Apr 25

Today’s News 25th April 2022

  • Global 'Fake Goods' Market Now Bigger Than Ireland's Economy
    Global ‘Fake Goods’ Market Now Bigger Than Ireland’s Economy

    Shoes, clothing, handbags, electronics: While trading items infringing on international intellectual property laws is illegal, the corresponding market has been bustling over the last couple of years.

    As Statista’s Florian Zandt details below, according to data from the Global Trade in Fakes report by the OECD and EUIPO, trading with counterfeit goods amounted to roughly $449 billion in 2019. As our chart comparing this amount to 2019 GDP figures of selected OECD countries and regions shows, selling fake sneakers, watches and clothes is about as lucrative as running a mid-sized European country.

    For example, Ireland’s economy generated approximately $431 billion according to OECD data, while Portugal claimed seventh place among the organization’s member states with $372 billion. Interestingly, the market size of the trade with fake goods is also in roughly the same ballpark as Hong Kong’s GDP of $466 billion, which is itself responsible for around 20 percent of the value of seized items between 2017 and 2019.

    Infographic: Fake Goods Market Worth More Than Ireland's Economy | Statista

    You will find more infographics at Statista

    In that period, the former and China combined for almost 80 percent of volume and around 90 percent of value of the trade with fakes. Turkey, Singapore and the United Arab Emirates placed third, fourth and fifth in terms of value, respectively, while Turkey stood out due to its contribution of roughly 10 percent to the total volume of seized goods. The authors of the report go on to note that this doesn’t necessarily mean that the fakes originated in these economies, but rather that these states also could have served as a point of transit for said items.

    According to the publication, the trade with counterfeit or pirated goods made up 2.5 percent of the world trade and roughly six percent of imports into the European Union in 2019. Even though the report doesn’t give concrete numbers, the global pandemic also impacted this specific market, with border closings and limited production capacities leading to an increased influx of counterfeit pharmaceuticals and personal protective equipment like masks, gloves and sanitizers.

    Tyler Durden
    Mon, 04/25/2022 – 02:45

  • The Coming Removal Of The Mandate Of Heaven, Part 0: China's Founding Myths
    The Coming Removal Of The Mandate Of Heaven, Part 0: China’s Founding Myths

    By Eric Mertz of the General Crisis Watch Substack,

    Read The Coming Removal Of The Mandate Of Heaven, Part 1: Food here…

    Read The Coming Removal Of The Mandate Of Heaven, Part 2: Water here…

    China’s Founding Myth

    If you want to understand any culture, you must start by studying the myths the culture believes about its founding. In China’s case, this means turning to Han Dynasty historian Sīmǎ Qiān and his seminal work on the subject, The Records of the Grand Historian. One of the first works to attempt a unified history of China from the time of the Yellow Emperor to the 1st Century BC, The Records of the Grand Historian virtually created the China we know today.

    The Sīmǎ family had long served as historians and academic advisors to the Han Dynasty, and maintained the records which Qiān would use to compile his work – most of which didn’t survive. He also had access to the bureaucracy which the Song Dynasty had created, and was able to easily travel across China and interview people throughout the Empire.

    Out of his life’s work, we get a unified – if somewhat mythological – history of China which dates back to the Yellow Emperor in 2965 BC.

    Yellow Emperor

    The earliest figure in Chinese folklore whom Sīmǎ Qiān figured was a real being rather than a mythical figure, the Yellow Emperor was born to the king or chief of a tribe located near modern Tianshui in Ginsu province. He would unite all the kingdoms and tribes of the central plains in a battle against a rival named Chīyóu who held nine peoples under his sway.

    The Yellow Emperor would lead his coalition to victory and then took them to Mount Tai near Tai’an in Shandong province. There, he led the kings and chieftains in the performance of rites and sacrifices to the Jade Emperor – the chief deity in most Chinese folk religions – and divided up the land between these leaders and their peoples.

    Emperor Yu

    A great-grandson of the Yellow Emperor, the last of the Five Emperors from the mythical Three Sovereigns and Five Emperors, and the founder of the mythical Xia Dynasty, Yu was not born to the previous Emperor – Shun – but rather to one of the administrators of the state.

    At the time, China’s central plains were subjected to horrific flooding which frequently killed large percentages of the population and devastated the land – often setting back civilization for years with every subsequent flood. Yu’s father had previously been in charge of solving this problem, which he attempted to do using a series of immensely tall dikes meant to contain the water.

    However, this failed to solve the problem. When Yu came of age, his father handed the position to him with the same mandate – tame the rivers and stop the floods. Yu ordered an extensive series of irrigation canals to be constructed which would safely disperse the water across the entire country. He also ordered the rivers to be dredged so as to increase the capacity of the rivers.

    For the thirteen years it took to complete the project, Yu spent his time out in the field with the workers and supervisors, eating and sleeping with the men and helping to do the physical labor when he wasn’t needed elsewhere. Apocryphal stories claim Yu’s hands and feet were thickly calloused, and that he was only married for four days before he took his post as the minister for taming the rivers – spending those thirteen years only passing by his house three times.

    Upon completion of the project, Yu was hailed as a great hero throughout China and was brought before Emperor Shun. Having already deemed his own son unsuitable for the throne, Emperor Shun named Yu his heir. The legends claim Yu originally declined the role, believing himself unworthy, only for a general acclimation from the people to compel him to take up the position of Crown Prince.

    When Emperor Shun died, Yu took the throne and founded the Xia Dynasty.

    Fall of the Xia Dynasty

    Legend says the Xia Dynasty would hold dominion over the central plains of China for the next 400 years, until Jie was crowned Emperor in 1728 BC. Jie was a lecherous tyrant who ruled arbitrarily and without wisdom, striking fear into his people through his willingness to slaughter entire populations should their lord defy him in even the smallest manner. He was known to have extremely jaded tastes, commanding the food given to him coming only from particular locations, and a severe case of alcoholism.

    These instincts were not helped by his favorite concubine – Mo Xi. Beautiful, yet as depraved and immoral as they came, Mo Xi encouraged Jie to hold orgies where slaves would forced to debase themselves for the Emperor’s pleasure. She convinced the Emperor to build a lake of wine large enough for the Emperor’s pleasure barge to sail upon – and then ordered three-thousand slaves to drink it dry. When they drowned after becoming drunk and falling into the lake, Mo Xi is reported to have declared it the funniest thing she’d ever seen.

    A few of the sources used by Sīmǎ Qiān claim this cruelty was not her natural state, but rather a plot to overthrow Jie. The Bamboo Annals and the Guoyu both claim Mo Xi was plotting with the vassal state of Shi to bring down an Emperor who was thought to be a danger to the state and the people, and that she was acting to force the vassal lords’ hands and provoke a rebellion.

    If that was truly her intention, she succeeded.

    One of the Xia Dynasty’s vassals, the Kingdom of Shang, had been growing in power for the past few decades – attaining loyalty of 40 other subordinate powers within the Empire. When Jie took the throne and began his reign of terror, the King of Shang used this to solidify his ties and sound out the commanders of the Xia Army.

    In the tenth year of Jie’s reign, China was struck by omens and natural disasters. Drought, bombardment by meteors, earthquakes, floods, frost covered the ground on summer mornings, heat and cold followed one another at random, crops failed, and heavy rains caused landslides and the subsidence of buildings.

    With the omens and disasters building, the King of Shang rallied his allies and led them to do battle with the Xia Dynasty. The rebellion came to a head in Mingtao near the city of Xia, where Jie and his loyalists were defeated once and for all. According to the legends, Shang was found to be of divine lineage going back to Yu – who had been deified by this time – and was proclaimed Emperor Shang Tang by his allies.

    *Its worth noting the historical legends place these disasters around the time of the Thera Eruption in the Mediterranean, pointing to an ancestral memory of real events which were likely the basis for the legend.

    The Mandate of Heaven

    The successful rebellion by King Tang of Shang would set the pattern for the rest of Chinese history. A rebel would rise up against the Emperor and, if the ruling dynasty was too corrupt and decadent, would overthrow the Emperor and establish their own dynasty – only to be overthrown in time.

    As with so many other ancient systems, the legitimacy of the ruler came from their claim to divine blood. The Three Sovereigns who preceded the Five Emperors were all divine beings, and each of the Five Emperors were claimed to have been demigods. Yu, the founder of the Xia Dynasty, could trace his bloodline back to the Yellow Emperor – a demi-god who had attained full godhood after his death – and thus so could all of the Xia Dynasty. The Xia had followed a practice of marrying off daughters to powerful vassals to secure alliances, spreading the divine blood throughout the vassal kingdoms and tribal lands.

    But, if the Xia Dynasty had been given power by the Jade Emperor and ruled with his mandate, how had the Shang Dynasty ever been able to overthrow the Xia Dynasty?

    The answer came from a disciple of Kǒng Fūzǐ (better known in the West as Confucius) named Mèng Kē (Mencius). Known as the Second Sage among Confucian scholars, Mencius became a student of the Confucian school several generations after Confucius’ death – travelling China during the Warring States period and advising the rulers of the various kingdoms which sought to claim the throne after the Zhou Dynasty began to crumble in 475 BC.

    Mencius enshrined the concept of the Mandate of Heaven in the following way:

    The people are of supreme importance; the altars of the gods of earth and grain come next; last comes the ruler. That is why he who gains the confidence of the multitudinous people will be Emperor… When a feudal lord endangers the altars of the gods of earth and grain, he should be replaced. When the sacrificial animals are sleek, the offerings are clean and the sacrifices are observed at due times, and yet floods and droughts come [by the agency of heaven], then the altars should be replaced.

    -Mencius

    This view of the Mandate of Heaven is a highly meritocratic vision of the divine right to rule. So long as the current rulers were just and wise, performing the rites in a pious manner and fulfilling their filial obligations as outlined by Confucius, the Jade Emperor would retain them as the Emperor of China in his name. But, should the ruler grow wicked through decadence and begin to abuse his power, the Jade Emperor would remove that divine right to rule and a new Dynasty would overthrow them and take their place as agents of heaven.

    When the Qing Dynasty was brought to an end in 1912 and the Empire abolished in favor of a Republic, Sun Yat-Sen thought he had broken the wheel of dynastic cycles once and for all – only for Mao and his communists to overthrow Sun’s successor, Chiang Kai-Shek in 1949.

    *  *  *

    Its worth noting, Mao was only able to do so because he left most of the fighting to Chiang and the National Resistance Army. Estimates indicate the NRA suffered casualty rates of close to 200% from fighting the Imperial Japanese Army for the duration of the war. In contrast, the diary of the Soviet Ambassador to Mao – Peter Vladimirov – shows that Mao was more interested in purging disloyal elements within the CCP and hiding in the mountains while the NRA bled itself dry trying to stop the IJA from conquering more territory where they could murder more civilians.

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    Tyler Durden
    Sun, 04/24/2022 – 23:30

  • Visualizing All Electric Car Models Available In The US
    Visualizing All Electric Car Models Available In The US

    America’s electric vehicle (EV) market has surged over the last decade, and it’s only expected to grow further. The Biden administration has allocated billions towards the EV transition in the hopes that by 2030, electric cars make up 50% of all new cars sales in America.

    Given the rising demand, what types of electric car models are available for U.S. consumers to choose from today?

    This graphic from Visual Capitalist’s Omri Wallach and Carmen Ang, using data from Car and Driver and EPA, highlights every single EV that’s available for sale across America, showing the wide range of manufacturers, vehicle types, and prices.

    What Electric Vehicles Are Available in America?

    Currently, there are 28 different electric vehicles available in the U.S., from 18 different manufacturers. Here are their base model statistics:

    As of February 2022. *Indicates EPA data on fuel economy and range was only available for 2021 models.

    At less than $30,000, the Nissan Leaf and Mini Cooper SE are currently the most affordable options for Americans.

    Released in 2010, the Nissan Leaf is one of the oldest EVs on the market. Widely considered a pioneer in the EV space, it’s one of the top-selling electric cars in the U.S.—in 2021, more than 14,000 cars were sold in America.

    While the Leaf’s low price point may be appealing to many, it has the third shortest maximum range on the list at 149 miles before needing a recharge. The only other cars with shorter ranges were the Mini Cooper SE and the Mazda MX-30.

    GMC’s Hummer EV pickup is the most expensive EV on the list, with a base price point of $110,295—however, GMC is planning to release less expensive versions of the Hummer EV over the coming years.

