- The Next Pearl Harbour? China's Gold-Backed Crypto Currency Will Blindside US Dollar
The Next Pearl Harbour? China’s Gold-Backed Crypto Currency Will Blindside US Dollar
“A date which will live in infamy.”
Indeed, this weekend marks the 78th anniversary of the attack on Pearl Harbor in Hawaii, which opened the door for the United States to enter World War II. Turn on your TV and you will see military mavens rambling on, pontificating about ‘the defense of the realm’, all the while completely aloof and unaware of the American empire’s real Achilles heel.
Recent, financial pundit and TV host Max Keiser outlined such a scenario, and warned that the US will be blind-sided the day that China introduces its gold-backed crypto currency – an absolute game changer which would create a “catastrophic trapdoor opening underneath the US economy,” said Keiser.
Not surprisingly, very few mainstream financial pundits in the West are willing to admit that China possesses gold reserves in excess of 20,000 tons, and by introducing a gold-backed cryptocurrency, it has the ability to “kill the US dollar deader than a door nail …. a new Pearl Harbor-type event and it’s coming in the next six to nine months.”
Watch:
Tyler Durden
Mon, 12/09/2019 – 01:00 - Notorious Duct-Taped Banana Exhibit Vandalized With "Epstien Didn't Kill Himself" Sign
Notorious Duct-Taped Banana Exhibit Vandalized With “Epstien Didn’t Kill Himself” Sign
The story of the $120,000 (eaten) banana just won’t end, and tonight it took another, even more surreal turn.
The now-iconic white wall that as recently as Saturday held a duct-taped banana – arguably the world’s most expensive – at Art Basel Miami Beach was “vandalized” on Sunday afternoon, forcing exhibitors to cover up the writing in red lipstick with a white cardboard. The banana, which attracted hundreds after it sold to an art collector for $120,000, was replaced with the phrase “Epstien (sic) didn’t kill himself,” written with red lipstick.
There’s always money in the banana stand.https://t.co/Up3lydwv98 pic.twitter.com/ZrIXPGYew5
— Rudy Havenstein, Just the right amount of malarkey (@RudyHavenstein) December 9, 2019
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According to the Miami Herald, the surreal scene confused those who were present in the gallery, most who assumed it was just another “art” performance: “This is the gallery where anyone can do art, right?” the man is heard saying in a video provided to the Miami Herald when a security guard confronted him.
This guy decided to write on the banana wall LOL 😅🤦🏻♀️ #ArtBasel @OfficialJoelF pic.twitter.com/jjWDyugNuv
— sacha-stephanie (@sachasteph_) December 8, 2019
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Sacha Medici, 24, was strolling inside the Miami Beach Convention Center, hoping to spot Italian artist Maurizio Cattelan’s banana art piece, titled “Comedian,” which was eaten by a performance artist on Saturday afternoon.
“When we got to the wall, it was white and empty,” Medici said. “We saw this guy live-streaming… and he starts writing on the wall and I was like, ‘No way, there’s no way this guy is writing.”
Miami Beach Police spokesman Ernesto Rodriguez said the incident was reported at 4:50 p.m. and a man they identified as 46-year-old Roderick Webber of Massachusetts was arrested on charges of criminal mischief. A spokesperson for Art Basel directed any questions to authorities. Katherine Wisniewski, spokesperson for the Emmanuel Perrotin art gallery, where the vandalized wall is located, said their gallery is not affiliated with Webber.
“If someone can eat the $120,000 banana and not get arrested, why can’t I write on the wall?” Webber shouted as he was escorted out of the convention center, according to a police report.
The duct-taped banana at Art Basel is gone and has been replaced with “Epstein Didn’t Kill Himself,” which security quickly covered up. 😂 pic.twitter.com/nPtnuCm6sc
— Giancarlo Sopo (@GiancarloSopo) December 9, 2019
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Medici said that as the man wrote on the wall, everyone around her stared and recorded videos on their phones. Some pointed out he had misspelled the last name of Jeffrey Epstein.
And since art imitates life, security promptly covered up the “Epstien didn’t kill himself” sign.
Earlier in the day, the infamous $150,000 banana duct-taped to a wall had disappeared again, this time because the gallery owners decided it was becoming an unsafe distraction, clearly anticipating an event such as this.
“We sincerely apologize to all the visitors of the fair who today will not be able to participate in Comedian,” Galerie Perrotin, where the work was being showcased, said in a statement early Sunday, the last day of the exhibition.
The Comedian is the name of the work by the Italian artist provocateur Maurizio Cattelan, composed of a ripe banana, duct tape and a 14-page manual for its installation and upkeep.
As we reported yesterday, just before 2pm on Saturday another artist provocateur named David Datuna unpeeled tape and skin and ate the banana. “Art performance,” he said. He was a “hungry artist,” adding that it was “delicious.”
In its statement, Art Basel thanked the security guards who helped control the lines to see the banana – or the concept of transience of oblong yellow fruit or something, as Bloomberg put it. In short, enough was enough.
“The installation caused several uncontrollable crowd movements and the placement of the work on our booth compromised the safety of the artwork around us, including that of our neighbors,” the statement said. “Comedian, with its simple composition, ultimately offered a complex reflection of ourselves,” it said.
No it didn’t: it was a damn banana duct-taped to a wall and some idiots thought it was worth $150,000.
So to summarize:
- Banana duct-taped to a wall sells for $150,000
- Someone eats the banana
- Someone writes Epstein didn’t kill himself
- Security covers up the message.
Not even the Fed could come up with a fake version of reality as warped as this one.
Tyler Durden
Sun, 12/08/2019 – 23:57 - As Winter Comes, Pipeline Wars Heat Up
As Winter Comes, Pipeline Wars Heat Up
Authored by Tom Luongo via The Strategic Culture Foundation,
For all of 2019, December has been a magnet. A number of major geopolitical issues come to head this month and many of them have everything to do with energy. This is the month that Russian gas giant Gazprom was due to finish production on three major pipeline projects – Nordstream 2, Turkstream and Power of Siberia.
Power of Siberia is here. It’s finished. Russian President Vladimir Putin and Chinese Premier Xi Jinping christened the pipeline to begin the month.
Next month Putin will travel to Turkey to join President Recep Tayyip Erdogan to open the first of four potential trains of the Turkstream pipeline.
It is only Nordstream 2 that continues to lag behind because of insane levels of pressure from the United States that is dead set against this pipeline coming online.
And the reason for that is the last of the major energy issues surrounding Gazprom needing resolution this month, the gas transit contract between it and Ukraine’s Naftogaz.
The two gas companies have been locked in legal disputes for years, some of which center on Crimea’s decision to break away from Ukraine and rejoin Russia in 2014. Most of them, however, involve disputes over costs incurred during the previous and expiring gas transit contract.
The particulars today are ultimately irrelevant as these lawsuits have been used as nothing more than blackmail to keep a new contract from getting signed. Ukraine has sued Gazprom in courts, like in Sweden, that rule not by the tenets of contract law but rather through the lens of social justice.
These have been political decisions that allowed Naftogaz to seize Gazprom’s European assets, further complicating any resolution to the conflict. These policies were pursued aggressively by former Ukrainian President and long-time US State Department asset Petro Poroshenko and they have done nothing to help Ukraine.
All they have done is strip-mine the country of its assets while keeping a war to prevent the secession of the Donbass alive.
This dovetails with the external pressure applied to EU member states, like Denmark, to delay if not outright thwart completion of Nordstream 2.
Opposition to Nordstream 2 in the US is all about leveraging influence in Ukraine and turn it into a client state hostile to Russia sharing a border with Russia. If there’s no gas transit contract and there’s no Nordstream 2 then US LNG suppliers can sell gas there and deprive Russia of the revenues and the business.
It’s truly that simple. But that strategy has morphed over the years into a convoluted chess match of move/countermove in the vain hope of achieving something that looks like a victory. But this isn’t a game of real chess but rather a timed match.
Because the end of 2019 was always coming. And Ukraine would eventually have to decide as to which direction it wanted to go. Moreover, that same choice was put in front of the EU who have clearly, in the end, realized that the US under President Trump is not a long-term reliable partner, but rather a bully which seeks its goals through threat and intimidation.
Stay with the US or green light Nordstream 2. The choice in Europe was clear. Nordstream 2 gets finished, as Denmark finally granted the final environmental permit for its construction in October.
That delay moves the completion date out into 2020. And that now gives the US Senate one last chance to stop the completion of the pipeline because everything else to this point has failed, including the EU changing the rules on its gas pipeline rules to force Gazprom to ‘unbundle’ the pipeline from the gas flowing through it.
Germany amended that directive to allow Nordstream 2 to be regulated at the German federal level and not at the EU level. This was as much of a win as could have been hoped for.
This prompted the response from the US Senate Foreign Relations Committee head Jim Risch who wants to sanction anyone assisting Gazprom building the pipeline to be sanctioned and forced out of business.
“The reason for the push is that this window is closing. A lot of Nord Stream is done already. … It will cost them dearly. I think if those sanctions pass [the companies] will shut down, and I think the Russians will have to look for another way to do this if they can do this,” Risch said.
In reality the window has closed.
At the end of the day even if this legislation passes there will be no way to stop the pipeline from being completed or the gas to flow through it. With so little of the pipeline left to complete there is no practical way to stop it from happening. Risch and other US senators are hoping to strand Nordstream 2 as an unfinished boondoggle but that’s folly.
The German government wants this pipeline, therefore the German government will put up the funds to ensure the contractors are paid and the pipeline completed.
There is a limit to the extent which sanctions can block commerce and once completed the US will have no ability to sanction the gas flowing through the pipeline. It’s a sad and pathetic state of affairs that so much time, manpower and capital was wasted to stop a pipeline that is necessary for Germany’s future.
It also highlights the hypocrisy of US policy since there isn’t a peep out of the US on Turkstream, which will stitch NATO ally Turkey to Russia via 15.75 cm of natural gas every year. Eventually it will replace the lost South Stream pipeline as the other trains are built and contracted for.
All of the countries in eastern Europe are hungry for a piece of Turkstream’s future. Serbia Hungary, Bulgaria, Italy and Greece are all potential customers.
And all of these countries that currently get their gas from Ukraine are at risk if nothing gets resolved between it and Russia. This is why the meeting between Putin and Ukrainian President Zelensky is so important. It has the opportunity to begin reversing the damage done to the basic fabric of Ukraine and Europe by agreeing to a path to ending the war in the Donbass and coming to an agreement on gas transit.
There are more than $12 billion in lawsuits outstanding that Naftogaz has pending against Gazprom. With Nordstream 2 a fait accompli that is all the leverage Zelensky has at that meeting.
This game is a microcosm of the way the US foreign policy establishment uses Europe as the battleground in the war against Russia. And given the way the political winds are shifting, Europeans are getting very tired of it.
