pharmaceutical Group passed its last hurdle in purchasing GNC, which has health information of Americans as well.
Another way China is collecting DNA is by offering low‑cost genetic sequencing services to ancestry companies and also to research laboratories and others. In 2019, there were 23 Chinese or Chinese‑linked companies that were accredited in the US to provide DNA sequencing services.
We know, of course, that China has had a number of research partnerships and other ventures with American institutions, such as Johns Hopkins.
If you want to find the largest collection of genetic information of Americans, you do not go to America. You go to Beijing.
The story here is that we allowed the Chinese to plunder our society for data.
The second point, eugenics, is downright frightening because biological research in China is heading in very distressing directions.
Bing Su, a geneticist at the state‑run Kunming Institute of Virology, recently engaged in a number of experiments putting human genes into monkeys, including the MCPH1 gene relating to brain development. That means these monkeys will have intelligence closer to humans than to lower primates.
Bing Su is not stopping there. His next experiments are going to be taking the SRGAP2C gene, which relates to human intelligence, and the FOXP2 gene, which permits language development, and also putting them into monkeys. It is as if nobody in China has seen the “Planet of the Apes.”.
In China, there is an unrestrained ambition to experiment in weird ways. For instance, if you want to know what happens when you mix pig and monkey DNA, well, just ask the Chinese. They have been involved in other similar experiments as well.
This whole subject was brought to the attention of the American public by John Ratcliffe, then director of National Intelligence, when he wrote that China was trying to grow super‑soldiers. Ratcliffe mentioned that China is already conducting experiments on people in the People’s Liberation Army to enhance their abilities, to create, as he called it, “biologically enhanced capabilities.”
The Communist Party is also experimenting with humans other than soldiers. It was, for instance, a Chinese researcher who was the first, and so far only, person to use gene‑editing tools on human embryos to create live births.
A Chinese professor, He Jiankui, in Shenzhen in southern China, actually used CRISPR, a gene‑editing tool, to remove the CCR5 gene to create live births of twins in late 2018.
He said he did this because he wanted to make the twins resistant to HIV, but there are also suggestions he was enhancing the intelligence of the twins. This, of course, evokes the eugenics experiments of the Third Reich to create a “master race.”
He is not the only person to experiment on human embryos. We are seeing similar experiments across the Chinese research community. Chinese geneticists are now trying to use the CRISPR tool to fundamentally alter humans.
The Chinese regime does not have ethics or morality. It is not restrained by law. It does not have a sense of restraint. The regime is trying to create the perfect communist. China has the ability and the will to do this, which means that the world has got to prevent this experimentation.
As for the third topic, pathogens, a little background might help. China uses its doctrine of Comprehensive National Power, CNP, which they got from the Soviet Union. It is an empirical tool to rate the strength of countries. China is relentlessly seeking the Number One CNP ranking.
China can become number one in two ways. It can enhance its own CNP ranking by becoming stronger, or it can decrease the CNP rankings of other countries. That’s where pathogens come in. This notion of decreasing CNP of others meant that China had no inhibitions about spreading the coronavirus around the world.
We don’t know whether the pathogen causing COVID‑19 naturally jumped from animals to humans, a zoonotic transfer, or whether it was cooked up in the Wuhan Institute of Virology. That has yet to be determined.
We do know one thing. We know that China’s leader, Xi Jinping, took steps deliberately to spread the pathogen beyond China’s borders. He did that primarily in two ways. First of all, he lied about the contagiousness of the disease. He knew it was highly transmissible human-to-human. He told the world it was not.
Then he leaned on countries to not impose travel restrictions and quarantines on arrivals from China while he was locking down Wuhan and other portions of China, which meant he thought that these travel restrictions and quarantines were effective in preventing the spread of disease. This means, of course, that he thought he was spreading disease by forcing other countries to take arrivals from China. That shows malicious intent.
Now, China’s ranking of CNP will increase dramatically, of course, if the next disease leaves the Chinese alone and sickens only foreigners. This is where some particularly distressing information has come to light.
China’s State Council which, as mentioned, is the civilian government, in May 2019 imposed new rules preventing the transfer of DNA profiles of Chinese out of the country. At the same time, Chinese officials started enforcing existing rules and the new rule more effectively.
That points to a sinister intention, but we do not really have to speculate because China’s National Defense University, in its 2017 edition of The Science of Military Strategy, actually talked about a new form of biological warfare of “specific ethnic genetic attacks.”
Bill Gertz of The Washington Times recently quoted an unnamed American official, who said China was working on germ weapons capable of attacking only specific groups. Now, China denies it has the doctrine of “unrestricted warfare.” That term comes from a 1999 book by two Chinese Air Force colonels: Unrestricted Warfare: China’s Master Plan to Destroy America by Qiao Liang and Wang Xiangsui.
The spreading of the coronavirus is indeed an application of unrestricted warfare. Many analysts have said that biological warfare does not work. I can understand why they say that, but unfortunately we have just seen a disease kill about 2.4 million people as well as hobble societies across the world. [Editor’s note: The toll, since this talk was given, has increased to 2.7 million].
COVID-19 is the ultimate proof that biological weapons work. If Chinese scientists actually succeed in developing viruses that attack only foreigners, China could end up as the only viable society in the world. This is communist China’s weapon against the world and against the United States as well.
About two decades ago, Chi Haotian, then China’s defense minister, reportedly gave a secret speech about how China should use germ weapons to exterminate Americans so that the Chinese could then inhabit North America. “Living space.” You have heard this concept, “Lebensraum,” before.
Also, in October of last year, Dr. Li Yi, a Chinese sociologist, returned to the extermination theme, this time in public. “We are driving America to its death,” Dr. Li approvingly said at a forum.
Before the Chinese actually succeed in exterminating Americans, we should start thinking about what we can do to block China.
I’m now going to give you my to‑do list. Many of the items may sound pedestrian, but remember that American policy towards China had been devoid of common sense for decades, especially during the Bush, Clinton, Bush, and Obama administrations.
These presidents maintained policies that were the opposite of common sense. I’m afraid it looks as if that is where Biden is heading to. His administration right now is engaged in a top-to-bottom review of China policy, which will probably be finished sometime in April. We do not know how it will turn out.
Yet we know what Biden has done in his first month as president. He has issued a slew of executive orders dismantling protections the Trump administration built against a militant China.
Some of Biden’s actions have been merely questionable, but some of them have been downright inexcusable and indefensible. For instance, on January 20 — just hours after taking the oath of office — Biden issued an executive order that repealed President Trump’s executive order of May 1st, 2020, preventing grid operators in the US from buying Chinese equipment.
This means China is now free to sell sabotaged equipment to the US. This is not just a theoretical concern.
Every administration looks at the China policies of its predecessors. I’m not saying Biden shouldn’t do that. What he should do is leave President Trump’s protections in place while he engages in that review because he should not leave the United States vulnerable in the interim.
China’s Communist Party, of course, has not been shy in attacking the United States. We should not be defenseless in the interim.
Moreover, whatever one thinks of Biden’s executive orders, he has ordered big giveaways to China and gotten nothing in return. In other words, his giveaways have been unilateral, a unilateral taking down of America’s protections.
There are a few things that we should be doing now to protect ourselves against China’s genetic initiatives.
Here goes:
The first thing we should do is require everyone that maintains a computer network in the US, whether they are private or whether they are government, to harden them against espionage. The Chinese are villains, but we have allowed them to be villainous by leaving our networks undefended.
I am angry at the Chinese for stealing our stuff, but I’m much more angry at a series of presidents who decided to do nothing or do nothing effective. Let us impose a cost on China for stealing US intellectual property. That means we have got to go well beyond the Section 301 tariffs that President Trump imposed in 2018 for the theft of our IP.
Then-Director of National Intelligence John Ratcliffe, in his December 3, 2021 Wall Street Journal op‑ed, put the figure of China’s theft at about $500 billion a year. This means the costs we impose are going to have to be greater than that amount if we are going to deter China.
Second, we should simply prevent China from buying any American company that possesses DNA profiles of Americans or is involved in biotechnology or genetic research. That’s just common sense.
Third, we should prohibit any Chinese or Chinese‑linked company from providing sequencing services for the DNA of Americans.
Fourth, we should end all research partnerships with Chinese institutions.
Fifth, we should withdraw from the biological weapons convention. China is almost certainly violating it at the Wuhan Institute of Virology and other locations. The convention has no inspections regime. That means this is a unilateral obligation on our part.
Sixth, we should get out – again – of the World Health Organization. The WHO was complicit in Xi Jinping’s spread of the disease. The WHO didn’t make a mistake. It absolutely knew what it was doing.
Senior doctors at the WHO knew that the coronavirus was highly transmissible, yet on two occasions, January 9th and January 14th, 2020, the political leadership of WHO spread China’s false proposition that the disease was not transmissible. I think the WHO is unreformable.
Seventh, we should impose costs on China for spreading COVID‑19. Recently, we passed that grim milestone of more than 500,000 deaths. This pathogen is not finished with us yet. We have to impose these costs on China to convince Xi Jinping that he cannot spread the next disease beyond his borders.
The next virus, as mentioned, could leave the Chinese alone and sicken everyone else. It could be a civilization-killer, which means that China could be the only viable society left on earth.
When I talk about Xi Jinping believing that he should rule the entire world, people say, “Oh, that’s ludicrous,” or, “It’s impossible.”
No, it’s not ludicrous. It’s not impossible if China is the only functioning society on this planet.
We are far stronger than China. We can defend ourselves.
The Chinese unrelentingly attack us, and we do not have the political will to defend ourselves.
Let me end with one question. What are our children going to think when they realize that we had the means to protect them but chose not to do so?
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Question: You mentioned that the CCP is collecting DNA. What are they utilizing this knowledge for?
Chang: There are two things. First of all, they want to be a leader in biotechnology. We know this because biotech was one of the 10 original areas in Xi Jinping’s Made in China 2025 initiative, announced in 2015. That initiative is designed to make China both self‑sufficient and a world leader in the enumerated areas.
The second thing is, as mentioned, they want to build a biological weapons capability. They have got a dual purpose here ‑‑ to lead biotech and, second, to be able to kill everybody else on the planet.
Question: What would you tell these American businesses who are eager to open up on China?
Chang: Business is business. Business will always want to make money. It will go anywhere, do anything. We have seen this, of course, with regard to China, but we also saw it in the run‑up to World War II. IBM, for instance, was providing census‑tabulating machines so that the Third Reich could count Jews.
They were doing this even after war in Europe started with the bombing of London. We know how bad and how free of morals business can be.
This is really up to the President of the United States to use his powers under the International Emergency Economic Powers Act of 1977 or the Trading with the Enemy Act of 1917 because he can prohibit businesses from going to China. He can prohibit investment into China’s markets. He can do all of the things we need as a society to do.
I know this sounds drastic to many people, but China uses all its points of contact with the United States to undermine us. Right now, the FBI and local law enforcement are just overwhelmed by what China is doing.
We do not have the capability to keep up. Until we can get a handle on this, the president, I believe, has the constitutional responsibility to end these contacts with China, business and otherwise. Yes, it is drastic, but our republic is at stake.
We know, for instance, that China does not really believe in capitalism. People say — Bill Gates has said this a number of times — that China is more capitalist than the United States. If we look at what China has been doing with regard to Jack Ma and others, we can see that no, they are not capitalists. They want to use capitalists to further their objectives, but they are not capitalists themselves. Until we come to that fundamental understanding, we are at risk.
Question: What are your thoughts about China hosting the Winter Olympics in 2022?
Chang: The International Olympic Committee should move the games to a country not tainted with crimes against humanity and other atrocities. Plus, there’s something else the IOC must do. It must ban China’s teams from athletic competition.
If we go back to 1963, the IOC banned the teams from South Africa because a large portion of the South African population was not permitted to participate in sport. That was because of apartheid.
We have the same situation in China today where Uyghurs, Tibetans, and others are not permitted to participate in sport. The IOC, I believe, has an obligation to ban China’s teams until the regime stops committing those crimes against humanity, until others can participate in sport just as well as the majority Han athletes can.
If the IOC does not do both these things, move the games and ban China’s teams from competition, we should boycott the 2022 games. I do not like the boycott idea because this punishes athletes, but ultimately, we have to do this if the IOC doesn’t make the two moves.
Question: What is the state of play today between Iran and China, especially given that the Iran deal is apparently back on with the US?
