Manipulation In Bitcoin?

Authored by Omid Malekan via Medium.com,

Is the price of Bitcoin manipulated?

<!–[if IE 9]><![endif]–>

That the answer to that question must be yes is one of the few things that most people, from crypto maximalists to blockchain skeptics, agree on. And not just the typical kinds of market irregularities that one expects from a young asset class, but manipulation that has a material impact on price for more than a fleeting second  –  and makes one question the integrity of the whole shebang. Here is famous crypto critic Nouriel Roubini:

As a general rule thumb, any declaration that something is the most [insert adjective] of all time is not very credible. Is crypto really more manipulated than 14th Century Wampum money? or 21st century Venezuelan? (The repeated use of ALL CAPS, by anyone other than a teenage Instagram influencer, is also suspect). Since Mr Roubini is a favorite foil of mine, I’m going to take up the opposite side of this argument, and attempt to show that once the digital asset trading ecosystem is built out a bit more, Bitcoin will be one of the highest integrity assets on the planet, for two reasons: fast-fungibility on a global basis, and the relative lack of insider information.

Here’s something fascinating: Bitcoin might be the first investable asset that you can quickly buy or sell the same distinct unit of almost anywhere. This ability doesn’t exist for assets like stocks or bonds, which often trade in a few (if not just one) siloed markets. Even things that seem to trade globally, like gold or fiat currency, are not easily fungible from one market to the next. You can buy dollars in New York and immediately sell dollars in Hong Kong, but not the same exact ones. With Bitcoin however you can buy or sell the same coin across the globe as quickly as the next few block confirmations.

Couple that unique feature with the growing list of global markets where BTC trades against different kinds of fiat money as well as other cryptocoins, not to mention the rapidly growing crypto derivative market. What you end up with is a market infrastructure that can absorb almost any localized attempt at price manipulation, because a pump and dump scheme in any jurisdiction is nothing more than an arbitrage opportunity at hundreds more, facilitated by the ease with which the asset can be moved on chain.

A skeptic might hear this argument and say “yeah but what if someone tries to buy lots of Bitcoin everywhere to manipulate the price?” To which I respond: “welcome to the year 2019.” In case you missed it, Central Banks all over the world have printed over $10T for the stated purpose of manipulating financial markets. The hypothetical manipulation scenario that has so many people in a tizzy about Bitcoin is actually true for almost everything else. There is a double standard against crypto, on account of its newness and the challenge it poses to traditional power structures. Every central bank out to peg its currency, or every public company buying back its own shares is practicing a form of manipulation, yet nary a tweet from Nouriel.

Which brings me to my second point. Markets that lack integrity are often ripe with insider abuse. Trading on material insider information has been the scourge of financial regulators for almost a century. Although most governments dedicate massive resources to fighting it — and Martha Stewart went to jail for it (while Bobby Axelrod, nee Stevie Cohen, did not) seldom is a major corporate event not accompanied by suspicious trading activity. Bitcoin has no insider trading, because there is no insider information.

Its decentralized governance and fixed production schedule mean that there is literally nothing to know. With stocks and bonds, every corporate action or earnings report is an opportunity for wrongdoing. Even commodity markets have some asymmetric information, because advance knowledge of a pipeline problem or cartel production cut provide an unfair edge. Bitcoin on the other hand produces 12.5 new coins every ten minutes or so, come hell or high volatility.

The only possibility of asymmetric information in Bitcoin is knowing the plans of a major investor, like Satoshi deciding to sell his coins, but that kind of asymmetry exists in every market. What doesn’t exist in any other market however is a transparent ledger that shows asset movements before the sale. The transparency of the Bitcoin blockchain gives us something akin to the opposite of material insider information.

I’ve made variations of these two arguments to some of the smartest people out there, including die hard believers in crypto, and the response I usually get is “yeah, but…” Most people seem to want to believe the manipulation angle, then go looking for a reason why. This knee-jerk tendency is why we as a community tolerate nonsensical academic research like this or government reports like this. If people regularly buying an asset whenever it’s down proves market manipulation — as argued by the UT researchers — then the historic “Buy The F’ing Dip” fueled equity rally of the past decade is also a scam. If the presence of trading Bots at popular exchanges proves shady behavior, all electronic trading is damned.

None of this means that there aren’t pump and dump schemes with illiquid shitcoins or that shady exchanges don’t allow wash trading. But given the factors discussed above, none of that has a material long-term impact on price. So why do so many insist on believing the manipulation angle? Probably because of the extreme volatility.

Fortunately, there is a much simpler explanation as to why crypto prices fluctuate so much, and it has to do with the most symmetric piece of info that there is: At the end of the day, nobody knows what a Bitcoin is worth, so the market jumps around violently in a self-reinforcing fashion to process the latest news flow or change in sentiment. As the old saying goes, let us not attribute to malice that which is adequately described by ignorance.

Boeing 737 Max Mishap Could Be Boon For Made-In-China Planes 

The Ethiopian Airlines crash of a Boeing 737 MAX may have given Chinese President Xi Jinping enough leverage to start transforming his country into an aerospace superpower.

The wave of global airline carriers canceling 737 MAX orders has begun. Indonesia’s Garuda Indonesia said Thursday it would cancel its order for 49 Boeing 737 MAX jets. This has provided state-owned Commercial Aircraft Corp. of China, or Comac, the ability to seize market share with its C919, a narrowbody passenger plane with a seating capacity of 170.

<!–[if IE 9]><![endif]–>

The Chinese plane directly competes with the MAX, as well as the Airbus A320neo, and as part of President Xi’s ambitious ‘Made in China 2025’ plan, the country is betting that it can penetrate the commercial airline business mostly controlled by Western aerospace companies.

<!–[if IE 9]><![endif]–>

On Sunday, China quickly grounded all MAX planes within hours of the Ethiopian Airlines crash. “These kinds of events provide an opportunity for Comac to get their foot in the door,” says Chad Ohlandt, a senior engineer at Rand Corp. in Washington. “If they’re smart, they’re going knocking on doors of whatever ten airlines are considering buying narrowbody aircraft.”

Comac started test flights of the C919 in 2017, has received 815 orders from 28 customers. This number could grow as airline carriers across the world are losing trust in Boeing products. The company said in November that China’s aviation market would take delivery of 9,000 planes, worth $1.3 trillion, over the next several decades. Two-thirds of those will be single-aisle planes similar to the Boeing 737.

“Strategically speaking, aviation manufacturing is a national imperative,” says Yu Zhanfu, a partner at Roland Berger Strategy Consultants in Beijing who focuses on aerospace and defense. “Once you have aviation manufacturing reaching economies of scale, it will lift the entire industrial chain.”

Bloomberg notes that not all skies are clear for Comac. Chinese planes don’t have an extensive safety track record of American planes. More important, there are no Chinese companies that can design and manufacture jet engines for commercial use, says Yong Teng, a partner with L.E.K. Consulting in Shanghai. The C919’s engines are made by CFM International, a joint venture between GE Aviation and Safran Aircraft Engines.

It’s evident that the Chinese lack the technology that goes into jet making. The U.S. Department of Justice charged two Chinese nationals in October for attempting to steal information on commercial aircraft engines. The Chinese government dismissed the charges.

Nicholas Eftimiades, a lecturer in the School of Public Affairs at Pennsylvania State University in Harrisburg, said, “Aerospace technology is the No. 1 target for China espionage.”

And according to a new Bank of America report Thursday, a software fix for the MAX could take three to six months. Just enough time for China to market its commercial jets to global airliner carriers who are canceling MAX orders left and right. China is not stupid – they will seize the moment.

The Easy Money In European Natural Gas Is Gone

Authored by Tsvetana Paraskova via Oilprice.com,

At the end of last winter’s heating season, it was an unusually cold spell that upended European natural gas markets, with storage levels falling below average and prices firming up as demand shot up.

<!–[if IE 9]><![endif]–>

At the end of this winter’s heating season, it is the unusually mild weather in most of Western Europe for most of the winter that has driven natural gas prices down and left supplies higher than the seasonal average.