This is why gas storage facilities in Europe are full, there is real fear that Gazprom will walk away from the talks with Ukraine and will wait out the completion of Nordstream 2. Gazprom offered an extension of the current contract on the condition that Ukraine drop the lawsuits.
Naftogaz said no. We’ll see if Zelensky is smart enough to say yes.
Tyler Durden
Sun, 12/08/2019 – 23:50 - Visualizing The Global Inequality Gap, And How It's Changed Over 200 Years
Visualizing The Global Inequality Gap, And How It’s Changed Over 200 Years
What makes a person healthy, wealthy, and wise? The UN’s Human Development Index (HDI) measures this by one’s life expectancy, average income, and years of education.
However, as Visual Capitalist’s Iman Ghosh notes, the value of each metric varies greatly depending on where you live. Today’s data visualization from Max Roser at Our World in Data summarizes five basic dimensions of development across countries—and how our average standards of living have evolved since 1800.
Health: Mortality Rates and Life Expectancy
Child mortality rates and life expectancy at birth are telltale signs of a country’s overall standard of living, as they indicate a population’s ability to access healthcare services.
Iceland stood at the top of these ranks in 2017, with only a 0.21% mortality rate for children under five years old. On the other end of the spectrum, Somalia had the highest child mortality rate of 12.7%—over three times the current global average.
While there’s a stark contrast between the best and worst performing countries, it’s clear that even Somalia has made significant strides since 1800. At that time, the global average child mortality rate was a whopping 43%.
Lower child mortality is also tied to higher life expectancy. In 1800, the average life expectancy was that of today’s millennial—only 29 years old:
Today, the global average has shot up to 72.2 years, with areas like Japan exceeding this benchmark by more than a decade.
Education: Mean and Expected Years of Schooling
Education levels are measured in two distinct ways:
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Mean years: the average number of years a person aged 25+ receives in their lifetime
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Expected years: the total years a 2-year old child is likely to spend in school
In the 1800s, the mean and expected years of education were both less than a year—only 78 days to be precise. Low attendance rates occurred because children were expected to work during harvests, or contracted long-term illnesses that kept them at home.
Since then, education levels have drastically improved:
Research shows that investing in education can greatly narrow the inequality gap. Just one additional year of school can:
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Raise a person’s income by up to 10%
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Raise average annual GDP growth by 0.37%
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Reduce the probability of motherhood by 7.3%
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Reduce the likelihood of child marriage by >5 percentage points
Education has a strong correlation with individual wealth, which cascades into national wealth. Not surprisingly, average income has ballooned significantly in two centuries as well.
Wealth: Average GDP Per Capita
Global inequality levels are the most stark when it comes to GDP per capita. While the U.S. stands at $54,225 per person in 2017, resource-rich Qatar brings in more than double this amount—an immense $116,936 per person.
The global average GDP per capita is $15,469, but inequality heavily skews the bottom end of these values. In the Central African Republic, GDP per capita is only $661 today—similar to the average income two hundred years ago.
A Virtuous Cycle
These measures of development clearly feed into one another. Rising life expectancies are an indication of a society’s growing access to healthcare options. Compounded with more years of education, especially for women, this has had a ripple effect on declining fertility rates, contributing to higher per capita incomes.
People largely agree on what goes into human well-being: life, health, sustenance, prosperity, peace, freedom, safety, knowledge, leisure, happiness… If they have improved over time, that, I submit, is progress.
As technology accelerates the pace of change across these indicators, will the global inequality gap narrow more, or expand even wider?
Tyler Durden
Sun, 12/08/2019 – 23:25 -
- China Retaliates For Huawei: Beijing Orders All Government Offices And Public Companies To Replace Foreign PCs And Software
China Retaliates For Huawei: Beijing Orders All Government Offices And Public Companies To Replace Foreign PCs And Software
In a potentially stinging blow to US computer makers such as Dell, HP and Microsoft, and an ominous development for all those who think the US-China trade war is about to come to an end, the FT reports that Beijing has ordered all government offices and public institutions to remove foreign computer equipment and software within three years.
While the US has been extremely vocal over the past year about banning US companies from using Chinese technology, mostly emerging from the Huawei ecosystem, the directive is “the first publicly known instruction with specific targets given to Chinese buyers to switch to domestic technology vendors” and is meant to echo efforts by the Trump administration to curb the use of Chinese technology in the US and its allies. The order is said to have come directly from the Chinese Communist party’s Central Office earlier this year.
Additionally, the FT notes that the move is part of a broader campaign to increase China’s reliance on home-made technologies, “and is likely to fuel concerns of “decoupling”, with supply chains between the US and China being severed.” The big irony here is that it was IBM’s sale of its PC group China’s Lenovo in 2004 that allowed China to develop its own PC architecture and supply chain, and effectively reverse engineer US dominance in the PC sector.
Quoting analysts at broker China Securities, the FT notes that some 20-30 million pieces of hardware will need to be swapped out as a result of the Chinese directive, with large scale replacement beginning next year. They added the substitutions would take place at a pace of 30 per cent in 2020, 50 per cent in 2021, and 20 per cent the year after, earning the policy the nickname “3-5-2”.
The 3-5-2 policy is part of a drive for China’s government agencies and critical infrastructure operators to use “secure and controllable” technology, as enshrined in the country’s Cyber Security Law passed in 2017.
But unlike previous pushes for self-sufficiency in technology, recent US sanctions have added urgency to the project, said Paul Triolo of consultancy Eurasia Group.
“China’s 3-5-2 programme is just the tip of the new spear,” said Mr Triolo. “The goal is clear: getting to a space largely free of the type of threats that ZTE, Huawei, Megvii, and Sugon now face,” he added, naming some of the Chinese companies that over the past two years have been blocked from buying from US suppliers.
Needless to say, if executed, such a drastic move by China would lead to massive lost revenue. How much? According to analysts at Jefferies, US technology companies generate as much as $150 billion a year in revenues from China, although much of that will come from private sector buyers. Still, it’s probably just a matter of time before Beijing expands the rule to all Chinese organizations, both public and private, especially since in China there is no such thing as purely private sector.
To be sure, Beijing faces an uphill battle as the proposed pace of replacement is extremely ambitious. Government offices already tend to use Lenovo’s desktop computers, following the company’s acquisition of US giant IBM’s personal computer division. Meanwhile, analysts say that it will be difficult to replace software with domestic alternatives, since most software vendors develop products for popular US-made operating systems such as Microsoft’s Windows and Apple’s macOS.
And although Microsoft did produce a “Chinese Government Edition” of Windows 10 in 2017 with its Chinese joint venture, Chinese cyber security firms now say government clients must move to entirely Chinese-made operating systems.
The other problem is that organic Chinese replacements don’t really exist yet: “China’s homemade operating systems, such as Kylin OS, have a much smaller ecosystem of developers producing compatible software.”
Defining “domestically made” is also challenging. Even though Lenovo is a Chinese-owned company that assembles many products in China, its computer processor chips are made by Intel and its hard drives by Samsung.
The take home message here is that US PC and software giants are about to lose billions in sale to Chinese customers, a move that will infuriate Trump who will, correctly, see such attempts to isolate the Chinese PC market from US vendors.
Meanwhile, as China seeks to onshore its reliance on US computers and operating systems, we are confident that Bloomberg’s Terminal sales in China are safe and sound. After all, recall that in the aftermath of Bloomberg reporter Mike Forsythe and Ben Richardson quitting the media empire over a censored China story, Bloomberg LP chairman Peter T. Grauer said publicly that the company should have reconsidered publishing critical articles about Chinese President Xi Jinping because they harmed Bloomberg’s bottom line.
In other words, when it comes to Bloomberg’s integrity, there are two key loopholes: coverage of Mike Bloomberg’s own affairs, reporting on Bloomberg’s democratic competitors in the presidential primary and, of course, coverage of China.
Tyler Durden
Sun, 12/08/2019 – 23:18 - Russia: Friend Or Foe?
Russia: Friend Or Foe?
Authored by Jacob Hornberger via The Future of Freedom Foundation,
Ever since the end of the Cold War, it has been the mission of the U.S. national-security establishment to re-institute the relationship of hate, hostility, and fear that existed between the Soviet Union, especially Russia, and the United States during the Cold War.
That’s what the U.S. post-Cold War invigoration of NATO was all about, especially its absorption of former Warsaw Pact countries. It’s also what NATO’s attempt to absorb Ukraine, oust the Soviets from their long-established base in Crimea, and install U.S. missiles on Russia’s borders were all about.
It’s also what all the anti-Russia brouhaha has been all about. The aim has always been to reconvert Russia into an official enemy, adversary, opponent, and rival of the United States. What better way to keep the American people agitated and fearful? What better way to guarantee ever-increasing budgets for the Pentagon, the CIA, and the NSA, the three principal components of America’s deep state?
Oh sure, the “war on terrorism” has succeeded mightily in making Americans afraid of “the terrorists” and, to a certain extent, the “Muslims.” But many Americans are figuring out that anti-American terrorism is rooted in U.S. interventionism, which the Pentagon and the CIA introduced into the Middle East soon after the Soviet Union called an end to the Cold War racket. As soon as U.S. military and paramilitary forces are withdrawn from the Middle East and Afghanistan, the national-security establishment knows that its “war on terrorism” racket will disintegrate.
On the other side of the equation are those who say that U.S. officials need to make friends with Russia or, more specifically, with Russian President Vladimir Putin. Many of those on this side of the equation say the same thing with respect to dictators around the world, such as North Korean communist dictator Kim Jong-un, Egyptian military Abdel Fattah el-Sisi, or Syrian dictator Bashar al-Assad.
Actually, both sides are wrong. There is no reason why the U.S. government must have official enemies or official friends among foreign regimes. All that is necessary to help restore a peaceful and harmonious society to America is (1) to rein in the federal government by restraining it from intervening in the affairs of other countries, and (2) to liberate the private sector of the United States, thereby the American people to interact freely with the people of the world.
With respect to point (1), that means bringing all U.S. troops home from everywhere and discharging them into the private sector. They are not needed and are, in fact, a drain on American taxpayers. It means abandoning all foreign military bases to the host countries. It means a termination of U.S. foreign aid to every foreign regime. No more invasions, coups, assassinations, bombings, shootings, regime-change operations, kidnappings, torture, indefinite detention, and spying.
With respect to point (2), that means a lifting of all restrictions on the freedom of the American people to interact with the people of the world. That means a lifting of all sanctions, embargoes, trade restrictions, tariffs, and trade wars. It means an end to America’s socialist system of immigration controls and the police state that has come with it. It means unilateral free trade and open immigration, i.e., the free movements of goods, services, and products across borders.
None of that requires that U.S. officials become official friends or official enemies (or rivals, adversaries, or opponents) of foreign leaders or foreign regimes. All that it requires is reining in the federal government and liberating the American people.