    The only other EV pickup available in the U.S. market in early 2022 is Rivian’s R1T. However, more manufacturers like Ford and Chevrolet are planning to release their own EV pickups, and Tesla’s Cybertruck has been in the works for years.

    The Top EV Manufacturers

    There are a number of domestic and international manufacturers that sell EVs in America, including German manufacturer Audi, Swedish carmaker Volvo, and South Korean manufacturer Kia.

    Here’s a breakdown of the 18 different manufacturers on the list, six of which are U.S. based:

     

    Tesla has the highest number of EV models on the market, with four different vehicles available: the Model S, Model X, Model Y, and the Model 3. It’s one of the few manufacturers on the list that exclusively makes electric cars—the only others being Rivian and Lucid.

    While anticipation has been building around Tesla’s Cybertruck, and murmurs of a cheaper Tesla have been circulating, Tesla’ CEO Elon Musk has confirmed that there will be no new Tesla models released in 2022. The company will instead focus on its existing models for the time being.

    Are U.S. Consumers Ready to Transition to Electric Cars?

    It’s important to note that, while EV adoption in America has increased over the years, the U.S. is still lagging behind other countries. Between 2015 and 2020, America’s EV fleet grew at an annual rate of 28%, while China’s grew by 51%, and Europe increased by 41%.

    Why are so many Americans dragging their feet when it comes to electric cars? According to a survey by Pew Research Center, the cost is a big barrier, as well as concerns over their reliability compared to gas vehicles.

    But with gas prices at all-time highs, and as consumers grow increasingly concerned over the carbon costs of gas vehicles, switching to an electric car may soon be too hard to resist.

    Tyler Durden
    Sun, 04/24/2022 – 23:00

  • Beijing Residents Scramble To Stockpile Food, Essentials As New COVID Outbreak Detected
    Beijing Residents Scramble To Stockpile Food, Essentials As New COVID Outbreak Detected

    Hopes that the CCP might be easing its Shanghai lockdown were dashed this week as authorities loosened restrictions for manufacturers and others businesses, while mostly keeping restrictions on residential areas intact.

    Instead of winding down restrictions in Shanghai, authorities are now scrambling to suppress an outbreak in Beijing which they believe may have been spreading for as long as a week. The capital city reported 22 new local cases on Sunday, its highest daily tally this year.

    While the number of new cases would be considered inconsequential anywhere else, authorities have placed part of Beijing under high alert, cancelling classes in a middle school where cases were detected, with the shutdown expectected to last for at least a week.

    As authorities mobilized to try and curb the spread with mass testing, which has helped to scare locals into bracing for a lockdown, spurring sudden runs on grocery stores and other businesses.

    After masstesting was announced for the central Chaoyang district, photos of empty grocery store shelves flooded social media.

    Chaoyang is the biggest district in Beijing and is home to nearly 3.5 million people.

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    Locals will be required to take three PCR tests during the coming week.

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    On Friday, the city pledged to make “every effort” to deal with provide adequate food supplies, but truck drivers have already been hindered by multiple checkpoints and virus tests, leading to long waits. 

    But Beijing isn’t the only Chinese city facing Shaghai-style lockdowns. City leaders met Saturday evening in Hangzhou, a technology hub best known to westerners as the home of Alibaba, to discuss how they plan to respond after more than 100 new cases were detected in the city since Tuesday.

    In other COVID news, Bloomberg reported Sunday that Foxconn’s factory in Zhengzhou, situated in the Zhengzhou Airport Economy Zone that hosts Foxconn’s iPhone City campus, will continue operating despite the surrounding city facing an indefinite lockdown.

    It goes without saying that a major lockdown in Beijing would have a massive impact on China’s economy, which has seen growth shrivel in the face of the lockdown in Shanghai.

    Tyler Durden
    Sun, 04/24/2022 – 22:00

  • FCC Commissioner Criticizes Apple CEO Tim Cook Over App Store Censorship In China
    FCC Commissioner Criticizes Apple CEO Tim Cook Over App Store Censorship In China

    Authored by Frank Fang via The Epoch Times,

    A Federal Communications Commission (FCC) commissioner has accused Apple CEO Tim Cook of hypocrisy, arguing that his company’s dealings with the Chinese communist regime contradict his words about commitment to human rights.

    “I am concerned that your words in Washington founder upon the harsh reality of your actions in China,” Brendan Carr, the FCC’s senior Republican, wrote in a letter to Cook dated April 20.

    Carr was referring to Cook’s keynote speech at the 2022 International Association of Privacy Professionals (IAPP) Global Privacy Summit on April 12. During his speech, Cook spoke about how “privacy is a fundamental human right” and touted Apple’s “commitment to protecting people from a data industrial complex built on a foundation of surveillance.”

    “Indeed, at the very same time that you were speaking in D.C. about your App Store policies promoting privacy and human rights, your company was continuing its well-documented campaign in Beijing of aggressively censoring apps at the behest of the Communist Party of China,” Carr wrote.

    According to Carr, Apple had done “the bidding of Communist China” by removing Quran and Bible apps, and the Voice of America (VOA) mobile app from its App Store in China. He described Apple’s decision to remove the VOA app, which is congressionally funded, as “deeply troubling.”

    In October 2021, Apple Censorship, a website that tracks apps on Apple’s App Store globally, reported that two apps, Quran Majeed and Bible App by Olive Tree, had been taken down. Apple later told the BBC that Chinese officials had said the apps contained “illegal” religious texts.

    “Apple’s decision to appease the Communist Party of China – an authoritarian regime that the State Department has determined is committing genocide and crimes against humanity – cannot be squared with your representation in Washington that Apple will ‘battle against an array of dangerous actors,’” Carr wrote.

    The Chinese Communist Party (CCP) imposes strict control over its internet and its censors regularly scrub online content that is deemed unfavorable to the communist regime. Washington-based nonprofit Freedom House called China “the world’s worst abuser of Internet freedom” in its Freedom on the Net 2021 report.

    The Voice of America building, in Washington on June 15, 2020. (Andrew Harnik/AP Photo)

    The Chinese regime also blocks many foreign social media and news websites, including YouTube, Facebook, LinkedIn, and Voice of America.

    Apple pulled the crowd-sourced app HKmap.live from its App Store in October 2019, at the height of the pro-democracy movement in Hong Kong. The map app was popular among Hong Kong protesters to avoid direct confrontation with Hong Kong police, who have been heavily criticized for their violent handling of protesters and journalists.

    Carr also criticized global corporations such as Apple for giving “all sorts of reasonable-sounding arguments” to justify their decisions to do business in China. He said these arguments “run headlong into real-world experience.”

    In December 2021, The Information reported that Cook traveled to China in 2016, lobbied Chinese officials, and secured a secretive $275 billion deal with Beijing that involved more investments and working training in China from Apple, citing internal Apple documents. The five-year deal was made to “quash a sudden burst of [Chinese] regulatory actions against Apple’s business.”

    “China is not becoming more open or bending towards freedom because Apple is doing business there. Far from it,” Carr wrote. “Look at Hong Hong. Look at Xinjiang.

    “Continuing to partner with brutal regimes like Communist China only provides them with tacit—if not explicit—support and emboldens those bad actors.”

    Carr concluded his letter by asking Cook to answer a question by April 29 this year.

    “Will Apple allow access to the Voice of America mobile app through its App Store in China, consistent with the fundamental human rights that you articulated in your speech,” Carr asked.

    Rep. Claudia Tenney (R-N.Y.), who reposted Carr’s letter, said she looks forward to hearing what Apple has to say about Voice of America.

    “Big Tech companies like Apple love to profess one set of values to elitist crowds in the U.S., but when push comes to shove, they’re quick to kowtow to the Chinese Communist Party,” she wrote.

    Apple officials didn’t respond by press time to a request by The Epoch Times for comment. 

    Tyler Durden
    Sun, 04/24/2022 – 21:30

  • Rare Breed Triggers Cancels Customers' Orders After "ATF Raided Vendor"
    Rare Breed Triggers Cancels Customers’ Orders After “ATF Raided Vendor”

    Following a January report of a leaked ATF email documenting plans to begin seizing lawfully-owned forced reset and wide-open triggers for AR-15 platforms, Rare Breed Triggers’ vendor was raided by the federal government in late March, according to the company.

    A customer attempting to purchase Rare Breed’s Forced Reset Trigger received an email on April 20 from the company’s customer service team explaining the order was canceled because, on March 25, the ATF raided their vendor, which inhibited them from shipping triggers. 

    “I’m very sorry, but we had to cancel your order. One of our vendors was raided by the ATF on 3/25, which resulted in our inability to ship a number of orders placed around that time. It is important to note that the vendor does not have any customer data. Because we’re unsure exactly when we’ll have the FRT back in stock and ready to ship, we went ahead and refunded your order in full. You should see the refund on your MC ending in XXXX,” Rare Breed’s customer service team told the customer. 

    Here’s the full email:

    One day before the raid, gun advocacy group The Machine Gun Nest (TMGN) pointed out that the ATF declared some Rare Breed’s Forced Reset Triggers “machine guns” in an open letter. 

    As explained by TMGN, forced reset triggers aren’t machine guns:

    But as always, with the ATF and gun control, there’s a larger story here.

    Forced Reset Triggers or FRTs are not machine guns or machine gun parts. They’re semiautomatic triggers. Interestingly enough, in ATF’s letter, they say that what determined that FRT devices are machine guns was that “some FRT devices allow a firearm to automatically expel more than one shot with a single, continuous pull of the trigger.” Keep in mind the use of the word “continuous.”

    “Unless the ATF doesn’t understand the difference between resetting and pulling a trigger, the statement is further evidence of the agency’s underhandedness,” said Firearms Policy Coalition. 

    Let’s compare this finding with the definition of “machine gun” as defined in 26 USC § 5845(b)

    “The term ‘machinegun’ means any weapon which shoots, is designed to shoot or can be readily restored to shoot, automatically more than one shot, without manual reloading, by a single function of the trigger.”

    Notice how the word “continuous” is missing from the legal definition?

    While it is true that FRT devices do increase a shooter’s rate of semiautomatic fire, the FRT does not convert a semiautomatic firearm into a machine gun. Like the name “Forced Reset” implies, the trigger is reset after firing via spring tension and a mechanical assist.

    Nowhere in the definition of “machine gun” is the rate of fire mentioned. By this logic, match triggers, belt loops, and Jerry Miculek’s fingers should be considered machine guns.

    If this situation sounds familiar, that’s because it is—the ATF in 2019 classified bump stock devices in a similar fashion.

    Is the next step for the ATF to go after law-abiding private citizens who bought these triggers legally?

    Tyler Durden
    Sun, 04/24/2022 – 21:00

  • An Old Inuit Hunting Tale That Kills Value Investors
    An Old Inuit Hunting Tale That Kills Value Investors

    By Macro Ops Musings

    Newsflash: Apex predators are hard to kill. But when you live amongst them, you should learn how.

    The native Inuit tribe developed an interesting way of dealing with apex predators. It wasn’t an all-out attack. Nor was it a strategic assault mission under the blanket of night.

    It was simple. It was elementary. But it was potent.

    The Inuit people used the predator’s own biology against them to attract and kill the beast. Of course all the above is legendary folklore and not verified by evidence. But it does translate to markets.

    The stock market does the same thing to traditional value investors. Hungry for yield and “cheapness”, value investors die at the mercy of their own “biology”. Their desire to buy cheap actually kills them.

    But how does this happen? The answer to that question lies in the ancient Inuit practice of killing wolves.

    How Inuits Kill Wolves

    Native Inuits lived with wolves. Wolves are fierce, work in packs and take no prisoners. They’ll eat one another if they’re hungry enough. Wolves are also large predators. The average wolf spans 4-6ft long and weighs upwards of 180lbs.

    Challenging them head-to-head is a losing battle.

    Knowing this, the Inuit people devised a strategy for killing these beasts. The plan was simple: take a knife, dip it in blood, freeze it and tie it to a pole.

    Wolves love the scent of blood. It means there’s a potential meal around. The blood scent would attract the wolf to the frozen knife. From here, the wolf would lick the frozen blood off the knife. Each lick melted the hydrated exoskeleton, bringing the wolf’s own tongue closer to the knife’s blade. It wouldn’t take long for the knife to melt, exposing the sharp blade. At that point, each lick cut the wolf’s tongue, which in turn made it bleed.