Chang: About eight months ago, we learned Tehran and Beijing signed a 25‑year, $400 billion strategic partnership deal. That, of course, would cover business relations. Also, it is military-linked. A lot of analysts correctly say that this strategic partnership will not end up being as robust as it now appears. Nevertheless, Beijing’s support of Iran will be crucial.
Indeed, what Iran has been doing in the Middle East, especially in Lebanon, almost certainly has Beijing’s blessing, because Tehran knows China has its back—and will back it with money.
China, of course, has made sure that its nuclear weapons technology has found its way to the mullahs. It has done that a number of different ways, one of them through the A. Q. Khan black market network run by Pakistan and since rolled up by the United States. It was not rolled up before Pakistan was able to send enrichment technology to the Iranians.
Also, China has facilitated North Korea’s sale of ballistic missiles and ballistic missile technology to Iran, which gives Iran the ability to deliver nuclear weapons.
You put all that together and it shows that the relationship between Beijing and Tehran is sinister, and it will continue to grow over time because Iran, right now, needs a backer and it has found it in Beijing.
Question: We are all frightened, of course, of China’s strengths. What do you see as their weaknesses? Is it their internal oppression? What is happening in Hong Kong?
Chang: China is making great progress in imposing its system on Hong Kong. It did that with the June 30 imposition of the National Security Law, which has given Beijing the ability to do whatever it wants in the territory, including extraditing people to be prosecuted in China. As people have said, the National Security Law is the end of law in Hong Kong. That’s about right.
Beijing’s most recent initiatives, if reports are correct, will be to further restrict those people who can sit on the Election Committee, which is composed of 1,200 people who choose the chief executive, the top political officer. Beijing is also going to add, according to rumors, 20 members to the 70-seat Legislative Council.
As the war correspondent Michael Yon says, what we witnessed in Hong Kong in 2019 especially, was not a protest movement but an insurgency. Yon points out insurgencies rarely die out. They can disappear for a time. They can go into tactical retreat, but they almost always come back.
That is essentially what exists in Hong Kong right now. This is going to be a long‑term struggle. It is not going to be easy, but we need to have the President of the United States impose costs on China for what it’s doing in Hong Kong. President Trump started imposing costs but did not do enough.
I hope that Biden, who ran on a campaign of trying to help the people of Hong Kong, will do so.
With regard to the broader question of China’s weaknesses, it is really a matter of overstretch. Paul Kennedy, the Yale professor, talked about this. It is a good way, a framework, of looking at it because China does not have the money to accomplish all its objectives.
Beijing spends an enormous amount of its resources on repressing the Chinese people. The government has been moving back to totalitarian controls with its social credit system, surveillance cameras, and Great Firewall. All of this is not cheap.
Also, the Belt and Road Initiative, which is to connect the world to China, means China is putting a lot of money into infrastructure that the private sector has not wanted to build. Indeed, a number of countries are not paying back China on their loans, which is a drain, certainly, on the Chinese treasury. Yes, China ends up owning infrastructure and assets, but the cost to it is exceedingly high.
This overcommitment is also evident in China’s rapid expansion of its military, for a purpose that makes people in Asia realize the aggressiveness of China’s regime.
We can see that Beijing does not really have the resources to accomplish all these outsized ambitions.
Right now, the Chinese economy may be growing, but it did not grow at the 2.3 percent that Beijing announced for 2020. It is probably just a smidgen over zero, if it is zero. We are seeing a lot of weakness in the Chinese economy, especially in the consumption area, which is a bad sign for Beijing.
Ultimately, it is a question of how productive their economy can be. It really cannot be that productive as Xi Jinping goes back to more of a state‑dominated system, where state enterprises have a greater role in the economy. They are the least productive part of that economy. The private sector is far more important and far more productive, but it now being deemphasized.
We are approaching a point where ‑‑ this will be critical ‑‑ where Biden will have to decide whether to run to the rescue of China’s regime. We know that Nixon in 1972, George H.W. Bush in 1989, and Bill Clinton in 1999 rescued Chinese communism. I hope Biden does not do that a fourth time.
Question: How do you think China will now be acting towards Taiwan?
Chang: China is especially aggressive with its aerial maneuvers. They have been doing two things. They have been flying through Taiwan’s air defense identification zone, AZID, as mentioned.
An ADIZ includes international airspace, so China has every right to fly through it. Flying through another country’s air defense identification zone is nonetheless considered to be hostile. China’s been doing that regularly.
The other thing that China has been doing in the air is flying on Taiwan’s side of the median line. The median line runs straight down the middle of the Taiwan Strait. For decades, there has been an understanding between Beijing and Taipei that Taiwan’s planes stay to the east of that line and Beijing’s planes stay to the west.
Over the last six months or so, Beijing has been violating that commitment and has been flying on Taiwan’s side of the line.
The reason why all this is important to us is that on January 23 there was a very large incursion into Taiwan’s air defense zone by nuclear‑capable H‑6K bombers.
Those bombers then, as part of this incursion, flew a simulated attack against our Theodore Roosevelt strike group, also in the South China Sea at the time. This is extremely dangerous.
Most people believe that China is not going to invade Taiwan. I agree, with one possible exception I’ll talk about later. Generally, it is not going to invade Taiwan because it does not have the capability to do so.
All of this bluffing, however, does have consequences. China has been engaging in these hostile air maneuvers. One of these maneuvers could go wrong. A plane could hit the deck. That could create a dynamic that ends up in a conflict.
That that almost occurred on April 1st, 2001, when a Chinese fighter jet clipped our US Navy EP‑3, an unarmed reconnaissance plane.
The Bush administration avoided conflict by offering to pay China a ransom, by allowing China to strip the plane, by allowing China to keep our aviators in custody, which was, in my mind, the most disgraceful incident in recent US diplomatic history. This is a stain that George W. Bush will never be able to erase, but put that aside for a moment.
I did say there was one exception where China might actually engage in aggression against Taiwan. Some of Taiwan’s islands are only two miles off China’s coast, Kinmen and Matsu.
China could grab one of those islands and then say to the world, “What are you going to do about it?” That is a real possibility. That is what I worry about, but I do not worry about an invasion of the main island of Taiwan. So far, we have been able to deter them.
The question is whether the Biden administration will act. So far, Biden has been really good on Taiwan. He has been better on Taiwan than anything else with regard to China. At least there is a little bit of comfort here. Nonetheless, this is something that could change day by day and change in a way that leads to the next great war.
Question: What do you think, in order, are the most serious, what would be your most urgent messages to the new US administration on China?
Chang: China has done so many awful things that it is really hard to put them in order.
The most important thing that Biden needs to understand is that China’s regime is not legitimate. We have to understand the fundamental nature of China’s challenge. Last year, China engaged in a series of acts of war against the US.
They were actively trying to foment violence on American streets, which is more than just subversion. They fomented violence this year in connection with the Capital Hill riots of January 6th. Both before and after that, they were openly urging Americans to engage in acts of insurrection.
I do not see how you can have a dialogue with a country like that. The first indication is that the Biden team — and they have talked about this in public — they say, “We will impose costs on China for those things which are unacceptable, we will criticize them on others, and we will cooperate where there are common interests.”
I don’t think we can do that because I do not see that we have common interests with a country that’s trying to overthrow our government. My message is understand the fundamental nature, the hostility, and the maliciousness of China, and remember one other thing.
That is, China deliberately released the disease that has killed more than 500,000 Americans. That alone means there can be no cooperation with China.
Question: If indeed China is working with Iran, how do we warn Israel where every second biotech company start‑up looks to a China exit?
Chang: This is a broader question of US relations with Jerusalem. So far, American presidents have been pretty tolerant of Israeli links with China. I generally believe that the United States ‑‑ and this is not just Israel ‑‑ we need to say this to France, to Germany, to everybody else, that this is a zero‑sum game.
You either work with the US or we do not consider you to be our friend. I think Israel would choose the right side. I’m not so sure about some of the other countries I mentioned. The point is this is something American presidents have not communicated to our friends, allies, and partners, how we feel about China.
I say we should no longer support China’s Communist regime. We consider it to be an enemy, and we will act to protect ourselves in an appropriate fashion. Remember, in May 2019 People’s Daily ran a piece that declared a “people’s war” on the US. That is all Biden needs to know.
Question: “What do they want all that DNA for?”
Chang: The more DNA you have, the better you will be able to develop, for instance, biotechnology products. The more DNA you have, the easier it will be to figure out how to create the next penicillin or whatever. The more DNA you have, the better you are able and the faster you are able to come out with drugs. Then, of course, there is their biological weapons program: the more DNA they have, the better they can figure out how to create a pathogen that attacks us and leaves them alone. The more you have, the more you can do.
Question: You mentioned that China saying that the US was not a legitimate state. Could you amplify on that a little bit more?
Chang: China is committing atrocities. Forget about what it is doing to its own people, the Han. It is committing atrocities in what it calls Xinjiang, what it considers to be the northwest part of its country and what the Uyghurs, Kazakhs, and others consider to be East Turkestan, conquered by Mao in 1950.
China’s regime has not only been running concentration camps where they have held somewhere between 1.1 and 3.3 million Uyghurs, Kazakhs, and others, but it has also institutionalized slavery, offering labor to both domestic and foreign companies, — and not just in Xinjiang, but across China, as Uyghurs are being transported in cattle cars to provide labor in factories that look like concentration camps.
The regime has institutionalized rape, with Han Chinese officials in Uyghur homes, where the male has been sent off to a concentration camp. This is the BBC story of about a few weeks ago, plus other reporting, which is absolutely horrific. Rape is used as a policy of the government to subdue the Uyghurs.
There has been the violation of Uyghur girls, minors. There has been forced organ harvesting, in all probability. That is the tribunal led by Geoffrey Nice in London. They have put children into basically jails. Because the parents get sent off to “re-education” camps, the children are put into “orphanages” that look like prisons. The list goes on and on.
We know the Uyghurs, Kazakhs, and others are dying in these facilities. The only thing that separates the People’s Republic of China from the Third Reich is that China has not gone to mass exterminations — yet.
Its acts meet the definition of “genocide” in the Genocide Convention of 1948. If Biden needs another message, this is not just a policy choice for him. We are a party to that Genocide Convention, which requires signatories to “prevent and punish” acts of genocide.
Yes, China is committing genocide. Secretary of State Pompeo issued that formal determination on January 19th of this year. Candidate Biden, during the campaign in August of last year, said the Chinese were committing genocide. Secretary of State Antony Blinken, during his confirmation hearings, said China was committing genocide. China’s regime is committing genocide. We have an obligation to do something about it.
Question: It appears we are dealing — or not dealing with — a Chinese Communist Party that is promoting “a superior race” and “a superior government,” which has, as you say, horrible echoes of the 1930s. How would you suggest the Biden administration deal with it?
Chang: I would force every US company off Chinese soil. I’d force every Chinese company in the US, every Chinese bank, to leave. I would close every Chinese consulate. There are four remaining consulates. I would strip the embassy staff in Washington down to the ambassador, his family, his secretary, and maybe a few personal guards.
I would close all the Confucius Institutes on our college campuses. I would toss out every Confucius Classroom in our secondary schools. [Editor’s note: China is rebranding Confucius Institutes “to avoid scrutiny.”]
The list goes on. I would cut all these contacts with China. As mentioned, they are overwhelming us right now. We cannot deal with it. Until we can deal with it, as a practical matter, we need to cut these contacts.
China is committing atrocities. We should have nothing to do with it. It’s not a legitimate state. It’s a danger to humanity. China is a threat to humanity.
We have got to recognize the threat. We have got to defend our society. We have an obligation, if not to ourselves, to our children.
Question: Another important question: Does the popular DNA testing company 23andMe, where you send in a sample of your DNA for information on your ancestry, have any connection to China?
Chang: This is really murky, but China has tried to compromise 23andMe, to get a bigger ownership interest in it. I believe, but I am not positive, that some of the 23andMe sequencing is done by Chinese‑linked companies. There is that link there.
The 23andMe chief executive mentioned recently about China’s attempts to take over her company, and that she successfully resisted.
Question: A final question. Xi has said that he wants all tariffs lifted to repair the relations with the US. What would you advise the US do?
Chang: I would increase those additional tariffs, which are at 10% or 25% percent, to 1000% or 5000%. I would prevent China from selling stuff to us. Even if you put aside all the things we talked about, just if you look at this as a trade matter, those Section 301 tariffs were put in place to stop China’s theft of US intellectual property.
