- The UK Dominates The Most Damaging Tax Havens
New analysis by the Tax Justice Network has revealed the UK to be biggest enabler of corporate tax dodging in the world.
As Statista’s infographic below shows, British Overseas Territories and Crown Dependencies dominate the list of places allowing multinationals to avoid paying tax on their profits.
You will find more infographics at Statista
In total, this makes the UK responsible for about one third of global tax avoidance risk – over four times more than the second biggest contributor, the Netherlands.
- Sweden's Self-Inflicted Mess
Authored by Judith Bergman via The Gatestone Institute,
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According to an Amnesty International report, in Sweden, rape investigations are under-prioritized, there are “excessively long waiting times for the results of DNA analyses”, there is not enough support for rape victims and not enough work is done for preventative purposes.
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In 2017, a Swedish police report, “Utsatta områden 2017”, (“Vulnerable Areas 2017”, commonly known as “no-go zones” or lawless areas) showed that there are 61 such areas in Sweden. They encompass 200 criminal networks, consisting of an estimated 5,000 criminals. Twenty-three of those areas were especially critical….
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“I cannot bear to see children faring so badly… There should be no doubt that the Government does what it can for these children [of ISIS terrorists] and if possible they should be brought to Sweden.” — Swedish Foreign Minister Margot Wallström.
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Unfortunately, the horrific fate of enslaved Yazidi children does not appear to be something that Wallström “cannot bear”.
According to the latest National Safety Report, published by the Swedish National Council for Crime Prevention, four out of 10 women are afraid to walk outside freely. According to an Amnesty International report, “In a 2017 study, 1.4% of the population stated they had been subjected to rape or sexual abuse, corresponding to approximately 112,000 people.” (Image source: iStock)
In the picturesque Swedish university city of Uppsala, 80% of girls do not feel safein the city center. One 14-year old teenager, who is afraid to reveal her identity, told the Swedish media that she always wears trainers so that she can ‘run faster’ if she is attacked:
“I sat down on a bench and immediately guys came and sat next to me on both sides. Then more guys came and stood in front of me. They began to grab my hair and my legs and said things to me that I did not understand. I became so terrified and told them many times to stop, but they did not listen… Everything is so horrible. This is so wrong. I want to be able to feel safe”, she said about taking the bus home.
A recent survey from Region Uppsala shows that only 19% of girls in high school feel safe in the inner city of Uppsala. In 2013, the number was 45%. The men and boys in the gangs that engage in the sexual harassment of Swedish girls in Uppsala are frequently newly-arrived migrants.
In response, officials from Uppsala apparently told the Swedish press, “We usually encourage girls who feel insecure to think about what they need to do to feel safe, such as not walking alone, making sure they get picked up and anything else that can reduce their sense of insecurity.” In other words, the authorities are leaving the responsibility for dealing with this critical security issue to the girls themselves.
The scared girls in Uppsala are only a small part of the entire picture. According to the latest National Safety Report, published by the Swedish National Council for Crime Prevention (Brottsförebyggande Rådet or Brå), four out of 10 women are afraid to walk outside freely. “Almost a quarter of the population chooses a different route or another mode of transportation as a result of anxiety about crime… Among women aged 20-24, 42 percent state that they often opted for another route or another mode of transportation, because they felt insecure and worried about being subjected to crime. The corresponding proportion among men in the same age group is 16 percent…” according to Brå.
Nevertheless, the government is cutting down on the police’s resources. In the government’s new spring change budget, the police are facing a reduction of 232 million Swedish kroner (US $24.5 million). “The proposals in the spring change budget will have consequences for the police’s activities, but what effects it will have it is too early to respond to at present. We will now analyze how we will handle the new economic conditions,” the police said in response to the proposed budget costs, with police chief Anders Thornberg criticizing the cuts.
As it is, the police are already drowning in tasks they cannot perform properly, such as solving rape cases. A recent Amnesty International report, “Time for Change: Justice for rape survivors in the Nordic countries“, released in April, harshly criticized Sweden for not dealing properly with rape cases. According to the Amnesty report, among other problems, rape investigations are under-prioritized, there are “excessively long waiting times for the results of DNA analyses”, there is not enough support for rape victims and not enough work is done for preventative purposes.
The Amnesty report states:
“In 2017, the Swedish police received 5,236 reports of rape involving people aged 15 or over: 95% of victims were women or girls. The preliminary statistics for 2018 show 5,593 reports of rape of which 96% of victims were women or girls. However, under-reporting of rape and other sexual crimes means that these figures do not give a realistic picture of the scale of the problem. In a 2017 study, 1.4% of the population stated they had been subjected to rape or sexual abuse, corresponding to approximately 112,000 people. The vast majority of rape victims will never report the crime to the police. Of those who do, few will see their case heard in court. In 2017, prosecutions were initiated in 11% of cases involving children aged between 15 and 17 and in 6% of cases involving adults”.
