Aug 23

Today’s News 23rd August 2019

  • "I Feel So Scared": Why Crewmembers Of Hong Kong's Biggest Airline Are Terrified Of China

    Roughly a week to the day that pressure from Beijing forced out the CEO Of Cathay Pacific airlines and one of his deputies (both “quit” under pressure from Beijing’s airline regulator and mainland companies aligned with the CPC), the Washington Post published a long-winded story based off of interviews with more than a dozen employees of the iconic airline, which has for so long been closely associated with Hong Kong and its culture.

    In its report, WaPo confirms that employees of the airline feel trapped in a “climate of fear and mistrust” as Communist functionaries increasingly subject flight crews to searches and seizure to root out anybody who has openly, or privately, expressed support for the #antiELAB protests that began nearly three months ago.

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    Crews have resorted to stashing their smartphones in service carts and other ploys to avoid being searched and having the contents of their phones downloaded.

    Already, several employees and at least three pilots have left the airline over their purported support for the protests (a sign that Beijing isn’t only interested in purging upper management).

    Indeed, Cathay employees suspect they are being ‘singled out’ because of their company’s status.

    As the Chinese state zeroes in on individuals suspected of supporting ongoing protests against Beijing’s influence in Hong Kong, it has singled out Cathay Pacific, the flagship Hong Kong airline that is among the city’s biggest employers and most globally recognized brands, subjecting its staff to unprecedented scrutiny.

    “We are panicked,” said one flight attendant who has worked for the airline for seven years.

    […]

    “I feel so scared, like we have lost our ability to voice our opinions, our concerns and our hopes without feeling the authority of China,” said another flight attendant, age 26.

    The impact that the protests have had on Cathay, ostensibly a developed, multinational corporation, has raised questions about whether HK can maintain any sort of autonomy long-term under the “one country, two systems” doctrine that had allowed it a fair amount of autonomy until not that long ago. The first inklings came during the umbrella movement in 2014. Now, the extradition bill protests – which have morphed into a broader pro-democracy movement – have become the system’s first major test.

    If it fails, HK’s economy could be in serious jeopardy, as Kyle Bass explained might happen in a research report from earlier this year.

    In a series of tweets sent Thursday morning, Bass warned that pro-Beijing lawmakers had been subtly hinting that a massive crackdown would result if the protests lasted another week and a half.

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    And he’s probably got a point: Under no circumstances will Beijing allow this movement to endure through the 70th anniversary of Communist Party rule on Oct. 1.

  • Pakistani Actress Visits UK Town, Says "It's Like Being At Home"

    Authored by Paul Joseph Watson via Summit News,

    A Pakistani actress who visited the UK town of Bradford said it was “like being at home.”

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    Commenting on her first trip to Bradford, Mehwish Hayat said the town was “like a mini Pakistan for me.”

    “I feel like I am actually in my own country,” she added.

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    Bradford has one of the highest Muslim populations out of any town in the UK.

    According to the 2011 census, over 20% of the population is Pakistani, although that figure is now likely to be significantly higher.

    The town suffered race riots in 2001 when its white majority population faced off with the Pakistani community, leading to 297 arrests.

    Bradford’s white population shrunk from 76% in 2001 to 63% in 2011.

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  • CJ Hopkins: Manufacturing Mass Fascism Hysteria

    Authored (satirically) by C.J.Hopkins via The Unz Review,

    If the neoliberal ruling classes expect to keep the American masses worked up into a white-eyed hysteria over “fascism” until November 2020, they’re going to need to get some better Nazis. The current Nazis are just not going to cut it. They are neither scary nor Nazi enough. OK, the militia ones look kind of scary, and that “Based Spartan” guy looks kind of … uh, weird, but most of them just look like regular old rednecks. How hard would it be to get them some brown shirts, or those khaki pants like they wore in Charlottesville, or some other type of Nazi-like uniform?

    And some jackboots. People love those jackboots.

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    Seriously, the Resistance need to get their official narrative optics in order, and they need to do it without delay. Millions of liberals are standing by to be brainwashed into a year-long frenzy of manufactured mass “fascism” hysteria, but they are going to need some halfway convincing Nazis to spastically freak out over. A few hundred bozos in MAGA hats parading around with American flags does not exactly a Sturmabteilung make.