Whatever figure you take, whether it is $125 billion at the low end or $600 billion at the high end, China is stealing our intellectual property. Obviously, what we have been doing so far has not been sufficient to stop them. We cannot do what China wants.
Wang Yi, the foreign minister, a couple weeks ago ‑‑ and this is a continuation of things that Chinese officials have said for several months – he is saying, “Look, you have to get rid of the tariffs, you have got to do X, you have got to do Y, and you have got to Z in order to create a favorable relationship.” In other words, we have to make a lot of unilateral concessions and then China will think about reciprocating.
Of course, they never will reciprocate. My sense is if you look at this as just a tariff matter, our tariffs should go to the sky. In other words, no trade until China stops stealing our tech and know-how and IP. When China stops stealing, then we can talk about reducing tariffs.
You have asked, “What should Biden do?” One of the things Secretary Pompeo said that really unnerved the Chinese was talking about in‑person diplomacy, talking to the Chinese people directly.
He also mentioned this at his Nixon Center speech in July of last year. Biden needs to do the same thing. Not every solution is military. As a matter of fact, our solutions with China are not military. They really start with talking to the Chinese people.
Tyler Durden
Sun, 03/21/2021 – 23:30 -
- War Futurologist Sums Up Combat Robots Will Dominate Modern Battlefield
War Futurologist Sums Up Combat Robots Will Dominate Modern Battlefield
We’ve always questioned what wars in the future would be like. To answer that mystery is Yevgeny Kuznetsov, a member of the Presidium of the Council on Foreign Defense Policy, head of Singularity University in Moscow, who told Russian state-owned newspaper RIA Novosti that high-quality combat robotics will dominate the modern battlefield.
Already, conflicts over trade, technology, and capital markets continue to worsen between the US and China, the world’s global superpowers. Meanwhile, rising geopolitical tensions between the US and Russia continue to surge under the Biden administration.
While the US, China, and Russia, along with other countries, race to modernize their forces with robotics, artificial intelligence, stealth fighters, new main battle tanks, upgraded infantry weapons, and, of course, how could we forget, hypersonic weapons, it appears the US is destined for war.
Kuznetsov, also a futurologist, explains while combat robots were only for wealthy countries, technological costs have dramatically dropped, allowing developed countries to obtain advanced weaponry. He said the side with the most advanced robots has a higher probability of winning future battles.
“Previously, robots in the army were the lot of wealthy countries such as the United States. Now Turkey and Israel have broken through the barrier and are making aircraft drones a mass product, which, as we have seen from the example of Azerbaijan, make a significant contribution to the outcome of hostilities. War is turning into a competition of economies: whoever has assembled more and better robots is more successful in solving problems on the battlefield, “Kuznetsov said.
He said the massive integration of unmanned aerial vehicles, sea and ground vehicles “will change the centuries-old perception of the state as a community of people, of which the more, the better since these are both working hands and potential soldiers. Robots break this scheme because they replace people in the workplace and in the army. The model of a state that is strong not by people, but by robots – we are simply not ready for that.”
Research analyst with the Center for Naval Analyses’ International Affairs Group, Samuel Bendett, sums up Kuznetsov’s interview with RIA:
“Future wars are not just going to be battles between robots, but contest between advanced economies capable of manufacturing such robotics in large numbers.”
From the cold war to the trade war to the tech war, the US, China, Russia, and many other countries, are increasing military budgets to procure enough combat robots that would hopefully increase their odds at winning future wars.
Tyler Durden
Sun, 03/21/2021 – 23:00 - Diversity Or The Bigotry Of Low Expectations
Diversity Or The Bigotry Of Low Expectations
Authored by Jayant Bhandari via Acting-Man.com,
Value Traps and Economic Ignorance
A financial analyst is often, or at least should be, more of a psychologist than a financial expert. There are companies that I knew fifteen years ago that had inherent value a multiple of what their stocks were trading at. Today, there continues to be similar upside, except that upside targets and share prices are lower. What went wrong?
A problem reaches the far North faster than climate change can melt all the ice. [PT]
Such companies are often value-traps. A financially astute person might invest in them, hoping that eventually, the market will recognize the value. Unfortunately, some managements do not understand the concept of value-creation or are unfocused, innumerate, or crooked. One must learn early that even in the private sector, top leadership positions do not necessarily end up in the hands of the most competent people.
I mostly analyze mining companies. An example of a value-trap is a Hong Kong-listed entity, G-Resources, which was a mining company in the past. Today, it has most of its value is in treasuries and cash, worth US$1,500 million. Its market capitalization (at a HK$0.05 share price) is, however, a mere US$200 million. I don’t see any hope of it ever going up to match its inherent value.
An analyst must screen out the bad apples as quickly as possible. I want to address some areas in which companies actively destroy value.
Many mining companies, whose focus should be geology and mining engineering, spend too much time worrying about the commodity market. The commodity business is a specialization in its own right, and there is a reason why commodities are called “commodities”: It is hard — perhaps impossible — to project their future prices.
When mining companies project a future of scarcity, they show a lack of understanding of economics: About the elasticity of demand and supply and how futures and options markets take care of shortages through a complex web of hedging by suppliers and users. The extent to which a specific commodity can rise in price is limited, because at some point substitution kicks in.
A typical, but hugely erroneous graph provided by many companies.
Holier than Thou with ESG
Over the last couple of years, many companies have implemented ESG programs. And EDI, a recent advent, has gone into hyper-drive. Of course, only the acronyms are quoted, for every “woke” person should know what they mean. ESG stands for Environment, Social, and Government.
No one cares to explain how ESG is different from the need to follow legitimate laws. It has become a checklist, devoid of the spirit of ethical conduct, a way to earn brownie points by acting holier than thou.
From a recent presentation of Franco-Nevada – this is something now common across businesses, and is not meant to criticize it specifically.
ESG policies have institutionalized corruption, with NGOs, which should be working for the welfare of locals, taking fat checks from companies. ESG has encouraged locals to become whiners and has created space for crooked local leaders to emerge, with NGOs as mediators. ESG has become a vicious cycle of entitlements, grievances, corruption and dependence.
It is not the job of mining companies to do social work, for which they are not trained, skilled or competent. What they do is for marketing, propaganda, and virtue-signaling purposes, forcing their leadership to be hypocritical and spread such conduct downstream. Naïve investors, distant from on-the-ground realities, ultimately support this trend.
When conducting on-site visits, we analysts used to discuss the propaganda related to ESG. As time has gone by, we are talking less and less about this, for such discussion has come to be seen as politically incorrect. The new generation of analysts, people who have been brought up in the “woke” culture, cannot even see the game being played.
Condescension via EDI
EDI stands for Equality, Diversity, and Inclusion and is gaining momentum very rapidly. In a recent panel discussion I took part in, analysts were grilling mining companies. The first question a $8 million company faced was from a colored female who wanted to know why their board of directors lacked diversity.
Small companies simply do not have patience or the necessary leeway to get into virtue-signaling, although the damage that EDI causes to big companies is no less, even if it is hidden.
Since the time Justin Trudeau became the Prime Minister of Canada, it has become elitist to have top leadership reflecting society’s demographics.
Why should “minorities” and women be dependent on a specific section of society, which of course, are males of European ethnicity? By implication EDI constitutes evidence that people of color, women, and LGBTQs cannot stand on their own feet and rise in life through their merit. And if this is true, why not accept it?
EDI is the bigotry of low expectations, much worse than on-the-face racism, where you know at least what the bigotry is about. EDI is extraordinarily condescending toward the so-called under-privileged groups. I find it repulsive if someone thinks I should get an extra push because of my skin color. I wonder why more women, people of color, and LGBTQs are not riswing up against the condescending approach, racism, and sexism inherent in EDI.
In India, where affirmative policy has a long history, I have no choice but to question how competent someone from the lower caste would be in a position of authority. Would I go to doctor from the lower caste? But similar thinking has to start in the West as EDI continues and grows. Suffering the most will be the competent people among the beneficiaries of EDI.
The true believers make the hollow concepts of ESG and EDI sound like the end of history.
When I see too much of ESG/EDI in a company’s presentation, I move on without wasting any more of my time.
The path of political correctness and virtue-signaling that the West has undertaken always reminds me of South Africa, which at one point in time had First World infrastructure.
During my first visit to a company in Johannesburg more than a decade ago, I thought I had come to a car-show—the parking lot had some of the most expensive cars in the world. Black Economic Empowerment, their EDI, had enabled blacks to rise in the leadership hierarchy without any need for merit. As time has gone by, South Africa’s infrastructure has fallen apart. Power outages, lack of water supply, crime, potholes on the road, and a general lack of law and order have worsened continuously.
The Boeing 737 Max airplane suffered two fatal accidents. To what extent were the accidents attributable to design work had been done in low-cost, low work-ethic jurisdictions? Did those in leadership positions discuss the possibility of such risks, or was this deemed too politically incorrect?
To what extent were forest fires in California or the recent power outages in Texas a result of EDI, where people have been elevated to positions of authority despite a lack of competence? We will never know the specifics, for people in the West no longer say anything that might be seen as bigoted. Those who dare say something get booted out.
Errors accumulate with no one to challenge them. The ESG/EDI concepts pursued in the West are essentially copying the South African model of social change, which is anti-meritocratic and will destroy institutions and civilization.
Tyler Durden
Sun, 03/21/2021 – 22:30 - Americans Are Losing Billions Due To Internet Crime
Americans Are Losing Billions Due To Internet Crime
The FBI’s Internet Crime Complaint Center (IC3) has released its 2020 Internet Crime Report which found that 2020 was a record year for both victims of internet crime and dollar losses in the United States.
791,790 complaints were logged by IC3 in the last calendar year with total losses amounting to $4.2 billion. Statista’s Niall McCarthy notes that the most frequent internet crimes recorded in 2020 were phishing, non-payment/non-delivery scams and extortion. Business Email Compromise schemes were the costliest internet crimes last year with adjusted losses of $1.8 billion.
You will find more infographics at Statista
2020 was notable for the emergence of schemes exploiting the Covid-19 pandemic with both individuals and businesses targeted. Some 28,500 complaints were received relating to Covid-19 scams with most of them aimed at the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). They mainly involved grant fraud, loan fraud, and phishing for Personally Identifiable Information. In many cases, victims did not realize they had been targeted until they attempted to file their own legitimate claims for unemployment insurance benefits.
Another growing problem throughout the pandemic has been criminals impersonating government representatives over the phone, via email and through social media. Through charades and threats, they managed to gain both money and personal information. Scams have also emerged as the pace of vaccinations accelerated where people have been asked to pay for jabs out of pocket or to provide personal information in exchange for appointments.
Tyler Durden
Sun, 03/21/2021 – 22:00 - Headed For A Collapsing Debt Bubble
Headed For A Collapsing Debt Bubble
Authored by Gail Tverberg via Our Finite World blog,
A $1.9 trillion stimulus package was recently signed into law in the United States. Can such a stimulus bill, plus packages passed in other countries, really pull the world economy out of the downturn it has been in 2020? I don’t think so.
The economy runs on energy, far more than it operates on growing debt. Our energy problems don’t appear to be fixable in the near term, such as six months or a year. Instead, the economy seems to be headed for a collapse of its debt bubble. Eventually, we may see a reset of the world financial system leading to fewer interchangeable currencies, far less international trade and falling production of goods and services. Some governments may collapse.
[1] What Is Debt?
I understand debt to be an indirect promise for future goods and services. These future goods and services can only be created if there are adequate supplies of the right kinds of energy and other materials, in the right places, to make these future goods and services.
I think of debt as being a time-shifting device. Indirectly, it is a promise that the economy will be able to provide as many, or more, goods and services in the future compared to what it does at the time the loan is taken out.
Common sense suggests that it is much easier to repay debt with interest in a growing economy than in a shrinking economy. Carmen Reinhart and Ken Rogoff unexpectedly ran across this phenomenon in their 2008 working paper, This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises. They reported (p. 15), “It is notable that the non-defaulters, by and large, are all hugely successful growth stories.” In other words, their analysis of 800 years of governmental debt showed that default was almost inevitable if a country stopped growing or started shrinking.