Sexual crimes are not the only crimes that Swedish authorities find themselves unable properly to confront. In 2018, Sweden experienced a record high number of lethal shootings; 45 people were killed in them nationwide. Most of the shootings took place in the Stockholm area, and most deaths occurred in Region South, where Malmö is located. “It is at a terribly high level,” Stockholm’s police commissioner , Gunnar Appelgren, said about the shootings. Previously, 2017 held the record with 43 shot to death. The number of reported shootings overall did, however, decrease slightly: from 324 in 2017, to 306 in 2018. The number of people who were injured was also slightly lower: 135 people in 2018, compared to 139 in 2017.
According to the police, many of the shootings are linked to criminal conflicts and so-called “vulnerable areas” (utsatta områden, commonly known as “no-go zones” or lawless areas). In the first six months of 2018, according to police, almost every other shooting took place in a “vulnerable area”. In 2017, a Swedish police report, “Utsatta områden 2017” (“Vulnerable Areas 2017”) showed that there are 61 such areas in Sweden. They encompass 200 criminal networks, consisting of an estimated 5,000 criminals. Twenty-three of those areas were especially critical: children as young as 10 had been involved in serious crimes there, including ones involving weapons and drugs. Most of the inhabitants were non-Western, sadly mainly Muslim, immigrants.
To add to these problems, Foreign Minister Margot Wallström appears to be planning to bring back children of Swedish Islamic State (ISIS) terrorists who are living in refugee camps in Syria. “It is complex and that is why it has taken time to develop a policy and a clear message, but we are working on this every day. I cannot bear to see children faring so badly”, she recently said. In an April 12 Facebook post, Wallström wrote:
“The government is now working intensively to ensure that children with links to Sweden who are in Syria receive the help they need. There should be no doubt that the government does what it can for these children and if possible they should be brought to Sweden. Each case must be handled individually. The children are in different situations, some perhaps orphans, others with parents arrested for acts they committed for ISIS. Identifying Swedes who can have been born in [Syria or Iraq] is difficult. In the largest camp there are about 76,000 people. We are in contact with International Red Cross in the camps. It is of the utmost importance that the children’s situation is handled with legal certainty and with the best interests of the children. International actors, Swedish authorities and Swedish municipalities, who can be recipients of children, must cooperate…”
Unfortunately, the horrific fate of enslaved Yazidi children does not appear to be something that Wallström “cannot bear”.
Additionally, 41 out of 290 Swedish municipalities could be forced, or are already being forced, to accommodate returning ISIS terrorists in the near future, according to a recent report by SVT Nyheter. The ISIS terrorists are either still in Syria or already on their way back to Sweden. To “prepare” the municipalities, the Swedish Center Against Violent Extremism invited them to a “knowledge day” about ISIS returnees on April 24. The purpose was to “provide support to the municipalities that have received or will be receiving returning children and adults from areas previously controlled by the Islamic State”. The municipalities involved are those where the ISIS terrorists had lived before being recruited to ISIS.
In total, 150 male and female ISIS members are expected to return to Sweden, as well as 80 children who are travelling with their parents.
According to Prime Minister Stefan Löfven, returning ISIS terrorists have a “right”, as Swedish citizens, to return to Sweden. Löfven claimed that it would be against the Swedish constitution to strip them of their citizenship, but that those who had committed crimes would be prosecuted. Swedish terrorism expert, Magnus Ranstorp, though, has warned Sweden against taking back not only ISIS terrorists, but also their wives and children, who, he said, also pose a security risk:
“The women are not innocent victims, and there is also a large group of ISIS children… From the age of eight or nine, they have been sent to indoctrination camps where they have learned close combat techniques and how to handle weapons. Some of them have learned how to kill… their identities will forever be linked to their time with ISIS, and the fact that they have an ISIS father or an ISIS mother.”
Sweden seems intent on importing even more problems.
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- Escobar Warns: It's Far From Quiet On The US Vs Russia-China Front
Authored by Pepe Escobar via The Saker blog,
Let’s start in mid-May, when Nur-Sultan, formerly Astana, hosted the third Russia-Kazakhstan Expert Forum, jointly organized by premier think tank Valdai Club and the Kazakhstan Council on International Relations.
The ongoing, laborious and crucial interconnection of the New Silk Roads, or Belt and Road Initiative and the Eurasia Economic Union was at the center of the debates. Kazakhstan is a pivotal member of both the BRI and EAEU.
As Valdai Club top analyst Yaroslav Lissovolik told me, there was much discussion “on the state of play in emerging markets in light of the developments associated with the US-China trade stand-off.” What emerged was the necessity of embracing “open regionalism” as a factor to neutralize “the negative protectionist trends in the global economy.”
This translates as regional blocks along a vast South-South axis harnessing their huge potential “to counter protections pressures”, with “different forms of economic integration other than trade liberalization” having preeminence. Enter “connectivity” – BRI’s premier focus.
The EAEU, celebrating its fifth anniversary this year, is fully into the open regionalism paradigm, according to Lissovolik, with memoranda of understanding signed with Mercosur, ASEAN, and more free-trade agreements coming up later this year, including Serbia and Singapore.