<!–[if IE 9]><![endif]–>

The summer gas futures at the Dutch TTF hub have declined by 16 percent so far this year and have been trading lately around the lowest in 10 months. The winter gas futures contract, however, has dropped by just one third of the decline in the summer contract, according to data from ICE Endex compiled by Bloomberg.  

<!–[if IE 9]><![endif]–>

So the discount of the Dutch summer natural gas futures to the winter contract widened to the biggest since 2011 as of early March. Typically, such a wide spread would mean that one of the most common European gas trades—buying cheaper gas futures in the summer to sell in the winter—would be the most profitable in eight years.

However, traders are unable to take full advantage of the wide winter-summer spread because several factors have combined this winter season to create a perfect storm in the European natural gas markets. These factors are higher stockpiles than usual, limited available storage capacity as most of it is booked out amid declining overall capacity, and increased liquefied natural gas (LNG) shipments to Europe as Asian LNG spot prices continue to tumble.

First, unlike last year’s winter, this winter has been unusually mild in many parts in Western Europe. This has led to lower natural gas demand and lower withdrawal from storage—a stark contrast compared to the 2018 winter.

The cold spell in Europe at the end of February and early March of 2018 led to record withdrawals in the first quarter of 2018, and storage levels dropped to 18 percent of capacity—well below the five-year range—the European Commission (EC) said in its Q1 Quarterly Reporton European gas markets. By the end of the winter season, natural gas stock levels dropped below 10 percent of capacity in countries such as Belgium, France, and the Netherlands, where high gas demand from the UK contributed to strong withdrawals.

Before the 2019 winter season began, the European market was tight amid higher demand in the summer’s heat wave, while natural gas stockpiles were still lower than usual after the winter of 2018, one of the coldest winters in the past decade. 

Natural gas prices in the UK surged to the highest for a summer season, with Europe’s natural gas market the most bullish in years, as higher-than-expected summer demand and a tighter market drove natural gas price futures to levels last seen during the winter’s supply crunch.

But the 2019 winter has been quite a different story. The UK, for example, registered its warmest February on record, with daily maximum temperatures the highest on record dating back to 1910, according to the UK’s Met Office.

Due to the warmer winter, natural gas stockpiles across Europe are now higher than the typical levels for this time of the year. What’s left of the storage capacity is nearly “sold out”, according to analysts who spoke to Bloomberg.

“We are going into this summer with full storage, among the highest in years,” Wayne Bryan, a trader and analyst at Alfa Energy in London, told Bloomberg, noting that he wasn’t buying anything at the moment.

In addition, Europe’s total storage capacity has declined by more than 4 percent since 2016, according to data from gas industry trade association Gas Infrastructure Europe, cited by Bloomberg.

<!–[if IE 9]><![endif]–>

As a result, higher-than-usual gas stocks in European storage and almost fully booked storage space have been preventing natural gas traders from profiting from the most profitable price differential between winter and summer gas futures contracts in years.

Rothschilds To Take Swiss Bank Private In 100 Million Francs Bid 

Benjamin de Rothschild’s family plans to take Swiss Bank Edmond de Rothschild (Suisse) S.A. private as it consolidates and simplifies the bank’s legal structure.

<!–[if IE 9]><![endif]–>

According to Bloomberg,  Edmond de Rothschild Holding SA will acquire all publicly held Edmond de Rothschild (Suisse) bearer shares at 17,945 francs per share, a 6.7% premium to Tuesday’s closing price, in a deal worth about $100 million. The Swiss bank, which has long been linked with managing the wealth of countless uber-wealthy families, offers a variety of wealth management service for private and institutional clients, is expected to be delisted from the Zurich exchange. The stock, which traded on Wednesday around 17,500 francs, jumped by more than 8% to 17,800 before trimming gains to trade up 6.7%.

<!–[if IE 9]><![endif]–>

“My role has been to simplify the group’s structure, which was very complicated and lacked transparency, and to ensure the group’s longevity and stability,” Ariane de Rothschild, president of the group’s executive committee, said in an interview at the bank’s headquarters in Geneva. “I am passing the torch on to Vincent and to the teams with full confidence. The group has been cleaned up and is in working order now.”

<!–[if IE 9]><![endif]–>

Founded in the early 1950s, the Edmond de Rothschild Group has 170 billion francs in assets under management and 1.1 billion francs in revenue. The Edmond de Rothschild (Suisse) banking unit had client assets of 128 billion francs at the end of 2018, down 7% from the prior year. It saw an outflow of 2.5 billion francs in assets under management last year.

The buyout offers closure to a dispute among the Rothschild family over the use of the banking dynasty’s historic family name.

The deal involves liquidating cross-holdings and buying back shares in a transaction worth 100 million francs to give complete control of the bank to the family.

By taking it private, “we are demonstrating our commitment to our banking group and our ambitions for growth, both organic and through acquisitions,” Benjamin de Rothschild, chairman of Edmond de Rothschild Holding’s board of directors, said in the statement.

Exclusive: U.S. aims to cut Iran oil exports to under 1 million bpd from May – sources

March 13, 2019

By Humeyra Pamuk

WASHINGTON (Reuters) – The United States aims to cut Iran’s crude exports by about 20 percent to below 1 million barrels per day (bpd) from May by requiring importing countries to reduce purchases to avoid U.S. sanctions, two sources familiar with the matter told Reuters.

U.S. President Donald Trump eventually aims to halt Iranian oil exports and thereby choke off Tehran’s main source of revenue. Washington is pressuring Iran to curtail its nuclear program and stop backing militant proxies across the Middle East.

The United States will likely renew waivers to sanctions for most countries buying Iranian crude, including the biggest buyers China and India, in exchange for pledges to cut combined imports to below 1 million bpd. That would be around 250,000 bpd below Iran’s current exports of 1.25 million bpd.

“The goal right now is to reduce Iranian oil exports to under 1 million barrels per day,” one of the sources said, adding the Trump administration was concerned that pressing for a complete shutdown of Iran’s oil in the short-term would trigger a global oil price spike.

Washington may also deny waivers to some countries that have not bought Iranian crude recently, the sources said.

The U.S. reimposed sanctions in November after pulling out of a 2015 nuclear accord between Iran and six world powers. Those sanctions have already halved Iranian oil exports.

To give time to importers to find alternatives and prevent a jump in oil prices, the U.S. granted Iran’s main oil buyers waivers to sanctions on the condition they buy less in the future. The waivers are due for renewal every six months.

“Zeroing out could prove difficult” one of the sources said, adding a price of around $65 a barrel for international benchmark Brent crude was “the high end of Trump’s crude price comfort zone.”

Brent crude settled at $67.55 a barrel on Wednesday.

Both sources said they were briefed by the Trump administration on the matter but were not authorized to speak publicly about it and asked for anonymity.

While the latest talks on waivers aimed for a reduction in exports, the sources said the administration remained committed to a complete halt in the future.

Brian Hook, the State Department’s special representative on Iran, also said in remarks at an industry conference in Houston on Wednesday that Washington is pursuing its plan to bring Iranian crude exports to zero.

Trump “has made it very clear that we need to have a campaign of maximum economic pressure” on Iran, Hook said, “but he also doesn’t want to shock oil markets.”

A State Department energy bureau spokesperson declined to comment on new volume targets for importers, but said U.S. officials were constantly assessing global oil markets to determine the way forward with Iran sanctions waivers.

“On the numbers part, we’ll get an updated assessment as we get closer to the end of the 180 day period,” of the first round of waivers that ends in May, the spokesperson said.

FEWER WAIVERS, LESS OIL

Washington in November provided waivers to eight economies that had reduced their purchases of Iranian oil, allowing them to continue buying it without incurring sanctions for six more months. They were China and India, along with Japan, South Korea, Taiwan, Turkey, Italy and Greece.

All eight are in bilateral talks about the waivers, sources said.

The administration is considering denying extension requests made by Italy, Greece and Taiwan – in part because they have not made full use of their waivers so far, one of the sources said.

