- The Death Of Facts
Authored by Douglas Murray via The Gatestone Institute,
- Needless to say, none of this is true. Nowhere has Heather Mac Donald suggested that black people or any other type of person has "no right to exist". The accusation is levelled without evidence. But as with all anti-free-speech activists today, the line is blurred not merely between actual words and violence, but between wholly imagined words and violence.
Every week in America brings another spate of defeats for freedom of speech. This past week it was Ann Coulter's turn (yet again) to be banned from speaking at Berkeley for what the university authorities purport to be "health and safety" reasons — meaning the health and safety of the speaker.
Each time this happens, there are similar responses. Those who broadly agree with the views of the speaker complain about the loss of one of the fundamental rights which the Founding Fathers bestowed on the American people. Those who may be on the same political side but find the speaker somewhat distasteful find a way to be slightly muted or silent. Those who disagree with the speaker's views applaud the banning as an appropriate response to apparently imminent incitement.
The problem throughout all of this is that the reasons why people should be supporting freedom of speech (to correct themselves where they are in error, and strengthen their arguments where they are not) are actually becoming lost in America.
No greater demonstration of this muddle exists than a letter put together by a group of students at Claremont McKenna College earlier this month to protest the appearance on their campus of a speaker with whom they disagreed.
Heather Mac Donald is a conservative author, journalist and fellow of the Manhattan Institute in New York. Her work has appeared in some of the world's most prestigious journals. Of course, none of that was enough to deter students at Claremont from libelling her as much as possible in advance of her speech and then preventing her speech from taking place. At Claremont McKenna College, where Mac Donald was due to speak about her recent book, The War on Cops, angry students surrounded the building, screamed obscene words and banged on the windows. Mac Donald ended up giving the speech to a mainly empty room via live video-streaming and then fleeing the university under the protection of campus security. As recent events, such as the hospitalisation of a professor at Charles Murray's recent speech at Middlebury College have shown, intimidation and violence are clearly regarded by today's North American students as legitimate means to stop people from speaking.
Heather Mac Donald, speaking at Claremont McKenna College on April 6, addressed a mainly empty room via live video-streaming, as angry student protesters surrounded the building. She then fled the college under the protection of campus security. (Image source: Claremont McKenna College video screenshot)
The reason, if any, may well come down to the possibility that facts have become diminished in importance on American campuses and have gradually lost out to the greater imperative of short-term political "narratives" and victories that come from thuggish intimidation. A letter sent to university authorities at Claremont ahead of Mac Donald's speech is one of the most important recent documents chronicling the descent of this most crucial American value, freedom of speech.
The letter to university authorities from "We, few of the Black students here at Pomona College and the Claremont Colleges" loses no time in libelling their subject:
"If engaged, Heather Mac Donald would not be debating on mere difference of opinion, but the right of Black people to exist. Heather Mac Donald is a fascist, a white supremacist, a warhawk, a transphobe, a queerphobe, a classist, and ignorant of interlocking systems of domination that produce the lethal conditions under which oppressed peoples are forced to live."
Needless to say, none of this is true. Nowhere has Mac Donald suggested that black people or any other type of person has "no right to exist". The accusation is levelled without evidence. But as with all anti-free-speech activists today, the line is blurred not merely between actual words and violence, but between wholly imagined words and violence. Thus the students write:
"Advocating for white supremacy and giving white supremacists platforms wherefrom their toxic and deadly illogic may be disseminated is condoning violence against Black people. Heather Mac Donald does not have the right to an audience at the Athenaeum, a private venue wherefrom she received compensation. Dictating and condemning non-respectable forms of protest while parroting the phrase that 'protest has a celebrated' place on campus is contradictory at best and anti-Black at worst."
Amid the semi-literacy, linguistic ostentation and intellectual dishonesty, it is hard to single out what is worst about this letter. But, against stiff competition, what is worst is that the whole thing is built on one massive misunderstanding which might also be described as a false premise.