    But here’s the kicker: the wolf couldn’t tell the difference between its own blood and the frozen blood on the knife.

    To the wolf, it only tasted more blood. Which motivated it to lick even more!

    You can extrapolate what happens next. The wolf keeps licking, oblivious to its own loss of blood. Over time, the wolf dies with a ravaged tongue and an empty stomach.

    The Value Investors’ Knife Of “Cheapness”

    When I first heard this story, I couldn’t help but think, “that sounds a lot like traditional value investors right now.” The scent of low P/Es. The allure of high dividend yields. These aren’t bad characteristics by themselves. But what company are they frozen to? That’s what’s important.

    The market is generally efficient at valuing businesses over the long-term. In other words, the market does well at distinguishing a knife dipped in blood from actual prey.

    But every so often Mr. Market gets it wrong. The company he thought was a knife dipped in blood is actually a healthy young calf — the perfect meal. This event — finding that one gem in a pile of crap — keeps investors attracted to the knife.

    Why? Buying cheap permeates our everyday life. We buy clothes on sale, food in bulk and clip coupons. All in the name of value. Those are all good traits. But do they translate well to markets?

    It depends.

    When It’s Cheap For A Reason

    Value investors claim you should buy stocks the way you buy produce. Load up when your favorite item goes on sale.

    Here’s what many miss from that quote: “favorite item”. Most cheap stocks are cheap for a reason. Those jeans that are on sale? They feel like sandpaper on your skin. That steak is 40% off? It’s all fat and connective tissue.

    The combination of discounted price plus high-quality merchandise is hard to find.

    It’s not enough to look for bargains. You must look for bargains on merchandise (stocks) that actually have value.

    Which brings us back to the blood-soaked knife tactic.

    Don’t Bleed To Death

    Markets are nasty. They’ll chew you up and spit you out. Leaving you left for dead with a handful of 2x P/E stocks in your pocket.

    How do we emerge alive? By not bleeding to death. We don’t lick the frozen knife. We recognize when it’s our blood — when we’re doing damage to ourselves. The market is hard as it is. Learning what not to do might save you.

    But you want more than that. You want a step-by-step guide on how to not lick these knives. Better yet, you want to know where the knives hide. Like Munger says, “show me where I die so I never go there.”

    Here’s a few ways to navigate the markets filled with frozen knives dipped in blood:

    1.    Don’t Screen For Cheap Stocks

    I know, this goes against everything you read in quantitative value investing books. You can hear Ben Graham rolling in his grave. The logic is simple. Quantitative metrics like P/E and EV/EBITDA are easy to use. Computers sift through thousands of P/E ratios every single day. There’s no edge there.

    Also, ask yourself why other investors aren’t buying this stock. If it’s so cheap, you would expect a rush of value-hungry investors chomping at the bit.

    The more you ask “why is this cheap” the more you’ll see the knife underneath the blood.

    2.    Save Valuation Work For The End

    Too many investors focus on valuation at the beginning of their analysis. I fall prey to this thinking all the time. It’s something I’m trying to fix.

    Instead of focusing on valuation at the beginning, save it for the end. Focus on business quality and unit economics up front.

    This allows for two things. First, it’ll help you learn about the actual business, not simple numbers on an income statement and balance sheet (read: table stakes). Second, it’ll alert you to any bad businesses that aren’t worth the valuation work.

    Who cares if a company trades at 2x earnings if it has awful unit economics, no industry runway and a failing business model.

    3.    Don’t Shy Away From Growth

    Growth and value conjoin at the hip. A company needs both to see success. If you have only growth and no value, you’ll always overpay (how many of you thought of P/E ratios when reading this). But, all value and no growth gets you a melting ice cube.

    Growth doesn’t have to come from the top-line revenue category. Expanding margins, higher FCF conversions or growing earnings all work. Where you see growth depends on the company you’re investigating. Is it an esports technology company penetrating new markets? You should see top-line revenue growth. But if it’s a rural telecom operator, top-line growth fails as an adequate barometer.

    How To Keep Value Investors’ Tongues Clean

    Investing is already a hard game. Don’t make it harder than it has to be. If something feels off … if a stock feels too good to be true, think about it. It might be a knife in frozen blood. You’re not the only wolf trying to lick a 2x P/E oil and gas distributor. But if you recognize the trap, you might be the only one to make it out alive.

    Tyler Durden
    Sun, 04/24/2022 – 20:30

  • Macron Re-Elected French President; Le Pen Concedes Defeat
    Macron Re-Elected French President; Le Pen Concedes Defeat

    Update (1400ET): The first projections of the outcome of the 2022 French presidential vote are in, and it looks like President Emmanuel Macron will keep his post for another five-year term, winning by a margin of 58.2% to Marine Le Pen’s 41.8%, according to initial results reported by French newspaper Le Monde. Le Pen has conceded, making his victory all but confirmed.

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    The election has also been called by AFP, the largest and most authoritative news service in France.

    Here’s a breakdown of the exit polls.

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    French TV stations Macron’s winning percentage at between 57.3% and 58.2%, citing results from five pollsters.

    The victory makes Macron the first French president to win a second term in two decades – the first since Jacques Chirac, who left office in 2007.

    Perhaps the most notable aspect of this vote is that Macron won by a much smaller margin; his margin of victory this time is narrower than 20 percentage points, compared with 30 percentage points last time around. According to Bloomberg, the rise in support for Le Pen reflects a “bitterly divided country”.

    During a rally after the vote, Le Pen said the results “represents a stunning victory,” before leading her supporters in a chorus of the national anthem. “Millions of people voted for the national camp and for change.”

    It’s likely that the news of Macron’s victory will be embraced by markets around the world, as Wall Street analysts had projected that a Le Pen victory would have been an even bigger shock to international markets than the results of the Brexit referendum in 2016.

    * * *

    EARLIER

    The day, which some believe could have a more turbulent outcome for European markets than Brexit, has arrived as French voters are heading to the polls for the second time in two weeks to conclude a presidential election in which polls suggest incumbent centrist Emmanuel Macron has the advantage in surveys over nationalist Marine Le Pen. Polling stations are open since 7am on Sunday and set to close at 7pm (London time), when the first official estimate will also be released.

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    Although the televised debate (last Wednesday April 20) between the two contenders provided a boost to voting intentions in favor of Macron (by between 1 and 2 points, from 55% to 57% according to the polls), this appear to have been short-lived. Today (April 22), voting intentions for Macron fluctuated between 53% and 55% (with a margin error of between 1% and 3%).

    According to Goldman, polls this close to election day have historically tended to be fairly precise for similarly tight races, which explains why prediction markets repriced Mr. Macron’s odds of winning higher at 90%, up from 80% last week. While the polls point to a Macron victory, there remains some limited scope for a victory for M. Le Pen as uncertainty around the final choice of those who voted for Jean-Luc Mélenchon in the first round remains. Furthermore, some early surprises indicate that change may be coming: as the Globe and Mail notes, Le Pen has won the voting in Guadeloupe, Martinique and French Guiana; Macron won all three in 2017.

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    The blackout period has started at 11pm last night (London time). This means that both contenders will have to cease campaigning – last public intervention in the media was yesterday evening on French television LCI) and no more opinion polls will be released before the run-off result.

    By midday French time, 26.41% of the electorate had voted, according to figures from the interior ministry. That’s lower than at the two previous elections in 2017 and 2012 when the participation rate at the same time was 28.23% and 30.66% respectively. But it’s slightly higher than the level seen in the first round two weeks ago, when 25.48% had voted by 12 p.m.

    Macron will vote in Le Touquet where he and his wife own property.

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    Le Pen will cast her ballot in Henin-Beaumont, a town in the north where her party holds city hall and where she was elected as lawmaker for the first time.

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    Background

    We’ve previewed the differences in the two platforms previously but here is a refresher courtesy of Bloomberg: needless to say, the candidates’ plans are diametrically opposed. At home, Macron, is sticking to his credo of pro-business overhauls — including an increase in the retirement age — to foster more work and make the economy more competitive. Le Pen wants the French to retire even earlier than the current minimum of 62 and promises steep cuts to sales and income taxes to help households.

    In their vision of Europe, Macron is holding his trademark line on strengthening European sovereignty with projects that could include more joint-investment. While Le Pen no longer wants to exit the EU, her proposals to transform it into a looser alliance of nations and hold a referendum to assert the primacy of French law over its rules would undermine the bloc from within.

    The showdown is a repeat of the 2017 election, when Macron beat Le Pen with a hefty margin of almost 33 percentage points. This time, the last polls published before Saturday’s campaigning blackout showed the gap at about 11 points; it could very well be far less.

    After the first round on April 10, markets were spooked when the gap between the two candidates was as slim as two percentage points. But Macron gradually pulled further ahead as Le Pen failed to capitalize on gains she’d made by centering her campaign on how to solve a looming cost-of-living crisis. According to Bloomberg, Marine had an opportunity to close the gap during nearly three hours of live debate with Macron on Wednesday. Yet she struggled to do so, while Macron turned the spotlight on policies that echo her father’s more extremist views, such as banning the Muslim veil in all public spaces.

    For her part, Le Pen told voters in northern France on the final day of campaigning Friday, that Macron was trying to “brutalize” her during the debate and that “the disdain” he showed her was reflective of how he sees the French.

    At the other end of the county in the southern town of Figeac, Macron called on his supporters to convince as many people as possible to rally round him, an attempt to activate the “Republican front” — a term for cross-party opposition that has prevented the far-right from taking power. He insisted his victory isn’t a done deal.

    “It’s a referendum on the future of France,” Macron told BFMTV. “I am working until midnight and then I will be in a state of humility and reflection.”

    Election Surprise?

    While all the polls show Emmanuel Macron is likely to win a second term Sunday, some are cautious and banks from Citigroup to asset manager Amundi warn that markets are underestimating the risk of a surprise. As for polling accuracy, let’s not forget that NYT polls showed Hillary Clinton a 85% favorite in the US election in 2016.

    Needless to say, if nationalist Le Pen upsets the incumbent, European stocks will tumble Monday, while French bonds would underperform German securities and the euro could even trade at parity with the dollar in coming months, according to investors and strategists. The full consequences wouldn’t be visible until after legislative elections in June, when it would be clear whether she has a majority to back her proposals to review free trade agreements and re-establish border controls.

    And yes, memories are still raw from 2016, when investors were blindsided by the strength of populist sentiment in the U.K.’s vote to leave the European Union and the U.S. election of Donald Trump.

    “It would be an awful day for markets,” said Eric Hassid, a trader at Aurel BGC in Paris. “I still think Macron will win, but the opinion polls that come after the presidential debate will be crucial. It wouldn’t be the first time there’s a surprise. We had the same with Brexit.”

    According to many, a Le Pen victory arguably would be an even bigger shock to investors, since the polls show a larger lead for Macron than they did for the U.K.’s remain vote in 2016. And French pollsters have a good track record, with surveys ahead of the 2017 election and in this year’s first round of balloting very much in line with the outcomes.

    There would be “a Black Monday” in the stock market if Le Pen wins, with the Stoxx 600 probably down 6% and France’s CAC 40 Index sinking more than that, said Ludovic Labal, manager of the Strategic Europe Quality Fund at Eric Sturdza Investments.

    In a note Wednesday, Barclays strategists led by Emmanuel Cau wrote they expect at least a 5% drop in equity markets in the event of a Le Pen victory but see no reason to panic right now. Oddo BHF strategist Sylvain Goyon put the probability of a Le Pen win at no greater than what it was five years ago, but such an event would be particularly unfavorable to financial stocks, while the euro would likely move below parity against the dollar.

    On the credit side, Barclays strategists warned that corporate bond investors shouldn’t get too blasé about the possibility of Le Pen becoming the next president, saying that risks are skewed to the downside.

    “It would only take one poll indicating a tighter race to trigger an underperformance of French credits,” the Barclays analysts wrote. “Given the lack of any risk premium in these credits, we remain wary.”

    Viraj Patel, a macro strategist at Vanda Research, recommends buying credit-default swaps on Italian government bonds as a hedge against the risk of more fragmented euro area post-election. He also sees a potential Le Pen victory as sparking a “full capitulation” of those betting on a stronger euro.

    “A Le Pen victory would give us the conviction we need to be calling for euro-dollar parity, but that may be more of a three- to six-month type of evolution rather than happening knee-jerk on the day,” he said.  