Greece and Italy were not buying any Iranian oil, Iran’s oil minister Bijan Zanganeh was quoted as saying in February.

It is unclear whether the administration will be able to convince China, India and Turkey – all of whom depend heavily on Iranian oil and have criticized the U.S. sanctions on Iran – to reduce imports.

“India, China and Turkey – the three tough cases – will continue to negotiate with the administration and are likely to keep their waivers,” one of the sources said.

Washington is pressuring allies Japan and South Korea to reduce purchases of Iranian crude, the source said.

The administration would likely struggle to cut Iran’s exports much below 1 million bpd due mainly to strong demand from China, India and Turkey, said Amos Hochstein, who was in charge of Iran sanctions as the top U.S. energy diplomat under former President Barack Obama.

“Looking at the market right now it seems reasonable that Iranian exports will remain at the 800,000 to 1.1 million bpd average,” said Hochstein, who talks with energy ministers from big oil consumers.

He said he expects China and India purchases alone to account for around 800,000 to 900,000 bpd.

(Reporting by Humeyra Pamuk; Additional reporting by Timothy Gardner; Editing by Richard Valdmanis, Simon Webb and Chris Reese)

Cooler Screens’ display cases scan your face to size up buying habits

Source:

Wherever you look these days, something’s looking back at you. There are video cameras on street corners and on car dashboards and on our own front doors.

And so a Chicago company called Cooler Screens figures you won’t mind if they put cameras into the refrigerated display cases in retail stores. The cameras aren’t there to prevent you from stealing soda pop. Instead, they’re part of a facial-profiling system that tries to guess what you’ll buy next, based on how you look.

The doors on a Cooler Screens refrigerator are LCD video screens that display images of the items inside the case, so a customer can see what’s available. The screens also show animated ads, like the ones that pop up on a Web browser. They decide which ads to show by studying video images of the customers.

A camera feeds images of each customer into a computer that guesstimates his or her sex and age. In addition, the system uses an iris tracker to detect exactly where the customer is looking. Do the eyes come to rest on a bottle of Mountain Dew, or does the shopper instead fancy a Diet Snapple?

The Cooler Screens system instantly analyzes all of this data, then starts displaying ads on the cooler door. A middle-age woman might see a suggestion that she pick up a pint of Ben & Jerry’s ice cream to go with her Diet Coke; a twentysomething male could be enticed with a discount on frozen pizza.

Cooler Screens did not reply to multiple phone calls and mail messages. But the drugstore titan Walgreens confirmed that it’s testing the company’s coolers in six stores scattered around the United States. Boston didn’t make the cut, and that’s fine with me.

I don’t mind fridges that show ads. A Cambridge company called Aerva already has about 500 video beer coolers installed around the country, in a deal with the brewing giant Anheuser-Busch. Maybe you’ve seen one, with its front door hosting a commercial for Bud Light or a video of a Boston sports team.

Aerva ads are like the commercials on broadcast TV. They’re generic, aimed at everybody in the store. Cooler Screens is making it personal.

It’s a way for brick-and-mortar retailers to engage in the same kind of targeted marketing that’s generating billions of dollars for companies like Facebook and Google. But with Facebook and Google, you make the choice to log on, knowing full well they’re tracking you.

Users don’t log onto Cooler Screens; they just show up. The system looks them over and decides what sort of person they are, and what they might want to buy. It’s clever, but also more than a little creepy.

The Cool Screens website states that the company’s software judges people based on age and sex. Happily, there’s nothing about ethnic or racial profiling. But there’s ample room for other forms of bias. If all you know about someone is age and sex, you’ll probably fall back on some pretty crude stereotypes. Maybe that particular sixtyish-looking woman would rather chug 40 ounces of malt liquor than a pint of iced tea.

For that matter, could the computer even be certain about sex? Kade Crockford, director of the Technology for Liberty program at the American Civil Liberties Union of Massachusetts, identifies as non-binary. “What is the machine going to tell me — that I’m a woman or a man?” she mused.

But Crockford is more troubled by the precedent the new system will set.

“I do not want to live in a world where every place I go my face, my voice, my iris, my body — everything about me — is being catalogued,” she said.

Not exactly catalogued. Cooler Screens insists it does not store any of the captured video data. Neither does it use facial-identification software to figure out who you are. But Crockford worries that if consumers tolerate this level of face-scanning, retailers will try to introduce even more intrusive features, sooner or later.

For instance, Target tested a system last summer that compares shoppers’ faces with photographs of known shoplifters.

If you’re a law-abiding citizen, this might not bother you. But if similar systems turn up in every retail store, companies will be tempted to use them for more than security.

For instance, they might teach them to recognize regular customers, track their movements through the store, maybe even install shelf-mounted video displays that would tempt them with special offers.

The retailers would no doubt promise never to abuse this data. But there’s always the risk that it may be stolen by criminals who aren’t as ethical, like the ones who swiped data on half a billion guests of the Marriott hotel chain.

Paranoid? Perhaps. But why take the risk?

We sacrifice much of our privacy to Facebook and Google, but these companies give us a lot in return: excellent Internet search, superb e-mail, and a chance to socialize with friends around the world.

But what do consumers get from letting themselves be eyeballed by a digital icebox? Just an opportunity to look at slightly more appealing ads.

I’ll pass. If Cooler Screens turns up in Boston, I’ll make it a point to buy my soda pop someplace else.

Here’s The Problem: The Pie Is Shrinking

Scrape away the churn and distraction and the problem is simple: the pie of prosperity is shrinking, and the “fixes” are failing. The status quo arrangement is based on the endless expansion of “growth” and debt, which is the monetary fuel of more, more, more of everything: money, energy, resources, goods, services, jobs, wealth and income, all of which make up the elixir of prosperity.

Prosperity is shorthand for a positive return on investment (ROI), a.k.a. primary surplus. Prosperity is the result of there being a surplus which can be distributed after capital, resources and labor are put to work.

The higher the return on investment, the more surplus there is to distribute.When the surplus is bountiful, there’s enough to go around for everyone to feel that life is getting better.

But all systems eventually track an S-Curve of rapid growth, maturation and depletion/decline, and surpluses diminish: the pie stops expanding and starts shrinking. There’s less to go around, and suddenly the political squabbling intensifies as every elite and every constituency seeks to preserve their slice of the pie at the expense of others.

This means shifting the losses of purchasing power and prosperity onto others without appearing to do so. Openly ripping a slice from the grasping hands of another elite or constituency will launch a protracted political battle, as every group will fight to the death to keep its share untouched.

By far the best ways to shift the losses to others are 1) inflation (reducing the purchasing power of their income) and 2) creating phantom wealth that can be used to buy up all the income-producing assets. Unsurprisingly, this is precisely what we see happening globally.

Even as inflation eats away at the purchasing power of wages, the governments of the world carefully mask this reality behind bogus statistics of near-zero inflation. While real-world inflation is between 7% and 10% in category after category, official inflation is logged at 2% or less.

Wage earners are getting less for their money, and thus their prosperity is diminishing. This reality is further masked by bogus GDP statistics that are deployed as “proof” the pie is still expanding, when in fact only the slices of the few are still expanding at the expense of the many.

Meanwhile, the elites benefiting from financialization and leverage are reaping the immense rewards of inflating phantom wealth via credit/asset bubbles.Since the return on investment economy-wide is stagnating, the trick here is to create money out of thin air and use that money to buy up income-producing assets. This inflates asset bubbles which further expand the financial elites’ phantom wealth and allows them to keep buying more income streams.

The trickery of creating phantom wealth enables the elites to increase their income and wealth well ahead of what’s lost to inflation.

Creating money out of thin air doesn’t actually increase surplus or prosperity, it just shifts the losses to non-elites. Wealth and unearned income are concentrated in the hands of the financial elites, and the bottom 95% of those with earned income are slowly boiled frogs, only dimly aware that the purchasing power of their wages is declining but at a pace just leisurely enough to avoid triggering a political rebellion.

Depending on expanding debt to fuel expanding prosperity has this funny feature called interest: since earned income is stagnating or declining when adjusted for real-world inflation for the bottom 95%, interest payments reduce disposable income–every dollar devoted to paying interest on rising debt is a dollar that can’t be spent or invested.