    I’m referring, of course, to the latest “fascist invasion” of Portland that took place last Saturday, which, according to the corporate media, and Antifa, and local fascism experts, was supposed to be a veritable bloodbath. Heavily-armed white supremacist terrorists were flying in from around the country to indiscriminately murder as many “Black, Asian, Latino, indigenous, immigrant, Pacific islander, disabled, houseless, and LGBTQ persons” as possible. This white supremacist terrorist kill-fest was going to be revenge for the preventively self-defensive beating of Andy Ngo, “the most dangerous fascist grifter in America,” by Antifa militants earlier this month.

    Ngo (who most people had never heard of until Antifa militants beat him senseless), although he poses as a legitimate journalist by writing for outlets like The Wall Street Journal, The New York Post, Quillette, and so on, is allegedly a fascist intelligence asset in charge of compiling fascist “kill lists” consisting of the names of assorted well-known Portland anti-fascist figures (who most people had also never heard of until they claimed that Ngo had put them on his “kill list”).

    Alexander Reid Ross, for example, an extremely influential “fascism expert,” outreach specialist, and geography teacher, who is hot on the trail of the Putin-Nazi plot to form a syncretic alliance of Assad-loving, Duginist, LaRouchian Nazis led by Max Blumenthal and Vanessa Beeley, or possibly Glenn Greenwald and Tucker Carlson … or something more or less along those lines (see Ross’ seminal paranoid ravings, which the SPLC was forced to retract by Blumenthal’s fascist legal counsel.) Ross reportedly remains in hiding in a safehouse in an undisclosed location somewhere in the Pacific Northwest, presumably protected by the FBI, while he continues his important work.

    And then there are the notorious Proud Boys, a gang of self-described “Western chauvinists” who apparently haven’t been laid in years. According to the SPLC (which has designated them an official “hate group”):

    There are three degrees of membership within the Proud Boys, and

    to become a first degree in the “pro-West fraternal organization” a prospective member simply has to declare “I am a western chauvinist, and I refuse to apologize for creating the modern world.”

    To enter the second degree, a Proud Boy has to endure a beating until they can yell out the names of five breakfast cereals (in order to demonstrate “adrenaline control”) and give up masturbation because, in theory, it will leave them more inclined to go out and meet women.

    Those who enter the third degree have demonstrated their commitment by getting a Proud Boys tattoo. Any man — no matter his race or sexual-orientation — can join the fraternal organization as long as they “recognize that white men are not the problem.”

    Such is the caliber of the cast the Resistance are featuring in their “fascism” fantasy. As you can see, it’s not exactly the A-list. If they’re going to stick with the “fascism” hysteria from now until November 2020 (which is really the only option they have left, what with “Russiagate” having blown up in their faces), the least they can do is get some real Nazis, and some semi-respectable Nazi hunters, and cut out this pathetic Portlandia nonsense.

    The Resistance owes liberals at least that much, especially after making them look like fools by leading them on for three years with their ridiculous “Russiagate” hysteria. Sure, the “fascism” hysteria is an easier sell, but that doesn’t mean they don’t have to sell it. It’s not like they can just abruptly switch from the “Russiagate” narrative to the “fascism” narrative (as if their Russiagate hoax had not just been exposed) and expect liberals to go along with it like the members of some enormous cult.

    Or, I don’t know … maybe they can. The New York Times certainly appears to think so. Check out this exchange between executive editor Dean Baquet and an anonymous staffer at an emergency in-house “town hall” meeting convened after The Times changed a page one headline because it didn’t paint Trump as racist enough. (The transcript is Slate’s; emphasis is mine.)

    Staffer: I’m wondering what is the overall strategy here for getting us through this administration and the way we cover it … people don’t understand. I think they get confused as to what we’re trying to do.

    Baquet: OK. I mean, let me go back a little bit for one second to just repeat what I said in my in my short preamble about coverage. Chapter 1 of the story of Donald Trump, not only for our newsroom but, frankly, for our readers, was: Did Donald Trump have untoward relationships with the Russians, and was there obstruction of justice?That was a really hard story, by the way, let’s not forget that. We set ourselves up to cover that story. I’m going to say it. We won two Pulitzer Prizes covering that story. And I think we covered that story better than anybody else.

    The day Bob Mueller walked off that witness stand, two things happened. Our readers who want Donald Trump to go away suddenly thought, “Holy shit, Bob Mueller is not going to do it.” And Donald Trump got a little emboldened politically, I think. Because, you know, for obvious reasons. And I think that the story changed. A lot of the stuff we’re talking about started to emerge like six or seven weeks ago. We’re a little tiny bit flat-footed. I mean, that’s what happens when a story looks a certain way for two years. Right?