"Historically, white supremacy has venerated the idea of objectivity, and wielded a dichotomy of 'subjectivity vs. objectivity' as a means of silencing oppressed peoples. The idea that there is a single truth–'the Truth'–is a construct of the Euro-West that is deeply rooted in the Enlightenment, which was a movement that also described Black and Brown people as both subhuman and impervious to pain. This construction is a myth and white supremacy, imperialism, colonization, capitalism, and the United States of America are all of its progeny. The idea that the truth is an entity for which we must search, in matters that endanger our abilities to exist in open spaces, is an attempt to silence oppressed peoples."
As the English philosopher Roger Scruton wrote in his book Modern Philosophy, "A writer who says that there are no truths, or that all truth is 'merely relative,' is asking you not to believe him. So don't."
Of course, the students at Claremont go farther than this. They make claims about people that are lies, yet state them as though they are categorical truths. And then they declare that "truth" is a "construct" — and one that they do not believe in. Their letter makes that plain, without them having any need to state the fact. But that they have stated it is convenient; it saves any honest observer from having to expend much energy considering the validity of their other claims. Anyone studying the decline of education in privileged Western democracies in the early 21st century will find documents like this immensely rewarding as historical testaments, and also a warning of what can happen when the thinking goes wrong.
- THe KiM SCReaM…
- The Real Reasons Why Trump Has Flipped On His Campaign Promises
Authored by Brandon Smith via PersonalLiberty.com,
Back in December of 2016 I wrote an article titled Trump Is Exactly Where The Elites Want Him, which I think was very difficult for a large part of the liberty movement to read and accept. In that article I outlined the future of the Trump presidency; a future dominated by Washington insiders, Goldman Sachs internationalists and Neo-Con warmongers. Trump, at the very onset of his administration, broke one of his most important campaign promises — to “drain the swamp.” Instead, he filled his cabinet with all of the same swamp creatures he originally attacked; the same swamp creatures Hillary Clinton was notorious for serving.
I also warned in numerous articles that because of this initial broken promise, conservatives should not expect that Trump would fulfill most if any of his original plans. In the best case scenario, Trump is surrounded by enemies dictating policy from every corner and corridor of the White House.
This article, of course, triggered quite a bit of wrath from hardcore Trump supporters. And, of course, time has so far proven I was right yet again.
The only argument at this point in defense of Trump is that it is still very early in his first year and that no president should be expected to accomplish much in just a few months. Okay, I’ll entertain that notion, but let’s be realistic here and look at the current circumstances.
As I write this, Congress is on the brink of forging a spending bill which essentially removes all backing for Trump’s original projects, including the southern border wall. Now, given, the bill only provides funding for government until the end of September, but we have witnessed very little resistance from the Trump administration so far. Are we about to see the Republicans roll over yet again in the name of avoiding a government shutdown? I would say yes, for now.
This is one area where Trump could light a firestorm. By forcing a government shutdown, a real fight for conservative national projects and spending cuts could take place. Yet, we are still struggling with the broken monstrosity of Obamacare, we have yet to see any plan for defunding Planned Parenthood, the border wall looks to be a distant dream and military spending is slated to increase by $54 billion. At this point Trump supporters are left wondering where their limited government pit bull negotiator disappeared to?
On the foreign front, Trump has been backing off of his threats against NAFTA. In an interview with The Wall Street Journal, Trump explained his decision by saying that he is “a nationalist and a globalist.” Yikes.
Trump has now also refused to label China a currency manipulator, which was an action many originally thought he would pursue. This decision, in my view, is likely in preparation for a strike on North Korea; a war no one asked for and which America cannot possibly afford at this time. China’s move to step back from its protective stance with North Korea supports my longstanding argument that Eastern nations are completely tied to globalist geopolitics; meaning, they do what they are told. If China remains hands-off, a conflict with North Korea is nearly a certainty.
This kind of saber rattling would be contrary to Trump’s position on Iraq during his campaign, which was, to summarize his many remarks, a quagmire, a mess of a war that made little sense and gained America nothing. If Iraq was a mess, then what will North Korea be with its far better armed military and more ideologically dedicated soldiers? A war in North Korea would take twice as much time and capital to complete, but maybe that is the point…
So, the question is, why has Trump flipped so completely and so quickly on is political positions since November of last year? I believe there are at least two identifiable reasons.