The American people, including tourists, business people, trade groups, and cultural groups, are our nation’s best diplomats. Pentagon, CIA, and State Department people are our nation’s worst diplomats. The people of the world love the American people. They just severely dislike U.S. government officials, and justifiably so.
Tyler Durden
Sun, 12/08/2019 – 23:05 - Chuck Todd Goes Nuclear After Ted Cruz Mentions 'Debunked' Ukraine Election Meddling
Chuck Todd Goes Nuclear After Ted Cruz Mentions ‘Debunked’ Ukraine Election Meddling
Resistance activist and NBC host Chuck Todd lost his cool on Sunday after Sen. Ted Cruz (R-TX) said that Ukraine “blatantly interfered” in the 2016 US election.
Of note, less than three months before Donald Trump was elected, Ukrainian officials working with a DNC operative leaked a “black ledger” containing evidence of off-book payments to Trump campaign manager Paul Manafort – leading to his disruptive ouster, while Ukraine’s ambassador to the UK, Valeriy Chaly wrote in an Op-Ed for The Hill slamming Trump in the same month.
While Democrats have sought to ignore or downplay this as a ‘debunked’ theory, Republicans aren’t letting it go – nor are they giving the Bidens a pass for what looks like textbook corruption while then-Vice President Joe Biden was in charge of the Obama administration’s Ukraine policy.
“Any president, any administration is justified in investigating corruption. There was serious evidence of real corruption concerning Hunter Biden. [He] was on the board of Burisma, the largest natural gas company in Ukraine. Do you know how much he was paid every month? $83,000 — that’s a million dollars a year,” said Cruz – adding “The media ought to care if there is actual corruption … Do you think Hunter Biden with zero experience justifies making ten times as much as the board member of Exxon Mobil?“
Todd then asked Cruz: “Do you believe Ukraine meddled in the American election in 2016?” – to which Cruz replied “I do. And I think there is considerable evidence.”
Todd then suggested that President Trump could have created “a false narrative” in order to hurt Cruz during the 2016 Republican primary – to which Cruz shot back: “Ha, ha, ha. Except that’s not what happened. The president released the transcript of the phone call. You can read what was said in the phone call.”
“On the evidence, Russia clearly interfered in our election, but here’s the game the media is playing because Russia interfered, the media pretends nobody else did. Ukraine blatantly interfered in our election. The sitting ambassador from Ukraine wrote an op-ed blasting Donald Trump during the election season.”
“I understand that you want to dismiss Ukrainian interference because they were trying to get Hillary Clinton elected, which is what the vast majority of the media wanted anyway.“
Ukraine’s campaign meddling led directly to the resignation of Trump’s campaign chairman
We can all see the effects of this
To say this didn’t happen is denying reality
— Ukrainian Meddler Poso🇺🇦 (@JackPosobiec) December 8, 2019
For his insolence, Cruz is of course being labeled a Putin puppet – while Axios showed their true colors with the headline: “Cruz promotes conspiracy that Ukraine “blatantly interfered” in U.S. election.” – Their article, meanwhile, makes no mention of Manafort or the black ledger, which is what Cruz was referring to.
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Oh for fuck’s sake https://t.co/B2evKw9gMv
— Caitlin Johnstone ⏳ (@caitoz) December 8, 2019
Meanwhile…
Only Putin stooges would suggest any connection between Ukraine and Hillary Clinton pic.twitter.com/y6IWUOpZBs
— Ukrainian Meddler Poso🇺🇦 (@JackPosobiec) December 8, 2019
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Mediate & Chuck Todd, having lied throughout the Russia “collusion” BS, now lie about Ukraine.And if Todd wants to be the mouthpiece for the Dems, then he should have the integrity to resign from the news business &push his propaganda as a paid DNC hack https://t.co/SEvHr57Rfp
— Mark R. Levin (@marklevinshow) December 8, 2019
Tyler Durden
Sun, 12/08/2019 – 22:45 - Where The Rich Are Getting Richer – Mapping America's 200 Wealthiest Counties
Where The Rich Are Getting Richer – Mapping America’s 200 Wealthiest Counties
Wealth inequality has erupted across the country over the last decade as the Federal Reserve’s policy of ramping asset prices to the moon has widely failed to distribute wealth evenly. If you want to figure out where all the money went on a geographical basis, Bloomberg has published a new report that shows the 200 wealthiest counties in the US.
It’s no secret by now that asset holders (those who own real estate, stocks, bonds, classic cars, wine, and fancy artwork) were the largest beneficiaries of the Fed’s unconventional money printing.
The homeownership rate has crashed to decade lows; at least half of Americans work in low wage jobs; most people don’t own stocks and bonds, and at least half of Americans have less than $500 in savings.
So the flow of wealth from the Fed’s aggressive easing policy went to the limited few, those who hold assets, we call the top 10%.
These millionaires and billionaires have been getting richer over the last decade, while the vast majority of Americans have been getting poorer.
To find where all the money went, Bloomberg analyzed per-capita income across all US counties and discovered the 200 wealthiest counties that saw the most significant jumps in per-capita income in the last decade.
Take, for example, the per-capita income for Teton County, Wyoming, is the top of the list, averaged $156k in 2008, jumped to $252k in 2018, a 40% increase in ten years.
Some of the most significant jumps in per-capita income were also seen in New York, New York; Pitkin, Colorado; Bristol Bay Borough, Arkansas; Marin, California; Summit, Utah; and San Francisco California.
Across America, total personal income increased in 3,019 counties, or 97% of the total, and decreased in just 2.9%, according to estimates released by the Bureau of Economic Analysis. That includes wages, proprietors’ income, dividends, interest, rents, and government benefits by county residents.
Notably, on a per-capita income basis, which factors in the change in population, 2018 marks the largest share of counties with a positive increase since 1981, based on a Bloomberg analysis.
Tyler Durden
Sun, 12/08/2019 – 22:40 - Exposing The False Statements Made In The Trump-Impeachment Hearings
Exposing The False Statements Made In The Trump-Impeachment Hearings
Authored by Eric Zuesse for The Saker Blog,
In the December 4th statement that was made by Stanford University law professor Pamela Karlan was this:
We have become the shining city on a hill. We have become the nation that leads the world in understanding what democracy is. One of the things we understand most profoundly is it’s not a real democracy, it’s not a mature democracy if the party in power uses the criminal process to go after its enemies. I think you heard testimony, the Intelligence Committee heard testimony about how it isn’t just our national interest in protecting our own elections. It’s not just our national interest in making sure that the Ukraine remains strong and on the front lines so they fight the Russians there and we don’t have to fight them here.
It’s also our national interest in promoting democracy worldwide, and if we look hypocritical about this, if we look like we’re asking other countries to interfere in our election, if we look like we’re asking other countries to engage in criminal investigations of our President’s political opponents, then we’re not doing our job of promoting our national interest in being that shining city on a hill.
She said: “We have become the shining city on a hill.”
Furthermore, the scientific studies of whether the U.S. Government is controlled by the public (a democracy) or is instead controlled only by its very wealthiest (an aristocracy) are clear: this country is an aristocracy, not a democracy at all, except, perhaps, in the purely formal senses of that term — our great Constitution. Far-right judges have recently been interpreting that Constitution in the most pro-aristocratic, anti-democratic, ways imaginable, and this might have something to do with why the scientific studies are finding that the U.S. is now a dictatorship. And this fact, of America’s now being a dictatorship, was blatantly clear in America’s last Presidential election, which was actually a s‘election’ by Americas’ billionaires — not by the American public.
How, then, can Professor Karlan be respected about anything, if she lives in a dictatorship (by its aristocracy) and is deluded to think that it’s still (which it never was completely) a democracy?
Furthermore: her statements about Ukraine are equally deluded. She is obviously unaware that the Obama Administration started planning its coup against Ukraine in 2011 and started implementing it in the U.S. Embassy in Ukraine on 1 March 2013, and started in June 2013 soliciting bids from U.S. companies to renovate at least one building in Crimea for use by the U.S. Navy to replace Russia’s main naval base — which Russian naval base was and is in Crimea — by a new U.S. naval base to be installed there.
The craziest thing of all about Karlan’s statement, however, is this part:
“It’s not just our national interest in making sure that the Ukraine remains strong and on the front lines so they fight the Russians there and we don’t have to fight them here.”
Imagine if someone said, “It’s not just our national interest in making sure that the Mexico remains strong and on the front lines so they fight the Americans there and we [Russians] don’t have to fight them here.”
If a Russian were to assert that, would the statement be any more justifiable than what Karlan said regarding Ukraine? Of course not! Even an idiot can recognize this fact. But Karlan can’t.
On December 5th, the anonymous “Moon of Alabama” blogger, whose opinions and predictions turn out to have been correct at perhaps the highest rate of anyone on the internet, headlined “The Delusions Of The Impeachment Witnesses Point To A Larger Problem” and he not only pointed out the “delusional” beliefs of Professor Karlan (“One must be seriously disturbed to believe such nonsense. How can it be that Karlan is teaching at an academic level when she has such delusions?”), but he noted that:
How is it in U.S. interest to give the Ukraine U.S. taxpayer money to buy U.S. weapons? The sole motive behind that idea was greed and corruption, not national interest:
[U.S. special envoy to Ukraine] Volker started his job at the State Department in 2017 in an unusual part-time arrangement that allowed him to continue consulting at BGR, a powerful lobbying firm that represents Ukraine and the U.S.-based defense firm Raytheon. During his tenure, Volker advocated for the United States to send Raytheon-manufactured antitank Javelin missiles to Ukraine — a decision that made Raytheon millions of dollars.
The missiles are useless in the conflict. They are kept near the western border of Ukraine under U.S. control. The U.S. fears that Russia would hit back elsewhere should the Javelin reach the frontline in the east and get used against the east-Ukrainians. That Trump shortly held back on some of the money that would have allowed the Ukrainians to buy more of those missiles thus surely made no difference.
To claim that it hurt U.S. national interests is nonsense.
It is really no wonder that U.S. foreign policy continuously produces chaos when its practitioners get taught by people like Karlan. …
The Democrats are doing themselves no favor by producing delusional and partisan witnesses who repeat Reaganesque claptrap. They only prove that the whole affair is just an unserious show trial.
In the meantime Trump is eliminating food stamps for some 700,000 recipients and the Democrats are doing nothing about it. Their majority in the House could have used the time it spent on the impeachment circus to prevent that and other obscenities.
Do the Democrats really believe that their voters will not notice this?
(Of course, they do, and they might be right. After all, polls show that Democrats still believe that Barack Obama was a terrific President, just as Republicans believe that George W. Bush was a terrific President. The fact that both — and Trump himself —were/are among the worst in American history eludes the voters in both Parties. But though I disagree with his opinion on that particular matter, he’s just asking a question there, and I hope that his more optimistic take than mine turns out to be right, and that the voters — in both Parties — are coming to recognize that American politics right now is almost 100% a con-game, in both Parties.)