    I think that we’ve got to change. I mean, the vision for coverage for the next two years is what I talked about earlier: How do we cover a guy who makes these kinds of [racist] remarks? How do we cover the world’s reaction to him? How do we do that while continuing to cover his policies? How do we cover America, that’s become so divided by Donald Trump? How do we grapple with all the stuff you all are talking about? How do we write about race in a thoughtful way, something we haven’t done in a large way in a long time? That, to me, is the vision for coverage. You all are going to have to help us shape that vision. But I think that’s what we’re going to have to do for the rest of the next two years.

    For anyone not entirely fluent in Pulitzer-winning Professional Journalism Speak, that translates roughly as “OK, no more Russia stuff. We’re switching to the fascism and racism stuff, and we’ll be hammering on it until Trump is history.”

    Which is fine with me. I don’t like Donald Trump. And Americans are certainly racists … uh, working class Americans, that is. Sorry, white working class Americans, not Black people, or the staff of The New York Times, or the neoliberal ruling classes. Unless they’re disabled, or houseless, or Latino, or indigenous, or LGBTQ (i.e., the white working class Americans, not the ruling classes). In which case, they get a pass on the racism. But the rest of us are all white supremacists, and homophobic anti-Semites, and xenophobic racist transphobes, and … well, basically, a bunch of Nazis.

    What? You don’t believe that most white Americans are Hitler-loving, Sieg-heiling Nazis who want to mass murder all the Jews and the Mexicans and re-enslave all the African Americans? How do you think Donald Trump got elected? Somebody stole the presidency from Clinton. If it wasn’t the Russians, it had to be the fascists! I mean, after all, who else is there?

  • Beijing Says Missing Hong Kong Consulate Employee Arrested For Visiting Prostitute

    The Hong Kong consulate employee who vanished two weeks ago after attending a conference across the border in Shenzen was reportedly detained after visiting a prostitute, according to a report in a Chinese newspaper that was cited by Bloomberg.

    Simon Cheng, the 28-year-old employee at the UK consulate in Hong Kong, mysteriously vanished after alerting his girlfriend via text that he was having issues re-entering Hong Kong following the conference. “Pray for me,” was purportedly the last thing he sent her before going silent.

    Cheng has already been in custody for two weeks. Amusingly, the consulate said nothing about Cheng’s disappearance and detention until it was seemingly forced to issue a statement after Cheng’s girlfriend went to the press. Beijing initially denied that Cheng was in custody, but on Wednesday, the foreign ministry admitted that Cheng was being held under a 15-day administrative detention over what it described as a “domestic issue.”

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    Simon Cheng

    Now, those 15 days are nearly up (Friday marks day 15), and police in Shenzen, who apprehended Cheng are offering more details about his detention.

    Cheng “violated the 66 article of China’s law on administrative penalties for public security, which states that people who engage in prostitution or visit prostitutes shall be detained for no less than 10 days but no more than 15 days,” the Global Times newspaper said. The paper also insisted that Cheng asked police not to notify his family about his detention. It’s still not clear whether Cheng is a native of Hong Kong or if he was born and raised elsewhere.

    Unsurprisingly, BBG reported that the CPC has often used charges of visiting prostitutes as a catch-all to detain Hong Kongers traveling in mainland China.

    Allegations of visiting prostitutes have later proved false in other instances where Hong Kong residents have been detained in China. A Hong Kong lawmaker apologized after accusing bookseller and Communist Party critic Lee Bo of visiting prostitutes, the South China Morning Post reported in 2016.

    Separately, allegations of sexual impropriety have appeared alongside political corruption charges in the trials of senior Chinese politicians Bo Xilai, Zhou Yongkang and Sun Zhengcai.

    Meanwhile, GT editor-in-chief Hu Xijin accused the western media of politicizing Cheng’s case, claiming that the media have now “ruined” him, and that the understanding local party functionaries had been willing to try and limit damage to his reputation…

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    …But this account, which makes little sense, was widely mocked in the replies to Hu’s tweet.

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    Cheng’s girlfriend and his family reportedly filed a missing persons report with the Hong Kong police after Cheng disappeared on his way back from a trade fair in Shenzen.