Sessions at the Russia-Kazakhstan forum produced wonderful insights on the triangular Russia-China-Central Asia relationship and further South-South collaboration. Special attention should focus on the concept of the Non-Aligned Movement (NAM) 2.0. If a new bipolarity is emerging, pitting the US against China, NAM 2.0 rules that vast sectors of the Global South should profit by remaining neutral.
On the complex Russia-China strategic partnership, featuring myriad layers, by now it’s established that Beijing considers Moscow a sort of strategic rearguard in its ascent to superpower status. Yet doubts persist across sectors of “pivot to the East” Moscow elites on how to handle Beijing.
It’s fascinating to watch how neutral Kazakh analysts see it. They tend to interpret negative perceptions about a possible “Chinese threat” as impressed upon Russia, including Russia media, by its notorious Western “partners” – and “from there proceed to Kazakhstan and other post-Soviet countries.”
Kazakhs stress that the development of the EAEU is always under tremendous pressure by the West, and are very worried that the US-China trade war will have serious consequences for the development of Eurasian integration. They dread the possibility of another front of the US-China fight opening in strategically positioned Kazakhstan. Still, they hope the EAEU will expand, mostly because of Russia.
Andrei Sushentsov, program director of the Valdai Discussion Club, had a more lenient explanation. He reads the current chaos not as a Cold War, but rather a “Phony Cold War” – with no pronounced aggressor, no ideological component in the confrontation, and even “a desire to relieve tension.”
NAM 2.0 or Eurasia integration?
In a crucial speech to the Valdai Club, President Putin made it clear, once again, that the BRI-EAEU interconnection is an absolute priority. And the only road map ahead is for Eurasian integration.
That interlinks with the advance of the Shanghai Cooperation Organization, whose annual summit is next month, in Kyrgyzstan. One of the key goals of the SCO, since it was founded in 2001, is to create an evolving Russia-China-Central Asia synergy.
It’s not far-fetched to consider that what happens next may include a clash between the inbuilt logic of the Non-Aligned Movement (NAM) 2.0 and the massive Eurasian integration drive. Moscow, for instance, would be in an intractable position if it came to either align with Beijing or NAM 2.0.
Putin has had a crack on how to solve the problem.
“Historical experience shows that the Soviet Union had quite trust-based and constructive relations with many countries of the Non-Aligned Movement. It is also clear that if pursued in a too radical and uncompromising way, the logic of the ‘new non-aligned movement’ can become a challenge to the consolidation and unity of Eurasia, which is the top priority for the SCO and other projects.”
Putin has arguably dedicated a lot of thought to “the case of a new rupture in Russia-China relations, toward which many are pushing us.”
He recognizes that “quite a large part of Russian society will receive it as a quite natural and even positive development. Therefore, to avoid this scenario (to reiterate, consolidation and unity of Greater Eurasia is the key value of the SCO and the EAEU-BRI association), not only diplomatic work outside of Russia is required… but also a lot of work inside the country. In this case, the work needs to be done less with elites by way of expert papers, than directly with the people in entirely different media formats (which, by the way, not all traditional experts can do).”
The ultimate target though remains set in stone – to “achieve the purported goal of consolidating Greater Eurasia.”
The US three-war front
Maximum pressure from ‘Exceptionalistan’ won’t relent. For instance, CAATSA – the Countering America’s Adversaries Through Sanctions Act – now in overdrive after the adoption of a European Recapitalization Incentive Program, will continue to economically punish nations that purchase Russian and Chinese weapons.
The logic of this extreme “military diplomacy” is stark; if you don’t weaponize the American way, you will suffer. Key targets feature, among others, India and Turkey, two still theoretical poles of Eurasian integration.
In parallel, from US Think Tankland, comes the latest RAND Corporation report on – what else – how to wage Cold War 2.0 against Russia, complete with scores of strategic bombers and new intermediate-range nuclear missiles stationed in Europe to counter “Russian aggression”. Santa Monica’s RAND arguably qualifies as the top Deep State think tank.
So, it’s no wonder the road ahead is fraught with Desperation Row scenarios. The US economic war on China – at least for now – is not as hardcore as the US economic war on Russia, which is not as hardcore as the US economic siege or blockade of Iran. Yet all three wars carry the potential to degenerate in a flash. And we’re not even counting the strong possibility of an extra Trump administration economic war on the EU.
It’s no accident that the current economic wars target the three key nodes of Eurasian integration. The war against the EU may not happen because the main beneficiaries would be the Russia-China-Iran triumvirate.
Obviously, no illusions remain in Beijing, Moscow and Tehran’s corridors of power. Frantic diplomacy prevails. After the BRI forum in Beijing, Presidents Putin and Xi meet again in early June at the St Petersburg International Economic Forum – where discussion of BRI-EAEU interconnection will be paramount, alongside containment of the US in Central Asia.
Then Russia and China meet again at the SCO summit in Bishkek. The head of Russia’s Federal Security Service (FSB), Alexander Bortnikov, went on the record stating that as many as 5,000 ISIS/Daesh-linked jihadis fresh from their “moderate rebel” Syrian stint are now massed in Afghanistan bordering Tajikistan and Uzbekistan, with the possibility of crossing to Pakistan and China.