The IMF estimates that the world economy shrank by 3.5% in 2020. There are many areas with even worse indications: Euro Area, -7.2%; United Kingdom, -10.0%; India, -8.0%; Mexico, -8.5%; and South Africa, -7.5%. If these situations cannot be turned around quickly, we should expect to see collapsing debt bubbles. Even the US, which shrank by 3.4%, needs a rapid return to growth if it is to keep its debt bubble inflated.
[2] The Inter-Relationship Among (a) Growing Debt, (b) Growing Energy Consumption and a (c) Growing Economy
When we are far from energy limits, growing debt seems to pull the economy along. This is a graphic I put together in 2018, explaining the situation. A small amount of debt is helpful to the system. But, if there gets to be too much debt, both oil prices and interest rates rise, bringing the braking system into action. The bicycle/economy rapidly slows.
Figure 1. The author’s view of the analogy of a speeding upright bicycle and a speeding economy.
Just as a two-wheeled bicycle needs to be going fast enough to stay upright, the economy needs to be growing rapidly enough for debt to do what it is intended to do. It takes energy supply to create the goods and services that the economy depends on.
If oil and other energy products are cheap to produce, their benefit will be widely available. Employers will be able to add more efficient machines, such as bigger tractors. These more efficient machines will act to leverage the human labor of the workers. The economy can grow rapidly, without the use of much debt. Figure 2 shows that the world oil price was $20 per barrel in 2020$, or even less, prior to 1974.
Figure 2. Oil price in 2020 dollars, based on amounts through 2019 in 2019$ from BP’s 2020 Statistical Review of World Energy, the inflationary adjustment from 2019 to 2020 based on CPI Urban prices from the US Department of Labor and the average spot Brent oil price for 2020 based on EIA information.
Figure 3 below shows the historical relationship between the growth in US energy consumption (red line) and the dollar increase in US debt growth required to add a dollar increase in GDP (blue line). This chart calculates ratios for five-year periods because ratios for individual years are unstable.
Figure 3. Comparison of five-year average growth in US energy consumption based on EIA data with five-year average amount of added debt required to add $1 of GDP.
Based on Figure 3, the US average annual growth in energy consumption (red line) generally fell between 1951 and 2020. The quantity of debt that needed to be added to create an additional $1 dollar of GDP (blue line) has generally been rising.
According to Investopedia, Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. Notice that there is no mention of debt in this definition. If businesses or governments can find a way to make large amounts of credit available to borrowers who are not very credit worthy, it becomes easy to sell cars, motorcycles or homes to buyers who may never repay that debt. If the economy hits turbulence, these marginal buyers are likely to default, causing a collapse in a debt bubble.
[3] Analyzing Energy Consumption Growth, Debt Growth and Economic Growth for Broader Groupings of Years
To get a better idea what is happening with respect to energy growth, debt growth, and GDP growth, I created some broader groupings of years, based primarily on patterns in Figure 2, showing inflation-adjusted oil prices. The following groupings of years were chosen:
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1950-1973
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1974-1980
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1981-2000
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2001-2014
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2015-2020
Using these groupings of years, I put together charts in which it is easier to see trends.
Figure 4. Average annual increase in energy consumption for period shown based on EIA data versus average increase in real (inflation-adjusted) GDP for the period shown based on data of the US Bureau of Economic Analysis.
Figure 4 shows that for the US, there has been a general downward trend in the annual growth of energy consumption. At same time, real (that is, inflation-adjusted) GDP has been trending downward, but not quite as quickly.
We would expect that lower energy consumption would lead to lower growth in real GDP because it takes energy of the appropriate kinds to make goods and services. For example, it takes oil to ship most goods. It takes electricity to operate computers and keep the lights on. According to the World Coal Association, large quantities of coal are used in producing cement and steel. These are important for construction, such as is planned in stimulus projects around the world.
Also, on Figure 4, the period 1981 to 2000 shows an uptick in both energy consumption growth and real GDP growth. This period corresponds to a period of relatively low oil prices (Figure 2). With lower oil prices, businesses found it affordable to add new devices to leverage human labor, making workers more productive. The growing productivity of workers is at least part of what led to the increased growth in real GDP.
Figure 5. Dollars of additional debt required to add $1 dollar of GDP growth (including inflation), based on data of the US Bureau of Economic Analysis.
Figure 5, above, is disturbing. It strongly suggests that the US economy (and probably a lot of other economies) has needed to add an increasing amount of debt to add $1 of GDP in recent years. This pattern started long before President Biden’s $1.9 trillion stimulus package in 2021.
To make matters worse, GDP growth in Figure 5 has not been reduced to remove the impact of inflation. On average, removing the impact of inflation reduces the above GDP growth by about half. In the period 2015 to 2020, it took about $4.35 of additional debt to add one dollar of GDP growth, including inflation. It would take about double that amount, or $8.70 worth of debt, to create $1.00 worth of inflation-adjusted growth. With such a low return on added debt, it seems unlikely that the $1.9 trillion stimulus package will increase the growth of the economy very much.
[4] Falling interest rates (Figure 6) are a major part of what allowed the rapid growth in debt after 1981 shown in Figure 5.
Figure 6. 10-Year and 3-Month US Treasury Rates through February 2021, in a chart prepared by the Federal Reserve of St. Louis.
Clearly, debt is more affordable if the interest rate is lower. For example, auto loans and home mortgages have lower monthly payments if the interest rate is lower. It is also clear that governments need to spend less of their tax revenue on interest rate payments if interest rates are lower. Changes made by US President Ronald Reagan when he took office 1981 also encouraged the use of more debt.
A major concern with respect to today’s debt bubble is the fact that interest rates are about as low as they can go without going negative. In fact, the interest rate on 10-year Treasury bonds is now 1.72%, which is higher than the February 2021 average rate shown on the chart. As interest rates rise, it becomes more costly to add more debt. As interest rates rise, businesses will be less likely to take on debt in order to expand and hire more workers.
[5] Interest expense is a major expense of governments, businesses, and homeowners everywhere. Energy costs are another major expense of governments, businesses, and homeowners. It makes sense that falling interest rates can partly hide rising energy prices.
A trend toward lower interest rates was needed starting in 1981 because the US could no longer produce large amounts of crude oil that were profitable to sell at less than $20 per barrel, in inflation-adjusted prices. Lower interest rates made adding debt more feasible. This added debt could smooth the transition to an economy that was less dependent on oil, now that it was high-priced. The lower interest rates helped all segments of the economy adjust to the new higher cost of oil and other fuels.
[6] The US experience shows precisely how helpful having a rapidly growing supply of inexpensive to produce oil could be to an economy.
US oil production, excluding Alaska (blue “remainder” in Figure 7), rose rapidly after 1945 but began to decline not long after hitting a peak in 1970. This growing oil production had temporarily provided a huge boost to the US economy.
Figure 7. US crude oil production, based on data of the US Energy Information Administration.
Up until almost 1970, US oil production was rising rapidly. Figure 8 shows that during this period, incomes of both the bottom 90% of workers and the top 10% of workers increased rapidly. Over a period of about 20 years, incomes for both groups grew by about 80%, after adjusting for inflation. On average, workers were about 4% better off each year, with the rapid growth in very inexpensive-to-produce oil, all of which stayed in the US (rather than being exported). US imports of inexpensive-to-produce oil also grew during this period.
Once oil prices were higher, income growth for both the lower 90% and the top 10% slowed. With the changes made starting in 1981, wage disparities quickly started to grow. There suddenly became a need for new, high-tech approaches that used less oil. But these changes were more helpful to the managers and highly educated workers than the bottom 90% of workers.
Figure 8. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis of IRS data, published in Forbes.
[7] Most of the world’s cheap-to-extract oil sources have now been exhausted. Our problem is that the world market cannot get prices to rise high enough for producers to cover all of their expenses, including taxes.
Based on my analysis, the world price of oil would need to be at least $120 per barrel to cover all of the costs it needs to cover. The costs that need to be covered include more items than an oil company would normally include in its costs estimates. The company needs to develop new fields to compensate for the ones that are being exhausted. It needs to pay interest on its debt. It also needs to pay dividends to its shareholders. In the case of shale producers, the price needs to be high enough that production outside of “sweet spots” can be carried on profitably.
For oil exporters, it is especially important that the sales price be high enough so that the government of the oil exporting country can collect adequate tax revenue. Otherwise, the exporting country will not be able to maintain food subsidy programs that the population depends on and public works programs that provide jobs.
[8] The world can add more debt, but it is difficult to see how the debt bubble that is created will really pull the world economy forward rapidly enough to keep the debt bubble from collapsing in the next year or two.
Many models are based on the assumption that the economy can easily go back to the growth rate it had, prior to COVID-19. There are several reasons why this seems unlikely:
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Many parts of the world economy weren’t really growing very rapidly prior to the pandemic. For example, shopping malls were doing poorly. Many airlines were in financial difficulty. Private passenger auto sales in China reached a peak in 2017 and have declined every year since.
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At the low oil prices prior to the pandemic, many oil producers (including the US) would need to reduce their production. The 2019 peak in shale production (shown in Figure 7) may prove to be the peak in US oil production because of low prices.
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Once people became accustomed to working from home, many of them really do not want to go back to a long commute.
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It is not clear that the pandemic is really going away, now that we have kept it around this long. New mutations keep appearing. Vaccines aren’t 100% effective.
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As I showed in Figure 5, adding more debt seems to be a very inefficient way of digging the economy out of a hole. What is really needed is a growing supply of oil that can be produced and sold profitably for less than $20 per barrel. Other types of energy need to be similarly inexpensive.
I should note that intermittent wind and solar energy is not an adequate substitute for oil. It is not even an adequate substitute for “dispatchable” electricity production. It is simply an energy product that has been sufficiently subsidized that it can often make money for its producers. It also sounds good, if it is referred to as “clean energy.” Unfortunately, its true value is lower than its cost of production.
[9] What’s Ahead?
I expect that oil prices will rise a bit, but not enough to raise prices to the level producers require. Interest rates will continue to rise as governments around the world attempt more stimulus. With these higher interest rates and higher oil prices, businesses will do less and less well. This will slow the economy enough that debt defaults become a major problem. Within a few months to a year, the worldwide debt bubble will start to collapse, bringing oil prices down by more than 50%. Stock market prices and prices of buildings of all kinds will fall in inflation-adjusted dollars. Many bonds will prove to be worthless. There will be problems with empty shelves in stores and gasoline stations with no products to sell.
People will start to see that while debt is a promise for the equivalent of future goods and services, it is not necessarily the case that those who make the promises will be able to stand behind these promises. Paper wealth generally can be expected to lose its value.
I can imagine a situation, not too many years from now, when countries everywhere will establish new currencies that are not as easily interchangeable with other currencies as today’s currencies are. International trade will dramatically fall. The standard of living of most people will fall precipitously.
I doubt that the new currencies will be electronic currencies. Keeping the electricity on is a difficult task in economies that increasingly need to rely solely on local resources. Electricity may be out for months at a time after an equipment failure or a storm. Having a currency that depends on electricity alone would be a poor idea.
Tyler Durden
Sun, 03/21/2021 – 21:30 -
- Goldman's Clients Are Starting To Sweat The Coming Tax Hikes
Goldman’s Clients Are Starting To Sweat The Coming Tax Hikes
One week after Goldman’s clients were focused on capital markets, asking the bank’s chief equity strategist David Kostin if there were any cheap stocks left in a time of sudden bursts of volatility and not so sudden spikes in yields, in the past week they have voiced somewhat more pragmatic concerns, and while they “remain anxiously focused on interest rates and inflation as core PCE rises above 2%” in his latest Weekly Kickstart Kostin writes that “a looming macro issue is the next round of fiscal legislation, which will include corporate and personal tax hikes.“
In other words, having priced in all the good news from Biden’s mega stimulus, investors are finally starting to realize that all those trillions in spending will lead to (much) higher taxes.
Here, as usual, Goldman tries to downplay the potential hit, writing that while “full implementation of candidate Biden’s tax plan would reduce S&P 500 EPS by 9%…. the eventual impact will depend on the specifics” and Goldman’s current 2022 EPS estimate assumes just a 3% drag from taxes.
Some more details.
One week after seemingly putting to rest fears that everything is massively overvalued – spoiler alert, it is…
… Kostin writes that a looming macro focus for investors is the next round of fiscal legislation:
The final $1.8 trillion American Rescue Plan ended up close to the $1.9 trillion size of President Biden’s original proposal. Although details of the administration’s next fiscal plan have not yet been released, our economists currently expect a package that will include at least $2 trillion in infrastructure spending and could reach $4 trillion if it also funds health care, education, and child care initiatives.