    Given that Le Pen would need to win a parliamentary majority in June to fully implement her policies, currency traders should be able to focus on other drivers for the euro such as monetary policy tightening, said Lee Hardman, a foreign-exchange analyst for MUFG Bank.

    “The market potentially could overreact initially to the surprise win for Le Pen but actually the reality may not be as bad as initially feared,” he said, adding that the euro could weaken by 3% to 5% on the initial victory. “It’s going to be fairly constrained in terms of the policies she can really pursue.”

    So no matter what the results of Sunday’s vote are, Bloomberg warns that market volatility could be here to stay until the legislative elections in June.

    Tyler Durden
    Sun, 04/24/2022 – 20:22

  • East Hampton Airport Limits Helicopter Ridesharing; Flight Costs Jump 30%
    East Hampton Airport Limits Helicopter Ridesharing; Flight Costs Jump 30%

    Nothing is more laughable than the first-world problems between the haves and the have-mores (or millionaires versus billionaires) of East Hampton on New York’s Long Island. 

    The latest example is air mobility at East Hampton Airport has been dramatically limited ahead of the summer season. New rules have restricted commercial aircraft, such as rental jets and helicopters, from landing and taking off because of constant noise complaints. 

    According to Bloomberg, Blade Air Mobility Inc. will only be allowed to fly in and out of the airport once per day. The helicopter ridesharing program will divert much of its flights to surrounding towns, such as Montauk, Southampton, and Sag Harbor. 

    Blade will also hike rates from NYC to East Hampton flights from $795 last summer to $1,025, a 30% increase. The company could charge between $795 and $845 to and from surrounding towns. Advance bookings are four times higher than they were in 2021. 

    “The Town of East Hampton’s limitations on commercial landings at East Hampton Airport has necessitated the expansion of our schedule to neighboring landing zones,” Blade CEO Rob Wiesenthal said. 

    “Over 90% of our current fliers surveyed have indicated they will utilize neighboring landing zones if faced with a sold out schedule to East Hampton,” Wiesenthal added. 

    Earlier this year, the town’s board deactivated its airport and reopened it under private control. The new rules allow the airport to operate under limited use and only by wealthy people who own private jets. 

    This will disrupt the air travel and lifestyle of many millionaires but not billionaires who live and or rent in the area where the average home price in East Hampton is $2.2 million. Some Hamptons beachfront rentals are going for big bucks this summer. One property is asking $1.5 million just for July. 

    Tyler Durden
    Sun, 04/24/2022 – 20:00

  • Global Shipping Update: China Is About To Wreck Your Summer
    Global Shipping Update: China Is About To Wreck Your Summer

    Authored by Mike Shedlock via MishTalk.com,

    Let’s review shipping updates from Craig Fuller, Founder/CEO of FreightWaves and American Shipper.

    Shanghai image from a Tweet embedded below

    Vessels Waiting to Enter Port of Shanghai 

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    Shanghai Covid Lockdown

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    China About to Wreck Your Summer

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    “The coming volume drop in ocean container volumes (TEUs) leaving China for US ports is staggering. Our Ocean TEU Volume Index in SONAR now has a 14-day forward look at volumes, and it looks ugly. By early May 2022, we could see the lowest levels we’ve seen since May of 2020.“

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    Deflation Anyone?

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    What About Kitchen Appliances?

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    “A large private consumer kitchenware manufacturer told me that they have seen a large contraction in demand over the past 8 weeks.”

    Question of the Day

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    Is the slowdown in Shanghai at all welcome? That’s the big question. 

    To the extent US merchants have ordered too much inventory in the face of falling demand, perhaps. 

    But Fuller notes there are just too many questions. For starters, what is China doing? Every other country on the planet is loosening restrictions. 

    What’s really going on?

    What About the UK?

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    Meanwhile, Back in the States 

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    “Truckload contract load volumes dropped 4.5% this week. 7th consecutive week of declining contract truckload volumes. Next week is EOM, hoping for an uptick.”

    More Deflation Calls

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    Recession Level Trucking Demand

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    Important Point

    I believe you get the idea, shipping is a mess and there is a slowdown as well. A US housing bust is underway.

    Existing Home Sales Decline Again, But the Big Bust Starts Next Month

    But here’s an important point about deflation and recession: When Fuller makes a recession or deflation call, it is specifically about the trucking industry, not an overall assessment.

    He made that point clear in my video interview of Fuller that I posted on April 14. 

    See MishTalk TV with the CEO of FreightWaves: Trucking Recession or the Real Deal? for the video and discussion points.

    Whereas he comments on the trucking industry, I am willing to go further. A very hard landing is on the way. 

    Thanks again to Craig Fuller for the interview and all of his Tweets.

    For my stock market update, please see Expect More Stock Market Pain Because It’s Coming

    *  *  *

    Please Subscribe to MishTalk Email Alerts.

    Tyler Durden
    Sun, 04/24/2022 – 19:30

  • Melvin Capital Kills "Tone Deaf" Plan To End High Water Mark After "Candid Response" From Investors
    Melvin Capital Kills “Tone Deaf” Plan To End High Water Mark After “Candid Response” From Investors

    After receiving what he described as “candid thoughts” from initial investors, Melvin Capital Founder Gabe Plotkin has suddenly decided to abandon his plan to leave ‘underwater’ investors with massive losses and demand a ‘do over’ with fresh capital.

    We can’t say we were surprised at his reversal (as the tweet below exclaimed) – though we admit to being somewhat shocked at the blind arrogance of his initial ‘plan’.

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    It is clear now that we were not alone as he infers from responses of his ‘day one’ investors, admitting in his letter to partners (below) that he was “tone deaf” with his intentions, and hadn’t taken sufficient consideration of investors’ losses. The letter claims that while he had “critical mass” to move forward with his ‘do-over’, he has decided – for the sake of “accountability” and his grandfather’s “highest ethical standards” that he would not be asking current investors to forgive all their losses,

    Gabe Plotkin’s full letter to investors (emphasis ours):

    To our fellow partners,

    I am sorry. I got this one wrong. I made a mistake. I apologize.

    As we noted in our letter last week, we tried to balance several objectives when determining a path forward. Our focus was on getting back to a size at which we could again generate industry leading returns for our investors while retaining the team we have built over a decade. After exploratory conversations with several investors, in which we had received positive feedback, we decided to move forward with the approach we outlined in our letter.

    In hindsight and despite our intentions, we recognize now that we focused on future returns and team continuity without sufficient consideration of your investment losses. We appreciate how difficult January 2021 was for all of you and are pained that we have not acknowledged this enough. After numerous conversations with our investors on Thursday, Friday, and Saturday, it is clear to me that I was initially tone deaf.

    I especially want to thank our day one investors for their candid thoughts. Some of you feel that we were not being a good partner. Upon reflection, you are right.

    Integrity is a fundamental value at our firm. My grandfather, Melvin, after whom our firm is named, lived by the highest ethical standards, and he imparted those values to me. There is sufficient interest and critical mass to move forward with the plan laid out in last week’s letter. That’s now completely irrelevant to me.

    At this time, our go-forward structure needs to be about partnership and principle. We are taking the next two to three weeks to process the input we have received from all our investors, and we will come back with a more balanced proposal that better aligns our collective interest.

    I try to teach my kids that everyone makes mistakes, but ultimately it is about how you handle them. Accountability is critical. I got this wrong and for that I apologize to each of you.

    Sincerely,

    Gabe

    Gabe Plotkin
    CIO & Founder

    So, reading between the lines, it appears, as noted last week, Plotkin’s cunning plan to “to lose other people’s money and then start a new fund to lose even more people’s money” is not going as planned.

    Tyler Durden
    Sun, 04/24/2022 – 19:00

  • Hedge Fund CIO: There's A Growing Consensus The Fed Will Keep Going Until The Market Breaks
    Hedge Fund CIO: There’s A Growing Consensus The Fed Will Keep Going Until The Market Breaks

    By Eric Peters, CIO of One River Asset Management

    “Let me now say a few words to those countries who are currently sitting on the fence, perhaps seeing an opportunity to gain by preserving their relationship with Russia and backfilling the void left by others. Such motivations are short-sighted,” said America’s Treasury Secretary on April 13th. “Going forward, it will be increasingly difficult to separate economic issues from broader considerations of national interest, including national security,” continued Yellen, confirming our suspicions.

    The era of monetary policy dominance – when the actions of central bankers dominate the economy, markets, and indirectly, politics – has passed. Politicians and politics are now ascendant.

    The impact from this on fiscal policy, domestic politics, and geopolitics will be as profound as it will be long-lasting. Buckle up.

    “Let’s be clear. The unified coalition of sanctioning countries will not be indifferent to actions that undermine the sanctions we’ve put in place,” explained Janet. China’s renminbi has been falling ever since. Naturally, the market must price the possibility that Beijing will suffer sanctions too.

    And if Germany now regrets strengthening Russia by buying Putin’s gas for all these years, in this new era, is it reasonable to expect the US to support China by trading so freely with Xi?

    Back in the era of monetary policy dominance, easy money led to debt expansion and market booms, which provoked rate hikes, recession, followed by renewed easing. Rates were set to lower-highs and lower-lows in each cycle, a secular trend. And in each cycle, debt and leverage rose in the aggregate, shifting around sectors like a hot potato.

    But the whole process was generally mean reverting. Politics does not exhibit the same kinds of mean reverting properties once politicians awaken, reassert their power.

    That process has only just started. And it has begun in a period when the Fed is no longer able to ease policy.  It is now caught between trying to engineer either a soft or a hard landing.

    The “fragmented political and economic situation” makes supply chains “fragile” and “less globalization means higher inflation and less productivity,” explained Fed Chair Powell, attempting to conduct monetary policy in a world growing increasingly political.

    Team Market Chats

    “The data looks mixed, but things like the backlog of ships loading and unloading in Shanghai gives me pause,” wrote Chase, pinning a historical graph to the chat that was not the kind of thing you’d want to see if supply chains were unkinking. “The NFIB survey shows small businesses are more pessimistic about the business outlook and about inflation than they were in the 1970s,” wrote Lindsay, pinning a chart going back to 1974. “The internals of the Philly Fed manufacturing survey are flashing recession,” wrote Marcel, pinning a chart of forward demand and prices.

    “There are two periods when such a decline in forward orders did not accompany a recession – 1988 and 1995,” continued Marcel in the chat. “In both cases, price pressures moderated sharply, and demand recovered. The 1974 recession is an interesting one where the price moderation was very modest, demand recovered, inflation stuck at a high level, and rolling inflationary recessions followed. The burden of proof is increasingly on those who see an elongated expansion as that is not in the data any longer,” wrote Marcel.

    “There’s a growing consensus the Fed will keep going until the market breaks,” wrote Marcel, connected throughout global policy circles.

    “High-yield spreads are almost a target variable. They’re not afraid of equity/credit downside,” he wrote. “This has been getting a lot of traction in the past 24-48hrs,” replied Chase.

    “Everyone I talk to: Is inflation slowing much/faster than the central bank expected? No.

    Are we seeing the growth slowdown that will scare central banks? No.

    Are financial assets panicking in a way that will scare central banks? No,” wrote Chase. On our Team Markets Chat.

    Choices:

    “Discretionary tech will get hammered through year end,” said the CIO. Netflix had reported, its stock in free fall. “Food, energy, and rent are all up more than CPI. Discretionary tech is fun, not needed, and these things get tossed when money gets tight,” he said. “Say 5% needs to come out of your budget, what goes?” he asked.

    “I saw this dynamic before the 2000-01 recession, which was more normal, not like 2008-09 or 2020,” he said. “I don’t think we’ll have a recession as companies need every available worker, but inflation will force the average person to make choices, cuts.”

    Tyler Durden
    Sun, 04/24/2022 – 18:30

  • The Future Of NFTs In The World Of Web 3.0
    The Future Of NFTs In The World Of Web 3.0

    NFTs took the world by storm in 2021, bringing forth a digital art revolution while becoming one of the fastest growing asset classes of the year.

    The technology of non-fungible tokens has enabled artists to offer digital originals without relying on middlemen, all while being able to receive royalties on secondary sales of their work. But, as Visual Capitalist’s Niccolo Conte and Athul Alexander detail below, this use-case is just the beginning of the functionality non-fungible tokens bring to the blossoming world of web 3.0.