That’s a major security threat to all SCO members – and it will be discussed in detail in Bishkek, alongside the necessity of including Iran as a new permanent member.
Chinese Vice-President Wang Qishan is visiting Pakistan, which is a key BRI member with the CPEC corridor, and after will visit the Netherlands and Germany. Beijing wants to diversify its complex global investment strategy.
Meanwhile, from Istanbul to Vladivostok, the key question remains: how to make NAM 2.0 work to the benefit of Eurasian integration.
- Trash Wars Part Deux: Philippines Now Shipping Barge Of Illegal Trash Back To Canada
While the world has been focused on the ongoing U.S./China (and now U.S./Mexico) trade war, the final chapter in an ongoing, yet little covered garbage war between the Philippines and Canada looks to have begun.
A shipment of trash that has been causing strain between the two countries is finally heading back to Canada, 6 years after it arrived in the Philippines, according to Gulf News.
Wilma Eisma, Subic Bay Metropolitan Authority (SBMA) chair said: “Finally, the containers of garbage transported from Canada and stored at the Subic Bay Freeport for several years now have been pulled out as of today, May 31, 2019,”
69 total containers filled with trash were loaded onto the MV Bavaria, pictured below, and sent back to North America. The shipment was commissioned by Canada to take the cargo back to its point of origin.
“This is one proud moment for all Filipinos,” Eisma continued.
Philippine Foreign Secretary Teodoro Locsin Jr said: “The garbage is gone, good riddance. I am not interested in what the world thinks … Canada pulled all stops on this: seamless cooperation.”
Senator Panfilo Lacson said: “…we will await further developments on future garbage return expeditions to Australia, South Korea, Hong Kong and God knows where else.”
President Rodrigo Duterte had previously prohibited Philippine officials from travelling to Canada as a result of the disagreement over the trash. He had also downgraded the country’s diplomatic presence in Canada. When the trash left port for Canada, Locsin withdrew an order for the recall of the Filipino ambassador and consuls to Canada.
“To our recalled posts, get your flights back. Thanks and sorry for the trouble you went through to drive home a point,” Locsin said.
Recall, earlier this month we highlighted the ongoing war between Duterte and Canada.
Canada had previously agreed to take the trash back, but was slow in making arrangements for its return. Duterte threatened to leave the trash in Canadian waters if Ottawa refused to take it back, according to Salvador Panelo, spokesman for the President.
Quoted by RT, Panelo had said Duterte was “upset” by Ottawa’s “inordinate delay” in shipping the garbage back after they missed a May 15 deadline to do so. Officials in the Philippines were even looking to hire a private shipping company to move the waste back to Canada, with Manilla bearing the expenses.
Duterte warned Canada to “prepare a grand reception” for the trash and said he didn’t care what Canada did with it. He even suggested that Canadians could “eat it” if they wanted to.
Panelo said earlier this month: “Obviously, Canada is not taking this issue nor our country seriously.” He continued, saying that the trash would be dumped in Canada’s territorial waters, or 12 miles from the country’s shore.
“The Philippines is an independent sovereign nation [and] must not be treated as trash by other foreign nations. We hope this message resonates well with other countries of the world,” Panelo concluded.
The containers had previously been listed as containing plastics intended for recycling, however, upon delivery, the shipment was found to contain newspapers, water bottles, diapers and other trash. Back in April, Duterte had said of the argument: “They have been sending their trash to us. Well, not this time. We will quarrel with each other. So what if we quarrel with Canada? We’ll declare war against them, we can beat them.”
- Jatras: Make No Mistake, Democrats Are 'Shooting To Kill' With Impeachment
Authored by James George Jatras via The Strategic Culture Foundation,
In the wake of Robert Mueller’s calculated handoff of the “Get Trump” portfolio to the Democrat-controlled House of Representatives, two things are evident.
First, President Donald J. Trump is virtually certain to be impeached. That’s manifest despite doddering House Speaker Nancy Pelosi’s playing cute for now, seeking to ensure first that “we do want to make such a compelling case, such an ironclad case that even the Republican Senate, which at the time seems to be not an objective jury, will be convinced.” Translation: We don’t have the goods yet, but we expect to.
Second, like generals proverbially fighting the last war – namely, Republicans’ failed 1998 effort to oust Bill Clinton – many in the GOP have convinced themselves that a Trump impeachment will be unsuccessful and will only hurt the Democrats. Put another way, the Stupid Party once again rises to the occasion. Cue Karl Rove:
‘Knowing what they know today, if House Democrats move forward on the impeachment of President Trump, five things will happen.
‘First, swing voters will conclude the Democrats are conducting a highly partisan exercise.
‘Second, impeachment talk will largely or completely obscure anything else House Democrats will do legislatively. Voters could decide the Democrats are a do-nothing bunch.
‘Third, impeachment will play a much larger role in the Democratic presidential primary. The issue of impeachment will obscure the other messages of the Democratic presidential hopefuls and raise the prospect of a backlash against candidates like former Vice President Joe Biden and Sen. Bernie Sanders of Vermont, who have yet to embrace impeachment.