First, it is important to note that Trump was placed in office as a means to scapegoat all conservatives and the principles of sovereignty and limited government for the disasters that will inevitably follow. This is the premise that I used to successfully predict Trump’s election win, and it is the premise that I used to successfully predict Trump’s behavior and policy shifts up to this point. Trump is in office for one reason — to destroy the name of conservatism for all time.
That said, Trump’s support from conservatives has not been as blind and faithful as the globalists might have hoped. We remain rather critical, and thankfully, ever watchful. We are not a zombie mob that can be easily exploited by some fearless leader on a white horse; unlike Obama’s sycophantic army of liberal followers, we still retain our principles.
This does not necessarily save us from being scapegoated by internationalist propaganda in the years to come. I have heard many argue that Trump’s sudden flip-flop negates the idea that Trump is a conservative scapegoat because “he is not acting like a conservative.” These people are oblivious to human psychology.
The fact is, Trump ran on a conservative nationalist platform, and his rhetoric continues to fuel his nationalist image, even if his actions do not. The globalists will paint him as a conservative and the majority of people around the world will continue to accept this narrative because rhetoric is often more powerful in people’s minds than tangible results. Liberals in particular will never let go of the idea that Trump is a conservative because they desperately long for vindication that conservative principles are “evil.” Every mistake Trump makes, though not conservative at all in nature, will be blamed on conservatism and nationalism as a whole. From what I have seen so far, the only people that are rationally critical of Trump as a conservative are actual liberty minded conservatives.
Yes, we despise the crazed cultural Marxists of the social justice cult, and we are rightly concerned about the liberal population’s shift towards full bore communism. Plus, we do not like Islamic extremism and won’t tolerate it within our borders. But we also are not too keen on the idea of being puppets for a fake conservative government, either.
This is one reason I believe Trump has suddenly flipped; the globalist scheme to co-opt the liberty movement and constitutional conservatives has failed. There is no point in Trump continuing to play his role as a stalwart of sovereignty. We have not been won over in a way that makes us easy to manipulate, which means we might not support certain globalist initiatives like martial law in the wake of a crisis, a national federalized ID card in the name of immigration control, regime changes in Syria or North Korea, etc. We may even organize in opposition to such measures.
This leads to the next reason why I believe Trump has so swiftly reversed his positions: Perhaps he and his establishment handlers no longer need to maintain the conservative sovereignty facade because a full spectrum crisis is about to take place; a crisis so consuming that the public will be completely distracted while the elites push their agenda forward and blame conservatives at the same time.
The move against North Korea may be part of this event. By itself, North Korea would be a very cumbersome regional war that could bankrupt the U.S. The level of determination to increase tensions with North Korea is truly astounding. I have not seen such senseless rhetoric from the White House since the Iraq War.
However, I continue to believe that a greater crisis is brewing that is economic and global in nature. With numerous financial bubbles artificially inflated over at least eight years of central bank stimulus, the question is not “if” but when the system will enter the final stages of its ongoing collapse.
The behavior of the Trump administration may be nothing more than poor timing or poor planning on the part of the globalist establishment. Perhaps they just didn’t play this part of the long game in an expert manner. But, I tend towards caution rather than naive hope and unicorns.
The record setting flip-flop by Trump should not be taken lightly or simply treated as aimless schizophrenia on the part of the White House. While the Obama administration flipped on numerous campaign promises, they did so subtly while maintaining their lies in a strategic way for two full terms. This is not what is happening today. Trump’s dramatic change, in my view, should be taken as a signal that a much greater game is afoot, with far higher stakes. It should also be treated as a sign that if a crisis is on the verge of being engineered, then it will be happening rather soon, perhaps before 2017 is over.
There will be ongoing arguments as to whether the Trump White House has been hijacked or if it was a controlled element all along. I lean towards the position that it was controlled all along. I have seen little to no resistance on the part of Trump against the establishment, only rhetoric. And, as I have said so many times, rhetoric is meaningless, only actions matter.