    This following infographic by NFT.com showcases the evolving utility of NFTs, and how they are already building communities, enabling unique and tradeable game assets, and laying the foundations for ownership and identity in the metaverse.

    How NFTs are Revolutionizing Digital Ownership Today

    NFTs provide a complete history and proof of ownership for digital assets or any other asset that is represented by a non-fungible token. This functionality enables the creation of unique digital assets and items that anyone can buy or sell freely on an open marketplace.

    Today NFTs have already evolved to provide further utility across a variety of industries:

    • Keys to digital communities

    • Tradeable game assets

    • Ownership of your username and assets in the metaverse

    As the online world shifts from web 2.0 to web 3.0, NFTs are building the foundations of digital communities, economies, and assets.

    1. NFTs as Keys to Online Communities and Events

    One of the first evolutions in NFT use-cases came in the form of using non-fungible tokens as “membership passes” to a digital community. Ownership of NFT profile picture collections like CryptoPunks and Bored Ape Yacht Club (BAYC) naturally became linchpins around which communities of holders formed.

    Today, profile picture NFT collections like Oni Ronin have built on this idea, providing access to exclusive workshops and ceremonies, free airdrops of other NFTs, and prize raffles for holders of the Oni Ronin NFT collection.

    Along with access to online communities and events, NFTs have been used to provide exclusive access to in-person events. Since NFTs provide immutable proof of ownership on the blockchain, the technology is primed to solve large issues in the world of event ticketing like forging and digital theft.

    2. Productive and Exchangeable Game Assets

    Gaming is one of the key sectors where NFTs have been providing utility for players by enabling ownership of purchased in-game assets. Projects like DeFi Kingdoms on the Harmony blockchain have NFTs “heroes”, that players can buy, sell, and rent out on an open market.

    Along with providing ownership for the in-game asset, these NFTs are also productive assets, and can be sent on quests where they earn in-game items and cryptocurrency for the player. These items can be exchanged for cryptocurrency, or used to craft other items to power up heroes.

    The integration of NFTs into blockchain games like DeFi Kingdoms, Axie Infinity, and Crabada has created vibrant in-game economies where NFTs are valued based on their attributes and statistics that dictate the amount of cryptocurrency they earn. Playtime is rewarded in these games, as levelling up NFT assets results in increased earnings and higher chances of rare and valuable item drops.

    3. Redefining Digital Identities and Assets

    Worried about someone taking your username in the metaverse? NFTs have already enabled ownership of custom “.eth” Ethereum wallet addresses through Ethereum Name Service (ENS), with more than 671,000 unique “.eth” addresses registered so far.

    As an NFT, these custom addresses are integrated in other decentralized applications and simplify previously complex wallet addresses to be personalized and much easier to remember.

    Rather than a long string of numbers and letters like “0x0079784df055a06EC5A76A90b24”, ENS allows for much simpler wallet addresses like “visualcapitalist.eth”.

    Other projects like NFT.com are using NFTs to provide users with custom ownership of a personal profile like “www.nft.com/yourname”, where users can show and share their NFTs on a decentralized social network.

    Enabling Ownership in the Metaverse Economy

    Along with usernames and wallet addresses, non-fungible tokens are becoming the foundational technology for assets in the metaverse. Metaverse project, The Sandbox, is already using NFTs to represent digital land, items like furniture and decor for virtual spaces, and much more.

    In March of 2022, The Sandbox generated more than $24 million in sales of NFTs representing metaverse real estate, with top brands and celebrities across sectors like Atari, Snoop Dogg, and the South China Morning Post all owning plots of digital land.

    NFTs have only just begun to revolutionize the ownership and exchange of digital assets, and are laying the foundations for digital communities, tradeable in-game assets, and the economy of the metaverse.

    *  *  *

    NFT.com is building the decentralized social network of the NFT world, governed and owned by the community.

    Tyler Durden
    Sun, 04/24/2022 – 18:00

  • Morgan Stanley: We Are Rethinking Our Preferences In The Credit Markets
    Morgan Stanley: We Are Rethinking Our Preferences In The Credit Markets

    By Vishwanath Tirupattur, global head of Quantitative Research at Morgan Stanley

    It has been a rough ride for credit investors thus far this year. While total returns year-to-date have been disappointing across the board in corporate credit markets, US investment grade (IG) bonds have underperformed significantly, with total returns of -12% compared to -6% for US high yield (HY) and +0.4% for leveraged loans. Remember, returns to credit investors have both an interest rate and a credit risk component. It is worth noting that much of this underperformance is more attributable to moves in interest rates than to worries about the creditworthiness of underlying companies. While spreads have widened across credit markets, the effect of the dramatic move in interest rates has been more overwhelming – IG spreads have widened about 35bp since the beginning of the year, while underlying interest rates have moved four times as much. The significantly higher interest rate exposure (or longer duration, in bond market parlance) of IG bonds relative to other segments of the credit markets explains their underperformance.

    Our credit strategists have been ahead of the curve on this front, preferring to take default risk over duration risk. In practical terms, that has translated into favoring lower-quality over longer-duration segments of the credit market – loans over HY over IG. This strategy has clearly worked thus far. However, (1) changes in the market pricing of the path of interest rates, (2) revisions in economic growth expectations as well as (3) concerns about the prospects for earnings growth all argue for rethinking our preferences in the credit markets.

    • First, interest rate markets already reflect aggressive rate hike expectations. Incoming data as well as hawkish rhetoric from Fed officials have contributed to ratcheting up terminal rate expectations, which currently stand at 3.40%, up from 1.57% at the beginning of the year. Markets are also pricing about eleven 25bp hikes between now and February 2023, and market expectations are clearly front-loaded, with 50bp hikes priced in for the next three FOMC meetings. 

      Regardless of whether this rates path is realized, it is clear that market pricing already reflects significantly hawkish expectations for monetary policy. For interest rate expectations to move up significantly from these levels, we need incoming inflation data to ratchet up, which runs counter to the expectations of our US economists. The takeaway for credit markets is that given what is in price, duration concerns are unlikely to intensify over the next few months.

    • Second, as our economists have noted, the combination of heightened geopolitical tensions and tightening monetary policy has increased the downside risks to the US growth outlook, and recession risks have risen. Our economists have lowered their forecast for real GDP growth in 2022 by 1pp to 3.0% on a 4Q/4Q basis, and our forecast for 2023 by 0.9pp to 2.1% 4Q/4Q. While corporate balance sheets are in good shape entering a front-loaded Fed hiking cycle, and low net leverage and record-high liquidity should help the median HY issuer to navigate near-term stresses, our concerns about tail cohorts have risen as they are vulnerable to both slower growth and structurally higher funding costs.
    • Third, downside risks to earnings and earnings growth have emerged on multiple fronts. Our equity strategists anticipate multiple headwinds to earnings, including a payback in consumer demand, excess inventory build and demand destruction from sustained high prices. For the lowest-quality segments of the credit markets, this implies oncoming headwinds.

    None of this means we are about to see a spike in defaults. Not at all. In-place fundamentals are indeed the strongest they have ever been going into a hiking cycle. Furthermore, taking into account the more ‘termed-out’ maturity profiles, conviction around the ability of US corporates to absorb the initial rate hikes remains high. Of the nearly US$2.9 trillion in index-eligible HY bonds and loans  outstanding, only US$300 billion (about 10%) matures in the next three years.

    That said, it is undeniable that for the lower-quality segments of the credit markets, risks have risen, and risk/reward calculus no  longer favors default risk over duration risk. Thus, our credit strategists recommend moving up in quality, particularly in high yield credits – BBs over CCCs – and close out the preference for leveraged loans over HY bonds.

    Within investment grade, the back-up in rates has created pockets of value in low dollar-price bonds. The average dollar price of the IG index has fallen sharply, with a significant proportion of bonds now trading at a substantial discount. Low dollar-price bonds are concentrated in relatively newer issuance as well, making them a tradeable part of the secondary market. While lower cash prices have been driven by higher rates, they provide a source of credit convexity as well.

    Credit curves tend to bear-flatten into downturns, thus providing a cushion against MTM losses if growth weakens. With all-in yields around 4%, the cohort of low dollar-price, longer-duration bonds deserve careful reconsideration as a way to improve portfolio quality and liquidity.

    Tyler Durden
    Sun, 04/24/2022 – 17:30

  • Shanghai Reports Record COVID Deaths As Lockdown Drags On
    Shanghai Reports Record COVID Deaths As Lockdown Drags On

    As the COVID pandemic in Shanghai drags on, the city  reported its highest number of daily COVID deaths yet (at least, the largest number according to their official data) as China continues to abide by its “zero COVID” policy, even after easing restrictions on some residential areas ever-so-slightly late last week.

    The city recorded 39 fatalities for Saturday, bringing its total number of virus-related deaths to 87 since late February, according to a report on Sunday by the Shanghai Health Commission. The average age of the people who died was 78.7 and all had underlying diseases, according to the report.

    In terms of the number of cases, the city counted 21,058 new COVID cases, the vast majority of which were mild or asymptomatic, the commission said. The previous day, the city reported 23,370 new local cases and 12 deaths.

    Rapid economic data gathered from Goldman has continued to reflect the impact of the lockdown, including data on subway ridership, which has remained at almost zero for nearly a month.

    China’s financial center is entering its fourth week of strict lockdown, while people living in the eastern part of the city have been locked down in their homes for even longer. Frustration among residents has been building due to a lack of access to food or medical care, poor quality government rations and the location of quarantine centers.

    Shanghai’s municipal government said it would adopt a nine-point plan starting Friday to achieve its goal of “no community spread”, a milestone that’s eluded the city despite weeks of lockdown. The announcement damped hopes that the restrictions would gradually ease in the coming weeks.

    Authorities vowed to strictly implement rules, including making sure people don’t leave their homes in restricted areas.

    The lockdown measures have incited Shanghai’s beleaguered population to increasing resist the government’s strictures, including a video documentary published last week, which flooded social media, ahowing the impact of nearly a month of lockdown, the longest anywhere in China since the initial lockdown in Wuhan ended in the late spring of 2020.

    Tyler Durden
    Sun, 04/24/2022 – 17:00

  • The Era Of A Financialized Fiat-Dollar Standard Is Ending
    The Era Of A Financialized Fiat-Dollar Standard Is Ending

    Authored by Alasdair Macleod via Goldmoney.com,

    In recent articles I have argued that the era of a financialised fiat dollar standard is ending. This article takes my hypothesis further and explains that it is not just the emergence of new commodity backed currencies in Asia that will threaten the dominance of Western currencies, but the Fed’s failing monetary policies and those of the other major central banks. An unstoppable rise in interest rates will in large part be responsible for their demise.

    Financial markets in thrall to the state underestimate the forces collapsing the financial bubble. Even the existence of the bubble is disputed by those within its envelope. But financial assets represent most of the collateral securing the banking system, and their collapse triggered by higher interest rates will take out businesses, banks, even central banks and make financing of soaring government deficits impossible without accelerated currency debasement.

    Will central banks try to preserve financial asset values to stop the West’s financial system from imploding?

    Keynesian theory demands increased deficit spending to counteract the contraction of bank credit.

    As long as this is the case, the planners will destroy their currencies – confirmed by the John Law episode in 1715-1720 France. It is from this fate that China, Russia, and the architects planning a new Central Asian trade currency are planning their escape.

    End of an era and how it all started

    It’s all about interest rates. Rising interest rates undermine financial asset values and falling rates increase them. From 1981 until March 2020, the trend has been for the inflation of prices to subside and interest rates to decline with them. And following Paul Volcker’s interest rate hikes at that time, this is when the era of economic financialisation commenced.

    In the early eighties, London underwent a financial revolution with banks taking over stockbrokers and jobbers. It was the end of single capacity, whereby you were either a principal or agent, but never both.

    America responded to London’s big-bang by rescinding the Glass-Steagall Act, which separated investment from commercial banking following the 1929—1932 Wall Street Crash. Money-centre banking was about to go all-in on financialisation. Increasingly, manufacturing of consumer goods was moving from America and Europe to China and the Far East. The Wall Street megabanks had less of this business as a proportion of total American and European economic activities to finance. Small, local banks, particularly in Europe, continued to be the financing backbone for small enterprises.