‘Fourth, the Republican Senate will quickly dismiss any impeachment resolution passed by the House, killing the issue.
‘And finally, any of the dozens of vulnerable House Democrats in Republican-leaning districts who back impeachment will have given their GOP opponents a big issue.’ [Emphasis added]
Make no mistake, while the Democrats hope to wound Trump even if the attempt to remove him fails, they are deadly serious that they have a realistic shot at finishing him off. Moreover, they know that removing him by impeachment is a better prospect than beating him at the polls.
The Democrats are not at all sure about winning in 2020, not least because of the pathetic gaggle of so-called candidates they’ve got to offer. Thus their main goal in pursuing impeachment will not be to weaken Trump for 2020, it is – still – to get him out of the White House.
That’s because, as was the case in 2016, Trump’s the only GOP candidate who has a shot at winning. The Democrats want a sure thing. Having underestimated him in 2016 they don’t want to roll the dice again. Even though Trump has not turned out to be the transformative president that many of his supporters might have hoped for, he certainly will be the lesser of evils compared to whoever ends up the Democratic nominee. (Spoiler alert: it won’t be Tulsi Gabbard.) Worse from their point of view, he remains a toxic avatar of the old America they thought well and truly laid to rest once and for all. They can’t breathe easy while he remains in office lest he, however unlikely in view of his failures of performance, serve as a catalyst for revival of the historic American nation facing extinction at the hands of certified victim classes.
Rove refers to the Democrats’ “knowing what they know today,” but Pelosi has made it clear that they intend to know a lot more before they pull the trigger. All the fluff over “obstruction” is just to keep the pot boiling while they get to the real meat and potatoes. Let House Judiciary Committee Chairman Jerry Nadler and House Intelligence [sic] Committee Adam Schiff yammer about obstruction while multiple committees and New York state and city prosecutors keep digging: taxes, business skullduggery in New York real estate, babes, racism. Remember, they don’t need to find a crime, only something that will give enough Republicans in the Senate an excuse to give Trump the heave-ho.
Rove says the “Republican Senate will quickly dismiss any impeachment resolution passed by the House.” That’s nonsense, and Rove knows it. The relevant analogue to the upcoming Trump impeachment isn’t Clinton 1998, it’s Richard Nixon 1974. Bill Clinton literally could have raped Juanita Broaddrick in the middle of Fifth Avenue in broad daylight and the Democrats still would have circled the wagons to defend him, as they in fact did, without a single Democratic vote to convict. As it hardly needs be added, the media unanimously supported them.
Nixon, however, was done in by his own party when Senate GOP leaders told Tricky Dick (loathed by most of his party, as Trump is) that he had to resign or they would vote to remove him. That’s because Republicans are not only the Stupid Party, they’re the Cowardly Party. Depending on what the Democrats dig up on Trump, Republicans can be counted on to see scary editorials in the Washington Post and New York Times and run away in panic: “I’ve always been supportive of the president, but I can’t defend that. So I have no choice but to …”
Add in the fact that between a quarter and a third of GOP Senators would jump at the chance to put a knife in Trump’s back if they got the opportunity, with prospective Brutus and sanctimonious warmonger Mitt Romney at the front of the line. At the appropriate time, establishment Republican poobahs like Rove will join them, basking in media praise for “putting country above party.”
Note that this is not a prediction that Trump will be removed, only that his impeachment will not be necessarily the futile exercise some claim because of the GOP majority in the Senate. It’s possible Trump will survive. The Democrats might come up empty on the required dirt. They may fall short of the number of Republicans they need to give him the “Nixon talk.” Even if Trump is given an ultimatum, he may decide, unlike Nixon, to fight – and he might actually win. But don’t take it as a given that impeachment won’t be a serious attempt to remove Trump that will only backfire on the Democrats. It might succeed.
If it doesn’t, with the advantages of incumbency Trump’s chances of winning reelection are better than even, though the landscape has become less favorable than it was in 2016. His base remains strong (most of his Deplorables think he’s actually delivering on his promises, because he says so in tweets and at his rallies. Look at that big, beautiful invisible nonexistent Wall! Winning!). On the other hand, failure to control our border means the demographic shift against Republicans has continued unabated, coupled with zero efforts to police voting by non-citizens and (notably in Florida) letting felons vote. If Trump loses either Florida or Pennsylvania, it’s probably all over even with a lousy Democratic opponent. That’s aside from whatever economic hiccup might occur between now and next fall. Or if Trump gets us into a war somewhere.
Finally, let’s note what was the most important substantive message from Mueller’s swan song: Russia! Russia! Russia! Mueller both began and ended his ramble with a denunciation of Russia’s supposed attack on the United States in 2016. Citing Mueller, Ranking Democrat on the Senate Intelligence [sic] Committee Mark Warner has called for redoubled efforts to pass “legislation that enhances election security, increases social media transparency”: a dog-whistle for the real threat to honest elections: using “Russian bots” and “hate speech” as justification for tech companies’ clampdown on dissent.