Why do people pay subscription-fees, to Jeff Bezos’s Washington Post, and to the New York Times, and to other media that are controlled by America’s billionaires, when far higher-quality journalism, like that of “Moon of Alabama” (and like the site you’re reading here) is freely available on the internet? Who needs the mainstream ‘news’-media, when it’s filled with such unreliable claptrap, as respects (instead of exposes) what persons such as Karlan say? Jonathan Turley is to be taken seriously, and he is at the very opposite end from Karlan’s opinions in the impeachment hearings (and regarding much else). (And the hearings-transcript in which both law-professors testified is here.) But the exception is Turley, and Karlan is far more the norm in the U.S.-media mainstream. And virtually all Democratic-Party propaganda-organs (‘the liberal press’) are playing up the Karlan claptrap.
So: yes, I do think that “the Democrats [referring to the ones in the House of Representatives, of course] really believe that their voters will not notice this.” Most voters are just as “deluded” (misinformed by the ‘news’-media) as Professor Karlan is.
* * *
Investigative historian Eric Zuesse is the author, most recently, of They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.
Tyler Durden
Sun, 12/08/2019 – 22:15 - What To Expect During Nadler's Monday Impeachment 'Trial'
What To Expect During Nadler’s Monday Impeachment ‘Trial’
Before House Democrats move forward with articles of impeachment against President Trump – which may come later in the week, they’re going to hold a ‘trial’ on Monday in which the House Intelligence and Judiciary committees will present evidence to support their case, according to CNN.
On Saturday night, the House Judiciary Committee released a 52-page report, an update to previous Judiciary Committee reports issued in 1974 and 1998 during the Nixon and Clinton impeachments. While it does not accuse Trump of committing any impeachable offenses, it it lays out what Congressional Democrats consider constitutional grounds for impeachment.
Here’s now Monday’s hearing will go, per CNN, citing a Democratic official working on the impeachment inquiry:
- Nadler and Republican Rep. Doug Collins, the ranking member of the committee, will first deliver opening statements
- House Judiciary Committee counsels will then present opening arguments for an hour (30 minutes for each side). It will be “like a trial,” the official said, presenting “our theory of the case.” The Democratic counsel will be Barry Berke and GOP counsel will be Steve Castor. They will not take questions.
- House Intelligence Committee counsels will then present findings from their respective reports. First, Democratic counsel Dan Goldman will present for 45 minutes with Castor presenting the GOP report for 45 minutes. Both will take questions afterward.
- Nadler and his counsel will then have a 45-minute round of questioning followed by a 45-minute round of questioning by Collins and his counsel.
- Each member will then get their 5-minute round of questioning.
Democrats plan to argue that President Trump’s abused his power by requesting that Ukraine conduct investigations into former Vice President Joe Biden and his son Hunter, as well as allegations that Ukraine meddled in the 2016 US election for Hillary Clinton.
What you can expect Democrats to argue Monday is that Ukraine is a “part of a repeating pattern” of Trump abusing his office, the source said.
“That’s why Ukraine is so important,” the source said. They plan to argue that the abuse of power “betrays national security” and involves “corruption of our elections,” the source added. “This is the framers’ nightmare.” –CNN
On Saturday, House Judiciary Democrats met to hold a mock impeachment hearing, where Harvard law professor Laurence Tribe was present and spoke with committee Democrats, according to the report. Tribe has suggested in the past that Trump could be impeached through an interpretation of the Constitution’s impeachment clause that would allow for fewer Senators to vote in order to remove President Trump – a prospect deemed “not very likey” by the Washingtonian.
On Sunday, Nadler said that Trump will ‘rig’ the 2020 election if he isn’t impeached and removed.
“The Framers worst nightmare is what we are facing in this very moment,” House Judiciary Committee Chairman Jerry Nadler (D-NY) said in a statement. “President Trump abused his power, betrayed our national security, and corrupted our elections, all for personal gain. The Constitution details only one remedy for this misconduct: impeachment. The safety and security of our nation, our democracy, and future generations hang in the balance if we do not address this misconduct. In America, no one is above the law, not even the President.”
Apparently losing a ton of weight makes you a hypocrite.
Ranking member Doug Collins, meanwhile, demanded on Saturday that Nadler postpone Monday’s hearing after Democrats dumped “thousands of pages of documents” to House Judiciary Republicans “less than 48 hours before Judiciary’s hearing scheduled to examine impeachment presentations from Intelligence and Judiciary Committees.
The document release comes 25 days after Republican members of the House Judiciary Committee wrote to Chairman Nadler requesting all documents related to the impeachment investigation according to House Rule XI, 2(e)2(a). Republicans received no response from the chairman. –House Judiciary Republicans
“Chairman Nadler has no choice but to postpone Monday’s hearing in the wake of a last-minute document transmission that shows just how far Democrats have gone to pervert basic fairness. Nearly a month after every Republican on our committee asserted our clear right to see all underlying documents held by the committees involved in the impeachment investigation, we have received no response from the chairman. Instead, Democrats waited until after Speaker Pelosi announced that articles of impeachment were imminent and chose the eve of the Judiciary Committee’s impeachment hearing to share loads of documents that Chairman Schiff has had since this investigation began. It is impossible for Judiciary members to sift through thousands and thousands of pages in any meaningful way in a matter of hours,” said Collins.
“Moreover, Democrats still refuse to release all documentation in their possession, though Republicans have demanded this according to rules of the House — which Democrats themselves adopted in January. The information Democrats released today is partial, biased and curated to support accusations that have, to date, been thinner than cotton candy.”
“Americans still don’t have access to any information that Adam Schiff hasn’t chosen to weave into his trail of lies. On behalf of millions of American voters who deserve the truth, Chairman Nadler must postpone this hearing while the Judiciary Committee examines these documents. At the same time, Chairman Schiff must release to House members the complete body of underlying evidence that he has concealed.
“The unfairness and dishonesty of this impeachment sham continue to be unprecedented. In violating the rules that this House adopted democratically, Democrats have violated their oaths of office. Under Speaker Pelosi’s leadership, House Democrats have eroded the integrity of our chamber and sacrificed the confidence of Americans who trust Congress to balance power, not abuse it.“
On Friday, the White House said in a statement that it would be a “reckless abuse of power” for House Democrats to impeach Trump, and “would constitute the most unjust, highly partisan, and unconstitutional attempt at impeachment in our Nation’s history.”
A White House senior administration told The Hill that they won’t be participating in the House’s efforts. “We don’t see any reason to participate because the process is unfair,” said the source. “Speaker Pelosi has already announced the predetermined result. They will not give us the ability to call any witnesses.”
“House Democrats have wasted enough of America’s time with this charade,” wrote White House counsel Pat Cipillone in the Friday letter to Nadler, calling the impeachment inquiry “completely baseless.”
“You should end this inquiry now and not waste even more time with additional hearings. Adopting articles of impeachment would be a reckless abuse of power by House Democrats, and would constitute the most unjust, highly partisan, and unconstitutional attempt at impeachment in our Nation’s history,” he added, before concluding that the House should get this over with so that Trump can be acquitted in the Senate.
Tyler Durden
Sun, 12/08/2019 – 21:50 - "The Fed Was Suddenly Facing Multiple LTCMs": BIS Offers A Stunning Explanation Of What Really Happened On Repocalypse Day
“The Fed Was Suddenly Facing Multiple LTCMs”: BIS Offers A Stunning Explanation Of What Really Happened On Repocalypse Day
About a month ago, we first laid out how the sequence of liquidity-shrinking events that started about a year ago, and which starred the largest US commercial bank, JPMorgan, ultimately culminated with the mid-September repo explosion. Specifically we showed how JPM’s drain of liquidity via Money Markets and reserves parked at the Fed may have prompted the September repo crisis and subsequent launch of “Not QE” by the Fed in order to reduce its at risk capital and potentially lower its G-SIB charge – currently the highest of all major US banks.
Shortly thereafter, the FT was kind enough to provide confirmation that the biggest US bank had been quietly rotating out of cash, while repositioning its balance sheet in a major way, pushing more than $130bn of excess cash away from reserves in the process significantly tightening overall liquidity in the interbank market. We learned that the bulk of this money was allocated to long-dated bonds while cutting the amount of loans it holds, in what the FT dubbed was a “major shift in how the largest US bank by assets manages its enormous balance sheet.”
The moves saw the bank’s bond portfolio soar by 50%, and were prompted by capital rules that treated loans as riskier than bonds. And since JPM has been aggressively returning billions of dollars to shareholders in dividends and share buybacks each year, JPMorgan had far less room than most rivals to hold riskier assets, explaining its substantially higher G-SIB surcharge, which indicated that the Fed currently perceives JPM as the riskiest US bank for a variety of reasons.
An executive at a large institutional investor told the FT that what JPM did “is incredible”, adding that “the scale of what JPMorgan is doing is mind-boggling . . . migrating out of cash into securities while loans are flat.”
The dramatic change, which occurred gradually over the year, and which may have catalyzed the spike in repo rates in September, was first flagged by JPMorgan at an investor event back in February. Then CFO Marianne Lake said that, after years of industry-leading loan growth, “we have to recognize the reality of the capital regime that we live in”.
About half a year later, the rest of the world did too when the overnight general collateral rate briefly did something nobody had ever expected it to do, when it exploded from 2% to about 10% in minutes, an absolutely unprecedented move, and certainly one that was seen as impossible in a world with an ocean of roughly $1.3 trillion in reserves floating around.
While readers can catch up on the nuances of what JPM did in our prior post, the bottom line is that the execution of the plan was flawless, and as we said at the start of November, “to ensure that JPM’s tens of billions in buybacks and dividends continue flowing smoothly and enriching the company’s shareholders, Jamie Dimon may have held the entire US financial system hostage, forcing the Fed’s hand to restart “Not QE.”
To be sure, the mere hint that the September repocalypse was an orchestrated event (in some ways similar to the Lehman failure which ushered in QE1), meant to extract liquidity concessions out of the Fed (NOT QE or QE 4 depending on one’s semantic persuasion) and enrich a handful of bank executives was scandalous enough, and could not be left unaddressed, especially since fears about repo market stability are once again growing now that just three weeks are left until the traditionally liquidity sapping year-end moment.
Well, to address just that, and to provide a fascinating new perspective on what may have catalyzed the Sept 16 events, which were “this close” from triggering an LTCM-like cascade within the market, the Bank of International Settlements – the central banks’ central bank – today published a paper as part of its quarterly review, titled “September stress in dollar repo markets: passing or structural?“, which “found” several things that we already knew – the September event was not a one-time, passing shock to the repo system contrary to what a handful of “know it all” fintwit accounts claimed but is a structural problem with US liquidity plumbing; it also found that just four commercial banks are now the dominant marginal lenders in the US repo market (and where just one, JPMorgan saw its liquidity provisioning collapse in the course of 2019 as noted above). However, in a novel twist, the BIS also found that hedge funds exacerbated the turmoil in the repo market with their thirst for borrowing cash to juice up returns on their trades.