It is exceedingly positive in a way that Trump’s reversal has been so fast and so complete. It shows that conservatives and liberty champions have not been subsumed into the so called “alt-right” (a made up term designed to pigeonhole and demonize all true conservatives); that the elites failed miserably in their plans to co-opt us. That said, for every success there are consequences. It may be that our refusal to “buy into” the Trump momentum and cast off our skepticism has caused the establishment to adjust their timetable. And, when the elites do not get what they want, they tend to fall back on their tried and true tool kit of violence and disaster.
- Is The World's Largest Bitcoin Exchange Headed For A Mt. Gox-Style Collapse
Could Bitfinex, the world’s largest, Hong-Kong based cryptocurrency exchange, be headed for a Mt. Gox-style collapse? It’s starting to look that way.
When Mt. Gox first halted customer withdrawals in February 2014, it waited more than two weeks to admit the truth to its customers: that hackers had stolen more than $450 million of their assets, leaving the exchange bankrupt and them holding the bag. That hack effectively crippled the entire digital currency ecosystem, ushering in a two-year bear market that at one point carried the bitcoin price below $200, from what was then a record high north of $1,200 reached in November 2013.
So when another exchange engages in similarly shady behavior – withholding critical information about customer funds, or failing to produce audited financials despite promising to do so – it should prompt crypto traders to ask themselves why, with dozens, if not hundreds, of cryptocurrency exchanges operating around the world, they’re choosing to do business with this one.
That’s the question that customers of Bitfinex should be asking nearly two weeks after the exchange, once one of the world’s largest, first revealed that it had been cut off from sending outbound dollar-denominated wires to its customers.
Of course, halting customer withdrawals isn’t uncommon in the cryptocurrency world: All three of China’s largest exchanges suspended customer withdrawals in February. And last year, Kraken, one of the biggest U.S.-based exchanges, suspended withdrawals temporarily because of a glitch in its trading software. But this freeze is particularly troubling because, like Mt. Gox, Bitfinex inexplicably decided to wait before informing customers of a critical problem. It also has implications that stretch beyond the bitcoin market, to another cryptotoken called tether that was launched by Bitfinex back in January 2015, and has since been dogged by allegations that it’s a scam.
The halt is already costing Bitfinex’s customers money. On Tuesday, bitcoins were going for $1,547 on Bitfinex’s platform, a premium of more than $100 over most of the other popular exchanges. Investors, apparently, feel that eating a 7%-8% loss is preferable to leaving their assets in Bitfinex’s care any longer.
Reddit users reported that wire transfers requested as early as March 9 were cancelled, and that the exchange offered only vague excuses as to why. It took the exchange until April 13, after it had filed a lawsuit against Wells Fargo & Co., whose correspondent banking division had effectively shut Bitfinex out of the global financial system, that the exchange disclosed the problem to its customers.
And while Bitfinex has repeatedly said it would make things right – it has promised to either establish a new banking relationship and to allow customers access to other fiat currencies – only a handful of customers have been able to get their assets out of the exchange.
As part of the freeze, Bitfinex has established a moratorium on cashing in tether tokens held by its customers. These tokens were created by Bitfinex in 2015 to allow customers to exchange an asset that’s pegged to the dollar at a one-to-one ratio, allowing them to avoid costly wire transfers that must be processed through the banking system.
But the withdrawal freeze has put pressure on the tether market; for only the second time since they were introduced, investors are selling these tokens at a discount. The price of a single token has been languishing below the $1 level for more than a week.
More troubling still is that Bitfinex has so far refused to provide an audit of the fiat funds that allegedly backstop the tether float, despite promising that it would be “fully transparent and audited to demonstrate 100% reserves at all times” when it first launched the token.
This has lead some to speculate that the exchange could be commingling tether funds with other customer assets.
While evidence of this could cause irreparable damage to Bitfinex’s reputation, leading to a wave of withdrawals that could add further strain to its already thinning bitcoin reserves, as Twitter user @Bitfinexed points out, it’s not technically a violation of the tether terms of service.