Whatever happens to Trump, our dangerous enmity with Russia is permanent – and possibly passing the point of no return – while erosion of Americans’ freedoms will continue apace.
- Capitulation: Equity Outflows In The Past 6 Months Are Now The Biggest Ever
For much of 2019, the big conundrum facing investors has been justifying the unprecedented divergence between institutional sentiment as represents by historic outflows from equities on one hand, and the market’s honey badger-like ascent to new record highs in 2019 on the other, ignoring the continued redemptions, and propelled higher on the back of record stock buybacks, recurring waves of rolling short squeezes, and dealer gamma positioning.
To some, such as JPMorgan’s Marko Kolanovic, this divergence was to be glossed over as it was only a matter of time before the market skeptics were forced to throw in the towel on the S&P’s way to 3,000 (which Kolanovic predicted in February would be hit by mid-May… it’s now June, and the S&P is back down to 2750).
The JPMorgan strategist’s core argument is ignore what flows are telling you and just follow the price. And yet, a funny thing happened on the way to S&P 3,000: Trump first doubled down on trade war with China… then he escalated the trade war with Mexico, “weaponizing” tariffs as a means to achieve his border policy, and then – last week – he completed the trifecta when he also dragged India to the verge of the global trade war.
As a result, it now appears that all those screaming that “price is always right” were wrong, as was the overall market, and all those bear who found solace in the ongoing found outflows, were right all along.
Which is a problem for the market, because with the S&P having just suffered its third worst month since the US AAA- rating downgrade in August 2011, and its worst May in decades, all those who were already trimming their exposure will now double down, sending their redemption requests into overdrive.
But before we get there, first a recap of where we are now.
According to Deutsche Bank, looking at the latest EPFT data, last week the safety bid in flows continued – as one would predict – with large outflows from equity (-$10bn) and HY (-$3bn) funds, but inflows to other bond (+$10bn) and money-market funds (+$12.9bn).
And here, a shocker: equity funds have now seen outflows of -$132bn YTD and -$237bn since December. This means that outflows over the last 6 months in dollar terms have now been larger than over any prior 6-month period.
As a percentage of AUM, the latest half-year outflows were only exceeded by those seen around the 2008-09 recession and the European financial crisis.
Breaking down the flows geographically: the US saw -$8.4bn in outflows, Europe -$1.8bn and Asia ex Japan -$1.7b), while Japan attracted $1.9b in inflows. Broad-based global funds (-$0.3b), global EM funds (-$0.1b) and Latam (-$0.1b), too, saw outflows although at moderate pace. European equity outflows were at their slowest pace in 16 weeks, and were driven both by domestic (-$1.3b) and foreign (-$0.5b) flows. In Japan, on the other hand, domestic investors pumped in $2.4b, while foreign investors pulled out -$0.4b. China funds saw outflows continue (-$1.7b) as it continues to bear the brunt of trade concerns, while India funds got their biggest inflows ($0.3b) since early 2018 after the election results showed a strong renewed mandate for the incumbent administration.
By contrast, bond funds have seen inflows of $220bn ytd…
… close to the largest on record over comparable periods in the past, and money-market funds have seen inflows of over $107bn just in the last 5 weeks, in what is usually a seasonally weak period.
And, as Deutsche Bank confirms what we have been saying through this entire rally, “With trade tensions ratcheting higher yesterday we are likely to see the safety bid strengthen further.”
So now that the selling avalanche is now just a matter of when, not if, Deutsche Bank provides some observations on which will be the first investor classes to capitulate:
- Vol Control funds will remain sellers as vol rises on the latest selloff. Since the end of April, Vol Control funds have sold net $13-$15bn in equity exposure and if the S&P 500 were to sell-off an additional -2% on Monday, they would have another modest $5-7bn to sell. And since allocations still remain on the higher side, DB warns that the risk is asymmetric to the downside.
- CTAs also have begun selling as near-term triggers are hit. According to DB, the CTA complex is net long S&P 500, but with lighter positioning versus 2018 sell-offs. Additional selling likely if short-term MAs cross long-term MAs, which requires spot to stay low for the next few weeks.
- Risk Parity funds have mostly not reacted to the sell-off yet – as thesestrategies are slow moving – but do have significant beta to the S&P 500. It is possible that some PMs with more discretion de-risked, but most have significant beta to the S&P 500… right as the sell-off is hitting. With 1M vol of the cross asset portfolio only at 5, the negative correlation between equities and bonds continues to offset some of the pick-up in equity volatility
- Away from systematic funds, traditional equity L/S is only down -2% in May…
- … with low net and gross exposure going into this sell-off (once again, not many appear to have listened to the JPMorgan quant). YTD returns are +4.9%, off from a high of +7%.
- Popular single-stock longs have performed in-line with popular single-stock shorts, while the recent Momentum rally has not significantly impacted returns given the Hedge Fund complex’s relatively flat exposure to the factor.