The problem is that while the US could and probably should just issue a few more trillion in debt to fund the whole thing, Goldman notes that the next package will be paid for in part by higher tax rates, including on corporate earnings. Sure enough, the tax plan proposed by President Biden in his election campaign would raise the statutory corporate tax rate on domestic income from 21% to 28%, partially reversing the cut from a rate of 35% passed in the Trump tax cuts. The plan would also raise the tax rate on foreign income (also called the “GILTI” tax) and institute a minimum corporate tax rate.
All of this will hit the corporate bottom line: Goldman estimates the Biden tax plan would reduce 2022 S&P 500 EPS by about 9%, however, the bank’s economists believe Congress will pass a smaller increase: its current $197 EPS estimate assumes the statutory rate rises to 25%, representing a 3% drag on earnings. That said, Kostin concedes that “a hike to a rate above 25% or the passage of other proposals like the GILTI tax hike would represent downside risk to our estimate.” Alternatively, hikes implemented with a phase-in period could spread the earnings hit across multiple years, but as usual investors will price the full impact as soon as it becomes clear.
How to trade this
Kostin notes that the relative winners and losers of the next fiscal package will depend on the specific provisions. For example, traditional infrastructure investment would benefit industrial and construction materials companies, while green investment would expand the winners to include renewable energy companies. With regard to corporate tax reform, increases to the domestic statutory rate would primarily affect companies with high domestic business exposure and effective rates close to the statutory rate, which were the primary beneficiaries of the 2017 tax cuts. In sector terms, this includes Financials, Industrials, and Consumer firms. In contrast, proposals like a minimum tax rate on foreign earnings pose the greatest risk to low-tax “growth” sectors like Info Tech and Health Care and would have a much smaller impact on domestic-facing sectors
In addition to corporate rate hikes, Goldman economists note that higher capital gains taxes to be a key part of the next fiscal package. They predict the capital gains tax rate for top earners will be increased from 20%, although not all the way to the ordinary income rate as proposed by President Biden. And in a potentially ominous outcome for a market that is already redlining on steroids, Kostin warns that “past capital gains tax hikes have corresponded with reduced equity allocations, lower equity prices, and Momentum reversals. The good news is that all of those patterns were short-lived and reversed following the hikes, and Goldman expects that “any selling triggered by capital gains hikes late in 2021 would be similarly short-lived.”
What about timing
Goldman economists expect the White House will begin to outline its proposal in April and that legislation will eventually be passed around September.President Biden is scheduled to address Congress next month, when he will likely discuss his plan. Legislation should then be written in May and June, with passage likely ahead of the expiration of the five-year federal highway bill at the end of September. While parts of the infrastructure plan may be passed with bipartisan support, that the majority of the package will eventually pass through reconciliation and rely only on Democratic votes. Ultimately, Goldman’s EPS forecasts assume tax policy changes go into effect starting in 2022, so no retroactive adjustments to 2021.
And while investors are becoming concerned about taxes in general, Goldman points out that even as equities are pricing in optimism around infrastructure spending, they should little concern about tax hikes.
A Goldman Infrastructure basket (GSXUINFS) that primarily consists of Construction Materials, Machinery, and Construction & Engineering firms has returned 27% since the Georgia Senate runoff races in January, outperforming the Materials sector by 18% and the Industrials sector by 14%.
This matches or exceeds the basket’s other periods of outperformance following President Trump’s 2016 election and various infrastructure proposals during his term. Meanwhile, a basket of Renewable Energy stocks has declined by 3% this year but gained 156% last year and has been particularly vulnerable to rising rates in recent weeks. In contrast, after trading closely with prediction market odds during the months ahead of the general election in November 2020, a pair of tax baskets containing the biggest winners and losers from the 2017 tax cuts has reversed and now appears to be pricing little risk of higher tax rates. Finally, screens of stocks facing potential risk from proposals like the GILTI tax hike have broadly performed in line with industry peers in recent months
That said, Kostin does not rush into specific recos, conceding that a dearth of details makes it hard to model and trade on the potential earnings impact of legislation that hasn’t yet been outlined. Indeed, reform focused on a higher statutory domestic tax rate would have very different implications than a plan focused on a minimum tax. Curiously, Goldman notes that many investors still remain very skeptical that Democrats will hike taxes given the ongoing economic recovery and the recent policy focus on fiscal expansion. Amusingly, Kostin then implicitly suggests that Republicans are likely to retake control of Congress next year: “A repeated pattern of corporate tax reversals each time political control of Washington, D.C., changes hands should also reduce the degree to which investors price the long-term earnings impact of each new tax legislation.
So between the lack of details and the political practicalities of any tax hike, Goldman concludes that “the market’s current focus on other macro issues like interest rates also makes it hard to justify trading on uncertain potential future tax hikes.”
Tyler Durden
Sun, 03/21/2021 – 21:00 - Trump Returning To Social Media With "His Own Platform" In Several Months: Adviser
Trump Returning To Social Media With “His Own Platform” In Several Months: Adviser
Authored by Jack Phillips via The Epoch Times,
Former President Donald Trump will set up his own social media platform and will return to posting online in two to three months, said his adviser and spokesman, Jason Miller, in a new interview.
For years, Trump favored Twitter and had amassed nearly 90 million followers before the social media platform suspended him in January. Facebook, YouTube, Twitch, Snapchat, and others also moved to suspend the former president—and at the same time, Trump hasn’t indicated that he would use other social media websites favored by conservatives such as Gab, MeWe, or Parler.
Miller told Fox News on Sunday he expects Trump will “[return] to social media in two or three months” with “his own platform” that will “completely redefine the game” and attract “tens of millions” of users.
https://video.foxnews.com/v/embed.js?id=6242421322001&w=466&h=263Watch the latest video at foxnews.com
Miller, who is Trump’s most prominent spokesman, did not elaborate on details or a possible name for the social media venture.
Since Twitter suspended his account, the former president has instead opted to release press statements via advisers and email. For the most part, he has released statements endorsing his favored political candidates for the 2022 midterm elections.
Also in the interview, Miller said that Trump still holds a considerable amount of sway in the Republican Party.
“He’s already had over 20 senators, over 50 members of Congress call … or make the pilgrimage to Mar-a-Lago,” he said. “Pay attention to Georgia on Monday,” as there is a “big endorsement coming.”
In an interview last month, Trump said he is “negotiating with a number of people, and there’s also the other option of building your own [social media] site.” He added, “Because we have more people than anybody. I mean you can literally build your own site.”
“I really wanted to be somewhat quiet. They wanted me very much on Parler, you know they had a phony report that the man who was in there didn’t—I mean just the opposite, they really wanted me on Parler,” Trump continued.
The former commander-in-chief speculated that Parler would not be able to handle the amount of traffic he would bring to the website. “Mechanically, they can’t handle” the number of users, Trump noted in the interview.
The former president provided a lengthy interview last week, saying that he’s not sure whether he will run for president again in 2024.
“First thing is for us, we have to see what we could do with the House,” Trump said. “I think we have a very good chance at taking back the House. We were going to lose 15-25 seats the last time, [until] I got involved. I worked very hard.”
Tyler Durden
Sun, 03/21/2021 – 20:35 - Owned: A Tale of Two Americas
Owned: A Tale of Two Americas
If you’ve been searching for a documentary that breaks down the housing market historically – well, we might have found one on Amazon Prime Video titled “Owned: A Tale of Two Americas.”
The 83-minute documentary unearths the complex and often troubling history of house policies in the US in a post–World War II era. It covers a lot of ground, such as the federal government’s housing policies that have, for decades, contribute to current racial/wealthy inequalities.
This is a bold attempt to address racial, cultural, socio-economic factors in one way to describe today’s record wealth inequalities.
Here’s a synopsis of the documentary:
The United States’ postwar housing policy created the world’s largest middle class. It also set America on two divergent paths — one of imagined wealth, propped up by speculation and endless booms-and-busts, and the other in systematically defunded, segregated communities, where the American dream feels hopelessly out of reach.
Some ten years after the last housing collapse and well into a perceived upswing, the election of Donald Trump and urban uprisings in places like Baltimore suggest that there’s a far more fundamental problem with housing policy in America. And we haven’t even begun to recover.
Owned is a incisive look into the dark history behind the US housing economy. Tracking its overtly racist beginnings to its unbridled commoditization, the doc exposes a foundational story few Americans understand as their own
“Home ownership to me means freedom—strictly. The more and more I evaluate this world, the more and more I understand: when you don’t own anything, you are nothing.” That’s how Greg Butler, a young black house flipper, sums up his view of the American dream.
In 2008, the US housing market became the epicenter of an unprecedented global economic collapse. In the years since, protests in cities like Baltimore have highlighted the stark racial disparities that define many American cities. The crash of suburbia and urban unrest are not unrelated — they are two sides of the same coin, two divergent paths set in motion by the United States’ post-war housing policy.
The prevailing narrative is that the migration from American cities that began in the 1950s, often referred to as “white flight,” was caused by the degradation of city centers and the growth of suburbia. But this was neither a matter of preference, nor a natural selfsegregation
After World War II, the US government sought to provide housing for returning veterans and their families, while enabling them to build wealth through homeownership. Postwar policies spurred a decadeslong construction boom and enabled millions of Americans to buy homes — and they benefited white people exclusively. So racial segregation determined how communities grew. Government policies directly subsidized white America, while denying opportunities to black people and other minorities
Here’s a statement from Giorgio Angelini, the director of the documentary:
This film began for me in graduate school while studying architecture at Rice University. It was in the depths of the 2008 real estate collapse that I began questioning what recovery really looked like.
In searching for a story, I was awarded a travel grant to photograph the abandoned McMansions that proliferated the mountainous desert landscape of Inland Empire, California. What I ultimately encountered was an environment far more perverse and disturbing than I had initially anticipated. Thousands of square miles, once replete with thriving orange groves, had burnt down to make way for a new commodity—conditioned square footage. But with access to cheap money no longer available, the charred remains of orange groves sat alongside these half-built McMansions. Commodities in limbo—their Tyvek wrap flapping in the wind. It was clear there was a larger story at play.
It’s been nearly ten years since the crisis began. And for many folks, the perception is that we’ve moved on. We’ve “recovered.” What this documentary project proposes, however, is that recovery is an illusion. We have not fixed the housing economy. And in fact, much of the underlying, endemic problems surrounding housing policy have only been compounded.
The election of Donald Trump and the uprisings in places like Baltimore are two sides of the same disgruntled coin: a housing policy wildly anachronistic for today’s time. It’s a housing market that disproportionately benefits an increasingly sheltered class of wealth, while keeping the rest of the population in a permanent state of economic anxiety.
Housing is everything. It dictates where we go to school, our probability to move up socio- economically. It defines who we interact with and how we raise our children. And we have done very little to change the system.
There has been no recovery. And the sooner we recognize this, the sooner we can hopefully have a real conversation about how we can build a new system. One that helps to rebuild a middle class decimated by globalization. One that extends government support to people of all races. And one that sees home as a right rather than as a commodity.
Here’s the trailer of Owned: A Tale of Two Americas.
To watch the full documentary click here.
Tyler Durden
Sun, 03/21/2021 – 20:10 - Morgan Stanley: This Cycle Will Burn "Hotter And Shorter" So Start Thinking About Rotating Out Of Early-Cycle Winners
Morgan Stanley: This Cycle Will Burn “Hotter And Shorter” So Start Thinking About Rotating Out Of Early-Cycle Winners
By Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley
A Shorter Cycle
Our experience informs our beliefs. The last four US economic expansions have been unusually long, ranked by the NBER as the first, second, third and sixth longest among 34 business cycles over the last 164 years. We think that the current cycle could burn hotter and shorter, with important implications for investment strategy.
This discussion needs to start with an obvious question: Is this even a ‘new’ cycle? COVID-19 brought the global economy to a sudden stop, while an aggressive policy response drove a rapid recovery. Some investors argue that both were so fast that conditions never ‘reset’ in the way they usually do during recessions.
All cycles have their quirks. The last three US recessions were adjacent to: 1) The largest equity bubble in history; 2) The largest financial crisis since the Great Depression; and 3) A global pandemic. If you’re looking for a ‘normal’ recession, good luck!