Here’s an excerpt: “There is no contractual right or other right or legal claim against us to redeem or exchange your tethers for money. We do not guarantee any right of redemption or exchange of tethers by us for money. There is no guarantee against losses when you buy, trade, or redeem tethers.”
Given the preponderance of scams in the cryptocurrency market, investors who haven’t already, should probably take what’s left of their money and run, if they can of course.
- "Anti-Fascist" Militia Training Video Shows Leftists Are Preparing For Armed Confrontation
Authored by Mac Slavo via SHTFplan.com,
Following the Berkeley protests last month, where numerous Anti-Fa(scist) activists complained of getting a beatdown after they attempted to intimidate peacefully assembling Trump supporters, we learned that the left-leaning organizations are taking their organization efforts to the next level. Among other things, they have called for more combat training, better equipment, and even guns in an effort to scare those who disagree with their message of forced tolerance, equal rights and inclusion.
Today, we get a better look at what that means, with somewhat hilarious results.
The Conservative Tribune explains:
Poorly-regulated militias, it seems, are good for only one thing: laughs.
In case you missed our previous reportage on the Phoenix John Brown Gun Club, it’s a “militia” made up of Arizona liberals who conspicuously rediscovered the Second Amendment right about the time that Donald Trump had become the clear front-runner for the Republican nomination.
…
This militia, in case you hadn’t noticed, is named after abolitionist John Brown. For those of you who have gone through Common Core American history and are unfamiliar with the name, he was an insurrectionist who was hanged after an armed rebellion against the Democrat-backed slave owners of the antebellum South. Say what you will about his methods, he was a man of conviction and bravery.
These idiots, meanwhile, are nothing more than cowardly defenders of the modern incarnation of the party Brown died fighting. They back an ideology that has no respect for gun rights, but they’re willing to compromise that in order to intimidate Americans into giving up their freedom of speech and assembly.
Perhaps it’s unsurprising that individuals with such negligible convictions and morals also have such negligible skill at handling a firearm. These dress-up militia members couldn’t hit the side of a Chick-fil-A from 20 feet, though I fear that may not be for lack of trying.
Full report: Lib Militia Releases “Range Day” Footage… And It’s a Complete Joke
Watch the full video:
As noted near the end of the video, the Phoenix John Brown Gun Club is:
Working to stem the tide of reactionary recruitment within white working class communities, fight white supremacy, and build community defense.
Curiously and all of a sudden, the left supports the Second Amendment.
With lyrics like “we’re getting organized… you fascists are bound to lose” playing in the background, it doesn’t take that much of a stretch of the imagination to realize that what these people are training for is armed conflict.
Just last week a family friendly Rose Parade was cancelled in Portland, Oregon after AntiFa groups threatened to violently attack parade goers, including children who would have attended.
Make no mistake: These people want war. They want blood. And anyone who doesn’t subscribe to their special brand of crazy will be a target.
- Obamacare Implosion: Last Major Healthcare Provider Pulls Out Of Iowa Leaving No Options In 2018
For the past several months we’ve observed in complete amazement as Democrats have repeatedly hailed the ‘great accomplishments’ of Obamacare while the system was literally, and quite tangibly, collapsing in epic fashion all around them. The ability to blindly and shamelessly support a partisan cause irrestpective of overwhelming facts proving the ineffectiveness of that cause is truly a talent reserved only for politicians, on both sides of the aisle.
The latest evidence of Obamacare’s implosion comes from its stunning collapse in the state of Iowa in just a matter of a few weeks. Early last month, 2 of Iowa’s 3 remaining healthcare providers, Aetna and Wellmark, announced they would not participate in the state’s exchange in 2018. Per Bloomberg:
“Earlier today we informed the appropriate federal and state regulators that Aetna will not participate in the Iowa individual public exchange for 2018 as a result of financial risk and an uncertain outlook for the marketplace,” Aetna spokesman T.J. Crawford said in an email. “We are still evaluating Aetna’s 2018 individual product presence in our remaining states.”
On Monday, Wellmark Inc. said it planned to give up on the Iowa Obamacare market in 2018. Wellmark is one of the state’s largest insurers.