So as the equity outflows continue, it appears that all those who were betting that longs on the fence and who would be forced to jump in kicking and screaming, were wrong. The only question now is how much of a drop is expected before we finally do see some inflows…. unless of course, there is no catalyst that can take place to change the current status quo – and with both the Fed’s reversal and China’s record credit injection now in the rearview mirror, one wonders just what will prompt a turnaround to the fund flow direction – in which case global capital markets are about to face a historic day of reckoning.
- China Is Playing The Long Game, Says Charles Gave
“There’s an old saying, a wise man points at the moon and the idiot looks at the finger,” says Charles Gave, founding partner and chairman of Gavekal Research.
Tariffs, soybeans, and rare earth metals steal the headlines when it comes to US-China trade tensions, but these are just tools or weapons of warfare in a much larger battle over money and sovereignty, and China is playing the long game, Gave told Financial Sense in a recent interview on FS Insider (see China Preparing for a Monetary War, says Charles Gave).
The US dollar serves as the world’s reserve currency and is used for pricing and trade by a majority of nations around the globe. However, Americans have decided to weaponize the dollar, Gave stated, making any transactions between two nations susceptible to US action or scrutiny.
This is a “big loss of sovereignty” by other nations, Gave said, and China is taking the lead in forming an “alternative trading currency to the dollar.”
This is a real fight, he told listeners, and China is playing the long game.
“The fight that you hear about semiconductors and all that isn’t so important – the real fight is to know who will have the imperial money in Asia. Will the Chinese be able to buy their oil in renminbi from Russia, for example, and not priced in dollars? That will change the geopolitics of oil big time.”
Gave said China is also creating a new IMF, a new World Bank, and opened a futures market for oil in Shanghai, which now has the 3rd largest trading volume in the world, allowing people to buy oil in renminbi instead of the US dollar.
This is basically “a blow to the sovereignty of the US dollar as a reserve currency,” he said.
In terms of a trade deal, if one were to occur, it’ll be a temporary victory in a power struggle for years to come.
- Domino #2: Chinese Bank With $105 BN In Assets On Verge Of Collapse
While the western world (and much of the eastern) has been preoccupied with predicting the consequences of Trump’s accelerating global trade/tech war, Beijing has had its hands full with avoiding a bank run in the aftermath of Baoshang Bank’s failure, scrambling to inject massive amounts of liquidity last week in the form of a 250 billion yuan net open market operation to thaw the interbank market which was on the verge of freezing, and sent overnight funding rates spiking and bond yields and NCD rates higher.
Unfortunately for the PBOC, Beijing is now racing against time to prevent a widespread panic after it opened the Pandora’s box when it seized Baoshang Bank two weeks ago, the first official bank failure in a odd replay of what happened with Bear Stearns back in 2008, when JPMorgan was gifted the historic bank for pennies on the dollar.
And with domino #1 down, the question turns to who is next, and will they be China’s Lehman.
This was the question we asked last Thursday, when we published a list of regional banks that have delayed publishing 2018 reports, the biggest red flag suggesting an upcoming bank solvency “event.”
One day later we may have gotten our answer, when the Bank of Jinzhou, a city commercial bank in Liaoning Province, the second name in the list above, and with some $105 billion in assets, notably bigger than Baoshang, announced that its auditors Ernst & Young Hua Ming LLP and Ernst & Young had resigned, not long after the bank announced it would delay the publication of its annual reports.
For those confused, the delay of an annual report and the resignation of an auditor, means a bank failure is not only virtually certain but practically imminent.
As the bank – which first got in hot water in 2015 over its exposure to the scandal-ridden Hanergy Group – writes in a filing on the Hong Kong Stock Exchange, E&Y was first appointed as the auditors of the Bank at the last annual general meeting of the Bank held on 29 May 2018 to hold office until the conclusion of the next annual general meeting of the Bank. That never happened, because on 31 May 2019, out of the blue, the board and its audit committee received a letter from EY tendering their resignations as the auditors of the Bank with immediate effect.
The reason for the resignation: the bank refused to provide E&Y with documents to confirm the bank’s clients were able to service loans, amid indications that the use of proceeds of certain loans granted by the Bank to its institutional customers were not consistent with the purpose stated in their loan documents.
As a result, “after numerous discussions and as at the date of this announcement, no consensus was reached between the Bank and EY on the Outstanding Matters and the proposed timetable for the completion of audit.” As a result, after a clear breakdown in relations with its own auditor, the Board decided to appoint Crowe (HK) CPA Limited as the new auditors of the Bank to fill the casual vacancy following the Resignation and to hold the office until the conclusion of the 2018 annual general meeting of the Bank (we are taking the under with lots of leverage as Crowe will likewise quit in the coming weeks if not days).
And confirming that not even the bank’s management believes this “justification” will be enough to avoid a rout in the stock, the bank reported that it has requested the trading in the H shares (which was frozen on April 1) on The Stock Exchange of Hong Kong Limited to be suspended until the publication of the 2018 Annual Results. For anyone who hopes that these shares will ever be unfrozen for trading, there are a few bridges in Brooklyn that are for sale.