Surprisingly, as different as these three recessions were, they were all preceded by similar phenomena. All three saw an inverted yield curve within ~6 months before they started. All three followed a Fed hiking cycle and core CPI above 2.4%Y. All three were preceded by high consumer confidence, low unemployment and declining equity market breadth.
Those are an awful lot of similarities. And they carry through to the recovery. Since the lows of activity in April 2020, ‘normal’ early-cycle investment strategies have worked very well. Corporate default rates have been similar to other recessions when measured on a rolling two-year basis. If it walks like a new cycle and talks like a new cycle, we think that investors should treat it like a new cycle.
Yet while this cycle has so far followed many ‘normal’ patterns, its evolution could be unique. For several reasons, in the US and globally, this cycle could burn unusually hot.
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The first is stimulus. The global economy is seeing record levels of fiscal and monetary stimulus at the same time. ‘Unprecedented’ is an overused word in our business, but this cycle qualifies and is unique among other post-recessionary periods.
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The second is savings. Savings rates stand at historical highs in the US, Europe and China. While the distribution of these savings is uneven, they provide substantial fuel for consumption. Corporate cash balances are also elevated, a buffer against COVID-19 uncertainty that could find its way into spending as confidence returns.
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Third is the labor market. Our economists note that the majority of recent job losses were in COVID-19-related sectors. If the economy can reopen safely, it seems reasonable that we could see an unusually fast labour normalization as these sectors come back.
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Finally, there is the future path of policy. Global central banks are signalling a strong commitment to supporting growth and returning inflation to more normal levels. Governments are showing little desire to eventually raise taxes or cut spending. Both stances suggest a hotter cycle, less likely to be restrained by policy tightening than the previous expansions.
For all these reasons, our economists think that growth and inflation will exceed expectations over the next two years. But just like in the cosmos, what burns hotter may also burn shorter. Unlike the long expansions that defined the last 40 years, this one might look more similar to the late 1940s or 1950s.
Short cycles can still mean good growth and multi-year expansions. The Roaring Twenties saw recessions in 1920, 1923 and 1926 (and, of course, 1929). The US economy grew at an enviable 4% rate between 1947 and 1960, despite recessions in 1948, 1953, 1957 and 1960. Each expansion lasted at least three years.
But this does mean that investors need to be more nimble. Different investments work in different parts of the economic cycle. If this cycle burns hotter and shorter, we need to start thinking about rotating out of early-cycle winners.
Where should we look? US small-cap versus large-cap equities, copper versus gold and corporate credit are all strategies that we’ve liked given historically strong performance following recessions. But all do less well as the cycle extends. My colleague Michael Wilson recently downgraded US small caps (see US Equity Strategy: Weekly Warm-up: The Cycle vs Liquidity; Downgrading Small Caps; Earnings > Multiple, March 15, 2021), an example of how we are looking to exit some early-cycle strategies.
Sector and regional leadership can also vary significantly as the cycle progresses. Emerging market equities historically do best following a recession, but then lag. Stocks in Europe and Japan have done better as the economy matures.
Will conditions run too hot? One metric I’m following closely is the US breakeven expectations curve. At the moment, it is reflecting a modest overshoot of inflation over the next 2-5 years…
… followed by lower levels of inflation thereafter. That would appear to be exactly what the Fed hopes to deliver, wrapped up neatly with a nice little bow.
As long as that curve remains inverted, the market is signalling that inflationary pressure will be transitory, and there is little need for central banks to sharply change tack. Maybe this is correct. Maybe it is an example of expectations being driven by recent experience. Either way, it’s an important dynamic to watch.
Tyler Durden
Sun, 03/21/2021 – 19:45 -
- Venezuela Says Massive Blast Hit Natgas Pipeline In 'Terrorist Attack'
Venezuela Says Massive Blast Hit Natgas Pipeline In ‘Terrorist Attack’
A massive explosion rocked a gas pipeline in eastern Venezuela Saturday afternoon, according to a report from state oil company Petroleos de Venezuela (PDVSA), seen by Reuters.
The blast occurred at a 36-inch pipeline providing natural gas to the Pigap II gas reinjection plant in northern Monagas. PDVSA had to shutter operations at the facility to extinguish flames and evaluate damages.
Oil Minister Tareck El Aissami announced on state television Saturday evening that the incident was considered a “terrorist attack.” He provided no evidence about such claims.
“This terrorist action has affected the operations center in El Tejero that serves as a gas injection plant, and, thank God, no casualties are reported from this attack,” El Aissami said.
Video footage shared on Twitter shows the pipeline’s initial explosion unleashed a massive column of fire into the sky.
Explosion en la planta PIGAP II de el tejero Estado Monagas. pic.twitter.com/6tnc7HUzc8
— wilfredo jose febres (@wilfredofeb) March 21, 2021
https://platform.twitter.com/widgets.js
#MONAGAS 🇻🇪🔴 | @MariaGMonagas reportó la explosión ocurrida el día de ayer 20 de marzo en #Monagas en la Dirección Ejecutiva de Producción Oriente. División Punta de Mata / U.P Pirital (PIGAP II). #PDVSA #Noticias24 #Venezuela pic.twitter.com/lgIUtBIjmY
— Noticias24 Venezuela (@N0TICIAS24) March 21, 2021
https://platform.twitter.com/widgets.js
El Aissami also said the blast was part of a series of “criminal attacks” with the intent to disrupt PDVSA operations. Again, the oil minister made accusations but did not name any group or country.
Venezuela has the world’s largest crude oil reserves, but production has been crushed by economic collapse. Its production stands around 550,000 b/d in February, according to the latest S&P Global Platts survey.
President Nicolas Maduro has repeatedly blamed the US for organizing attacks on energy facilities in the oil-rich country.
Two months into the Biden administration, the White House continues to recognize Venezuelan opposition leader Juan Guaido as president of Venezuela, despite Nicolás Maduro clearly being the socialist country’s actual leader.
It remains to be seen if the pipeline explosion was a “terrorist” attack as Venezuelan officials have yet to present evidence – but there is concern that the Biden administration will continue to carry on former President Trump’s harsh policies against Maduro.
Tyler Durden
Sun, 03/21/2021 – 19:20 - Trump Rages Over "Huge Cover-Up" At The Border As Biden Starts Releasing Illegals Without Court Date
Trump Rages Over “Huge Cover-Up” At The Border As Biden Starts Releasing Illegals Without Court Date
After the Biden administration began blaming the border crisis on former President Trump leaving them with a ‘dismantled’ immigration system, Trump hit back in a Sunday statement claiming that he “proudly handed the Biden Administration the most secure border in history,” adding “All they had to do was keep this smooth-running system on autopilot.”
“Instead, in the span of just a few weeks, the Biden Administration has turned a national triumph into a national disaster. They are in way over their heads and taking on water fast.“
Trump then turned his attention to DHS Secretary Alejandro Mayorkas – who went on several news networks Sunday morning claiming that “the border is closed.” Mayorkas’ performance was “pathetic,” “clueless,” and a “national disgrace.”
“His self-satisfied presentation – in the middle of a massive crisis he helped engineer – is yet more proof he is incapable of leading DHS. Even someone of Mayorkas’ limited abilities should understand that if you provide Catch-and-Release to the world’s illegal aliens then the whole world will com.”
Trump then slammed Mayorkas for a “Gag Order on our Nation’s heroic border agents and ICE officers,” which the former president said should be the subject of an immediate congressional investigation.
“But it’s clear they are engaged in a huge cover-up to hide just how bad things truly are,” Trump continued.
Trump then suggested that the Biden administration should “immediately complete the wall, which can be done in a matter of weeks,” adding “they never should have stopped it” and are “causing death and human tragedy.”
Trump releases statement on latest developments in border crisis: pic.twitter.com/G2qHsxTgZI
— Byron York (@ByronYork) March 21, 2021
https://platform.twitter.com/widgets.js
Trump’s statement came minutes after Fox News reported that Biden’s border agents in the Texas Rio Grande Valley are releasing illegal migrants into the United States without a court date.
Multiple Border Patrol agents confirmed the new process to Fox News, revealing that they have been directed to use prosecutorial discretion (PD) to forgo the hours-long process of paperwork required to issue an NTA amid the surge of migrants at the border.
Instead, migrants are registered into the system with biometrical data taken and largely released into the public – in one instance – at a bus station in McAllen, TX. The processing is being done mostly at a temporary outdoor processing site. Border Patrol agents emphasized that this does not apply to unaccompanied children. –Fox News
A senior source with Customs and Border Protection told Fox News on Saturday that immigration officials are resorting to this type of catch-and-release because the border crisis “has become so dire that BP [Border Patrol] has no choice but to release people nearly immediately after apprehension because there is no space to hold people even to do necessary NTA paperwork.”
The immediate catch-and-release does not apply to child migrants – 15,500 of which have been sitting in ‘cages’ built by the Obama-Biden administration – many beyond the legally allowed 72-hour limit.
Tyler Durden
Sun, 03/21/2021 – 18:54 - Dalio Wants You To Swap Treasuries For Chinese Debt
Dalio Wants You To Swap Treasuries For Chinese Debt
By Ye Xie, Bloomberg macro commentator and analyst
Three things we learned last week:
1. It seems like everyone loves Chinese bonds now.
China’s bonds have shown incredible stability during the global debt selloff. Yields on 10-year Chinese bonds fell 3 bps over the past month, while the U.S. rates surged 39 bps. Bridgewater’s Ray Dalio noted last week that investors dumping U.S. Treasuries for Chinese bonds is part of a “classic” historical cycle where capital markets of a rising “empire” challenge the existing superpower.
The current environment where central banks and other international investors hold more than a third of their bond portfolio in U.S. Treasuries and just 6% in Chinese bonds is inconsistent with the relative economic positions of the two countries, according to Dalio.
“Their overweighted position in U.S. bonds is largely because of the ‘exorbitant privilege’ the U.S. has had being the world’s leading reserve currency, which has allowed the U.S. to overborrow for decades,” Dalio wrote on LinkedIn. “As part of this cycle, there is the emergence of the currency and capital markets of the rising and competing empire. Consistent with this classic cycle there is now a shifting from U.S. bonds to Chinese bonds going on.”
2. The Alaska meeting is a microcosm of the cycle of competing empires.
The bickering at the first high-level talks between the U.S. and China since Biden took office underscores the deep divide between the two countries. An optimist might argue that the public squabble may turn out to be a good thing as it resets the expectations and allows both sides to be more pragmatic and realistic about what they can achieve. “Despite the spat, is there a second path other than to learn to co-exist in this fierce power struggle?” said Hu Xijin,chief editor at the Global Times. Climate change, Covid-19, and cybersecurity are among the low-hanging fruits for co-operation, said Gabriel Wildau, a China analyst at Teneo, a consultant firm.
3. Central banks are starting to diverge.
Russia, Turkey and Brazil raised interest rates last week to cool inflation. Norway’s central bank expects to start raising rates in the “latter half” of this year, putting it on path to be the first in the rich world to tighten policies. In contrast, the Fed signaled it may keep rates unchanged through 2023, even as it expects inflation to exceed its target. The Bank of Japan widened the range of bond yields it targets to gain flexibility.
The policy divergence has been the missing ingredient for higher currency volatility. It looks like we are getting some.
Tyler Durden
Sun, 03/21/2021 – 18:30 - Bitcoin ATMs Are Landing At Gas Stations, Delis And Convenience Stores Near You
Bitcoin ATMs Are Landing At Gas Stations, Delis And Convenience Stores Near You
The trend of Bitcoin ATMs has already started in some delis and gas stations in places like Montana, the Carolinas and New York City.
Companies like CoinFlip and Coin Cloud have installed “thousands” of the ATMs across the country, according to Reuters. Coin Cloud has 1,470 machines around the United States and is aiming for 10,000 by the end of 2021.
Quad Coin founder Mark Shoiket said: “I just assumed there was demand and people wanted bitcoin everywhere.” He just recently flew to Montana to find 7 new places to install bitcoin ATMs, including a local vape shop.
There’s currently 28,185 bitcoin ATMs in the United States. About 10,000 of those have popped up over the last 5 months, the report notes. Some people use the ATMs because they sometimes feel more comfortable interacting with a physical machine, while others do it for anonymity purposes. Fees can range from 6% up to 20% of a total transaction.
There’s now Bitcoin ATMs in every state except Alaska.