    Looks like he’s going to have some explaining to do when he finally gets back to Hong Kong (assuming he isn’t held indefinitely on espionage charges like a former Canadian diplomat and a China-based Canadian businessman).

  • San Francisco Board Rebrands 'Convicted Felons' As 'Justice-Involved Persons' Or 'Formerly Incarcerated'

    Convicted felons in San Francisco may have broken the law, but they’ll get to keep their dignity after the city’s Board of Supervisors adopted new, sanitized language describing them as ‘justice-involved persons’ or ‘formerly incarcerated.’ 

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    Under the city’s new “person first” language guidelines, the words “felon,” “convict,” “addict,” “offender,” and “juvenile delinquent” are no-no’s. Instead, those who have paid their debt to society will be referred to as a “returning resident.” Those on parole will be known as ‘persons under supervision.’

    And a juvenile “delinquent” will now be known as a “young person with justice system involvement,” or a “young person impacted by the juvenile justice system,” according to the San Francisco Chronicle. Drug addicts are now “a person with a history of substance abuse.” 

    “We don’t want people to be forever labeled for the worst things that they have done,” according to Supervisor Matt Haney. 

    Haney was one of 10 supervisors (Gordon Mar was absent) who voted for the new guidelines, which Supervisor Sandra Lee Fewer proposed.

    According to the resolution, 1 of 5 California residents has a criminal record, and words like “prisoner,” “convict,” “inmate” or “felon” “only serve to obstruct and separate people from society and make the institutionalization of racism and supremacy appear normal,” the resolution states.

    “Inaccurate information, unfounded assumptions, generalizations and other negative predispositions associated with justice-involved individuals create societal stigmas, attitudinal barriers and continued negative stereotypes,” it continues.

    “We want them ultimately to become contributing citizens, and referring to them as felons is like a scarlet letter that they can never get away from,” Haney said. –San Francisco Chronicle

    Police spokesman David Stevenson says the department has “made our members aware of the resolution and are researching possible impacts on operations and communications,” while the DA’s office is on board with the plan. 

    The language resolution makes no mention of terms for victims of crime, but using the new terminology someone whose car has been broken into could well be: “A person who has come in contact with a returning resident who was involved with the justice system and who is currently under supervision with a history of substance use.”

    In other words, someone whose car was broken into by a recently released offender, on parole with a drug problem. –San Francisco Chronicle

    SF Mayor London Breed hasn’t signed off on the new language proposal, as she “doesn’t implement policies based on nonbinding resolutions, but she is always happy to work with the board on issues around equity and criminal justice reform,” according to her spokesman. 

  • Cryptocurrencies Are Used To Buy Illicit Drugs, Warns White House

    Cryptos, bad; crypto-users, “drug-using terrorists”; USDollar, good; USDollar-users, patriots.

    That appears to be the message in a new statement from The White House on the links between America’s opioid epidemic and cryptocurrencies.

    As CoinTelegraph’s Liam Frost reports, on Aug. 21, the White House issued two advisories regarding illicit drug purchases in the United States that contain references to the specific cryptocurrencies allegedly used as a part of this process.

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    image courtesy of CoinTelegraph

    The advisories were addressed to various financial institutions as well as digital payments platforms. The documents state:

    “An analysis of sensitive financial data indicates that domestic illicit drug manufacturers, dealers, and consumers use online payment platforms or CVC to purchase precursor chemicals or completely synthesized narcotics primarily sourced from China.”

    White House: crypto used to pay for foreign drugs

    In the context of the documents CVC refers to “convertible virtual currencies,” particularly Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH) and Monero (XMR). The drug fentanyl is also noted specifically in the advisories:

    “Similar to purchases from a foreign source of supply using MSBs or online payment processors, individuals located in the United States search for fentanyl and identify potential websites that may provide the opportunity to purchase illicit drugs online. Foreign representatives will instruct the U.S.-based individual to send payments through CVC, such as bitcoin, bitcoin cash, ethereum, or monero.”

    Financial institutions are advised to collect crypto data

    The advisories also note that “CVC transactions generate a significant variety of information elements that may be extremely useful to law enforcement.” 

    Therefore, financial institutions are recommended to collect these details in case of any suspicion, including “virtual currency wallet addresses, account information, transaction details (including […] hash), relevant transaction history, available login information (including IP addresses), information obtained from analysis of the customer’s public online profile and communications, mobile device information,” etc.