You see the irony: depending on expanding debt for “growth” eventually chokes future borrowing, spending and investing, causing “growth” to collapse in a broken heap. Without more debt, “growth” is not possible in a world of stagnant earned income and credit-asset bubbles.

Central banks have played a game of reducing interest as a means of enabling debt to expand even as the purchasing power of earned income declines, but the game ends at zero. At some point borrowers can’t even afford to make payments of principal, and then default becomes inevitable.

At that point, the only way to enable debt-serfs to service their debts is to give them free money, i.e. Universal Basic Income (UBI). Don’t kid yourself that the proponents of UBI are wunnerful folks just trying to be generous; the only purpose of UBI is to enable debt-serfs to keep servicing their debts and stave off the day of reckoning when the debt bubble bursts and everyone wakes up to the reality that prosperity stopped expanding long ago.

 

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Bianco: The Fed Has Given MMT Proponents Ample Ammunition

Authored by Jim Bianco, op-ed via Bloomberg.com,

The idea that the government can print money to spark the economy is not that much different than quantitative easing – with one big exception

<!–[if IE 9]><![endif]–>

Modern Monetary Theory is a poorly conceived idea that might get its day in the sun. Thank – or blame – the Federal Reserve and its “extraordinary measures” monetary policy for laying the groundwork.

MMT can trace it origins back over 100 years, but it has gained renewed popularity in recent months as thanks to freshman Democratic Congresswoman Alexandria Ocasio-Cortez and economist Stephanie Kelton. In a nutshell, MMT is anchored on the belief that budget deficits don’t really matter. In other words, if a government or central bank is borrowing money in its own fiat currency, meaning a currency backed by nothing but the government’s good word, then it can “print” any amount necessary to cover its debts. As such, a government should create money to fund increased spending.

If this sounds familiar, it should.

MMT is basically a sibling of quantitative easing. While QE allowed the Fed to print money to buy securities such as U.S. Treasuries, mortgage bonds and bad loans, MMT proposes printing money to fund the government. The Fed has hailed QE as a success, bringing the economy back from the brink. Former Fed Chairman Ben S. Bernanke was even anointed as Time magazine’s “Person of the Year” for 2009. Vice Chairman Richard Clarida said last month the central bank would solicit opinions on how to round off the edges of its new tools such as QE. Simply put, these tools are here to stay.

Do not assume this means the Fed would support the ideals of MMT.

“The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” Chairman Jerome Powell said during his recent testimony before Congress.

We share Powell’s concerns, as do Kenneth Rogoff and Larry Summers. Devaluing one’s currency as a means of funding government spending has never worked when carried out to an extreme. Venezuela, Zimbabwe and the German Weimar Republic can attest to the hyperinflation that eventually follows. That said, QE proved that with proper balance money printing can work in the short term.

By declaring QE a success, the Fed added further ammunition for proponents of MMT. After all, if QE worked for the economy and markets, why wouldn’t MMT work in funding the entire government? Plus, former Fed Chair Janet Yellen said unwinding QE would be like “watching paint dry.” Also, by recently hinting that the unwinding of QE may end later this year, the Fed is suggesting its balance sheet can remain in the $3 trillion range without posing a lingering threat of inflation.

Some would argue that Bernanke has already laid out the framework for how MMT could work. Bernanke traveled to Tokyo in July 2016 and suggested a way to stimulate the Japanese economy. He said the Ministry of Finance, Japan’s equivalent to the U.S. Treasury Department, should issue non-marketable perpetual bonds with a zero-coupon that the Bank of Japan would buy with printed money. The Japanese government could then use the funds from these bond sales to stimulate the economy.

A perpetual zero-coupon bond means the principal never has to be repaid and no interest payment is ever due. Everyone should be familiar with this structure, because it is the same as the currency in your wallet. Cash never matures and you do not have to pay interest for holding it. Bernanke described the printing of money for the purposes of funding government spending, much like MMT.
If the Fed were to try to set QE apart from MMT, it might state that security purchases are different from government spending. The problem here is that it sounds like a moral argument, not an economic one. That is, some things are worth buying with printed money, such as securities, but other things are not, such as Medicare for all.

Recall the Fed failed when it tried to make a similar moral argument 10 years ago that QE was not just a bailout of wealthy bankers, but of the broad economy. Instead of garnering praise, it was rejected. QE and the bailouts spawned the Tea Party movement (which blamed the government), Occupy Wall Street (which blamed Wall Street), populist voting patterns and the surge of the Democratic Socialists of America.

The $64 Trillion Question: With Foreigners Stepping Aside, Who Will Buy U.S Treasuries?

During its latest, quarterly meeting, the Treasury Borrowing Advisory Committee (aka the TBAC, which many years ago we dubbed the Supercommittee That Really Runs America, an assessment which 8 years later Bloomberg now generally agrees with), released minutes of its Jan. 29 meeting held at the Hay-Adams Hotel in conjunction with the U.S. government’s quarterly refunding announcement.

While there were many topics of discussion (discussed previously here), the TBAC highlighted two key areas of concern: i) the soaring US budget deficit, and specifically the possibility of significant financing gap over next 10 years amounting to over $12 trillion and the potential need for more domestic investor participation if foreign reserve growth slows; and tied to that ii) the worry that since “foreign investors already hold significant dollar debt“, and have been paring back substantially on their Treasury purchases in recent years, the US will have to increasingly rely on domestic savings to fund its future budget deficits.

Of particular note, the TBAC said, tongue in cheek, that while the “USD is still the dominant reserve currency“, reserve managers have been very gradually increasing allocation to other currencies, and that the USD share of FX reserves has steadily come down from 72% in 2000 to 62% now. It also pointed out that other countries with significant debt issuance needs (as a share of GDP) depend far more on domestic savings. As a result, “the Treasury should plan to meet financing needs more domestically than in the recent past.”

<!–[if IE 9]><![endif]–>

Which brings up a key question: who is buying US Treasurys, and who will be buying US Treasurys for the foreseeable future.

To address just this question, on Friday Deutsche Bank’s team of economists and credit strategists led by Peter Hooper, Brett Ryan and Torsten Slok among other, published a presentation titled “Who is buying Treasuries, Mortgages, Credit and Munis” which seeks to address just the concern framed by the TBAC, and which will soon emerge as the most critical one for the US Treasury market (the biggest in the world), especially if public support for MMT (i.e. helicopter money to finance unlimited political promises) gains social traction.

Below we excerpt some of the key charts from the presentation starting with the most obvious: foreign appetite for IG, HY and loans is rolling over.

<!–[if IE 9]><![endif]–>

This is a growing problem just as the share of Treasuries as a share of total US debt outstanding is at an all time high…

<!–[if IE 9]><![endif]–>

… and the total stock of US fixed income is now an all time high of $41 trillion…

<!–[if IE 9]><![endif]–>

… of which the total stock of Treasuries is now the highest on record and rising, with corporate debt (both financial and non-financial) and MBS debt in 2nd and 3rd spot.

<!–[if IE 9]><![endif]–>

Don’t expect this dramatic increase in Treasuries to slow down any time soon. In fact, the explosion in US Treasury supply, much of which was needed to fund Trump’s tax cuts and the Fed balance sheet rundown (which may be ending as soon as September) will crowd out investment in equities and corporate debt, both IG and HY.

<!–[if IE 9]><![endif]–>

Yet despite – or rather permitting this surge in debt, is the fact that long-rate volatility has tumbled below pre-taper tantrum levels despite rising uncertainty about the US and global slowdown, Brexit and the ongoing trade war. In fact, as we discussed recently, Treasury volatility recently dropped to an all time low.

<!–[if IE 9]><![endif]–>

Which brings us to arguably the key chart which highlights the TBAC’s main concern: whereas the US budget used be financed by foreigners, it is now financed almost entirely by domestic investors, as some of the largest US creditors such as China are quietly exiting stage left.