Those decisions left the overwhelming majority of Iowans with just one insurance option for 2018, Medica. That is, until today when Medica also announced that, “due to instability in the market,” they too would likely have to pull out of Iowa in 2018. Per the Des Moines Register:
Medica, a Minnesota based health insurer, released a statement suggesting it was close to following two larger carriers in deciding not to sell such policies in Iowa for 2018, due to instability in the market.
“Without swift action by the state or Congress to provide stability to Iowa’s individual insurance market, Medica will not be able to serve the citizens of Iowa in the manner and breadth that we do today. We are examining the potential of limited offerings, but our ability to stay in the Iowa insurance market in any capacity is in question at this point,” the company’s statement said.
Medica’s exit is expected to leave roughly 70,000 Iowans without a single option to purchase a personal health insurance policy in 2018, even if they wanted to. Unless a replacement carrier is found, the change also means moderate-income Iowans in most counties will not be able to use Affordable Care Act subsidies to help pay premiums for private insurance.
Medica is a relatively small carrier, which faced a daunting prospect in Iowa after Aetna and Wellmark announced they would no longer sell individual health insurance plans there. The two large carriers announced they had lost tens of millions of dollars in Iowa, largely because they covered too many older Iowans with chronic health problems and not enough young, healthy people. If Medica remains in the market, it would face the prospect of shouldering all of that risk by itself.
Of course, all of this should come as little surprise to our readers as we’ve been writing for years that the entire Obamacare system was on the “verge of collapse” as premiums were soaring, risk pools were deteriorating and insurers were pulling out of exchanges all around the country leaving many Americans with just a single ‘option’ for health insurance (see “Obamacare On “Verge Of Collapse” As Premiums Set To Soar Again In 2017“). In fact, the following charts provide a stunning illustration of that collapse (charts per Bloomberg):
Unfortunately, things are likely to get even worse in 2018, even if Trump leaves subsidies in place. Humana has already announced they won’t offer marketplace plans in 2018, a move which will result in 1,000s of people in Tennessee not having a single health insurance option starting 1/1/18.
Meanwhile, Anthem has also signaled they may exit all exchanges next year as well which would leave another 250,000 consumers with no health insurance options.
But sure, Republicans are trying to ‘ruin’ healthcare in America.
- Chinese Commodities Crash Limit-Down As Wealth Management Product Issuance Collapses
It seems Kyle Bass' warning was extremely timely. The deleveraging of China's $4 trillion shadow banking system just accelerated massively as Bank Wealth Product Issuance crashes 15% month-over-month. With stocks and bonds already plunging, commodities joined the ugliness tonight with Dalian Iron Ore limit down (8%) at the open (not helped by tumbling auto demand).
As Bloomberg reports, China April Bank Wealth Product Issuance Falls 15% M/m
Number of wealth management products issued by banks fell to 10,038 from 11,823 in March, 21st Century Business Herald reports, citing citing Wind Info data. The decline came after regulator tightens regulation on macro-prudential assessment and interbank business. Among top ten banks by wealth product sales, nine sold less than previous month (with the Agricultural Bank coillapsing 48%) only Minsheng Bank issued more.
And it's weighing on the economy al;ready as China PMIs are all plunging (with Caixin Services tonight) – Activity in China’s services sector grew at its weakest rate in 11 months, a survey sponsored by Caixin showed on Thursday, in a further sign the world’s second-largest economy is losing some steam. The Caixin China General Services Business Activity Index fell for the fourth straight month to 51.5 in April, down from 52.2 in March and the lowest since May 2016’s 51.2, according to the poll compiled by international information and data analytics provider IHS Markit.
As Bass concluded so ominously:
"What you see when the liquidity dries up is people start going down… and this is the beginning of the Chinese credit crisis."
And that's what we are seeing…
Commodities…
Are following Bonds…
And stocks…
And as PIMCO noted earlier, the China credit impulse is now running in reverse…
The question now is not if China slows, but rather how fast. Equally important perhaps is the extent to which commodity prices will correct lower, especially in light of the current enthusiasm about the potential strength of the global growth cycle. The impending slowdown in China could be compounded by ongoing government efforts to rein in shadow bank credit; the cost of policy mistakes rises once the credit impulse goes into reverse.