The real question facing Beijing now is how quickly will Bank of Jinzhou collapse, how will Beijing and the PBOC react, and what whether the other banks on the list above now suffer a raging bank run, on which will certainly not be confined just to China’s small and medium banks.
Source: Bloomberg/HKex.
- Is Robert Mueller On The Grassy Knoll?
Authored by Graham Noble via LibertyNation.com,
Robert Mueller has now completed his special counsel assignment, but he may yet have a role to play in the unraveling Russia conspiracy. It is entirely possible that he will come to regret ever being appointed to investigate the phony collusion allegations against President Donald Trump. The fact that congressional Democrats – along with certain Republicans – are determined to haul him before House and Senate committees is only the beginning of what could become a very messy end to Mueller’s legacy of public service.
Mueller is on a collision course with Attorney General William Barr. The latter clearly believes that various government officials may have acted improperly, to say the least, during the 2016 presidential election campaign and in the months leading up to Mueller’s appointment. Abuses of power and unjustified and, perhaps, improperly authorized surveillance – or spying – may have occurred. Judges may have been misled and FISA warrants fraudulently obtained. An extensive political conspiracy against then-candidate, now-President Trump may have been working behind the scenes.
Justice Department’s Multi-Pronged Investigation
Barr is determined to get to the bottom of it all. Michael Horowitz, the inspector general for the Department of Justice, has already investigatedpossible political bias at the FBI and how it might have affected both the Clinton private email server investigation and the counterintelligence operation that targeted Trump campaign associates. Horowitz then took on a new task, described on the inspector general website as: “Examination of the Department’s and the FBI’s Compliance with Legal Requirements and Policies in Applications Filed with the U.S. Foreign Intelligence Surveillance Court Relating to a certain U.S. Person.”
Michael Horowitz
The IG’s final report on this matter is expected at any time. Horowitz has no subpoena or prosecutorial power, but elements of his report could be fed into other ongoing DOJ investigations. Those investigations are numerous. Their exact purpose and progress are being closely guarded by the DOJ though it is known that some of them relate to unauthorized leaks to – and the illegal acceptance of gifts from – members of the media by former FBI officials.
Two other investigations, being conducted by federal prosecutors, concern potential abuses by the FBI and DOJ of the Foreign Intelligence Surveillance Act (FISA).
All of these investigations converge on the genesis of the FBI operation, codenamed Crossfire Hurricane, that began in 2016 and continued up until Robert Mueller’s appointment as special counsel. At that point, the FBI handed off its investigation to Mueller. A team was put in place to handle the transition and bring the Office of Special Counsel (OSC) up to speed. Unless something went very wrong, the FBI would have handed over most of whatever intelligence and other materials it had gathered during Crossfire Hurricane.
Just When Mueller Thought He Was Out
At this point, Mueller would have become one of the few people who knew everything about Crossfire Hurricane and the predication for its birth. It stands to reason, then, that the multi-pronged investigation, overseen by AG Barr, to find out why the FBI operation began and how it was conducted, will reach out to touch Mueller himself.
Considering the position Mueller occupied as the man who held in his hands the fate of a sitting president, there are some very big questions that need to be answered: How aware was Mueller that the FBI based its counterintelligence operation upon unverified opposition research paid for by Trump’s election opponent and upon comments solicited from Trump campaign people by FBI and CIA informants?
If Mueller was entirely unaware of these facts, then the FBI withheld from him information vital to his own investigation. If he was aware of them, then he knew from the beginning that his own assigned task was rooted in political mischief and undercover surveillance of U.S. citizens. That would mean he either ignored or concealed wrongdoing within the senior ranks of the FBI.
Robert Mueller
Another question only Mueller can answer: At what point did he come to the realization that there was no coordination or conspiracy between Russian officials and Trump associates with regard to the 2016 election? How long after that realization did he continue to investigate – and why?
There can be little doubt that Mueller was well aware that the FBI had used, as the centerpiece of its investigation, the so-called Steele dossier. It is hardly believable that the special counsel was unaware of its provenance as a collection of uncorroborated gossip and allegations, compiled by Christopher Steele for use by the Clinton campaign against Trump; after all, Mueller’s number two at the Office of Special Counsel was Andrew Weissman. Weissman – a staunch Clinton partisan – was previously a senior FBI official who was well aware of the existence and nature of the Steele dossier.
If the DOJ concludes, then, that Crossfire Hurricane was a politically-motivated fabrication involving fraudulently obtained FISA warrants to spy on Trump associates, the further conclusion that the Mueller investigation was an extension of that conspiracy is virtually unavoidable. How could the DOJ possibly pursue its investigations to completion without questioning Mueller, Weissman, and perhaps numerous other individuals who worked at the OSC?
Trump has often described Mueller as “conflicted.” It may be that the president knows far more than anyone realizes or his use of that word may be nothing more than a comment on Mueller’s association with former FBI Director James Comey, whose firing ushered in Mueller’s appointment. Whatever the answer, it seems increasingly likely that former special counsel was, indeed, extremely “conflicted.” He may become a key witness in Barr’s investigatory endeavors – and being only a witness could be the most fortunate outcome for Robert Mueller.
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