    Banking had begun to split, with financial activities increasingly dominating the business of the larger banks. The rise of derivatives, firstly on new regulated exchanges and then in unregulated over-the-counter markets became a major activity. They promised that risk was eliminated by being hedged — there was a derivative to cover anything and everything. Securitisations became all the rage: mortgage-backed securities, collateralised debt obligations and CDOs-squared. So great was the demand for this business that banks were financing it off-balance sheet due to lack of adequate capital, until the Lehman speedbump temporarily knocked the wheels off from under this business. Since then, government spending has dominated financing requirements, providing high quality collateral for yet further credit expansion, much of it in shadow banking, and leading to a veritable explosion in the size of central bank balance sheets.

    The decline in interest rates from Paul Volcker’s 20% in 1980 to zero in 2020 drove financial asset values forever upwards, with only brief interruptions. Crises such as in Russia, Asia, the Long-Term Capital Management blow-up, and Lehman merely punctuated the trend. Despite these hiccups the character of collateral for bank lending became increasingly financial as a result. Expanding credit on the back of rising collateral values had become a sure-fire money-spinner for the banks. The aging Western economies had finally evolved from the tangible to ethereal.

    For market historians it has been an instructive ride, contemporary developments that have matched or even exceeded bubbles of the past. What started as the emergence of yuppies in London wearing red braces, sporting Filofaxes, and earning previously undreamed-of bonuses evolved into a money bubble for anyone who had even a modest portfolio or could get a mortgage to buy a house.

    The trend of falling interest rates has now ended, and the tide of financialisation is on the ebb. Recent events, covid lockdowns, supply chain disruptions and sanctions against Russia provide the tangible evidence that this must be so. You do not need to be a seer to foretell a commodity price crisis and the prospect of widespread starvation from grain and fertiliser shortages this summer. Common sense tells us that the end of the financialisation era will have far-reaching consequences, yet the outlook is barely discounted in financial markets.

    With their noses firmly on their valuation grindstones, analysts do not have a grasp of this bigger picture. That is beginning to change, as evidenced by Augustin Carsten’s mea culpa over inflation. Carsten is the General Manager of the Bank for International Settlements, commonly referred to as the central bankers’ central bank, which takes a leadership role in coordinating global monetary policy. The objective of his speech was to assist central banks in coordinating their policy responses to what he belatedly recognises is a new monetary era.

    Inflation is not about prices: it’s about currency and credit

    One of the fatal errors made by the macroeconomic establishment is about inflation. The proper definition is that inflation is the debasement of a currency by increasing its quantitiy. It is not about an increase in the general level of prices, which is what the economic establishment would have us believe. The reason this is particularly relevant is because governments through their central banks have come to rely on increases in the quantity of currency and credit to supplement taxes, allowing governments to spend more than they receive in terms of revenue. To properly describe inflation draws unwelcome attention to the facts.

    Since the Lehman failure in 2008, the combined balance sheets of some of the major central banks have increased from just under $7 trillion to $31 trillion (Fed + ECB + BOJ + PBOC, according to Yardini Research). The steepest part of the rise was from March 2020, when assets for the Fed and ECB soared. While justified, perhaps, by the covid pandemic the effect has been to dilute the purchasing power of each currency unit. And as that dilution works its way into the economy it is reflected in higher prices.

    That bit is familiar to monetarists. What monetarists fail to account for is the human reaction to the currency dilution. When the public becomes aware that for whatever reason prices are rising at a faster pace, they will increase the ratio between goods purchased and therefore in hand to that of their available currency resources. That drives prices even higher still and there is then a risk that price rises will escalate beyond the authorities’ ability to control them. This phenomenon has been a particular weakness of American and British consumers, who have a low level of savings priority. When Paul Volcker raised interest rates to a penalising 20% in 1980 it was to reverse the tendency for individuals to dispose of their personal liquidity in favour of goods.

    The sanctions against Russia sent a clear signal to western consumers about rising energy costs, and already they are seeing the impact across a wide range of consumer products. Nothing could be more calculated to convince consumers that they should anticipate and satisfy their future needs now instead of risking yet higher prices and shortages of available goods. And we can be equally sure that governments and their central banks stand ready to ensure that no one need go without.

    That this has come as a surprise to central banks indicates an appalling failure to anticipate the entirely predictable consequences of inflationary monetary policies. Additionally, central banks have failed to grasp the true relationship between money and interest rates.

    The errors of interest rate policies

    Central banks use interest rates as their primary means of managing monetary policy. They make the error of assuming that interest rates are no more than the price of money. If they are raised, demand for money is meant to decrease and if they are lowered demand for money is expected to increase. And through demand for money, demand for goods and their prices can be managed. Therefore, it is assumed that inflation and economic performance are controlled by managing interest rates.

    This flies in the face of the evidence, as the chart in Figure 1 shows, which is of the relationship between the rate of inflation and interest rates in the form of wholesale borrowing costs in Britain, before the Bank of England muddied the waters by using interest rates to manage monetary and economic outcomes.

    The correlation was between the general price level and interest rates instead of between the rate of change and interest rates. The distinction might not at first be obvious, but the two are entirely different.

    Keynes, and all other eminent economists were unable to explain the phenomenon, attributed by Keynes to Arthur Gibson as Gibson’s paradox. The explanation is simple. In his business calculations, an entrepreneur must estimate the price his planned manufactured product would obtain, based on current prices. All his calculations hang on that assessment. It sets the basis of his affordable financing costs, from which he could estimate the profitability of an investment in production after his other costs. If prices were high, he could afford to pay a higher rate of interest and would be willing to bid up interest rates accordingly. If they were low, he could only afford a lower rate. That is why interest rate levels tended to track wholesale price levels and not their rate of change. Thus, it was entrepreneurial borrowers in their business calculations who set interest rates, not, as Keynes assumed, the idle rentier deriving an unearned income by demanding usurious rates of interest from hapless borrowers. If anything, fluctuations in the price level (ie the rate of price inflation) destabilised business calculations.

    To an investing entrepreneur, interest is certainly a cost. But the position for a lender is entirely different. When he lends money, its usefulness is lost to him over the term of a loan, for which he reasonably expects compensation. This is known as time-preference. Additionally, there is the risk the money might not be returned, if for example, the borrower defaults. This is the risk involved. And in these times of fiat currency, there is the further consideration of its potential debasement by the end of the loan. Unless all these issues are satisfied in the mind of the lender, the availability of monetary capital from savings for business investment and for cash flow purposes will be hampered.

    Under a gold standard, the debasement issue does not generally apply. An indication of the sum of time preference and lending risk can be judged from the coupons paid on government debt, which in the case of the British government in the nineteenth century was 3% on Consolidated Loan Stock issued between 1751 and 1888, subsequently reduced to 2.75% and then 2.5% in 1902.

    Even when a currency in which a loan is struck is gold backed, an interest rate of two or three per cent for a prime borrower was shown to be appropriate. For them to go any lower implies, as John Law stated in the quote later in this article, that currency is being expanded with a view to driving interest rates below a natural level.

    Not only are central bank interest rate policies founded on a misconception proved by Gibson’s paradox and its explanation, but the entire operation distorts economic outcomes and cannot ever succeed in their objective. And as for distortions taking bond yields into unnatural negative territory as has been the case in Japan and the Eurozone, the unwinding thereof promises to result in economic and monetary catastrophe, because borrowers, including governments, have been hoodwinked into irresponsible borrowing for borrowing’s sake.

    The monetary myths shared by Law and Keynes

    We know that financial asset values are going to fall, because with consumer and producer prices rising strongly, interest rates and bond yields will continue to rise. So far, the yield on the 10-year US Treasury note has risen from 0.5% in August 2020 to 2.9% this week. The value destruction for this indicator has been over 20% from par so far. But according to government statistics, US consumer prices are rising at 8.5%, and likely to increase at an even faster rate when the consequences of Russian sanctions begin to do their work. Therefore, the yield on US Treasuries of all maturities is set to increase considerably more. Unless, that is, the Fed adopts the policy of the Bank of Japan and intervenes to stop yields rising.

    We are witnessing the effect of yield suppression on the Japanese yen, which since 4 March has fallen over 12% against the dollar. The relationship between a central bank rigging financial asset values and the effect on the currency is being demonstrated. In 1720 France John Law similarly tried to stop his Mississippi shares from falling by issuing unbacked livres expressly to buy shares in a support operation. It is worth drawing attention to the similarities of that experience with current developments in markets and currencies.

    Like Keynes over two centuries later, Law believed in stimulating an economy with credit and by suppressing interest rates. Keynes formulated his approach as a response to the great depression, despite (or because of) the US Government’s attempts to fix it having continually failed. Keynes in effect started again, dismissing classical economics and invented macroeconomics in its place. Law similarly recommended a reflationary solution to a struggling French economy burdened by the bankruptcy of royal finances. Law proposed to stimulate it by issuing a new currency, livres, as receipts for deposits in coin. The convenience of notes, which would be accepted as settlement for taxes and other public payments, was expected to ensure they would replace coin. Keynes’ version was the bancor, which was not adopted, but the US dollar acted as the vehicle for global stimulation in its place.

    Both currency proposals were not overtly inflationary at the outset, nor was the adoption of the dollar in the bancor’s place. But they gave the issuers the flexibility to gradually loosen them from the discipline of metallic money. In October 1715 at a special session at the chateau de Vincennes, Law made his proposal to the Council of Finances, stressing that his proposed bank would only issue notes in return for deposits of coin. In other words, it would be a deposit bank only. The Council turned down Law’s proposal, but in May 1717, he finally got the go-ahead to establish a “general bank”. That became the Royal Bank the following year, a forerunner of today’s central banks. It was then to be merged with Law’s Mississippi venture in February 1720. The Mississippi venture included two other companies which all together represented a monopoly on France’s foreign trade and Law needed to raise funds to build ships.

    Having obtained his original banking licence, Law proceeded to inflate a financial bubble to finance his project, and to create sufficient revenues to pay down the royal debts. His appointment to the official role of Controller General of Finance in early 1720 enabled him to finance the bubble by expanding a combination of credit and paper currency without having to clear the expansion of currency through Parliament, which was the procedure until then. In late 1719, Law was already buying Mississippi shares using new currency, an action which foreshadowed today’s quantitative easing.

    Central to Law’s strategy was the suppression of interest rates. As early as 1715, he wrote:

    “An abundance of money which would lower the interest rate to 2% would in reducing the financing costs of the debts and public offices etc, relieve the King. It would lighten the burden of the indebted noble landowners. This latter group would be enriched because agricultural goods would be sold at higher prices. It would enrich traders who would then be able to borrow at a lower interest rate and give employment to the people.”

    Today, we know this as Keynesian economic theory. The expansion of the currency was especially dramatic in early-1720, with an already bloated one billion livres in circulation at the end of 1719 from a standing start in only thirty months. In a desperate attempt to support the shares in a falling market, this had expanded to 2.1 billion livres by the middle of May.

    The addition of all this paper and credit led to prices of goods rising at a monthly rate of over 20% by January 1720. Unsurprisingly, Law refused to pay out gold and silver for the supposedly backed livres, and the collapse of the whole scheme ensued. By September, the Mississippi shares had fallen from 10,000L to 4,000L, but the currency in which the shares were priced was worthless on the London and Amsterdam exchanges.

    The lessons for today cannot be ignored. Law ruined the French economy with his proto-Keynesian policies. Today, with quantitative easing the same policies are a global phenomenon. Law’s support operations for royal finances are no different from today’s suppression of government bond yields. And now that prices for goods are beginning to rise, in all certainty there will be an even greater crisis for food prices in the coming months, just as there was widespread starvation in France in the summer of 1720.

    How to profit from these mistakes

    Not only do we have in 1720s France a precedent for today’s economic and financial conditions, but Richard Cantillon gave us a strategy of how to profit from the situation. He showed that it was not sufficient just to sell financial assets for currency, but the currency itself presented the greater danger of losses.

    Today, Cantillon is known for his Essay on Economic Theory and the Nature of Trade in General. The Cantillon effect describes how currency debasement gradually progresses through the economy, driving up prices as it enters circulation. Cantillon operated as a banker in Paris during the Mississippi bubble, dealing in both the shares and the currency. He traded both Mississippi shares in Paris and South Sea Company shares in London on the bull tack, selling out before they collapsed. He proved to be an accomplished speculator in these bubble conditions.

    As a banker, Cantillon extended credit to wealthy speculators, taking in shares as collateral. From the outset he was sceptical of Law’s scheme and would sell the collateral in the market after prices had risen without informing his customers. When Law’s scheme collapsed, he benefited a second time by claiming the debts owed from the original loans, claims that were upheld in a series of court cases in London, because the shares being unnumbered were regarded as fungible property which like money itself could not be specifically identified and reclaimed by an earlier owner.