- Kyle Bass Warns "All Hell Is About To Break Loose" In China
China's credit system expanded "too recklessly and too quickly," and "it's beginning to unravel," warns Hayman Capital's Kyle Bass.
Crucially, Bass notes that ballooning assets in Chinese wealth management products are another sign of a looming credit crisis in the nation.
"Some of the longer-term assets aren't doing very well," Bass said on Bloomberg TV from the annual Milken Institute Global Conference in Beverly Hills, California. "As soon as liabilities have problems – meaning the depositors decide to not roll their holdings – all hell breaks loose."
The wealth management products, or WMPs, have swelled to $4 trillion in assets in the last few years, he said., on a $34 trillion banking system…
"think about this – in the US, our asset-liability mismatch at the peak of our subprime greatness was around 2%! … China's mismatch is more than 10% of the system."
Must Watch simplification of the next stage of the credit cycle in China…
Timing the drop is hard, Bass notes, reminding Bloomberg's Erik Schatzker that "in the US, the first bumps in the road hit in early 2007, and we didn't start to really accelerate until mid 2008… even a large unraveling takes a while."
Bass has been sounding the alarm for some time that debt-burdened Chinese banks need to be restructured…
"What you see when the liquidity dries up is people start going down… and this is the beginning of the Chinese credit crisis."
And judging by the collapse in both Chinese stocks and bonds, the deleveraging is accelerating…
And liquidity is getting desperate again…
- Pondering The Real Perils Of Risk Parity Portfolios
Authored by Kevin Muir via The Macro Tourist blog,
The other day, fabled hedge fund manager Paul Tudor Jones made headlines when he issued a bold warning to Janet Yellen & Co. (from Bloomberg):
The legendary macro trader says that years of low interest rates have bloated stock valuations to a level not seen since 2000, right before the Nasdaq tumbled 75 percent over two-plus years. That measure – the value of the stock market relative to the size of the economy – should be “terrifying” to a central banker, Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him.
Jones is voicing what many hedge fund and other money managers are privately warning investors: Stocks are trading at unsustainable levels. A few traders are more explicit, predicting a sizable market tumble by the end of the year.
Nothing really new there. A bunch of smart hedgies have recently been ringing the alarm bell. What was interesting is how Jones thought a crash would manifest itself (from Dealbreaker):
While the billionaire didn’t say when a market turn might come, or what the magnitude of the fall might be, he did pinpoint a likely culprit. Just as portfolio insurance caused the 1987 rout, he says, the new danger zone is the half-trillion dollars in risk parity funds. These funds aim to systematically spread risk equally across different asset classes by putting more money in lower volatility securities and less in those whose prices move more dramatically. Because risk-parity funds have been scooping up equities of late as volatility hit historic lows, some market participants, Jones included, believe they’ll be forced to dump them quickly in a stock tumble, exacerbating any decline. Risk parity,” Jones told the Goldman audience, “will be the hammer on the downside.”
Whoa! That’s a pretty big indictment of risk parity. Them’ sounds like fight’ng words.
Of course the risk parity folks rushed to refute Jones’ forecast, assuring us there was no way risk parity would cause the next crash (from Bloomberg):
For AQR Capital Management LLC, a giant in the risk parity field, the concerns are overblown, with any selling forced by the strategy having an “utterly trivial” impact on the $23 trillion U.S. equity market.
“There are scenarios in which risk parity funds sell equities, but the possible magnitude of that is very small,” said Michael Mendelson, a risk-parity portfolio manager at AQR.“Some reports have grossly exaggerated the potential impact.”
Far be it from me to get in between these hedge fund heavyweights, but I respectfully suspect they might both be wrong.