Here is what the BIS said:
US repo markets currently rely heavily on four banks as marginal lenders. As the composition of their liquid assets became more skewed towards US Treasuries, their ability to supply funding at short notice in repo markets was diminished. At the same time, increased demand for funding from leveraged financial institutions (eg hedge funds) via Treasury repos appears to have compounded the strains of the temporary factors.
The BIS also echoed the now widely accepted justification for the Fed’s recent decision to resume POMOs, saying that it is also possible that the “low” level of reserves, and the financial system’s inability to revert back to normalcy, may also have catalyzed the repo move:
Finally, the stress may have been amplified in part by hysteresis effects brought about by a long period of abundant reserves, owing to the Federal Reserve’s large-scale asset purchases.
Here, one can argue that the implication of that sentence alone are staggering, as they confirm what most have already known: there is no way the financial system can ever return to a world without trillions and trillions in “excess reserves.” For the BIS to make that admission is rather striking, as it underscores that the world will never again be able to exist in a regime in which central banks do not constantly create money (or reserves) out of thin air to prop up asset prices.
Yet while that topic alone is worth a post or several thousand (we have certainly beaten this particular horse to death over the past decade), the core focus of the BIS paper in question was to identify more “usual suspects” on which to blame both the recent, and all future – because these are only just starting – repo crises.
Enter hedge funds.
First, a quick detour: when it comes to potentially systemic factors affecting the US financial system, none have more importance and gravity than the repo market. As the BIS writes, “Repo markets redistribute liquidity between financial institutions: not only banks (as is the case with the federal funds market), but also insurance companies, asset managers, money market funds and other institutional investors. In so doing, they help other financial markets to function smoothly. Thus, any sustained disruption in this market, with daily turnover in the US market of about $1 trillion, could quickly ripple through the financial system. The freezing-up of repo markets in late 2008 was one of the most damaging aspects of the Great Financial Crisis (GFC).“
Keeping the above in mind, here’s a quick remind of what happened on September 16: the secured overnight funding rate (SOFR), the new, repo market-based, US dollar overnight reference rate which is supposed to replace over the next two years – more than doubled, and the intraday range jumped to about 700 basis points when repo rates typically fluctuate in an intraday range of 10 basis points, or at most 20 basis points. Intraday volatility in the federal funds rate exploded. Hot take explanations for this move include a due date for US corporate taxes and a large settlement of US Treasury securities. However, as first we, and then now the BIS admits, “none of these temporary factors can fully explain the exceptional jump in repo rate.”
Ok, but all of the above was known before. What’s new about the BIS’ paper?
Well, in the aftermath of Sept 16, attention focused on the role played by banks, which had become reluctant to lend cash into the market despite the higher interest rates on offer. And while the BIS acknowledged that the pullback by banks, especially the “Big Four”, was a significant factor in the shake-up,
… it also said that cash-hungry hedge funds had amplified the dislocation.
“High demand for secured (repo) funding from non-financial institutions, such as hedge funds heavily engaged in leveraging up relative value trades,” was a key factor behind the chaos, said Claudio Borio, head of the monetary and economic department at the BIS.
The BIS’s finding is novel, and surprising, as they highlight the “growing clout of hedge funds in the repo market” according to the FT, which notes something we pointed out one year ago: hedge funds such as Millennium, Citadel and Point 72 are not only active in the repo market, they are also the most heavily leveraged multi-strat funds in the world, taking something like $20-$30 billion in net AUM and levering it up to $200 billion. They achieve said leverage using repo.
One increasingly popular hedge fund strategy involves buying US Treasuries while selling equivalent derivatives contracts, such as interest rate futures, and pocketing the arb, or difference in price between the two.
While on its own this trade is not very profitable, given the close relationship in price between the two sides of the trade. But as LTCM knows too well, that’s what leverage is for. Lots and lots and lots of leverage.
As the FT notes, people active in the short-term borrowing markets say that to fire up returns, “some hedge funds take the Treasury security they have just bought and use it to secure cash loans in the repo market. They then use this fresh cash to increase the size of the trade, repeating the process over and over and ratcheting up the potential returns.“
In short, and as shown in the chart above, some of the world’s biggest hedge funds are active in the repo market to boost their returns. The problem is what happens when repo rates get unhinged as happened on September 16: for the best example of how market players react when their underlying correlations go tilt, look no further than what happened to LTCM in 1998.
This also explains why the Fed panicked in response to the GC repo rate blowing out to 10% on Sept 16, and instantly implemented repos as well as rushed to launch QE 4: not only was Fed Chair Powell facing an LTCM like situation, but because the repo-funded arb was (ab)used by most multi-strat funds, the Federal Reserve was suddenly facing a constellation of multiple LTCM blow-ups that could have started an avalanche that would have resulted in trillions of assets being forcefully liquidated as a tsunami of margin calls hit the hedge funds world.
Here it is the Big Four banks that were once again instrumental in allowing this arb to emerge in the first place. As the BIS notes, “concurrent with the growing role of the largest four banks in the repo market, their liquid asset holdings have become increasingly skewed towards US Treasuries, much more so than for the other, smaller banks. (chart below, right-hand panel). As of the second quarter of 2019, the big four banks alone accounted for more than 50% of the total Treasury securities held by banks in the United States – the largest 30 banks held about 90% (chart below, left-hand panel). At the same time, the four largest banks held only about 25% of reserves (ie funding that they could supply at short notice in repo markets).
Ironically, for years this “arb” strategy was once popular among the dealer banks themselves, but higher capital charges since the financial crisis led to their displacement by hedge funds, which have more ability to take on risk.
This is how the BIS explains, in not so many words, how the financial system came close to the verge of collapse on September 16, poetically enough the 11 year anniversary of Lehman’s bankruptcy:
Shifts in repo borrowing and lending by non-bank participants may have also played a role in the repo rate spike. Market commentary suggests that, in preceding quarters, leveraged players (eg hedge funds) were increasing their demand for Treasury repos to fund arbitrage trades between cash bonds and derivatives. Since 2017, MMFs have been lending to a broader range of repo counterparties, including hedge funds, potentially obtaining higher returns. These transactions are cleared by the Fixed Income Clearing Corporation (FICC), with a dealer sponsor (usually a bank or broker-dealer) taking on the credit risk. The resulting remarkable rise in FICC-cleared repos indirectly connected these players. During September, however, quantities dropped and rates rose, suggesting a reluctance, also on the part of MMFs, to lend into these markets (Graph A.2, right-hand panel). Market intelligence suggests MMFs were concerned by potential large redemptions given strong prior inflows. Counterparty exposure limits may have contributed to the drop in quantities, as these repos now account for almost 20% of the total provided by MMFs.
What this means is that contrary to our initial take that banks were pulling from the repo market due to counterparty fears about other banks, they were instead spooked over exposure by other hedge funds, who have become the dominant marginal- and completely unregulated – repo counterparty to liquidity lending banks; without said liquidity, massive hedge fund regulatory leverage such as that shown above would become effectively impossible.
Meanwhile, as banks pulled back from the repo market amid their “reluctance” to lend to these markets amid “concerns for large redemptions”, hedge funds have sought cash from new sources, such as non-bank dealers or through a platform run by the Fixed Income Clearing Corporation that gives them access to cash from money market funds and other lenders. As a reminder, the “hail mary” thesis of the uber bearish CIO of Horseman Global, Russel Clark, is that clearinghouses will collapse as liquidity is drained from the market:
LCH claim to have done a quadrillion of compression trades or netting in the last year, this is more than twice the notional of all outstanding interest rate derivatives.
If initial margins rise significantly, the only assets that will see a bid will be cash, US treasuries, JGBs, Bunds, Yen and Swiss Franc. Everything else will likely face selling pressure. If a major clearinghouse should fail due to two counterparties failing, then many centrally cleared hedges will also fail. If this happens, you will not receive the cash from your bearish hedge, as the counterparty has gone bust, and the clearinghouse needs to pay from its own capital or even get be recapitalised itself.
The growing significance of these new cash sources “can result in unfamiliar market dynamics“, said BIS’ Claudio Borio. Dynamics such as the one where impossible moves such as repo rates exploding from 2% to 10% in seconds become a daily occurence.
So where does that leave us? Well, as the BIS concludes, since 17 September, “the Federal Reserve has taken various measures to supply more reserves and alleviate repo market pressures. These operations were expanded in scope to term repos (of two to six weeks) and increased in size and time horizon (at least through January 2020). The Federal Reserve further announced on 11 October the purchase of Treasury bills at an initial pace of $60 billion per month to offset the increase in non-reserve liabilities (eg the TGA). These ongoing operations have calmed markets.”
We have covered all these “mitigating events”, and the problem is that even though the Fed has now injected $208BN in liquidity via overnight and term repos, and $114BN via permanent T-Bill purchases, or POMO (i.e. “Not QE”), expanding the Fed’s balance sheet by $322 billion, the repo market still remains broken…
… and the world may find just how broken it is as soon as December 31, when the next repocalypse event is tentatively scheduled to strike. The big question is whether the world’s mega hedge funds, the Millenniums, the Citadels, the Point72s afraid they will lose access to the precious repo funding that permits them to lever up as much as 10x, will sharply deleverage ahead of this event, in the process sending risk prices tumbling and precipitating the next market crash.
But don’t take our word: here again is the top financial expert at the BIS, Claudio Borio, warning that that September’s dislocation suggests that such repo “events” are only just starting and the repo markets “may again find themselves in the eye of the storm should financial stress arise at some point”, a point which as the Fed recently revealed in its October FOMC Minutes could take place as soon as year-end.
Tyler Durden
Sun, 12/08/2019 – 21:33 - Derensis: Pearl Harbor & The Campaign To Lie America Into World War II
Derensis: Pearl Harbor & The Campaign To Lie America Into World War II
Authored by Hunter Derensis via TheAmericanConservative.com,
Before Pearl Harbor, there was an elaborate British influence operation of forged documents, fake news, and manipulation.
A World War II era poster showing portraits of Franklin Roosevelt and Winston Churchill with the title “Liberators of The World”. The poster also shows the flags of the Allies, and the sinking of the Japanese battleship Haruna. (Photo by David J. & Janice L. Frent/Corbis via Getty Images)
Seventy-eight years ago, on December 6, 1941, the United States was at peace with world. The next morning, local time, the Empire of Japan bombed the U.S. Navy base at Pearl Harbor, Hawaii. Four days later, Nazi Germany issued a declaration of war against the United States. The American people were now unalterably involved in a global conflict that would take the lives of over 400,000 of their native sons.
But before Japan opened this door to war, the United States had been the target of an elaborate, covert influence campaign meant to push public opinion, by hook or by crook, into supporting intervention on the side of the British. Conducted by the United Kingdom’s MI6 intelligence service, it involved sometimes witting (and often unwitting) collaboration with the highest echelons of the U.S. government and media establishment.