51 year old Pittsburgh resident Rebecca White said: “When we do our grocery shopping and we have $60 left, I will stop at the bitcoin ATM.”
Pamela Clegg, director of financial investigations and education at cryptocurrency compliance firm CipherTrace, said: “The growth of the ATM market – it is not even a gentle increase, it is almost a 45% increase. The growth is quite astonishing.”
But regulators have been watching the pop-up of the machines closely. The New Jersey State Commission of Investigation, for example, recently published a report called “Scams, Suspicious Transactions and Questionable Practices at Cryptocurrency Kiosks.”
Coin Cloud CEO Chris McAlary said: “We expected the worst as Covid hit, but stimulus payments came out and that helped quite a bit. Some people took stimulus and bought digital currency with it.”
CoinFlip CEO Daniel Polotsky said: “There are people who don’t have bank accounts or don’t like to use them.”
Bitcoin Depot, from Atlanta, has also grown its number of ATMs from 500 to more than 1,800 in the past year. Customers are mostly “25-40 years old”. General Bytes, a Bitcoin ATM manufacturer, said that demand “soared” and the company ran out of stock last year.
They sold 3,000 machines last year. 90% of those machines went to North America, the report says.
Tyler Durden
Sun, 03/21/2021 – 18:00 - Another Mega Short Squeeze On Deck
Another Mega Short Squeeze On Deck
At the end of the first week of March which saw an eruption in violent market turbulence in the aftermath of the sharp spike in bond yields and the catastrophic 7Y auction …
… we pointed out an observation from Goldman’s Prime Broker desk, which noted that halfway through the week, Goldman traders saw the “largest global short sales since May” with the GS Prime book was net sold yesterday (-0.9 SDs vs. the average daily net flow of the past year), driven by short sales outpacing long buys 1.7 to 1.” In fact, the mid-week puke wasn’t so much selling as short-selling, as “modest net selling (-0.5 SDs) was driven by short sales outpacing long buys 1.5 to 1.”
This prompted us to predict that what was coming would be a “mega squeeze” in stocks.
Sure enough just a few days later, on March 10, when stocks did explode higher in the second week of March, Goldman’s Prime Brokerage Service observed that Tuesday’s eruption was the result of “risk unwind in Macro Products vs. large net buying in Single Names” led by TMT and Consumer Disc stocks, with the Goldman Prime book net bought for a fifth straight day in which “trading flows were risk-off with short covers outpacing long sales 4 to 1.” And just to make sure there is no confusion, Goldman prime said that “yesterday’s de-grossing activity – short covers and long sales combined – was the largest since late January (-2.0 SDs).“
Furthermore, Bloomberg added that short covering in unprofitable tech firms helped the group halt seven straight days of selling and score the third-biggest net buying of the year. In fact, in the first two days of that week, Goldman basket of the most-shorted tech stocks soared 7%, more than double the return of the Russell 3000.
Commenting on the move, Andrew Brenner, the head of international fixed-income at NatAlliance Securities in New York told Bloomberg that “we see yesterday’s move as short covering without legs.” Ok fine, but tell that to any Nasdaq shorts whose legs – and everything else – was steamrolled in the historic move higher.
We concluded our post by saying that “with the latest iteration of shorts now out of the picture, it’s time for a new cohort of bears to take their place, and we wouldn’t be surprised if we see renewed weakness in the Nasdaq as a flood of new shorts hammers the tech index only to then suffer another massive squeeze and so on, rinse, repeat.”
Well, one again that is indeed what happened because while the Nasdaq did move sharply higher for a few days, it closed on Friday precisely at the March 10 short squeeze high as every squeeze higher has been met with a fresh burst of shorting.
We bring all this up because we now have the latest Goldman Prime data and – drumroll – we appear to be headed for another mega squeeze!
As Goldman’s hedge fund client-facing desk wrote after the close on Friday, in a reversal of last week’s buying activity, “the GS Prime book saw the largest $ net selling since Dec ‘18 (-2.5 SDs), driven by short sales and long sales (3 to 1).” The bank then reveals that all regions and sectors saw increased shorting on the week with “Single Names/Macro Products were both net sold and made up 70%/30% of the $ net selling. With the exception of Asia which was net bought driven by long buying in Japan, all regions were net sold led by North America and Europe.” Finally, broken down by industry, “10 of 11 global sectors were net sold led by Consumer Disc, Comm Svcs, Info Tech, and Materials, while Financials was the only net bought sector.”
But what is most notable is that like two weeks ago, Goldman Prime reveals that “the largest net selling in US TMT Mega Caps since Mar ’20 driven by short sales” and the aggregate long/short ratio (MV) in FAAMG dropped -34% week/week on the GS Prime book to 10.41, which is the lowest level since Mar ’20 and in the 19th percentile vs. the past five years.
One final – and perhaps remarkable observation in light of the juggernaut that FAAMG had been for much of 2020 – the TMT Mega Caps (FAAMGs) collectively now make up 13.5% of the overall US net exposure in Single Names, down from 13.9% at the end of last week and 14.6% at the start of this year, according to GS Prime. The current level is in the 16th percentile vs. the past year and in the 55th percentile vs. the past five years. In short: traders are rapidly rotating away from the best performing sector of 2020.
Adding insult to injury the latest Goldman Prime data also shows that hedge funds haven’t generated any net alpha since the start of 2020 (!) for one simple reason: while the longs are modestly in the green, it is the collective shorts that keep steamrolling the “2 and 20” space, and every time hedge fund layer on shorts, an initial spike in covering leads to a furious cascade of closing out of bearish positions perhaps as a result of the market’s muscle memory where every attempt to go short has lead to pain and suffering for the bears leading to the lowest marketwide net short in history!
What does all this mean? Well, as a result of last week’s aggressive attempt to pile on shorts – the most since Dec 2018 when stocks collapsed due to Powell’s final rate hike which was seen as a huge policy mistake – we are once again facing the threat of a massive short squeeze, one exacerbated by the fact that hedge funds are now once again red for the year, as shown by the black line below…
… making them extremely jittery and likely to close out any potentially devastating shorts at the sign of even the faintest of bullish catalysts. Well, with not one, not two but three appearances by Fed Chair Powell this week, all eager to make up for his latest FOMC fiasco that sent yields to fresh 2021 highs, there will be ample triggers for another face-ripping squeeze in the week ahead, and we are confident that in just a few days we will be once again discussing the latest “mega squeeze” leading to another historic market meltup with the full blessing of the Federal Reserve.
Tyler Durden
Sun, 03/21/2021 – 17:41 - "White Supremacist Thinking": San Fran School Board VP Under Fire For Allegedly Anti-Asian Tweets
“White Supremacist Thinking”: San Fran School Board VP Under Fire For Allegedly Anti-Asian Tweets
We previously discussed the controversial position of Alison Collins, Vice President of the San Francisco school board, in her campaign against meritocracy and effort to shut down the gifted programs at Lowell High School.
The Asian community was particularly opposed to Collins’ efforts since Asian students composed 29 percent of the students but 51 percent of the Lowell student body. Now Collins is under fire for prior tweets attacking Asians as promoting “the ‘model minority’ BS” and of using “white supremacist thinking to assimilate and ‘get ahead.’”
These do not appear recent tweets but their content is obviously insulting for any Asian American. The Yahoo News story included such tweets as accusing “many Asian American Ts, Ss, and Ps” — teachers, students, and parents — of promoting “the ‘model minority’ BS” and of using “white supremacist thinking to assimilate and ‘get ahead.’” It also include a demand to know “[w]here are the vocal Asians speaking up against Trump?” and statements on how Asians are deluding themselves by not speaking out against former president Donald Trump: “Don’t Asian Americans know they are on his list as well?” Collins continued. “Do they think they won’t be deported? profiled? beaten? Being a house n****r is still being a n****r. You’re still considered “the help.”
While the use of the censored version of the “n word” has led to calls to terminate academics, I do not believe that such objections are fair in this or the prior cases. Indeed, this controversy should not take away from the campaign against meritocracy and the effort to eliminate programs for advanced or gifted students in the public school system. As I have previously discussed, I long been a supporter of public schools. These advanced programs are needed to maintain a broad, diverse, and vibrant school systems for cities like San Francisco.
Race politics seems a focus on every level in the school system, even in the regulation of student elections. Likewise, the controversy in San Francisco follows another controversy in Los Angeles where United Teachers Los Angeles (UTLA) Cecily Myart-Cruz has also criticized “Middle Eastern” parents in joining “white parents” in seeking school re-openings. The UTLA was criticized after Maryam Qudrat, a mother of Middle Eastern descent, was asked by the UTLA to identify her race after criticizing the union’s opposition to reopening schools despite overwhelming science that it is safe. This effort to racially classify critics of the teachers followed Myart-Cruz attacking critics by referring to their race:
“Some voices are being allowed to speak louder than others. We have to call out the privilege behind the largely White wealthy parents driving the push for a rushed return. Their experience of this pandemic is not our students’ families’ experiences.”
The remarks of school board and teacher union officials clearly fuel racial tensions and divisions at at time when the public schools are facing enormous challenges. For Asian families (constituting roughly a third of the families in the San Fran school system), the remarks of Collins are legitimately unsettling as they fight for the educational advancement of their children. It is precisely the opposite of what most of us seek in our public school systems as a synthesis of different cultures and races. While districts like San Francisco prioritized renaming schools in the middle of a pandemic (until recently being forced to suspend the effort), families simply want to maintain an educational system with a focus on academic excellence and advancement.
As I have previously discussed, many of us still believe in a diverse and thriving public school system. Growing up in Chicago during the massive flight of white families from the public school system, I remained in public schools for much of my early education. My parents organized a group to convince affluent families remain in the system. They feared that, once such families left, the public schools would not only lose diversity but political clout and support. They also wanted their kids to benefit from such diversity. My wife and I also believe in that cause and we have kept our four kids in public schools through to college. We believe public education plays a key role in our national identity and civics. They shape our next generation of citizens. My children have benefitted greatly from public schools and the many caring and gifted teachers who have taught them through the years.
I hope that San Francisco parents of all races can prevail in seeking to refocus the school system on educational advancement. We have too much at stake for our kids and our country if parents allow this type of reckless and insulting rhetoric to lead them to abandon our public school systems.
Tyler Durden
Sun, 03/21/2021 – 17:30 - Lira Crashes, Turkey CDS Soar As Erdogan Launches Another Epic Crisis
Lira Crashes, Turkey CDS Soar As Erdogan Launches Another Epic Crisis
Turkey has become the sovereign equivalent of a Swiss Watch: every 6 months or so Turkey has a brand new crisis, and the latest one arrived late on Friday when just days after the Turkish Central Bank hiked rates by 200bps, double the consensus expectation (a move which we correctly predicted would provoke Erdogan “to replace yet another CBRT governor”), Erdogan indeed announced that CBRT governor Naci Agbal – who was on the job just over 3 months after his November 2020 appointment – would be fired and replaced with some political zealot named Sahap Kavcioglu, whose only claim to fame is believing in the ludicrous and farcical concept of Erdoganomics where lower rates somehow magically lead to lower inflation. He is also the country’s fourth central bank governor in the last two years.
Sadly for Erdogan (and Turkey’s population) that’s not how the real world works and now that Turkey’s attempt to tighten and contain inflation by cutting rates inflation is about to explode in one of the most important Developing Markets; but what’s worse for international investors – who once again took a gamble on Turkey and lost – is that Erdogan just single-handedly crushed what little credibility the country’s central bank had built up in recent months and in early Asian trading, the Turkish Lira cratered as much as 17%, wiping out 5 months of progress, with the USDTRY soaring as high as 8.42, up some 120 pips its Friday close of 7.2185.
The currency was quoted at 8.2621 per dollar as of 4pm ET, the weakest since November just before Agbal was appointed in the midst of an aggressive rate hike cycle, one which will now rapidly reverse as the new top central banker cuts rates in response to the country’s soaring inflation.
Erdogan’s decision to fire Governor Naci Agbal, who had sought to restore the central bank’s credibility, is a blow to investor confidence and raises concern the country will once again embark on a path of rock-bottom rates.
According to Bloomberg, “the initial backlash exceeded some analysts’ estimates” – but not ours – “and marks a swift reversal of investor enthusiasm toward Turkish markets.” Ironically, headed into today, the lira had been the best carry-trade currency of the year, outperforming every other EM as money managers cheered Agbal’s move to raise interest rates and efforts to bring inflation under control.”