For those who are not aware, risk parity was the brainchild of Ray Dalio’s firm Bridgewater. I am oversimplifying it, but at its heart, risk parity is based on the idea that assets have varying volatlities, so when constructing a portfolio, one needs to adjust the position size to account for this. The easiest example is the difference between equities and bonds. Stocks, by their nature, are much more volatile than bonds. Dalio surmised it was not fair to look at the long run returns of stocks and compare them to bonds. Stocks’ returns would be higher, but there would be all sorts of violent ups and downs. If you leveraged up the bond position to have equal volatility, then bond returns all of a sudden became much more attractive. Not only that, but during times of stress, bonds and stocks have negative correlations, making the use of leverage far less dangerous, and overall, reducing the volatility of the portfolio. This was the essence of Bridgewater’s All-Weather portfolio that has ultimately become the largest hedge fund in the world.
Paul Jones’ risk parity crash thesis is based on the idea that, because the positions are volatility weighted, risk parity managers buy more in times of low volatility (which almost always coincides with a rising market), and then are forced to sell when volatility increases (which usually accompanies a decline). It sounds suspiciously like the dreaded portfolio insurance strategy that contributed to the ‘87 crash (which Jones accurately forecasted and secured his place in the hedgie hall of fame).
OK, here goes my argument on why Jones might be wrong, not about risk parity causing a market dislocation, but instead the market in which risk parity will cause problems.
Risk parity was created in 1996. Since then, interest rates have only gone one way – down.
Not only that, but Dalio founded BridgeWater in 1975. Although the first few years were ugly for the bond market, since then, Dalio has grown his firm in the shadow of the greatest bull market in bonds that America has ever experienced.
Here’s what the total return profile looks like for the broad bond index during that period.
It’s not difficult to spot why Dalio’s strategy of adding a leveraged bond position to his portfolio has been so successful.
Yeah, yeah, I know, there is a lot more to risk parity than simply levering up the bond portion of a balanced portfolio. But what I worry about is the fact that the strategy does not recommend increasing equities exposure because of its volatile nature, but instead advocates for a leveraged fixed income component because of its non-volatile tendency. Risk parity portfolios don’t have significantly more equities than most balanced funds, but they have a lot more bonds.
And then ask yourself, what have Central Banks being doing since the Great Financial Crisis? Buying bonds (they are also buying some equities, but the vast majority of the purchases have been fixed income). What does that do to volatility? It crushes it. And what does lower fixed income volatility mean for risk parity? They buy more.
So although I understand Jones’ argument that increases in equity volatility will cause risk parity funds to lighten up their stock exposure, I am much more worried about increases in bond volatility. Don’t forget, risk parity portfolios use the most leverage in the non-volatile asset classes (like bonds). The genius in risk parity was not increasing leverage in the volatile stock portion, but by cranking exposure to the non-volatile fixed income portion (which also happened to be negatively correlated to risky assets).
Risk parity managers are obviously not the biggest players in the bond market. So maybe all the arguments that risk parity guys make defending their minor influence on the stock market can be equally transferred to the bond side.
But I worry fixed income managers are already suffering from an inability to imagine rates ever heading higher. The boat is lopsided with four generations of portfolio managers who have never seen a real bear market in bonds. While many, like Paul Jones, are positioned to capitalize on lower stock prices, there are precious few who are set up short in the bond market. Forty year bull markets have a funny way of discouraging naysayers.
If we ever get a bear market in bonds, the risk parity guys will make it dramatically worse. It’s always the leveraged positions that cause major market dislocations, and I just don’t see the big excesses being in stocks.
Time will tell if risk parity was truly as revolutionary as many claim, or if it was just a way to justify levering up the greatest bond bull market of our lifetime.
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P.S. While researching this piece, I stumbled on some pictures of Paul Jones and his wife. I know that most believe that ShowTime’s drama Billions’ main character, Bobby Axelrod, is based on Steve Cohen (even though Bill Ackman desperately wants it to be about him – sorry Bill, you’re nowhere near as cool as Axe), but I can’t help but wonder if everyone is wrong. This season we learned that Axelrod started trading in the commodity pits. Well, that sounds suspiciously similar to another legendary hedge fund manager. Paul Jones was a cotton trader before moving upstairs. If you look, Bobby and Laura resemble a younger Mr. and Mrs. Jones… And by the way, I know Axe would absolutely detest risk parity.
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