In the early summer of 1940, British Prime Minister Winston Churchill dispatched intelligence agent William Stephenson to North America to establish the innocuous-sounding British Security Coordination (BSC). The Canadian-born Stephenson was a World War I flying ace and wealthy industrialist who had been a close Churchill confidant for several years. Adopting the codename “Intrepid” during his operations, spymaster Stephenson served as the main inspiration for James Bond (whose creator, Ian Fleming, worked with the BSC).
The BSC’s base of operations was the 35th floor of Rockefeller Center in New York City, which it occupied rent-free. The influence campaign began in April 1941, employing hundreds of agents, including well-placed individuals in front groups, the government, and polling organizations.
Intrepid had his work cut out for him.
Entering 1941, upwards of 80 percent of Americans opposed U.S. intervention in the war in Europe, a sentiment expressed through the America First Committee. Founded in September 1940 by a group of Yale students (including Gerald Ford, Sargent Shriver, and future Supreme Court justice Potter Stewart), at its peak the organization had 800,000 dues paying members and 450 local chapters spread across the country.
“The America First Committee was taking the position that we should not be involved in foreign wars, as we were in World War I,” John V. Denson, a distinguished scholar at the Ludwig von Mises Institute and former circuit judge in Alabama, told The American Conservative.
“There was a great deal of criticism of [Woodrow] Wilson taking us into World War I, so there was strong sentiment that we were tricked into that war and therefore that we needed to stay out of European wars. That was the America First position. We didn’t want England or anyone else dragging us into another war.”
This meant that a primary goal of the BSC was to disparage and harass those Americans opposed to entering World War II. But it couldn’t do this in the open. The Fight for Freedom Committee was (like the BSC) established in April 1941 and also headquartered at Rockefeller Center. There it announced that the United States ought to accept “the fact that we are at war, whether declared or undeclared.”
In September 1941, when North Dakota Senator Gerald Nye, an anti-interventionist and scourge of the armaments industry, gave a speech in Boston, Fight for Freedom demonstrators booed and heckled him while handing out 25,000 pamphlets labeling him an “appeaser and Nazi-lover.” Similarly, when New York Congressman Hamilton Fish III, an irritable thorn in Franklin Roosevelt’s side, held a rally in Milwaukee, a Fight for Freedom member interrupted his speech to hand him a placard: “Der Fuhrer thanks you for your loyalty.” Reporters, alerted ahead of time, made sure photos of the scene were reprinted nationwide.
When Charles Lindbergh, the aviator and the America First Committee’s most popular speaker, addressed a rally at Madison Square Garden in October 1941, Fight for Freedom attempted to sow confusion by printing duplicate tickets. Lindbergh still successfully spoke to over 20,000 supporters, not including an agent provocateur who tried to cause a stir by yelling, “Hang Roosevelt!”
(In actuality, it would be Lindbergh’s infamous September 11 remarks in Des Moines that would do more to damage the non-interventionist cause than any of the BSC-orchestrated hijinks.)
A 1945 study by BSC historians described their efforts:
“Personalities were discredited, their unsavory pasts were dug up, their utterances were printed and reprinted…. Little by little, a sense of guilt crept through the cities and across the states. The campaign took hold.”
To promote the influence campaign, Stephenson gave large sums of money every month to the heads of media outlets like the Overseas News Agency or the WRUL radio station, and in exchange they would publish or broadcast “fake news” overseas. The stories were often fictional accounts of the British war effort and were promptly republished by American newspapers, which believed them to be credible. By the fall of 1941, the BSC was pushing out 20 to 25 phony stories a week.
Stephenson’s influence campaign was at its most effective when he used his political connections to shape the Roosevelt administration’s policy. It was Stephenson who suggested that prominent lawyer William J. Donovan be made “Coordinator of Information” (whose office was also in Rockefeller Center). Describing this appointment, the late historian Ralph Raico wrote, “Through Stephenson, Churchill was virtually in control of William Donovan’s organization, the embryonic U.S. intelligence service.” Donovan, who the British described as “our man,” later headed the Office of Strategic Services, the precursor to the CIA.
With the pieces in place, Stephenson directed British lyricist Eric Maschwitz to create two forgeries: one, a map showing a German war plan to occupy South America; the other, a Nazi plan to abolish the world’s religions. These fake documents were provided by the BSC to Donovan, who gave them to the president.
“I have in my possession a secret map made in Germany by Hitler’s government—by the planners of the new world order,” Franklin Roosevelt announced during an October 27 radio address at the Mayflower Hotel in Washington, D.C.
“It is a map of South America and a part of Central America, as Hitler proposes to reorganize it. …This map makes clear the Nazi design not only against South America but against the United States itself.”
“Your government has in its possession another document made in Germany by Hitler’s government,” continued Roosevelt.
“It is a plan to abolish all existing religions—Protestant, Catholic, Mohammedan, Hindu, Buddhist, and Jewish alike. …In the place of the Bible, the words of Mein Kampf will be imposed and enforced as Holy Writ. And in place of the cross of Christ will be put two symbols—the swastika and the naked sword.”
Donovan, aware that Stephenson had given him falsified information in the past, almost certainly knew the documents were forgeries. But what about President Roosevelt?
Henry Hemming, author of Agents of Influence: A British Campaign, a Canadian Spy, and the Secret Plot to Bring America into World War II, explained in an interview with TAC:
“When [Assistant Secretary of State for Latin American Affairs] Adolf Berle comes to see Roosevelt in September 1941, he brings with him a dossier. And in this dossier, he has evidence of three separate occasions in which the British have tried to fabricate proof of a Nazi plot somewhere in South America. …He says, ‘This is a real problem. We have to do something about this.’ And in his notes from that meeting, Berle says the president was curiously reserved and didn’t seem to react in the way he expected him to. And Roosevelt eventually says, ‘You should probably bring this up with Bill Donovan.’”
“[I]t’s the South American map that’s so interesting,” Hemming said, “because Roosevelt knows that the British are concentrating on South America. This is where they’re trying to create evidence of a Nazi plot. And here is a document which does precisely the same thing, just after he’s been warned that the British are trying to do this. So knowing that, it would have been very strange for him not to think, ‘Hm, this looks and smells like a British fake.’”
Hemming concludes that it is “extremely likely” Roosevelt suspected the forgery, but proceeded with the speech anyway.
Denson believes Roosevelt’s motivation for this deception was that American entry into World War II would gift the United States the international system he’d always desired:
“I think he made up his mind as soon as the Senate didn’t confirm the League of Nations [in 1919]. He decided he could do a better job than Wilson, and he could get a world government like the League of Nations started. I think he was always on that train.”
The “Declaration of United Nations,” cowritten by Roosevelt and Churchill, was signed in January 1942.
From manipulating American public perceptions against peace to actively propelling the United States towards war, the influence campaign by Intrepid was a rousing success for the British. And not incidentally, it helped build the modern world.
Tyler Durden
Sun, 12/08/2019 – 21:25 - As Tech War Unfolds, AI Arms-Race Erupts, China Could Overtake US By Next Decade
As Tech War Unfolds, AI Arms-Race Erupts, China Could Overtake US By Next Decade
The trade war between the US and China has morphed into a tech war. The Trump administration has blacklisted Chinese companies, like Huawei, restricting these firms from buying high-tech semiconductor chips from American suppliers. There was even a report this week that White House officials considered banning Huawei from its financial system. But why has the trade war transformed into a tech war?
The simple reason is that China could overtake the US as a major economic power by 2030. The US has been unconsciously fueling China’s ascension as a rising superpower by supplying high-tech semiconductor chips to Chinese companies. But recent actions by the Trump administration have limited the flow of chips to China, to slow their development in artificial intelligence (AI) and global domination.
A new report from the Global AI Index, first reported by South China Morning Post, indicates that China could overtake the US in AI by 2025 to 2030.
The index specifies that based on talent, infrastructure, operating environment, research, development, government strategy, and commercial ventures, China will likely dominate the US in the AI space in the next decade.
The tech war between both countries, to get more specific, has also blossomed into a global AI race, the report said.
By 2030, Washington is forecasted to have earmarked $35 billion for AI development, with the Chinese government allocating at least $22 billion over the same period.
China’s leadership, including President Xi Jinping, has specified that AI will be essential for its global military force and economic power competition against the US.
China’s State Council issued the New Generation Artificial Intelligence Development Plan (AIDP) back in 2017, stating that China’s AI strategy will allow it to become a global superpower.
In a recent speech, Xi said that China must “ensure that our country marches in the front ranks where it comes to theoretical research in this important area of AI, and occupies the high ground in critical and AI core technologies.”
Xi added, “China must “pay firm attention to the structure of our shortcomings, ensure that critical and core AI technologies are firmly grasped in our own hands.”
Xi also said that AIDP and Made in China 2025 strategies would allow it to surpass the US in the coming decade on an economic basis.
The US, irritated with China’s ascension, has launched a trade war, that has morphed into a tech war, along with an AI race, as it fights for its survival with a rising power.
Great power competitions have the risk of leading to a shooting war though there’s no evidence that this could happen in the intermediate timeframe.
Tyler Durden
Sun, 12/08/2019 – 21:00 - US Marine Who Smuggled Guns To Haiti Wanted To Take Over Country, Become President
US Marine Who Smuggled Guns To Haiti Wanted To Take Over Country, Become President
Authored by John Vibes via TheMindUnleashed.com,
An active-duty U.S. Marine was arrested for attempting to smuggle guns and ammunition into Haiti in order to train soldiers for an apparent military coup in hopes of eventually becoming president.
According to federal prosecutors, Jacques Yves Sebastien Duroseau, a military firearms instructor with the U.S. Marines, admitted to smuggling the guns into Haiti to “teach marksmanship to the Haitian army” to “defeat the thugs” who have destroyed the country.
However, an informant told investigators that his plans for the weapons were far more ambitious, saying Duroseau was going to attempt to take control of the country and become president himself. The informant, who was not identified in court documents, appears to be an accomplice who turned on Duroseau when the pair were caught flying into Haiti last month. Investigators say that the informant was traveling with Duroseau and the weapons at the time of the arrest.
Duroseau reportedly purchased a small number of weapons while stationed at Camp Lejeune in North Carolina, and then attempted to fly them to Haiti on a commercial flight. He even claimed all of the guns and ammunition in his luggage, including five handguns, three military-style rifles, and body armor. This is a very small number of weapons when considering the needs of an army, but Duroseau reportedly told investigators that the shipment was symbolic, and intended to be a sort of publicity stunt.
“I know why I brought [the guns]. It’s still a part of the attention I need,” Duroseau reportedly told federal agents, adding that he planned on getting arrested so he could “gain a platform to make a statement.”
Duroseau and his companion were able to make it through the TSA with the weapons when they left the United States, likely due to their military clothing and credentials, but Haitian officials became suspicious when they landed in Port-au-Prince on November 12.