However, as we also correctly said last Thursday, Agbal, “was damned if he did and damned if he didn’t: on one hand the lira was plunging angering Erdogan, so he had to stabilize it… on the other the only way to do so was by hiking rates, which would anger Erdogan even more.”
In the end, Agbal’s tightening proved too much for Erdogan to handle, and now comes the real pain.
“Capital will flow out on Monday and the CBRT has limited resources left to protect the lira,” according to Per Hammarlund, chief EM strategist at SEB AB in Stockholm, referring to the central bank. “A hawkish central-bank governor cannot be replaced by a dovish governor without markets expecting a shift in policy. The circumstances of Agbal’s dismissal coming two days after a rate hike will produce an even sharper shift in investor expectations.“
Let this be (another) lesson to all real money accounts: if you invest in banana republics, be prepared to lose all your money and get nothing more than a banana in return (if you’re lucky).
Agbal’s replacement, Kavcioglu, pledged on Sunday to use monetary-policy tools effectively to deliver permanent price stability… translation: he will do whatever Erdogan tells him, which considering the Turkish president’s eccentric views on monetary policy means that Turkey may have NIRP soon alongside 100% inflation. And speaking of, any weakness in the lira could add to inflationary pressures building in the economy and erode Turkey’s real rate, currently the highest in emerging markets after Egypt’s.
Commenting on the chaos in Turkey, Bloomberg chief EM economst Ziad Daoud, said that “the hit to the central bank’s credibility and independence can’t be overstated. Erdogan has battered the institution with interventions that have repeatedly backfired. Financial markets were willing to give Agbal a chance, his successor will find it hard to build that trust again.”
Since 2019…
Italy have had 2 Prime Ministers
Chelsea have had 3 different managers
Turkey has had 4 different Central Bank Governors since 2019
(and managing in the Premier League was meant to be difficult)$TRY pic.twitter.com/zIvcGla5wZ
— Viraj Patel (@VPatelFX) March 21, 2021
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“We must conclude, for now, that Kavcioglu will be mandated with reducing and keeping rates as low as possible,” Cristian Maggio, head of emerging markets at TD Securities in London, correctly predicted. “If this hypothesis proves true, not only will we see a looser policy setting in Turkey in the coming months, but we will also likely experience a return to managing policy through unorthodox measures.”
That’s just part of it: now that one of the largest DMs has lost all central bank credibility, what is a currency crisis can quickly mutated into a full-blown sovereign debt crisis, and the latest blowing out CDS prints confirm this:
- TURKEY 5Y CDS 410/455 +125
A reason for the panicked response, one which brings back flashbacks to the Asian debt crisis of 1997…
Who knew this generation’s “Asian crisis” would start in Turkey
— zerohedge (@zerohedge) March 21, 2021
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… is that Turkey is now effectively without FX reserves and has virtually no way to short-circuit the current puke. Last year, Turkish banks spent more than $100 billion of the nation’s foreign reserves to support the sinking currency, according to a Goldman report (full report below). That prompted calls by Turkish opposition for a judicial probe into the nation’s official reserves.
In comparison, always oblivious foreign investors who are confident that central bankers will always save them, purchased a net $4.7 billion worth of Turkish stocks and bonds in the months following Agbal’s appointment. Overseas inflows to Turkey through swaps were about $14 billion during that period, Istanbul-based economist Haluk Burumcekci said. All that money is about to be pulled now amid the sheer chaos.
Among those who may find themselves on the wrong side of the trade are Japanese retail investors, according to Bloomberg, i.e., Mrs Watanabe. Long positions by individuals in lira-yen stood at 263,585 contracts as of Friday. They’ve climbed about 9% since the start of the year.
“We will never know how successful Agbal’s approach could have been, but initial signs were positive,” said Emre Akcakmak, a portfolio adviser at East Capital in Dubai, who anticipated challenges to intensify in the near future and a reversal on some of the recent and large hot money inflows in the face of the unexpected decision. “Even when the market stabilizes after a while, investors will have little tolerance, if any, in case the new governor prematurely cuts the rates again,” Akcakmak said.
Meanwhile, those hoping for guidance from all those who were bullish on the lira, like Goldman with its 6.20 price target, are advised to keep a low profile: as Goldman says in a note published earlier today, “our EM/FX strategy team are putting their forecasts for USD/TRY under review, with significant risks of a near-term discontinuous move weaker in the Lira.”
That’s a big of an understatement by a bank whose advise just cost its clients massive losses.
Then again, in a world as insane and upside down as this one, it just may be that Erdogan will have the final laugh, and Turkish inflation will indeed tumble as the CBRT cuts rates as low as possible, perhaps even dipping negative eventually.
* * *
Below we have excerpted Goldman’s full note, “Turkey: President Erdogan Appoints Sahap Kavcioglu as New TCMB Governor”
- Kavcioglu has been appointed as the new Governor with a presidential decisionpublished in the Official Gazette on Friday, March 19.
- This is the third time a TCMB Governor has been replaced in the last two years, following the removal of Murat Cetinkaya from his post in July 2019 and the removal of Murat Uysal from his post in November 2020.
- The decision came after a hawkish 200bp policy rate hike by the TCMB on Thursday (March 18). That said, it may be part of a more fundamental repositioning of policy as it follows changes in the senior leadership in the Turkish Statistical Institute and the Sovereign Wealth Fund in the last few weeks. In addition, Turkey’s chief prosecutor launched a lawsuit on Wednesday (March 17), seeking closure of the HDP, one of the three main opposition parties, supported by large parts of the Kurdish population. Turkey pulled out of the IstanbulConvention (The Council of Europe Convention on Preventing and CombatingViolence Against Women and Domestic Violence) with another presidentialdecision also published in the Official Gazette on Friday, March 19.
- Governor Kavcioglu published a statement today, noting that the TCMB “will continue to use the monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation” to foster macro economicstability and sustainable growth. The statement also noted that the MPC meetings will be held as previously scheduled. Hence, the next meeting should take place on 15 April.
- Although significant uncertainty remains around how monetary policy will change following this appointment, we do have some sense of Governor Kavcioglu’s economic views as he has written numerous columns on topics such as interest rates, the Turkish Lira and the use of reserves (see here and here, only available in Turkish). Governor Kavcioglu wrote in his column on February 9that monetary policy should not insist on a high policy rate and that higher rateswill indirectly lead to inflation. Governor Kavcioglu also believes that the TRY has been kept too strong in recent years by offering high rates, undermining economic competitiveness. Given these and similar comments, it is likely that markets will question the TCMB’s forward guidance of keeping the monetary stance tight for a prolonged period, and the TRY may come under pressure. Local banks are already quoting to buy TRY at 7.70-7.80 vs the USD in the retail market over the weekend, up from 7.23 in the spot market on Friday.
- Given the stated dovish views of Governor Kavcioglu, the risks are now for a much more front-loaded cutting cycle than our forecast of a first rate cut only in Q4. Nevertheless, we think that the potential impact of this decision on central bank credibility and on the currency is likely to limit any dovish move in the near term. More broadly, we think inflation will remain a constraint on how early and fast rate cuts can take place. We expect inflation to fall to just 12.5%yoy by the end of the year, significantly above the TCMB’s estimate of 9.4%yoy. Any premature rate cut would also add to inflationary pressures, in our view.
- There have been significant capital inflows from mid-November, following the appointment of Naci Agbal. Nonresident inflows into local government debt and equity amounted to US$4.0bn and US$0.7bn, respectively. It is likely that the flows into Lira due to swaps were larger. We do not have a time series on this specifically but a growing off-balance-sheet position of banks against declining TCMB swaps since mid-November suggests that there was an increase in the swaps conducted with nonresidents, around US$6.0bn on our estimates. With this build-up of foreign positioning, attracted by the belief that the TCMB will likely keep rates sufficiently high to stabilize the TRY, a reversal in capital flows going forward appears likely.
- The build-up in foreign positioning is not the only reason why the market reaction is likely to differ from those when previous governors were replaced. When Murat Uysal was appointed as TCMB Governor in July 2019, gross reserves were higher and a cutting cycle was expected. The market reaction to Naci Agbal’s appointment was positive as he was seen as a technocrat and the President had followed up this appointment decision with a market-friendly speech.
- Our assessment of the TCMB’s reaction function has been that the TCMB would tighten policy when faced with sufficient pressure, rather than look for non-market solutions. For this reason, our base case last year (when reserves were being depleted at a rapid pace and some market participants were discussing the possibility of non-market measures) was that the TCMB would eventually hike rates and engineer a soft landing.
- The developments from November until recently seemed to confirm this. Following the removal of Naci Agbal from his post, we think that the risks to our view that monetary policy (rather than alternative administrative measures) will ultimately respond to market pressures and macroeconomic imbalances have increased.
- It is likely that pressure on the TRY will pick up. A restart of FX interventions similar to 2020 may be the initial response, but the buffers are comparatively low. While gross reserves stand at US$91.6bn, US$17.0bn are due to swaps with Qatar and China, and US$38.9bn are gold. On our estimates, gross foreign currency reserves are US$35.7bn. Although this is higher than the US$23.4bn at the trough in mid-November, it is still not sizeable enough to sustain continued interventions, in our view. For comparison, the TCMB’s gross reserves fell on average by US$6bn a month from March to September before rates were raised.
- Our forecasts for the current account in 2021 and the country’s external financing needs do not differ significantly from what we were forecasting for 2020 in Q1-20.We forecast a current account deficit of US$28bn for this year(TCMB survey: US$25bn). The current account deficit did ultimately widen significantly more than we had initially thought in 2020 to US$37bn, mostly due to rising gold imports, and a repeat of that scenario cannot be excluded.
- Other measures the authorities may consider if the TRY comes under pressure are (1)finding sources of non-market funding, (2) administrative measures or (3) once again raising policy rates. Given the stated dovish views of the new Governor and the context in which he has been appointed, the market is likely to be sceptical of the likelihood of rate hikes. Nevertheless, it may once again come up as a possibility if the TRY comes under significant pressure.
- With markets less likely to fund the Turkish current account deficit, and in the absence of other official flows, we think that a rapid adjustment in the current account may be necessary and the risks of a hard landing have increased. Under this scenario, we see downside risks to our growth forecast +5.5%yoy in 2021 and upside risks to our already above-consensus end-year inflation forecast of 12.5%yoy.
- Our EM/FX strategy team are putting their forecasts for USD/TRY under review, with significant risks of a near-term discontinuous move weaker in the Lira.
Tyler Durden
Sun, 03/21/2021 – 17:15 - Ram Truck Production Delayed Amid Global Chip Shortage
Ram Truck Production Delayed Amid Global Chip Shortage
Stellantis, the world’s fourth-largest automaker, announced Saturday production of its Ram Classic pickup trucks in Saltillo, Mexico, and Warren, Michigan, will be affected for “a number of weeks” due to a worsening global semiconductor shortage, reported Reuters.
Assembly plants in Saltillo and Warren will build and hold the Ram 1500 Classic trucks for final assembly until semiconductor components become available.
A Stellantis spokeswoman told Reuters the issue could take “a number of weeks” to resolve, declining to share the actual number of trucks affected by the chip shortage.
“We continue working closely with our suppliers to mitigate the manufacturing impacts caused by the various supply chain issues facing our industry,” a statement read, quoted by Bloomberg.
The global shortage in semiconductors forced Ford Motor Company on Thursday to build its top-selling F-150 trucks and Edge SUVs without certain semiconductor components and hold the vehicles until the chips arrive.
Production woes for Ford don’t stop there. Ford canceled three production shifts through Friday at a Kentucky plant that produces Ford Escape and Lincoln Corsair crossovers. This coming week, Ford expects to limit production of the Ford Fiesta car made in Germany.
On Friday, Toyota Motor Corp. suspended operations at a plant in the Czech Republic for two weeks due to chip shortages.
Carmakers have repeatedly warned about shortages developing worldwide.
A report from Goldman Sachs summarizes recent media reports on supply chain disruptions.
The semiconductor shortage appears to be “very widespread” and could begin to drag on global auto production. Goldman economist Jan Hatzius notes that many consumer goods – from headphones to sofas to roller skates – have also faced supply challenges this year.
Goldman’s conclusion to the worldwide supply-chain turmoil is that it may not alleviate until 2022.
Tyler Durden
Sun, 03/21/2021 – 17:00
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