    His second fortune was from shorting the currency on the exchanges in London and Amsterdam by selling the livre forward for other currencies which were encashable for specie. And it is that action which can guide us through the end of the era of the dollar’s financialisation and the likely consequences for the currency.

    Today, the other side of the dollar’s difficulties is the availability of alternatives. Gold is still legally true money in coin form, and it can be expected to protect individual wealth in a livre-style collapse. Today, there are cryptocurrencies, such as bitcoin, but they will never be legal tender and because previous ownership can be traced through the blockchain they can be seized if identified as stolen property. Then there are central bank digital currencies, planned to be issued by the organs of the state that have already made a mess of fiat currencies. Whichever way this question is considered, we always return to gold as the sound money chosen by its users — and that was what Cantillion effectively bought in selling livres for specie-backed currencies.

    In the current context the concept that future currencies will relate to commodities and not financial assets is particularly interesting. This thinking appears to be embodied in a new pan-Asian replacement for the dollar as a payment medium.

    The Eurasia Economic Union

    Russia, China and the members, associates and dialog partners of the Shanghai Cooperation organisation appear to understand the dangers to them from a currency collapse of the dollar, other Western currencies and of associated financial assets. There are three pieces of evidence that this may be so. Firstly, China responded to the Fed reducing its funds rate to zero and the introduction of monthly QE of $120bn in March 2020 by stockpiling commodities, raw materials, and grains. Clearly, China understood the implications for the dollar’s purchasing power. By backing its economy with commodity stocks she was taking steps to protect her own currency from the dollar’s debasement.

    Secondly, sanctions against Russia rendered the dollar, euro, yen, and pounds valueless in its national reserves. At the same time, sanctions have pushed up commodity prices measured in those currencies. Russia has responded by insisting on payments for energy from “unfriendly nations” in roubles, while the central bank has resumed buying gold from domestic producers. Again, the currency is reflecting its commodity features. And lastly, the Eurasia Economic Union, which combines Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan, has proposed a new currency in conjunction with China.

    Details are sketchy, but we have been told that the new currency will combine the national currencies of the nations involved and twenty exchange-traded commodities. It sounds like it will be a statist version of earlier gold standards, with perhaps 40-50% commodity backing, presumably to be fixed against national currencies daily. Like the SDR, it will be supplemental to national currencies, but used for cross-border trade settlement. The involvement of both China and Russia suggests that it might be adopted more widely by the Shanghai Cooperation Organisation, representing 40% of the world’s population and freeing them from the dollar’s hegemony.

    The original motivation was to remove a weaponised dollar from pan-Asian trade, but recent developments have imparted a new urgency. Rapidly rising prices, in other words an accelerating loss of the dollar’s purchasing power, amounts to a transfer of wealth from dollar balances in Asian hands to the US Government. That is undesirable for the EAEU members. Furthermore, the flaws in the yen and the euro have become obvious as well. All Western currencies will almost certainly be undermined by their central banks’ resistance to rising bond yields as the John Law experience Mark 2 plays out.

    It might prove impractical for westerners to access this new currency to escape the collapse of their own national currencies. Anyway, a new currency must become established before it can be trusted as a medium of exchange. But the concept appears to be in line with Sir Isaac Newton’s rule of a 40% gold backing for a currency to be always maintained. The difference is that instead of the issuer lacking the flexibility to inflate the currency at will, the composition of the proposed Eurasian currency can be altered by the issuer.

    Putting this objection to one side, prices of commodities measured in goldgrams appear to have been remarkably stable over long periods of time. Certainly, wholesale prices in nineteenth century Britain under its gold standard confirm this is so.

    Figure 2 shows a remarkable stability of prices for a century under an uninterrupted gold coin exchange standard. The variations, most noticeable before the 1844 Bank Charter Act, are due to a cycle of expansion and contraction of bank credit. And the gentle increase from the late-1880s reflected the increased supply of gold from the Witwatersrand discoveries in South Africa. Whisper it quietly, but this remarkable price stability, coupled with technological developments, with minimum government saw a relatively small nation come to dominate world trade.

    If the Eurasia Economic Union manages to establish a stable currency similarly backed by commodities as the British pound was by gold, a pre-industrialised Central Asia holds out the promise of a similar economic advancement. But that will also require a hands-off approach to markets, which is not in character for any government, let alone the authoritarians in Central Asia.

    The value destruction ahead

    So far, this article has drawn attention to the ending of an era of fiat currency financialisation, the monetary policy errors, and the contrasting developments in Asia, where a preference for commodity backing for roubles, yuan and a new Eurasian currency is emerging. The success of the Asian currencies is set to destabilise those of the West. But irrespective of the future for Asian currencies, the West’s currencies bear the seeds of value destruction within themselves, simply because their evolution has nowhere further to go other than downhill.

    There is a complacent assumption that central banks are in control of interest rates and always will be. What is missing is an understanding of markets, which ultimately reflect human action. It is an error which eventually leads to states’ combined actions failing completely.

    We saw this in the 1970s, after the last vestiges of gold backing for the dollar were abandoned with the suspension of the Bretton Woods Agreement. Not only did the dollar lose its tie to gold, but all other currencies from that moment lost it as well. Consequently, inflation in the form of consumer prices began to rise shortly thereafter, fuelled by a combination of monetary expansion and loss of faith in currencies’ purchasing power — the latter particularly from OPEC members who demanded substantially higher dollar prices for crude oil. Despite the prospects for North Sea oil, the consequences for the UK’s government finances were catastrophic, leading to a bailout from the IMF in September 1976 (IMF bailouts were exclusively for third-world nations — for the UK this was beyond embarrassing). And the Labour government was forced to issue gilts bearing coupons of 15%, 15 ¼%, and 15 ½%.

    Globally, we have a similar situation today, except instead of entering the post-Bretton Wood years with the US dollar’s Fed Funds Rate at 6.62%, we have entered the new commoditisation era with the FFR at zero. We exited the 1970s with a FFR of over 19%. In August 1971 when the Bretton Woods Agreement was suspended the yield on the 10-year US Treasury constant maturity note was 6.86%. By September 1981 it stood at 15.6%. In August 2020 it was at an unnatural 0.5%, going to —who knows?

    In 1980, Paul Volker slayed the inflation dragon by hiking interest rates to economically destructive levels. It is hard to envisage a similar action being taken by the Fed today. But what we can see is the potential for consumer prices to rise, driven by currency debasement, to at least similar if not greater levels seen during the 1970s decade. Accordingly, bond yields have much, much further to rise. The bankruptcies of over-indebted businesses, their bankers, the central banks loaded with failing financial assets, and governments themselves all beckon.

    Financial assets are at the top of their bubble, of that there should be little doubt. As interest rates rise, all financial assets will begin to collapse in value. That cannot be denied. And where financial assets interact with the real world, such as mortgage finance, the disruption will undermine values of physical assets as well. Financial assets represent a higher level of collateral backing for bank credit than on previous credit cycles. Forced collateral liquidation will also drive financial asset prices lower.

    The potential for a crash on the scale of Wall Street between 1929—1932 should be obvious. Equally obvious is the likely reaction of central banks, which will surely redouble their efforts to prevent it happening. Quantitative easing is set to increase to finance all spendthrift government spending shortfalls, which can only escalate in these conditions. Central banks will be doing it not just because they want to preserve a “wealth effect” for the private sector, but to save themselves from the consequences of earlier currency debasement.

    The central banks of Japan, the euro system, the UK and the US have all loaded up on government bonds, whose prices are just beginning to collapse, if the higher bond yields seen in the 1970s return. Central bank liabilities are beginning to exceed their assets, a situation which in the private sector requires directors to admit to bankruptcy and cease trading. In most cases, recapitalising a central bank is a simple operation, whereby the central bank makes a loan to its government, and though double entry bookkeeping, instead of the government being credited as a depositor it is credited as a shareholder. Simple, but embarrassing in the middle of a developing financial crisis. When pure fiat currencies are involved. Undoubtedly, this is what the Bank of Japan will be forced to do, but for now it is refusing to accept the reality of higher interest rates and the effect on its extensive portfolio of JGBs, corporate bonds and equity ETFs. Consequently, its currency, the yen, is collapsing.

    The position of the ECB is more complex because its shareholders are the national central banks in the euro system which in turn will need bailing out. The imbalances in the TARGET2 settlement system are an additional complication, and outstanding repos last estimated at €8.725 trillion are there to be unwound.

    Between Japan and the Eurozone, we can expect to see their currencies collapse first. Initially, the dollar will appear strong on the foreign exchanges reflecting their decline. But foreigners possess financial assets and deposits totalling over US$33 trillion on current valuations. If the Fed is unable to prevent bond yields from soaring much above current levels, most of this, including the $15 trillion invested in equities, will be wiped out. The destruction of value measured in collapsing currencies will be economically catastrophic.

    It is to avoid this fate that first China, and now Russia are commoditising their currencies and even planning for a new cross-border settlement medium tied partially to commodity values. They hope to escape from interest rates rising in fiat currencies as they lose purchasing power. If the global conflict is financial, the West has lost it already. The geopolitical consequences are another story for a later day.

    Tyler Durden
    Sun, 04/24/2022 – 16:30

  • Twitter Board "More Receptive To A Deal", Meeting With Musk Today As It Re-Examines Bid
    Twitter Board “More Receptive To A Deal”, Meeting With Musk Today As It Re-Examines Bid

    Elon Musk’ twitter takeover, which just one week ago seemed increasingly unlikely after the company rushed to adopt a poison pill, is suddenly looks rather possible and not because the world’s richest man decided to go all scorched over Twitter’s bread and butter, namely censorship and shadowbanning…

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

    … but because the WSJ reports that the social media company’s board is ” more receptive to a deal” and is re-examining Musk’s $43 billion takeover offer after the billionaire lined up financing for the bid.

    While Twitter had been expected to rebuff the offer, which Musk made earlier this month without saying how he would pay for it, and prompting Musk to threaten to launch a tender offer. But after Musk disclosed last week that he now has $46.5 billion in financing thanks to Morgan Stanley, “Twitter is taking a fresh look at the offer and is more likely than before to seek to negotiate” although the situation is fast-moving and it is still far from guaranteed Twitter will do so.

    To be sure, a deal is certainly not assured yet as Twitter is still working on an all-important estimate of its own value, which would need to come in close to Musk’s offer (of course, it will be aggressive for the twitter board to claim there is much more value in a company which has rarely traded at or above the Musk offer price since it went public), and it could also insist on sweeteners such as Musk agreeing to cover breakup protections should the deal fall apart, some of the people said.

    Twitter is expected to provide its views on the bid when it reports first-quarter earnings Thursday, if not sooner. As we suggested last week, the company’ response won’t necessarily be black-and-white, and could leave the door open for inviting other bidders, i.e., a “go shop period” or negotiating with Musk on terms other than price.

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

    While Musk has reiterated to Twitter’s chairman Bret Taylor in that he won’t budge from his offer of $54.20-a-share, the deal will hardly fall apart over several dollars; as such expect a deal to happen somewhere in the high $50s, low $60s.

    The two sides are meeting Sunday to discuss Musk’s proposal.

    According to WSJ sources, the potential turnabout on Twitter’s part comes after Musk met privately Friday with several shareholders of the company to extol the virtues of his proposal while repeating that the board has a “yes-or-no” decision to make. He also pledged to solve the free-speech issues he sees as plaguing the platform and the country more broadly, whether his bid succeeds or not, WSJ sources said.

    The Tesla Inc. chief executive made his pitch to select shareholders in a series of video calls, with a focus on actively managed funds, the people said, in hopes that they could sway the company’s decision.

    Mr. Musk said he sees no way Twitter management can get the stock to his offer price on its own, given the issues in the business and a persistent inability to correct them. It couldn’t be learned if he detailed specific steps he would take, though he has tweeted about wanting to reduce the platform’s reliance on advertising, as well as to make simpler changes such as allowing longer tweets.

    To the shock of woke liberals everywhere who would enter a period of mourning should Musk become the news boss, the billionaire already has some shareholders rallying behind him following the meetings. Lauri Brunner, who manages Thrivent Asset Management LLC’s large-cap growth fund, sees Musk as a skilled operator. “He has an established track record at Tesla,” she said. “He is the catalyst to deliver strong operating performance at Twitter.” Minneapolis-based Thrivent has a roughly 0.4% stake in Twitter worth $160 million and is also a Tesla shareholder.