<!–[if IE 9]><![endif]–>

Meanwhile, as foreigners refuse to buy up any more US paper, in addition to the Fed rolloff, the relative share of Treasuries held by the Fed is declining, mainly due to the exploding Treasury supply.

<!–[if IE 9]><![endif]–>

And with the Fed selling alongside foreign investors, domestic sources of funds such as real money, banks and households (which is a plug in the Fed’s Flow of Funds report), have no choice but to buy Treasuries.

<!–[if IE 9]><![endif]–>

To be sure, there is one other persistent buyer – at least until the Fed returns with QE4 some time in the next 12 months – banks, which have been bidding up Treasuries and mortgages to the tune of $800 billion, as these serve as high quality liquid assets for regulatory purposes, and thus are effectively forced upon banks to buy.

<!–[if IE 9]><![endif]–>

And of course, there are the primary dealers, who after having taken down their net holdings almost to zero several years ago, have seen their total exposure surge, and as recently as 1 month ago hit an all time high, perhaps because they had no choice as foreign buyers would chronically step back during key auctions.

<!–[if IE 9]><![endif]–>

Here an interesting tangent: while US government debt is held mostly between domestic non-bank holders and foreign entities, who owns the rest of the world’s debt? Here is the visual answer courtesy of Deutsche Bank.

<!–[if IE 9]><![endif]–>

With that in mind, here is a look at what the biggest US foreign creditor, China, has been doing in recent years. What is notable is that after declining by $1 trillion from its all time high in 2014, China’s foreign reserves have stabilized around $3 trillion for the past three years.

<!–[if IE 9]><![endif]–>

Despite that, Chinese gross buying of US assets has been declining in the past 4 years.

<!–[if IE 9]><![endif]–>

And while Chinese Treasury holdings have been declining according to TIC data, the Fed’s own account of custody holdings held at the central bank by foreign central banks has been increasing recently.

<!–[if IE 9]><![endif]–>

Yet while China may be sending conflicting signals, one thing is clear: foreign central banks have been dumping US Treasuries, selling on a 12 month rolling basis for the past 4 years, even as the private foreign sector has been buying.

<!–[if IE 9]><![endif]–>

Next, looking at the Treasury issuance market reveals that while foreign participation for 10 and 30Y auctions have been relatively stable…

<!–[if IE 9]><![endif]–>

… the bid to cover ratios for both 2 and 10Y auctions have been declining steadily for the past 7 years.

<!–[if IE 9]><![endif]–>

Yet sending a somewhat conflicting message, the Indirect – or foreign central bank – bid for 2s and 10s has gone largely nowhere in recent years.

<!–[if IE 9]><![endif]–>

The message gets even more confusing when looking at the distribution of takedowns between Dealers, Indirects and Direct bidders, as the Indirect trend is clearly increasing.

<!–[if IE 9]><![endif]–>

Here another tangent: why is the question of who is buying (and will buy) US Treasuries so important? Because, simply said, it is the largest fixed income market in the world (and why the Euro will have a very tough time if it ever hopes to become the reserve currency).

<!–[if IE 9]><![endif]–>

So once again going back to “who is buying Treasurys”, one notable observation is that various buyers have different motivations and price sensitivies, which is why the blanket response that if you just push yields high enough and the buyers will come, is dangerously inadequate.

<!–[if IE 9]><![endif]–>

And while mutual funds and households have clearly increased their holdings of Treasuries in the past decade…

<!–[if IE 9]><![endif]–>

… there has been a sharp drop in foreign appetite for US treasuries.

<!–[if IE 9]><![endif]–>

It’s not just coupon paper, but Bills as well:

<!–[if IE 9]><![endif]–>

And with foreigners, and especially China trimming their purchases, if not outright treasury holdings, DB notes that a global rebalancing will be needed, one in which China will need far more domestic consumption (funded by outside capital), while the US will need less imports (alas the US just reported a record high trade deficit). Needless to say, this process will take many, many years and it won’t come without some notable market volatility.

<!–[if IE 9]><![endif]–>

So with that in mind, what is the outlook? First, it is worth noting that if one relies on GDP as an indicator of treasury fair value, then the 10Y is indeed fairly valued right about now.

<!–[if IE 9]><![endif]–>

The question is whether these low rates will be sufficient to elicit continued demand for US paper in the future, especially since the total amount of US Treasuries held by the public has exploded more than three fold in just the past decade.

<!–[if IE 9]><![endif]–>

Meanwhile, treasury issuance is coming back as an ever greater share of total fixed income issuance.

<!–[if IE 9]><![endif]–>

And there it is: a long-form answer to a simple question – who is buying US Treasuries, even if the far more important answer of whether they will keep on buying these Treasuries, has yet to be answered.

So while there are no definitive answer to the very concerning questions brought up by the TBAC, keep a close eye on future TBAC presentations and especially any future reference by this all-important committee made up of the most important banks and hedge funds in the US…

<!–[if IE 9]><![endif]–>

… which appears to be increasingly concerned not only about how the US will fund its exploding debt deficits but also about the reserve currency status of the US Dollar.

Venezuela enters fourth day of blackout as Maduro blames U.S. cyberattack

 

Source: Mayela Armas and Deisy Buitrago

CARACAS, March 10 (Reuters) – Venezuelans woke up to a fourth day of an unprecedented nationwide blackout on Sunday, leaving residents concerned about the impacts of the lack of electricity on the South American country’s health, communications and transport systems.

Socialist President Nicolas Maduro – who is facing a challenge to his rule by the leader of the opposition-led congress, Juan Guaido – has blamed the blackout on an act of “sabotage” by the United States at the Guri hydroelectric dam, but experts say it is the outcome of years of underinvestment.

“The national electrical system has been subject to multiple cyberattacks,” Maduro wrote on Twitter on Sunday. “However, we are making huge efforts to restore stable and definitive supply in the coming hours.”

Guaido invoked the constitution to assume an interim presidency in January, arguing that Maduro’s 2018 re-election was fraudulent. He has been recognized as Venezuela’s legitimate leader by the United States and most Western countries.

Despite pressure from frequent opposition marches and U.S. sanctions on the country’s vital oil sector, Maduro is not open to negotiations on ending the political impasse and seems intent on trying to stay put, said Elliott Abrams, the Trump administration’s envoy for Venezuela.

The blackout, which began Thursday afternoon, increased frustration among Venezuelans already suffering widespread food and medicine shortages, as the once-prosperous OPEC nation’s economy suffers a hyperinflationary collapse. Food rotted in refrigerators, people walked for miles to work with the Caracas subway down, and relatives abroad anxiously waited for updates from family members with telephone and internet signals intermittent.

“What can you do without electricity?” said Leonel Gutierrez, a 47-year-old systems technician, as he carried his six-month-old daughter on his way to buy groceries. “The food we have has gone bad.”

BACKUP PLANS

Lines formed outside the few Caracas gas stations with open pumps, while many motorists stopped along the sides of highways to use their mobile phones in the few areas of the city with signal.

Some bakeries, supermarkets and restaurants were open and running on backup generators, according to Reuters witnesses. Many were asking customers to pay in U.S. dollar bills, since debit card payment systems were not working reliably and local bolivar notes have been scarce for years.

“Customers are buying drinks, batteries and cookies, but we are out of water,” said Belgica Zepeda, a salesperson at a Caracas pharmacy.

At hospitals, the lack of power combined with the absence or poor performance of backup generators led to the death of 17 patients across the country, non-governmental organization Doctors for Health said on Saturday. Reuters was unable to independently verify the figure, and the government’s Information Ministry did not respond to requests for comment.

Power returned briefly to parts of Caracas and other cities on Friday, but went out again around midday on Saturday. Electricity experts said that outage was most likely due to failures in the transmission system, and that the government lacks the equipment and staff to repair them.

“One can infer from the delays and the results of the failure that it was a problem in the lines that leave Guri, rather than in the plant itself,” said Miguel Lara, a former president of the state-run entity responsible for the electricity system.

The outage is by far the longest in decades. In 2013, Caracas and 17 of the country’s 23 states were hit by a six-hour blackout, while in 2018 eight states suffered a 10-hour power outage, government officials said at the time.