“That they became suspicious when they saw the three black cases, two of which were long. Most often the cases mean guns are inside,” Haitian officials told the Miami Herald.
After he was caught, Duroseau admitted that he knew it was illegal to ship weapons and body armor to Haiti, but insisted that he only wanted to teach Haitian soldiers how to shoot.
According to the indictment, Duroseau told investigators that he wanted to “wear the uniform of the military that’s been established” and “defeat the thugs that have been creating a little bit of part of the instability in Haiti.”
Tyler Durden
Sun, 12/08/2019 – 20:35 - The FAANMG Capex And R&D Budget Is Rapidly US Government Defense Spending
The FAANMG Capex And R&D Budget Is Rapidly US Government Defense Spending
Authored by Adam Virgadamo, Morgan Stanley equity strategist
Wrapping up our annual gathering this past week, three common themes across regions and sectors stood out. As 2020 unfolds, we’ll have more to say on these topics, but in the meantime, here are the broad outlines of our dialogue.
Disruption: Few themes are as evergreen as identifying disruptors and the disrupted, so it was no surprise that we spent much of our day on the subject. Our ideas around the poster children for disruption – e-commerce and the retail industry – came full circle as our retail teams argued that traditional retailers need to disrupt themselves, innovating in order to reinvent their cost structures. Innovation isn’t just driving down costs, but also transforming the way businesses grow – e.g., using digital technologies to scale up, it’s taken upstart Luckin Coffee just two years to match the store count that Starbucks needed 20 years to build in China. We also discussed the hype around 5G, the opportunities it may bring in an increasingly urbanized and data-centric world, and its limitations in transforming manufacturing processes (where investors may need to wait for 6G). And since no discussion of disruption would be complete without addressing the proliferation of the public cloud, we debated the ultimate size of the addressable market and growing risks that not only tech hardware companies but also software firms could see increased disintermediation from the cloud platforms themselves.
Spheres of influence: The new theme this year was the movement of the US and China away from integration. The idea of diverging spheres of influence – separate universes of economic activity, technological standards and political influence – came up again and again. Intensifying competition for technological leadership, as well as limited market access for companies seen as too closely aligned with one side or the other, will affect fundamentals and multiples. Long term, identifying exposure to these trends will create alpha. For example, we think that China’s buildout of a semiconductor industry is likely to have meaningful implications for US and European players. Whether it’s in big data and AI, payment & networking standards, innovation in biotech, consumer products or social networks, the theme of US-China divergence is bound to be relevant. This new reality also raises the possibility that large global firms may turn their ecosystems into their own spheres of influence, a dynamic that could matter for the FAANMGs (Facebook, Amazon, Apple, Netflix, Microsoft, Google) and BATs (Baidu, Alibaba, Tencent) of the world. Some food for thought on this: the annual capex/R&D budget for FAANMG is rapidly approaching a similar measure for US government defense spending (Exhibit 1).
Environmental, social, and governance (ESG): The ESG theme is also hardly new, but this year saw a sharpening of focus. Investors are increasingly looking to incorporate ESG into their processes, and some of the world’s largest firms are asking how they can better highlight their ESG initiatives. Trends such as the shunning of fast fashion and “flight shaming” came up, but no ESG topic seems to have more mind share than climate change and a carbon price. Autos aren’t exactly an ESG-friendly sector, and the prevailing wisdom is that a price on carbon could potentially devastate the industry, but our autos analyst has a slightly different take. Might a carbon price force innovation in electric vehicle production that kicks off the greatest replacement cycle in history – 1 billion cars x $25,000/car = $25 trillion? We also debated whether the shift of auto firms from internal combustion to electric engines would be enough to qualify the stocks for ESG-minded portfolios. In other words, should ESG investors look at the rate of change in ESG factors? This second derivative discussion highlighted that ESG processes are still evolving and the relative importance of the “E”, the “S” and the “G” differs across industries.
Tyler Durden
Sun, 12/08/2019 – 20:10 - Hedge Fund CIO: "If Biden Somehow Gets The Nomination This Time, Progressives Will Go Berserk"
Hedge Fund CIO: “If Biden Somehow Gets The Nomination This Time, Progressives Will Go Berserk”
Submitted by Eric Peters, CIO of One River Asset Management
Primary:
“First they needed some high-profile endorsements,” said the CIO. “Then they needed to win a couple early primaries,” he continued. “Only then could they raise the big corporate money to fund a campaign.” Few candidates could make it, they’d drop out early, narrowing the field by the end of March. “Now candidates raise money online. And the timeline has accelerated so that 70% of delegates are allocated by March 31, whereas previously it was only 35-40% by then. This will transform the Democratic primary process in ways few people yet understand.”
“If a candidate gets above 15% of the vote in a state primary, they receive their proportional share of that state’s delegates,” explained the same CIO. “In the past, that was fine because the field narrowed early. But we’re likely to see four candidates make it all the way to the convention in July.” Biden, Buttigieg, Warren, Sanders. “It’s highly unlikely anyone will win 50% of the delegates.” So candidates will transfer delegates to the contender of their choice, and that will determine the winner. “This will be America’s first parliamentary-style nomination.”
“We’ll head into the July convention with two voting blocks,” he said. Warren and Bernie (Progressive). Biden and Buttigieg (Moderate). “It will create a lot of uncertainty as to who will prevail, and some people will think this will benefit Trump. But he is an extremely weak candidate.” Trump lost the 2016 popular vote and were it not for 77k voters spread across Philadelphia, Detroit and Milwaukee, he would have lost the Electoral College. “He’s tripling down on a strategy to bring out his base, but there aren’t many ageing, white, rural males left.”
“If 3rd party candidates Jill Stein and Gary Johnson hadn’t run, Hillary would’ve won,” said the CIO. “And that was with the lowest Black voter turnout since John Kerry ran. That low turnout won’t repeat.” And the youth turnout will be massive this election. “What investors largely fail to appreciate is that it is extremely difficult for the Democrats to lose this election. And not only that, but the whole process will be the messiest primary America has seen in at least 70yrs, with the final Democratic candidate likely to be uncertain until the very end.”
“Progressives are still very angry about how Hillary and the DNC treated Bernie in 2016,” he said. “If Biden somehow gets the nomination this time, the Progressives will go berserk. It’ll be the last election that they lose for a very long time.” Trends in the US toward the Progressive agenda are well entrenched, their strength and numbers will continue to rise. “If Trump then wins the general election, the Progressives will go full metal jacket. They’ll go hard left, the Republicans will go hard right, authoritarian. America’s polarization will be complete.”
Tyler Durden
Sun, 12/08/2019 – 19:45 - The Road To Retirement: Millennials Put Their Faith In Bitcoin But Goldman Says Go With Gold
The Road To Retirement: Millennials Put Their Faith In Bitcoin But Goldman Says Go With Gold
“Drop Gold” – the ever-present tagline of Grayscale’s Bitcoin Trust TV commercial – appears to be working its magic on a certain cohort of society.
2019 has seen assets under management in GBTC soar…
Source: Bloomberg
And for Millennials, according to the latest data from Charles Schwab, the Grayscale Bitcoin Trusts is the 5th largest holding in retirement accounts (including 401(k)s) with almost 2% of their assets tied to the success (or failure) of the largest cryptocurrency.
For now this remains a relatively small number…
But, given the increasing acceptance of socialist policies, and the historically-ignorant promise of MMT (and don’t forget UBI), Goldman Sachs suggests that Millennials’ willingness to accept ever-increasing central-planning means gold is the go-to asset to preserve wealth over long-term horizons.
And, at least in the short-term, gold has held its value (relative to Bitcoin) as the world’s volume of negative-yielding assets has shrunk on the latest round of optimism that ‘this time is different’…
Source: Bloomberg
Indeed, Goldman notes that gold looks attractive particularly relative to DM bonds. Both bonds and gold are defensive assets which go up in value when fear spikes. Exhibit 5 shows that investment and central bank demand for gold has been highly correlated with US 10 year real rates.
During the next recession gold may offer better diversification value to bonds because the latter may be capped by the lower bound in rates limiting their ability to appreciate materially. This is particularly relevant for Europe where rates are already close to the lower bound. This means that during the next recession when fear spikes, gold may decouple from rates and outperform them.
Specifically, Goldman says that Gold is a particularly good diversifier for investors with long term investment horizon.
If we look at week on week changes in gold they tend to be dominated by the dollar. As a result the gold S&P500 weekly changes correlation looks almost identical to correlation of S&P 500 and the dollar (see Exhibit 7).
However, if we look at 5 year returns gold and S&P 500 display strong inverse relationship with gold performing great during the 1970ies and 2000s when the S&P 500 underperformed (see Exhibit 8).
This makes sense given that gold is ultimately a hedge against systematic macro risks, which can lead to long periods of equity underperformance. Our strategy team also finds that gold historically has been a good hedge against periods of large drawdowns of the 60/40 portfolio. This was particularly true when a drawdown is caused by accelerating inflation as it was in the 1970ies. Therefore, if one is concerned that the low macro volatility of 2010s will be followed by higher volatility in the 2020s, which would hurt equities, gold would be a good addition to the portfolio.
Geopolitical uncertainty is already translating into greater gold demand. CBs globally have been buying gold at a very strong pace, albeit more recently the rate of CB purchases has cooled off as China and Russia have moderated their buying. Nevertheless, 2019 still looks to be a record year for CB gold purchases with our target of 750 tonnes combined purchases likely to be met (see Exhibit 15).
Rising political risk – together with negative European rates – may be an important reason behind the large share of unaccounted gold investment over the past several years.
Exhibit 17 shows cumulative unexplained gold demand based on World Gold Council (post 2010) and GFMS (pre 2010) balances data. It surged since 2016. Similar dynamics can be seen when we look at implied vaulted gold stocks built in the UK and Switzerland, which is calculated as implied cumulative total net imports minus transparent ETF gold stocks. In fact, since the end of 2016 the implied build in non-transparent gold investment has been much larger than the build in visible gold ETFs. This is consistent with reports that vault demand globally is surging.
Political risks, in our view, help explain this because if an individual is trying to minimize the risks of sanctions or wealth taxes, then buying physical gold bars and storing them in a vault, where it is more difficult for governments to reach them, makes sense. Finally, this build can also reflect hedges by global high net worth individuals against tail economic and political risk scenarios in which they do not want to have any financial entity intermediating their gold positions due to the counterparty credit risk involved.
Finally, Modern Monetary Theory (MMT) – which advocates for central bank financed fiscal deficits – has been gaining more airtime recently, with former Fed Chair Ben Bernanke and former Fed Vice Chair Stanley Fischer offering similar proposals. The logic is that persistent low inflation and lack of borrowing capacity in many developed markets means that direct CB financing of government deficit is warranted. This is especially true for countries where monetary policy is close to the limits of its capacity. Whilst there are arguments to be made in favor of MMT there are also risks associated with it. Notably some economists stress that if not used responsibly it could lead to a material acceleration in inflation.