    As Cointelegraph reported last month, U.S. Department of the Treasury Steven Mnuchin said that the authority will be preventing Bitcoin from becoming an “equivalent of Swiss-numbered bank accounts.”

    Previously, Mnuchin also stated that he shares President Donald Trump’s concerns on the use of cryptocurrency to finance illicit activity.

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    While the clear angle of The White House fearmongering, scapegoating, finger-pointing statement is to ensure cryptos are de-anonymized and painted as traitorous, one wonders what all those drug-hungry ‘terrorists’ did before cryptos? We ask because we know – since TreasurySec Mnuchin told us – that the US Dollar is NOT used ever for nefarious transactions…!

    Everything that Mnuchin attributed to Bitcoin – for one thing, that it has been used in concert with such “illicit activity [as] cyber crime, tax evasion, extortion… illicit drugs, and human trafficking” – can be said, and to degrees an order of magnitude or more larger, about the U.S. dollar. It’s an argument suitable for children.

    Mnuchin would be well advised to leave market forces to work in their inexorable march toward increasingly sound, more functional iterations of cryptocurrencies and other decentralized digital assets, and to shift his attention toward the countless political factors that are eradicating the last vestiges of faith and credit in the dollar. If the current path is maintained (and quite possibly even if it isn’t), the future belongs to truly “dependable and reliable” monetary media: cryptocurrencies and precious metals. 

    The sudden panic, following Libra’s white paper release, among establishment types is interesting. Amid clear dollar liquidity shortages and cornered central banks around the world, is this starting to set the stage for the next mega-crisis and the end of the dollar?

  • "They Let The Criminals Go": China Furious At Chaotic Scenes From HK Metro Station Unrest

    Another Hong Kong protest ‘sit-in’ turned into a violent scrap with police as on Wednesday night thousands of black-clad youth and others set up barriers and occupied the Yuen Long station of the city’s MTR metro. 

    The protest was to mark the one-month anniversary of what anti-Beijing demonstrators are calling the the ‘Yuen Long attack,’ which involved a gang of white-shirted, baton wielding men charging the busy station and brutally beat random HK demonstrators and passers-by who were on their way back from a mass rally against the extradition bill.

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    Wednesday’s protest marked a July 21st incident at the same location involving white-shirted thugs attacking anti-Beijing protesters with batons. Image source: Reuters

    That prior July 21 incident had left at least 45 injured and ratcheted up anger and tensions between HK police and protesters, given the police were accused of standing by while the unknown thugs attacked the station, and the lack of charges or a transparent investigation into the mass attack (merely two have been charged thus far). It was widely interpreted as a sanctioned violent counter-attack against the anti-Beijing demonstrators designed to send a message. 

    Wednesday night’s commemoration protest turned into hours of chaos after the demonstrators barricaded themselves in the metro station, with police concentrated outside the station, reluctant to charge in.

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    Trash cans and metal benches were piled together into barricades to block police from entering, as security forces fired tear gas into the station. Liquid was also sprayed on the floor and many demonstrators were armed with fire extinguishers. 

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    Below: Footage from the violent July 21st incident at Yuen Long station, when a group of men believed in cahoots with police charged the station as HK protesters were returning from a rally, resulting in at least 45 injured amid blood-spotted floors:

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    On July 21st the MTR station came under attack by a gang targeting participants in an extradition bill march, via SCMP.

    Crucially, with the exterior of the station completely blocked off by police, Hong Kong’s MTR Corp. actually appeared to facilitate the safe exit of protesters at the Yuen Long station. Instead of leaving through the barricades and thus face arrest, the anti-Beijing protesters were simply able to board a waiting train and exit the largely destroyed premises. 

    This was enough for state-run China Central Television (CCTV) to level charges of “indulging violence” and “challenging rule of law”. Images and video of HK protesters taking over the station and fighting off police but getting off unscathed went viral, angering mainland commentators. 

    Chinese state media HK civic authorities of turning a blind eye to law-breaking anti-Beijing protesters:

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    Communist Party-owned China Daily, for example, condemned what it described as follows: 

    Ironically, the MTR chose to let the criminals go by opening train doors to aid their escape from the scene. This utter disrespect of public order is irresponsible for public safety.

    Indeed, video captured the moments the bulk of the protesters effortlessly stepped aboard the train and called it a night after clashing with police, concealing their exit with fire extinguishers amid the chaotic scene. 