(Additional reporting by Shaylim Valderrama, Vivian Sequera and Corina Pons Writing by Luc Cohen; Editing by Lisa Shumaker)

 

Dollar extends rising streak as investors hunt for yield

March 4, 2019

By Saikat Chatterjee

LONDON (Reuters) – The dollar edged higher against its rivals on Monday on the back of widening weakness in the euro, with a broad low volatility environment encouraging hedge funds to add to bullish bets.

While the Federal Reserve has pressed the pause button on its multi-year rate hike cycle, higher U.S. bond yields in relation to peers means the interest rate advantage still lies firmly with the United States, especially against the backdrop of receding fears about the outlook of the global economy.

“Markets still view that the yield pick-up in the U.S. is more than enough to compensate for the pause in policy tightening, but I would be wary of chasing the dollar higher if the global trade backdrop improves,” said Ian Gunner, who runs a currency fund at Altana Wealth in London.

The gap between benchmark 10-year yields in the United States and Germany has widened to a near three-month high of 257 basis points, compared with 240 basis points at the start of the year..

That rise in yields has come amid falling market volatility, especially in currency markets which has enhanced carry trade- seeking strategies involving borrowing in a low yielding currency such as the yen or the euro and buying a higher-yielding one such as the dollar.

Three-month implied volatility in the Japanese yen, a gauge of expected swings in the currency versus the dollar over three months, has flattened to 4 1/2-year lows.

DOVISH

Hedge funds have ramped up their long dollar bets, with latest positioning data showing net positions rising to $27.24 billion for the week ending March 1. Most of those bets are positioned to exploit higher U.S. interest rates.

Hopes that some of the world’s major central banks would raise interest rates this year have faded in recent weeks amid tepid economic data. Some analysts now expect a fresh round of bank funding at a European Central Bank meeting later this week that would boost the dollar.

“With so much dovishness priced before the ECB meeting this week, Draghi will struggle to exceed market expectations and this may help the euro,” said Valentin Marinov, head of G10 FX research at Credit Agricole based in London.

The dollar traded at 111.96 yen, near a 10-week high of 112.08 on Friday. Against a basket of its rivals, the dollar was a shade higher at 96.62. It rose 0.4 percent in February, its biggest monthly rise since October 2018.

Much of the weakness in the London session coincided with a broadly weaker euro. The single currency slipped across the board, falling 0.3 percent against the dollar and 0.2 percent against the euro.

Media reports that the United States and China might reach a formal agreement at a summit around March 27 is pushing stocks higher and prompting traders to buy the Chinese yuan and other proxy currencies such as the Australian dollar.

The Chinese yuan ticked up 0.25 percent to 6.6986 to the dollar in offshore trade, near last week’s 7 1/2-month high of 6.6737. With volatility expected to stay low, hedge funds have also placed bets on emerging-market currencies versus the dollar. Those bets are now at a one-year high.

(Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh)

(Reporting by Saikat Chatterjee; Editing by Mark Heinrich)

Debt Crisis: ‘Alarm Bells Are Going Off’ As Americans Default On Student Loans At Record Levels

Americans who took out loans to pay for a college education are defaulting on those debts at record levels.  The country has never been as indebted with student loans as it is now, and the problem continues to spiral out of control.

In just the third and fourth quarters of last year, there were around $166.4 billion in student loan delinquencies that have been in default for 90 days or more, according to the Federal Reserve, the United States’ central bank.  Steve Beaman, a financial analyst for the Florida Radio Network, the chairman of the McGraw Council, and the author of The Path to Prosperity said this is horrible news for the economy.  “The alarms bells are going off,” Beaman said.  “If we don’t do something about it quickly, it could possibly have a negative effect on the U.S. economy, hurt people’s economic life and have an adverse reaction to their credit score,” Beaman said.

Economic Woes: Student Loan Debt Crisis Is About To Get Worse

Jack Hough, a senior editor for Barron’s, also insisted this is a problem. “Let’s artificially puff up buying power with cheap (college) loans and it makes it even less affordable,” Hough said. Free college isn’t much of a solution either.  The problem with the cost of a college education is that money is easily available to be borrowed (or in the case of government-funded “free” college, stolen) in order to be paid.  When money is readily available, of course, colleges will raise their prices.  There’s no need to compete anymore.

According to Florida Daily, these defaults are incredibly concerned because of the amount of student debt Americans have racked up. About 40 million Americans have a collective $1.5 trillion in student loan debt. Some lawmakers have proposed ideas to get their money back. U.S. Senator Lamar Alexander, R-Tenn., who served as president of the University of Tennessee and as U.S. Education secretary under President George H.W. Bush,  has proposed an idea to make sure students repay the money they borrowed.  Alexander wants student loan payments to be garnished directly out of paychecks, insisting this will help the government get its money back.

 

Now that Housing Bubble #2 Is Bursting…How Low Will It Go?

There are two generalities that can be applied to all asset bubbles:

1. Bubbles inflate for longer and reach higher levels than most pre-bubble analysts expected

2. All bubbles burst, despite mantra-like claims that “this time it’s different”

The bubble burst tends to follow a symmetrical reversal of very similar time durations and magnitudes as the initial rise. If the bubble took four years to inflate and rose by X, the retrace tends to take about the same length of time and tends to retrace much or all of X.

If we look at the chart of the Case-Shiller Housing Index below, this symmetry is visible in Housing Bubble #1 which skyrocketed from 2003-2007 and burst from 2008-2012.

Housing Bubble #1 wasn’t allowed to fully retrace the bubble, as the Federal Reserve lowered interest rates to near-zero in 2009 and bought $1+ trillion in sketchy mortgage-backed securities (MBS), essentially turning America’s mortgage market into a branch of the central bank and federal agency guarantors of mortgages (Fannie and Freddie, VA, FHA).

These unprecedented measures stopped the bubble decline by instantly making millions of people who previously could not qualify for a privately originated mortgage qualified buyers. This vast expansion of the pool of buyers (expanded by a flood of buyers from China and other hot-money locales) drove sales and prices higher for six years (2012-2018).

As noted on the chart below, this suggests the bubble burst will likely run from 2019-2025, give or take a few quarters.

The question is: what’s the likely magnitude of the decline? Scenario 1 (blue line) is a symmetrical repeat of Housing Bubble #2: a retrace of the majority of the bubble’s rise but not 100%, which reverses off this somewhat higher base to start Housing Bubble #3.

Since the mainstream consensus denies the possibility that Housing Bubble #2 even exists (perish the thought that real estate prices could ever–gasp–drop), they most certainly deny the possibility that prices could retrace much of the gains since 2012.

More realistic analysts would probably agree that if the current slowdown (never say recession, it might cost you your job) gathers momentum, some decline in housing prices is possible. They would likely agree with Scenario 1 that any such decline would be modest and would simply set the stage for an even grander housing bubble #3.

But there is a good case for Scenario 2, in which price plummets below the 2012 lows and keeps on going, ultimately retracing the entire housing bubble gains from 2003.

Why is Scenario 2 not just possible but likely? There are no more “saves” in the Fed’s locker. Dropping interest rates to zero and buying another trillion in MBS won’t have the same positive effects they had in 2009-2018. Those policies have run their course.

Among independent analysts, Chris Hamilton is a must-read for his integration of demographics and economics. Please read (via Zero Hedge) Demographics, Debt, & Debasement: A Picture Of American Insolvency if you want to understand why near-zero interest rates and buying mortgage-backed securities isn’t going to spark Housing Bubble #3.

Millennials are burdened with $1 trillion in student loans and most don’t earn enough to afford a home at today’s nosebleed prices. When the Fed drops the Fed Funds Rate to zero, it doesn’t follow that mortgage rates drop to zero. They drop a bit, but not enough to transform an unaffordable house into an affordable one.