In the next recession, our US economists do not expect governments to adopt direct monetary financing and expect inflation to remain firmly anchored. But this doesn’t necessarily prevent an increase in debasement concerns if conversations around MMT become more widespread — a potential boost to demand for gold as a debasement hedge. False debasement concerns have led to gold rallies in the past. Post 2008 aggressive QE in the US led to a considerable push into inflation protected assets including gold (see Exhibit 19). These inflationary concerns did not materialise and the allocation to gold and inflation protected bonds fell sharply in 2013. Another period, currently is less talked about, is the Great Depression when the Fed pumped a lot of money into the economy leading to debasement concerns (see Exhibit 20). What followed was actually disinflation and the gold price eventually moderated.
Overall, while Goldman acknowledges the risks related to still high gold positions we believe the strategic case is still strong, particularly for investors with long term horizons.
This is based on a deteriorated attractiveness of long term DM bonds as portfolio diversifiers and real return generation instruments, exposure to growing EM wealth, limited mine supply growth, elevated political risks and a potential increase in debasement concerns sparked by rising airtime of Modern Monetary Theory.
As such Goldman keeps its 3,6 and 12m forecasts at $1,600toz.
So – will Millennials keep saying “bye gold” or come over the ‘dark side’ and “buy gold”?
Tyler Durden
Sun, 12/08/2019 – 19:20 - Bitcoin Halving, Explained
Bitcoin Halving, Explained
Authored by Stephen O’Neal via CoinTelegraph.com,
What is Bitcoin halving?
An event that halves the rate at which new Bitcoins are created. It occurs once every four years.
As many know, Bitcoin’s (BTC) supply is finite. Once 21 million coins are generated, the network will stop producing more. That is one of the main reasons Bitcoin is often referred to as “digital gold” — just like with the yellow metal, there is only a limited amount in the world, and someday, all of it will have been extracted.
image courtesy of CoinTelegraph
Right now, there are around 18 million BTC in circulation, which is roughly 85% of the total cap — but it doesn’t mean that the cryptocurrency is about to reach its limit any time soon. The reason is the protocol, which has been coded into the blockchain from the very start: Every 210,000 blocks, it performs the so-called Bitcoin “halving” or “halvening,” and producing new coins becomes more difficult — just like in gold mining where finding new deposits becomes more challenging over time.
More specifically, the protocol cuts the block reward in half. So, every time a Bitcoin halving occurs, miners begin receiving 50% fewer BTC for verifying transactions.
Ok, but what’s a “block reward”?
In short: the amount of BTC a miner receives for every new block they add to the blockchain.
To explain this concept in more depth, let’s briefly go back to the roots of Bitcoin — the blockchain. In the most basic sense, a blockchain is a digital ledger that stores information about its transactions in blocks that are each around 1 MB in size. For instance, when person A sends Bitcoin to person B, this transaction will be stored on a block, along with around 500 other transactions that happened at around the same time.
A block reward is the amount of cryptocurrency that miners receive when they successfully validate/mine a new block by solving highly complex mathematical problems with their mining hardware. It is a reward for their hard work.
How much Bitcoin will miners receive after the next halving?
Every new block will produce 6.25 BTC. At inception, the reward was eight times as much.
When Bitcoin was launched in 2009, miners were receiving 50 BTC per block. Thus, a total of 10,500,000 BTC was generated before the next halving took place in November 2012, when miners began to receive 25 BTC for each block.
It may seem like an overly generous bonus (more than $365,000 per block, based on current value), but the network was only just starting to develop at the time, and no one knew for certain whether people would continue to find the concept worthy of investing their computer processing power into the Bitcoin blockchain to keep it alive.
Another fact to take into account is that the all-time high market price for that period was $31 per BTC in June 2011, but that “bubble” later burst and Bitcoin was back to $2 before the year’s end. Nevertheless, mining has ultimately turned out to be much more profitable for those who got in early, which is a big part of the reason Bitcoin critics call it a Ponzi scheme.
The second Bitcoin halving occurred on July 6, 2016, as block number 420,000 was produced and miners began collecting 12.5 BTC for every new block, which is the current rate. The third halving will reduce that rate in half yet again, which will lower the block reward to just 6.25 BTC, or around $45,000 given the current market price.
When will the next Bitcoin halving take place?
The week commencing 18 May, 2020, based on current performance, but it might be 14 May.
The date is not 100% certain at this point because the time taken to generate new blocks may speed up or slow down. On average, the network produces one block every ten minutes.
The very last halving is expected to occur some time in the year 2140 as the 21-millionth BTC is mined. Once that happens, miners will stop receiving block rewards, but will keep the remaining source of revenue — fees paid by the transactions, which they also collect.
Will Bitcoin miners still be interested?
Some smaller players might be forced to leave (or at the very least, upgrade their hardware).
At this point, the majority of Bitcoin mining is performed by giants like Bitmain, the China-based company that was worth $12 billion at some point in 2018. Bitmain validates blocks with thousands of loud, extremely powerful and high-energy-consuming machines called application-specific integrated circuit miners, which are much more efficient compared to the basic setups used by students or other individuals.
As the block reward becomes less significant, mining rigs that are barely covering production costs will be forced to quit the market. There will still be firms willing to mine Bitcoin at the reduced rate, but the market might become less decentralized as a result (i.e., the pie will be cut into fewer pieces). Still, new and more efficient ways to mine BTC could emerge, potentially enabling smaller businesses to partake.
Will the Bitcoin price change?
Historically, the price has gone up following a halving, but it ultimately depends on the supply/demand ratio.
Essentially, Bitcoin halving cuts down the supply of BTC, making the asset more scarce. If the demand is there, the price is likely to increase. There are also some historical precedents. On Nov. 28, 2012, the day of Bitcoin’s first halving, the cpryptocurrency’s price rose from $11 to $12, and continued to climb up throughout the next year, reaching $1038 on Nov. 28, 2013.
Roughly four years later, a month before the second halving, Bitcoin’s price started to follow a similar, bullish pattern. It surged from $576 on June 9 to $650 on July 9, 2016 — the day the block’s reward was reduced by half for the second time in the asset’s history. Again, BTC continued to accelerate through the next year, albeit with occasional turbulence, and traded at $2526 on 9 July 2017.
Will it be the same next time? Skeptics believe that the halving has already been priced in (remember this year’s epic, but short-lived systematic price increase?). Although, there is no scientific way to verify this.
Moreover, the industry has drastically changed over the last four years, as cryptocurrencies — and Bitcoin in particular — became an essential part of mainstream news coverage. Still, some people might be tempted to take the chance, especially given the previous patterns exhibited around Bitcoin halvings.
Consequently, if history repeats itself and the Bitcoin price starts going up in April 2020, even more traders might start buying the asset out of a fear of missing out, thus stimulating the demand, and, ultimately, the price.
Tyler Durden
Sun, 12/08/2019 – 18:55 - Convenience Stores Outsmart Amazon With New 'Honor System' Model
Convenience Stores Outsmart Amazon With New ‘Honor System’ Model
It’s a time-tested principle: honesty through paranoia.
After Amazon spent all that time and money developing its cashierless ‘Amazon Go’ convenience store model, where a complex array of sensors and cameras are employed to ensure that customers are charged for their groceries via their Amazon accounts, convenience store chains from Russia to the US have found that allowing customers to pay for their own items at self-checkout counters – a system that relies on customer honesty – is equally as effective.
It sounds like an invitation to steal, but in the race to make shopping as seamless as possible, it makes sense. And many convenience store owners have found that rates of theft are surprisingly low.
“Our answer to Amazon Go is a store based on trust,” said Andrey Krivenko, founder and chief executive officer of Vkusvill, Russia’s fastest-growing grocery chain, which started opening what it calls “micro markets” in Moscow office buildings last year. “People scan everything themselves and, in our already sizable experience, there’s virtually no theft.”
Check out the photo below, taken at a Vkusvill market in Moscow. It’s not quite the Amazon Go walk out with your groceries model, but it’s close. And at a cost of $0.
Some of these markets have come up with truly ingenious psychological tricks to discourage theft.
Across the globe in downtown New York, beverage-maker Iris Nova sells $10 bottles of brands like Dirty Lemon in a small store in the bottom of a building that doesn’t have employees or a cash register. Customers are trusted to use their phones to pay for drinks via text message. The space has visible security cameras, as well as mirrors that may subconsciously push visitors to pay because they don’t want to see themselves stealing—although the company says the mirrors are purely for aesthetics.
Such a setup works because “you want to show yourself you’re a good person,” according to Kelly Goldsmith, an associate professor of marketing at Vanderbilt University’s Owen Graduate School of Management, describing it as “self-signaling.”
The mirror thing has helped the location clock a theft rate below 5%.
The Iris Nova location has a theft rate below 5%, according to founder and CEO Zak Normandin. Many retailers have rates of stealing, or what the industry calls shrink, of about 2%, but they also pay for deterrents like security systems and employees.
“People know it’s not right to take things that aren’t yours,” said Normandin, who plans to open similar stores in Los Angeles, Chicago and Miami. “When you give consumers an easy way to do that, people are going to choose the right thing.”
The trend has led to the rise of ‘micro-markets’.
In Japan, Ezaki Glico Co. has also made a business out of selling on the honor system. The company places snacks such as Pocky and Pretz biscuit sticks in drawers, shelves, and sometimes the office fridge. Those who want to indulge simply drop a coin in a container. Glico says it’s installed more than 100,000 of these units since 2002 and has a 95% recovery rate on payment.
That may not come as a huge surprise in Japan, where social harmony is prized and crime rates are low, but the same phenomenon is playing out elsewhere.
In Moscow, Vkusvill’s micro markets are similar, but customers pay using a credit-card machine after selecting snacks, ready-to-eat meals and from fridges and shelves on the office floor.
Even though it’s hard to imagine that they don’t get robbed blind, customers insist that the convenience factor is fantastic.
“It’s hard to imagine they don’t get robbed blind,” said Nathan Hunt, the head of Ronald A. Chisholm Ltd.’s Moscow office, who has bought food at a Vkusvill micro market in a skyscraper in the capital. “But the convenience factor is great.”
Vkusvill is also developing unmanned shops to roll out to the general public that will involve more technology like facial recognition to increase security, Krivenko said.
Selling based on trust could be hard to expand to general retail environments, said Ilia Filimonov, who runs DC Daily, a cashier-less food service in Moscow that uses sensors and other technology to enforce payment. The idea works best in offices, where employees can easily afford to pay and feel like they’re part of a community.
These stores have a few limiting factors: Fresh goods are a no-no since they’re difficult to maintain without a vigilant eye. But there’s a lot of potential: as facial recognition technology improves (driven, as always, by the Chinese security-state apparatus and its international suppliers) theft rates will likely continue to drop.
Tyler Durden
Sun, 12/08/2019 – 18:30
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