    The HK protesters are increasingly attempting to occupy public infrastructure vital to the functioning of the city as an economic powerhouse, which would give greater leverage in seeing their anti-Beijing demands met. 

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    Images of metro station takeovers and similar acts, however, will be used as justification for if and/or when a mainland security forces crackdown comes inside the semi-autonomous city. 

  • Investors Dilemma: Pavlov's Dogs & The Ringing Of The Bell

    Authored by Lance Roberts via RealInvestmentAdvice.com,

    Classical conditioning (also known as Pavlovian or respondent conditioning) refers to a learning procedure in which a potent stimulus (e.g. food) is paired with a previously neutral stimulus (e.g. a bell). What Pavlov discovered is that when the neutral stimulus was introduced, the dogs would begin to salivate in anticipation of the potent stimulus, even though it was not currently present. This learning process results from the psychological “pairing” of the stimuli.

    What does this have to do with investing. Let’s start with a tweet I got recently in response to the article “Fed Trapped In A Rate Cutting Box.”

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    This is a great example of “classical conditioning” with respect to investing.

    In 2010, then Fed Chairman Ben Bernanke introduced the “neutral stimulus” to the financial markets by adding a “third mandate” to the Fed’s responsibilities – the creation of the “wealth effect.”

    “This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose, and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

    – Ben Bernanke, Washington Post Op-Ed, November, 2010.

    Importantly, for conditioning to work, the “neutral stimulus,” when introduced, must be followed by the “potent stimulus,” for the “pairing” to be completed. For investors, as each round of “Quantitative Easing”was introduced, the “neutral stimulus,” the stock market rose, the “potent stimulus.” 

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    More than 10-years, and 300% gains later, the “pairing” has been completed.

    The brutal lessons taught to investors in 2008, the last time the Fed cut rates, has been replaced by the “salivary response” to the “Fed ringing the bell.”  

    “Markets, as would be expected, tend to rally after rate cuts, because those policy actions translate into lower borrowing costs for individuals and corporations and tend to support higher moves for stocks.” – MarketWatch

    Not surprisingly, the markets jumped on Monday and Wednesday as Trump, and the Fed, once again rang “Pavlov’s bell.”

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    Ring the bell. Investors salivate with anticipation.

    However, let’s review why the Fed is implementing “emergency measures.”

    In 2010, when Bernanke made his now famous statement, the economy was on the brink of potentially slipping back into recession. The Fed’s goal was simple, ignite investors “animal spirits.”

    “Animal spirits” came from the Latin term “spiritus animalis” which means the breath that awakens the human mind. Its use can be traced back as far as 300BC where the term was used in human anatomy and physiology in medicine. It referred to the fluid, or spirit, that was responsible for sensory activities and nerves in the brain. Besides the technical meaning in medicine, animal spirits were also used in literary culture and referred to states of physical courage, gaiety, and exuberance.

    It’s modern usage came about in John Maynard Keynes’ 1936 publication, “The General Theory of Employment, Interest, and Money,” wherein he used the term to describe the human emotions driving consumer confidence. Ultimately, the “breath that awakens the human mind,” was adopted by the financial markets to describe the psychological factors which drive investors to take action in the financial markets.

    The 2008 financial crisis revived the interest in the role that “animal spirits” could play in both the economy, and the financial markets. The Federal Reserve, then under the direction of Ben Bernanke, believed it to be necessary to inject liquidity into the financial system to lift asset prices to “revive” the confidence of consumers. The result of which would evolve into a self-sustaining environment of economic growth.

    “Bernanke & Co.” were indeed successful in fostering a massive lift to equity prices which, in turn, did correspond to a lift in the confidence of consumers. (The chart below shows the composite index of both the University of Michigan and Conference Board surveys. Shaded areas are when the index is above 100)

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    Unfortunately, despite the massive expansion of the Fed’s balance sheet and the surge in asset prices, there was relatively little translation into wages, full-time employment, or corporate profits after tax, which ultimately triggered very little economic growth.

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    The problem is the “transmission system” of monetary policy collapsed following the financial crisis.

    Instead of the liquidity flowing through the system, it remained bottled up within institutions, and the ultra-wealthy, who had “investible wealth.” However, those programs failed to deliver a boost to the bottom 90% of American’s who continue to live paycheck-to-paycheck.