Buying up $1 trillion in sketchy mortgages worked in 2009 because it bailed out everyone who was at risk of absorbing huge losses as a percentage of those mortgages defaulted. The problem now isn’t one of liquidity or iffy mortgages: it’s the generation that would like to buy homes finds they don’t earn enough, and their incomes are not secure enough, to gamble everything on an overpriced house that chains them to a local economy they might want to leave if opportunities arise elsewhere.

In other words, the economy has changed, and the sacrifices required to buy a house in hot markets at today’s prices make no sense. The picture changes, of course, in areas where 2X or 3X a typical income will buy a house, and 1X a pretty good income will buy a house.

Unless the Fed is going to start buying millions of homes outright, prices are going to fall to what buyers can afford. As China’s debt bubble implodes, the Chinese buyers with cash (probably not even cash, just money borrowed in China’s vast unregulated Shadow Banking System) who have propped up dozens of markets from France to Vancouver will vanish, leaving only the unwealthy as buyers.

The only question of any real interest is how low prices will drop by 2025.We’re so accustomed to being surprised on the upside that we’ve forgotten we can surprised on the downside as well. 

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print, $13.08 audiobook): Read the first section for free in PDF format.

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Former Federal Prosecutor: “We Are In A Civil War… I Buy Guns”

Former federal prosecutor Joe diGenova says civil discourse is over in America, and recommends voting and buying guns because “we are in a civil war.” 

Speaking with Laura Ingraham on her podcast, diGenova noted that the “all liberal” media has given a pass to both Virginia Governor Ralph Northam (D) and VA Attorney General Mark Herring for appearing in blackface, while similarly glossing over Lt. Governor Justin Fairfax’s credible sexual assault allegation. 

“There’s two standards of justice, one for Democrats one for Republicans. The press is all Democrat, all liberal, all progressive, all left – they hate Republicans, they hate Trump. So the suggestion that there’s ever going to be civil discourse in this country for the foreseeable future in this country is over. It’s not going to be. It’s going to be total war. And as I say to my friends, I do two things – I vote and I buy guns.”

In tentative rollout, Zimbabwe banks start trading new currency

February 25, 2019

HARARE (Reuters) – Zimbabwe’s commercial banks started trading the RTGS dollar on Monday, but authorities offered no indication as to how ordinary citizens would interact with the country’s new transitional currency five days after it was introduced.

Zimbabwe ditched a dollar peg for its surrogate bond notes and electronic dollars on Wednesday, merging them into the RTGS dollar in an effort to revive a crippled economy and address a cash crunch that has undermined President Emmerson Mnangagwa’s efforts attract foreign investment.

The central bank sold U.S. dollars to banks at 2.5 RTGS dollars on Friday morning, and on Monday lenders began trading the currency with corporate customers and on an interbank market.

There had been indications that ordinary Zimbabweans would be able to buy U.S. dollars with bond notes or electronic dollars from Monday.

But a Standard Chartered bank teller in Harare said her branch was not selling dollars to individuals yet, and downtown bank queues were no longer than normal as people made their way to work.

Kudakwashe Mukora, an electrician who had just come out of the branch, said: “At the moment we’re just shooting in the dark. The government isn’t addressing the fundamental issue which is that the black market is in charge.”

On Monday one U.S. dollar was being sold on the black market for four electronic dollars – which have been locked in individuals’ accounts for months due to the chronic cash shortages – compared to 4.20 on Friday, currency traders said.

An employee at a Stanbic branch said the bank was offering U.S. dollars to corporate clients at 2.5625 RTGS dollars and buying dollars at 2.4 RTGS. She said the idea was that individuals would be able to buy and sell dollars at a later date, but she wasn’t sure when.

The central bank has promised a “managed float” of the RTGS – which stands for the real-time gross settlement system banks use to transfer money – but it is not clear how it will control the currency’s movements given that it does not have significant foreign exchange reserves.

“The big players are holding onto their money, that is what is holding rates at the moment. In the next week or two, it should be clear whether the interbank is working or not,” one trader at Harare’s Eastgate shopping center said.

Zimbabwe’s currency problems date back to the hyperinflation era of post-independence leader Robert Mugabe, who Mnangagwa replaced after an army coup in November 2017.

International attitudes to Mnangagwa’s government have hardened since a violent security crackdown last summer on post-election protests and on demonstrations last month against a major fuel hike.

(Reporting by Alexander Winning, Alfonce Mbizwo and MacDonald Dzirutwe; editing by John Stonestreet)

Is Hong Kong’s Best-Performing Stock A Giant Pyramid Scheme?

Who in their right mind would buy an investment company at 90x NAV? A better question for China Ding Yi Feng Holdings shareholders would be who other than unwitting index-fund managers and the retail investors who buy their products?

Hong Kong

In a stunning report published Friday, Bloomberg highlighted what we imagine is one of the most egregiously overvalued stocks in the world (a world where Tesla is also a publicly traded company). Despite being comprised of mostly money-losing investments, China Ding Yi Feng has seen its shares smash through one all-time high after the next over the past five years. In that time, it has rallied 8,563%.

China

But as BBG points out, there is no obvious catalyst for this rally. By every sensible investing metric, the company’s shares should be in free fall.

But ask local market veterans about China Ding Yi Feng Holdings Ltd., and they’ll tell you the rally makes little sense. The investment-holding company has lost money for seven of the past eight years; its stock trades at one of highest valuations worldwide; and DYF’s chairman, a Taoist scholar who boasts investing skills on par with those of Warren Buffett and George Soros, has recently been the subject of several critical reports in Chinese media.

 

“Fundamentals do not support the stock’s rally at all,” said Li Yuanrong, managing director of Shenzhen-based venture capital firm 20VC.

So, what’s keeping its shares afloat? Why, passing investment strategies, of course! After the company became big and liquid enough to be included in the MSCI, multibillion-dollar funds run by BlackRock Inc., Vanguard Group Inc. and Northern Trust Corp. have all been buyers.

Of course, these funds aren’t explicitly choosing to buy Ding Yi Feng. Rather, by dint of needing to mimic the index, they’re effectively forced to buy. MSCI uses quantitative criteria such as market value, free float, and liquidity when choosing companies for its indexes and doesn’t make judgments about profitability, growth prospects or “any other subjective” metrics. This created what appears to be a feedback loop as its rising market value has given it a heavier weighting, and its heavier weighting has helped drive the company’s market value higher.

While the company has made money losing investments, its main source of revenue appears to be a pyramid scheme that has recently attracted press scrutiny.

Around the time DYF entered MSCI’s large-cap gauges last year, critical reports on Sui’s fundraising practices and the unusual move in DYF’s shares began appearing in the Chinese press.

In an emailed response to questions from Bloomberg, the Asset Management Association of China said it was aware of media reports that a unit of Ding Yi Feng Group (a Chinese company that also counts Sui as chairman) had offered individual savers guaranteed monthly returns of 2.5 percent on an investment and that the unit had failed to register multiple fund products with the association.

AMAC said private fund managers in China can’t guarantee principal and minimum returns and that it will report and deliver any unlawful cases to the China Securities Regulatory Commission and other authorities. The CSRC didn’t reply to a faxed request for comment.

That the company was included in the index at all speaks to how MSCI hasn’t paid enough attention to discerning which companies that meet its other criteria “don’t pass the smell test.”

The stock has gained 202 percent in the past year alone, the best performance among 2,700-plus members of the MSCI All-Country World Index. Valued at 95 times net assets, it’s one of the most expensive listed companies on Earth. (The stock is also ineligible for short selling, which may help explain why it hasn’t faced more downward pressure. It slipped 1.6 percent on Friday.)

“Why would anyone buy an investment company at 90 times NAV?” said David Webb, an independent investor and former Hong Kong Exchanges & Clearing Ltd. board member who has made a fortune buying small-cap Hong Kong stocks over the past two decades. He said MSCI should leave DYF and other Chapter 21 companies out of its benchmark indexes.

“One of the risks MSCI faces in Asia’s equity markets, where rules can be relaxed and enforcement patchy, is you see a lot of firms included in indexes that wouldn’t pass the smell test,” said Melissa Brown, partner at Hong Kong-based advisory firm Daobridge Capital and former member of the Hong Kong stock exchange’s listing committee, speaking generally.