    Picking up on a point we made last week, Jeff Gramm, a portfolio manager with Bandera Partners LLC, a New York hedge fund with about $385 million under management, said that Twitter’s board should engage with Mr. Musk since its stock has “gone nowhere” since the company went public eight years ago.

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

    The firm last bought Twitter shares in February and owns about 950,000 overall, which accounts for about 11% of its portfolio.

    Gramm said Twitter’s board can’t walk away from Mr. Musk’s offer without providing an alternative that gives real value to shareholders. “I’m not sure what can be at this stage besides finding a higher bid,” he said, which of course is true, but the probability that someone will offer more than Musk is very much, to loosely paraphrase Musk, “unsecured.”

    Tyler Durden
    Sun, 04/24/2022 – 16:00

  • How Decentralized Is Your Stablecoin?
    How Decentralized Is Your Stablecoin?

    Authored by Omid Malekan via Medium.com,

    My thinking on stablecoins has evolved greatly since I started writing about them four years ago.

    There are things I’ve gotten right (their emergence as a killer app for blockchain), things I’ve gotten wrong (the viability of Dai), things I was early on (adoption for vanilla payments) and things I remain conflicted on, like the viability of the undercollateralized AKA algorithmic variety.

    Algorithmic stablecoins have always seemed like a fantasy to me, a design pushed by techies who don’t understand value. My conservatism was supported by events like the failure of Basis to launch (despite a massive ICO) and the collapse of similar projects that did launch.

    My skepticism starts with their reliance on circular logic alone. Every currency requires a certain amount of faith to succeed, but few are born of faith alone. To escape the gravitational pull of oblivion, new types of money usually anchor themselves to an independent source of value at the outset. The U.S. dollar was originally tied to a Spanish currency that was then the global standard, and Bitcoin initially derived value from being the means by which a decentralized payment network was secured.

    The first generation of algorithmic stablecoins tried to escape any independent tethering by using a two token model. One token was the stablecoin and the other the reserve asset against which it was minted and burned. The design was supposedly inspired by how central banks manage fiat currencies, as was argued in the Basis whitepaper:

    “Basis implements price stability using the same economic principles relied upon by central banks around the world.”

    That comparison was invalid for two reasons. Unlike an algorithmic stablecoin, people don’t adopt a fiat currency just because a central bank manages it. They adopt it because they have to, thanks to legal tender laws and other constraints. This initial (yet permanent) source of demand eliminates the tail risk of total collapse.

    More importantly, the reserve assets that central banks use to manage their currencies are independent stores of value that happen to be useful for managing money. Unlike the reserve token of an algo stablecoin, assets like gold, foreign currencies and government debt have independent utility.

    The first few generations of algorithmic stablecoins failed because they did little to generate demand and used a reserve asset of no utility beyond managing a stablecoin. Their design was particularly risky because unlike other crypto assets, stablecoins can’t appreciate in value. They can only fall, so their users are quick to abandon ship at the first sign of trouble.

    Then came the Terra blockchain and its dollar stablecoin, UST. Although bunched into the Algo bucket, UST’s design was different. The team behind it actually cared about demand and stated so in their white paper:

    While many see the benefits of a price-stable cryptocurrency that combines the best of both fiat and Bitcoin, not many have a clear plan for the adoption of such a currency. Since the value of a currency as a medium of exchange is mainly driven by its network effects, a successful new digital currency needs to maximize adoption in order to become useful.

    What’s more, they backed their stablecoin with a different kind of reserve asset, one that had independent utility. Unlike the “seigniorage shares” tokens of projects like Basis, Luna is the native token of a proof of stake blockchain, and such tokens have succeeded in being valuable elsewhere, in contexts that have nothing to do with a stablecoin. Being independently valuable makes Luna a superior reserve asset. It also makes UST closer in design to crypto-collateralized stablecoins like Dai than purely algorithmic ones like Basis.

    But unlike Dai, UST is not over-collateralized. That makes it more capital efficient — $100 worth of Luna can get you 100 UST — but also more vulnerable to a sudden plunge in the price of Luna. There are several solutions to this problem.

    The first is to make sure that UST is always in demand. The greater the demand for any currency, the less important the reserve assets that back it. Enter the Anchor protocol and its generous (and heavily subsidized) yield to savers who deposit UST. This clever demand lever has been effective at increasing demand for UST but has its own risks. It leads to reflexive leverage — you can borrow at a lower rate then redeposit back into Anchor — and that introduces sysemtic risk. What if Anchor gets hacked in the way other DeFi protocols have? It’s also not sustainable.

    Another solution to the collateral issue is to diversify away from Luna as the only reserve asset. Enter the Luna Foundation Guard and its purchases of bitcoins. Not only has swapping out some of the reserve for a different (and more established) coin increased the perceived stability of UST, it has also imported the support of Bitcoin maximalists who’ve been dreaming of a Bitcoin standard for years.

    Both of these solutions reveal sophistication on the part of Do Kwon and the rest of the Terra team. They’ve helped UST escape the dangerous adolescent years of any non-overcollateralized stablecoin and set it up for further adoption. But they have also introduced new risks.

    Part of the appeal of algorithmic stablecoins is their promise of greater decentralization. Fiat-backed coins like USDC are censorable at the reserve level, and Dai is partially backed by off-chain assets. UST is advertised as a decentralized alternative because users can always swap it in a censorship-resistant way. Indeed, the other clever part of Terra’s design was the way in which Luna could be swapped for UST (and vice versa) at the protocol layer, eliminating smart contract risk and making conversion trustless. The introduction of non-native assets goes back on this promise.

    The Bitcoin reserve is managed by the foundation, not the protocol. The Terra team has been suspiciously quiet about how these coins are controlled, but it looks like there is a multisig address managed by the board of the foundation. There is a governance proposal to hand control over to the validators, but that would introduce bridge risk.

    Blockchain bridges are inherently risky, as proven by a series of major hacks in the past six months. The Terra ecosystem relies heavily on bridges. About a quarter of the collateral held by Anchor is bridged ETH, and at least half a billion dollars worth of the Luna that is meant to back UST has been bridged to other chains.

    The Luna community’s tendency to discount these risks is disappointing. If you actually believe in decentralization, then you should be concerned about the fact that UST backing grows either more trusted or more risky with every additional BTC purchase. Other popular stablecoins have their own trust assumptions, but UST claims to be different.

    It’s still early, and Do Kwon and the rest of the Terra team — assuming there is one, it’s hard to tell given the cult of personality — have done an admirable job of executing so far. I disagree with those who still believe UST is vulnerable to a sudden death spiral, as it is now backed by both a major coin in terms of market cap and powerful off-chain interests who will step in to defend it. The critics who think a death spiral is likely tend to focus on the rapidly depleting yield subsidy in Anchor. What they don’t understand is that Terraform Labs has an unlimited budget.

    Or at least, a $35 billion dollar one. That’s the market cap of the non-circulating Luna tokens sitting in the lab’s blockchain address. To put that number in context, it’s bigger than the circulating supply. That’s how they can keep funding the Luna Foundation Guard, subsidizing Anchor, taking over Curve pools and taking other kinds of “whatever it takes” actions to protect their stablecoin.

    The crypto domain is full of ironies, and this may be the biggest: the (supposedly) most decentralized stablecoin exists on the demonstrably most centralized L1. Terraform Labs is a corporation with Do Kwon as its CEO. That means a single individual effectively controls a majority of the premined tokens. I can’t think of a single other Layer-1 blockchain where one person enjoys a financial majority. Since Terra is a delegated Proof of Stake blockchain, then Do has de facto control over governance as well. To make matters worse, Do is also the director of the Luna Foundation Guard, which explains tweets like this:

    or this

    His use of “I” and “We” here is not rhetorical flourish, it’s reality. So when you read stories of how Terraform Labs “gifted” Luna to the Foundation, it’s just self dealing between one Do-controlled entity and another.

    Is this not the definition of centralized power? I’ll go out on a limb and say Do Kwon has as much power over the Terra ecosystem as Mark Zuckerberg has over Meta. Both control a majority of the voting asset and run the legal entity making executive decisions. Both move fast and break (or fix) things. Remember the community governance proposal and subsequent vote on whether UST should have a Bitcoin reserve and how that reserve should be managed? Neither do I.

    This is not how decentralization is supposed to work. Do might be the smartest guy in crypto, and he clearly means well, but a benevolent dictator is still a dictator. At best he represents a ton of key man risk, and at worst he can impose his will on the community. No wonder that Justin Sun is now following in Do’s footsteps in issuing an Algo stablecoin.

    All that power diminishes the risk of a death spiral, but it also means all claims of decentralization for UST ring hollow. Adding insult to injury is the fact that Terraform Labs seems to also control a substantial portion of Anchor’s ANC governance token. Maybe there’s a roadmap for decentralization that I’m not aware of, but that’s besides the point.

    The ultimate takeaway here is that building decentralized money that is not free-floating (a la Bitcoin) is hard, perhaps impossibly so. Every stablecoin has its tradeoffs. Some are censorable, some are capital intensive, and others are decentralization theater.

    Tyler Durden
    Sun, 04/24/2022 – 15:30

  • Small Towns Drew Most New Pandemic Residents
    Small Towns Drew Most New Pandemic Residents

    As Americans left major cities in droves in search of wide-open spaces during the pandemic, small, ‘relatively obscure’ towns saw the largest influx of new residents, according to Pew, citing US Census statistics and Stateline analysis of postal address changes.

    Downtown Bend, Oregon

    “People were already coming here in hordes, and then it just exploded in the pandemic,” said Lynne McConnell, housing director for Bend, Oregon. “More would be coming if we had housing to accommodate them.”

    Affluent workers who could do their jobs remotely had an easier time moving to far-off areas, especially places like Bend that aren’t commutable. Before the pandemic, people moved mostly for a new job, but since then moves have become more about comfort and lifestyle factors such as good neighborhoods, home ownership, climate and recreation, said Peter Haslag, an assistant finance professor at Vanderbilt University who studied pandemic moves. -Pew

    Unsurprisingly, the influx of new residents – and the increase in property taxes they signed up for – has resulted in a much-needed boost to bond ratings for remote municipalities, allowing them to borrow more money for infrastructure projects to accommodate the growth, according to another Haslag study.

    “It becomes relatively less expensive [for growing cities] to take on new projects,” he said. “The evidence suggests that areas that experienced significant inflow during the pandemic should experience relatively greater economic growth.”

    Small town boom

    While Bend, Oregon saw the net influx of new residents triple to 1,214 in the first year of the pandemic, other small towns have seen similar inflows.

    In Daphne, Alabama – a city of 27,000 near Mobile, new residents tripled to 1,543 – another tripling. Similar influxes were observed in Martinsburg, West Virginia; Kalispell, Montana; Elkhorn, Nebraska; and Lee’s Summit, Missouri, according to the report.

    The flood of new residents has caused both a real-estate boom and a shortage of skilled labor.

    “The problem is the people who swing the hammers can’t afford to live here at the wages construction companies can pay.”

    Newcomers have caused tension with longtime residents, who face impossible homebuying costs and more crowding on scenic mountain and desert trails. A few “Don’t Move Here” bumper stickers have appeared to compete with the standard “Be Nice! You’re in Bend” sentiment on stickers, McConnell said. -Pew

    “I wound up bidding on countless houses, entering into new construction contracts only for the builder to back out as the price of materials made it impossible,” said Ellen Waterson, who sold a house in Bend before the pandemic, intending to rent for a few months before finding a smaller place to move into. “I finally got into a house in Bend only because I happened on a for-sale-by-owner [sign].”

    In the sun belt states, small towns also dominated over larger cities. In Maricopa County, Arizona, the small suburb of Buckeye saw the most pandemic moves vs. larger Phoenix – which was the fastest-growing city in the 2010s.

    On the East Coast, people flooded into Stamford, CT, which saw in-moves similarly triple during the first year of the pandemic.

    “The neighborhood near the train station was overrun by New Yorkers escaping the city,” said Terri Ann Lowenthal, a Connecticut-based census consultant. “A local developer was building luxury rental buildings faster than you can spell ‘Connecticut.”

     

    Tyler Durden
    Sun, 04/24/2022 – 15:00

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