    The failure of the flush of liquidity to translate into economic growth can be seen in the chart below. While the stock market returned in excess of 100% since the 2007 peak, that increase in asset prices was nearly 5x the growth in real GDP, and roughly 3x the growth in corporate revenue. (I have used SALES growth in the chart below as it is what happens at the top line of income statements and is not as subject to manipulation.) 

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    Given that asset prices should be a reflection of economic and revenue growth, the deviation is evidence of a more systemic problem.

    The Ringing Of The Bell

    In reality, “Animal Spirits” is simply another name for “Irrational Exuberance.” The chart below shows the stages of the previous bull markets and the inflection points of the appearance of “Animal Spirits.” 

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    Not surprisingly, the appearance of “animal spirits” has always coincided with the latter stages of a bull market advance and is always coupled with overvaluation, high levels of complacency, and high levels of equity ownership.

    There is a difference this time.

    There is an old Wall Street adage:

    “No one rings the bell at the top.” 

    Consider this. What if the “bell” that is ringing isn’t the Fed’s “Q.E. bell?”

    As I noted last week, the Fed is cutting interest rates as concerns over economic growth are rising. The push to cut rates is also occurring at a time when the yield curve is “inverted.” Historically speaking, this is the “bell ringing at the top.”

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    Interestingly, instead of investors being concerned about the level of “equity risk” they are currently exposed to, they are instead “salivating” at the possibility of more “neutral stimulus” (QE and lower rates.) 

    This is an interesting conundrum for investors.

    The “ringing of the bell” over the last decade has trained investors to rush into equity-related risk. However, as I noted previously, the economic and fundamental backdrop is vastly different today than what it was then.

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    Again, what if the “the bell” investors are hearing isn’t the one they think it is?

    As David Einhorn once stated:

    “There was no catalyst that we knew of that burst the dot-com bubble in March 2000, and we don’t have a particular catalyst in mind here. That said, the top will be the top, and it’s hard to predict when it will happen.”

    This is a crucially important point.

    Currently, investors are as hopeful about the future of the equity market as they have ever been.

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    Why shouldn’t they be with the S&P 500 within a few percentage points of all-time highs?

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    However, once you start looking beyond the “mega-cap driven” S&P 500 index, a more worrisome picture emerges. Small and Mid-Capitalization stocks are significantly off their peak. Since small and mid-cap companies are more affected by changes in the domestic economy (and aren’t big stock repurchasers)such suggests there is cause for concern.

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    The same holds for rest of world as well.

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    Besides the stock market, economically sensitive commodities also have a tendency to signal changes to the overall trend of the economy given their direct input into both the production and demand sides of the economic equation.

    Oil is a highly sensitive indicator relative to the expansion or contraction of the economy. Given that oil is consumed in virtually every aspect of our lives, from the food we eat to the products and services we buy, the demand side of the equation is a tell-tale sign of economic strength or weakness. The chart below shows oil prices relative to economic growth, inflation, and interest rates (combined into a composite index.)

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    One important note is that oil tends to trade along a well defined trend, until it doesn’t. Given that the oil industry is very manufacturing and production intensive, breaks of price trends tend to be liquidation events which have a negative impact on the manufacturing and CapEx spending inputs into the GDP calculation.

    As such, it is not surprising that sharp declines in oil prices have been coincident with downturns in economic activity, a drop in inflation, and a subsequent decline in interest rates. The drop in oil prices is also confirming the message being sent by the broader market as well.

    The rise in the dollar over the last several weeks already suggests that foreign capital is flowing into the U.S. dollar for safety as the rest of the globe slows. This will accelerate as global markets decline, and foreign capital seeks “safety” in U.S. Treasuries (the global storehouse for reserve currencies). 

    The surge in “negative rates” globally is another warning sign that something has broken economically. As the economy slips into the next recession, domestic interest rates will continue to fall as “safety” becomes the priority over returns.

    From the equity perspective, this is a time to consider reducing risk.

    The evidence continues to mount the “bell has been rung.”

    It just isn’t the “bell” that most investors are salivating for.

  • China Threatens US Currency Intervention Would Lead To "Market Turmoil" And "Unprecedented Political Fallout"

    When, for the first time in 11 years, Jerome Powell cut the Fed Funds rate by 25bps on July 31, something unexpected happened: the dollar spiked (in fact, the trade weighted dollar soared to a record high). And not only did the dollar spike as a result of a market that screamed to Powell “long overdue policy error”, coupled with a growing dollar liquidity shortage which according to BofA and JPM will force the Fed to launch QE before long, but it was hit by a double whammy when it fell even further against the yuan just a few days later after Trump launched trade war. In fact, the yuan is now the lowest it has been against the dollar in 11 years. Worse, while the yuan dropped against its basket of reference currencies, the decline was far steeper against the greenback, suggesting that this was a premeditated, political move. That rapid devaluation prompted many banks (such as Bank of America, Standard Chartered and others) to speculate that it is only a matter of time before the US directly intervenes in the market to devalue the dollar against specific pairs (selling dollars, buying the reference currency), and especially against the Yuan.

    That threat has not been lost on Beijing, and as the FT reports today, top Chinese bankers in London have warned of the “drama” that would follow any US attempt to weaken the dollar by intervening in renminbi markets — a move that would be seen by Beijing as a “political act.” A hostile “political act.”

    Yet such an act looks increasingly likely after Trump has repeatedly taken aim at China (and Europe) both on Twitter and elsewhere for “playing currency games” as the trade war has morphed into a currency war, if not a full-blown one yet.

    The first shot in that particular currency war took place earlier this month when the US Treasury officially branded China a currency manipulator after the Chinese central bank allowed the renminbi to fall below Rmb7 to the dollar, a key threshold last breached in 2008, leading to further escalation in trade tensions. On Thursday the renminbi was trading at a fresh low of 7.09, with the both the offshore and onshore versions having once again converged.

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    And so, with the yuan drifting lower day after day, one senior staffer at a London-based Chinese bank told the FT that the US could intervene in the offshore renminbi market, where the currency is traded more freely than on the mainland. But, he warned, “the consequences could be serious.”

    “If you take on China on the currency . . . it would be interpreted as a political act and it would throw markets into turmoil,” said the senior staffer, speaking on condition of anonymity. The political fallout would be “unprecedented”, he added.

    The US, predictably, has far less qualms about intervening: “We are getting closer to terms where intervention is possible,” said Eaton Vanceco-director of global income and portfolio manager, Eric Stein. The only thing missing is a trigger, which likely will come in the form of a tweet from the president.

    But what will the US target? the list of possible targets for US intervention is broad, said Bank of America Merrill Lynch strategist Ben Randol, and includes the euro, Japan’s yen, the Mexican peso and, most likely, the Chinese yuan.

    “If an intervention does go ahead, I think the US would probably target specific currencies such as the renminbi, rather than attempt to achieve broad-based dollar weakness,” said Stephen Oh, global head of credit and fixed income at PineBridge Capital, which manages $97bn of assets.

    The next question is how big would the US salvo be? Well, as we explained recently, the US could deploy up to $146 billion if intervention was launched, the combination of the Treasury’s Exchange Stabilization Fund and the central bank’s firepower.

    “The Fed could just buy up all the offshore renminbi. It’s so illiquid that [they] could drive prices [higher] easily,” said Jon Vollemaere, chief executive of R5FX, a trading platform focused on emerging markets. Such a move could have an immediate impact on prices; it would also ensure a violent response from Beijing.

    To be sure, the political fallout would be unprecedented. A unilateral move by the US – highlighted in the middle column in the Morgan Stanley table below – would inflame not just policymakers in Beijing but in Europe too, as Washington could be deemed to be in breach of the commitment among G20 nations to avoid competitive devaluations.

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    And speaking of Morgan Stanley, the bank’s analysts said in a report this week that the market may be “underestimating the ease with which the US can intervene unilaterally, and we estimate the administration has US$67.8 billion at its disposal to do so. Resources beyond that would require the Fed, Congress or foreign partners to participate.”

    The final question is what would China do in response? While the PBOC would likely move swiftly to counter any US-led buying of the renminbi, implementing restrictions on the offshore currency would be very costly for Beijing, which unlike the US, can not simply print dollars and would have to raid its currency reserves to offset any direct US currency intervention “It would be a massive . . . loss of face for China if they were forced to impose capital controls,” Vollemaere said.

    So how likely is that the US and China would launch all out currency war at each other in the FX market?

    Last month US Treasury secretary Steven Mnuchin said there was no change “as of now” to America’s currency policy but added that a different stance could be considered in the future. To be sure, investors are growing more cautious and are increasingly unwilling to short the yuan over fears of a surprise intervention by the US. One head of a currency trading platform that serves US hedge funds told the FT that his clients have begun to stay away. “They don’t want to be on the wrong side of the Fed.” Something tells us that neither does China.

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