Oh, and DYF shareholders have benefited from another quirk in Hong Kong markets: short-selling in the company’s shares is illegal. Ultimately, stories like this help tarnish Hong Kong’s reputation as an international financial hub, and a developed market on par with the US and Tokyo. Also, discerning traders can’t help but wonder whether DYF will be the next spectacular market blowup in Hong Kong?

China’s social credit system shows its teeth, banning millions from taking flights, trains

  • Annual report shows the businesses and individuals added to trustworthiness blacklist as use of the government system accelerates
  • System aims to pressure citizens to avoid bad behaviour, although human rights advocates argue it does not take into account individual circumstances

About 17.46 million “discredited” people were restricted from buying plane tickets and 5.47 million were restricted from purchasing high-speed train tickets, the report said. Photo: Handout

He Huifeng

Millions of Chinese individuals and businesses have been labelled as untrustworthy on an official blacklist banning them from any number of activities, including accessing financial markets or travelling by air or train, as the use of the government’s social credit system accelerates.

The annual blacklist is part of a broader effort to boost “trustworthiness” in Chinese society and is an extension of China’s social credit system, which is expected to give each of its 1.4 billion citizens a personal score.

The social credit system assigns both positive and negative scores for individual or corporate behaviour in an attempt to pressure citizens into behaving.

Human rights advocates, though, worry that the arbitrary system does not take into account individual circumstances and so often unfairly labels individuals and firms as untrustworthy.

Over 3.59 million Chinese enterprises were added to the official creditworthiness blacklist last year, banning them from a series of activities, including bidding on projects, accessing security markets, taking part in land auctions and issuing corporate bonds, according to the 2018 annual report released by the National Public Credit Information Centre.

The centre is backed by the National Development and Reform Commission, China’s top economic planner, to run the credit rating system.

According to the report, the authorities collected over 14.21 million pieces of information on the “untrustworthy conduct” of individuals and businesses, including charges of swindling customers, failing to repay loans, illegal fund collection, false and misleading advertising, as well as uncivilised behaviour such as taking reserved seats on trains or causing trouble in hospitals.

About 17.46 million “discredited” people were restricted from buying plane tickets and 5.47 million were restricted from purchasing high-speed train tickets, the report said.

China to bar people with bad ‘social credit’ from trains, planes

Besides restrictions on buying tickets, local authorities also used novel methods to put pressure on untrustworthy subjects, including preventing people from buying premium insurance, wealth management products or real estate, as well as shaming them by exposing their information in public.

A total of 3.51 million untrustworthy individuals and entities repaid their debts or paid off taxes and fines last year due to pressure from the social credit system, the report said.

The report highlighted untrustworthy problems at peer-to-peer (P2P) lending platforms and recent high-profile scandals in medical care that have caused public anger.

A total of 3.51 million untrustworthy individuals and entities repaid their debts or paid off taxes and fines last year due to pressure from the social credit system, the report said. Photo: Xinhua

A total of 1,282 P2P operators, more than half located in Zhejiang, Guangdong and Shanghai, were placed on the creditworthiness blacklist because they could not repay investors or were involved in illegal fundraising.

Health care product maker

Quanjian Group

and vaccine maker

Changsheng Bio-Technology

were added to the creditworthiness blacklist because of their involvement in major health sector scandals.

From drones to social credits, 10 ways China watches its citizens

Quanjian was accused of making false marketing claims about the benefits of a product that a four-year-old cancer patient drank, while Changsheng, the major Chinese manufacturer of rabies vaccines, was fined US$1.3 billion in October after it was found to have fabricated records.

Lawyers worry that the accelerated use of the creditworthiness system will violate an individuals right to privacy.

“Many people cannot pay their debt because they are too poor but will be subject to this kind of surveillance and this kind of public shaming,” a lawyer said. “It violates the rights of human beings.”

This article appeared in the South China Morning Post print edition as: Millions labelled as untrustworthy and banned from travel

Jussie Smollett Charged With Felony After Falsely Reporting “Hate Crime”

Days after media leaks exposed him for allegedly faking a highly publicized hate crime that he said was explicitly carried out by Trump supporters near his apartment in the Streeterville neighborhood of Chicago, Empire actor Jussie Smollett has been charged with filing a false report and disorderly conduct.

The charge came just hours after police confirmed that Smollett was a suspect in a criminal investigation, and that they were looking into whether Smollett may have paid two brothers who were initially questioned in the attack to fake the crime. The two brothers worked on the show ‘Empire’, and were initially identified as suspects in the attack before they were released.

Smollett, who is black and openly gay, said he was walking home from Subway to his apartment in the 300 block of East North Water Street around 2 am last month when two men walked up to him, yelled racial and homophobic slurs, declared “This is MAGA country,” before they started beating him and then wrapped a noose around his neck. They also – according to Smollett – called him “that f***** ‘Empire’ n****”.

News reports that circulated earlier this week showed that Smollett pleaded guilty to providing false information to police before, during a 2007 DUI arrest.

According to the Chicago Tribune, attorneys for Smollett met with prosecutors on Wednesday before the charges were announced.

Attorneys for Smollett, 36, met with prosecutors and detectives Wednesday but it was unclear if the actor was present, according to police spokesman Anthony Guglielmi. The lawyers, Todd Pugh and Victor P. Henderson, could not be reached for comment. They have been joined by high-profile, Los Angeles-based lawyer Mark Geragos who has represented numerous celebrities, including pop star Michael Jackson, R&B singer Chris Brown and actress Winona Ryder.

And the Cook County States Attorney has already recused herself from the case out of what she said was an “abundance of caution.”

Earlier Wednesday, Cook County State’s Attorney Kim Foxx announced she had recused herself from the case last week “out of an abundance of caution” because she spoke to one of Smollett’s relatives after the alleged attack and acted as a go-between with police, one of Foxx’s aides told the Tribune. “State’s Attorney Foxx had conversations with a family member of Jussie Smollett about the incident and their concerns, and facilitated a connection to the Chicago Police Department who were investigating the incident,” said Robert Foley, a senior adviser to Foxx. “Based on those prior conversations and out of an abundance of caution, last week State’s Attorney Foxx decided to remove herself from the decision-making,” he said.

Shortly before news of the charges broke, this footage leaked to the media showing the two Nigerian-American brothers whom Smollett allegedly paid $3,500 to carry out the “attack” buying a red hat and masks.

According to media reports, Smollett is also suspected of sending a threatening letter to himself which was delivered on the set of his show, Empire, though police have said they’re still looking into the issue. For what its worth, Fox, the network on which ‘Empire’ airs, has expressed its full support for Smollett and denied reports that his role on the show was being diminished.

Many powerful liberals and Democrats – including Nancy Pelosi – who decried the attack against Smollett and used it as a platform to label all Trump supporters as racists have already deleted their tweets.

For those who haven’t, well, this would probably be a good time.

The Ultimate Tool To Prop Up Oil Prices

Submitted by Peter Verleger of OilPrice.com

In the late sixties, an economic debate began between East Coast economics departments (saltwater universities) and midwestern colleges (freshwater universities). Milton Friedman, the spokesperson for the freshwater universities, made the claim that “money mattered.” Others in the Midwest took this perspective and ran with it to the point where they asserted that “only money mattered.”

Friedman made his point to take on the Keynesians at the saltwater institutions, who for decades had argued it was deficit spending that determined economic activity. Monetary issues tended to be ignored in the standard Keynesian model. If asked, proponents would assert that “liquidity” traps essentially made monetary actions useless.

The debate was eventually resolved, at least partially, when Friedman, Paul Samuelson, and Robert Solow (all Nobel laureates) discussed the issue at MIT and several other locations. Their conclusion at the time was that “money matters.” This did not mean that deficit spending did not matter, as the Republican Congress that just ended has clearly demonstrated. However, monetary policy is important.

In the same way, oil price volatility matters. To drive the point home, see Figure 1, which compares daily Brent prices to the CBOE’s oil price volatility index. The graph presents 1,274 observations. One does not need a computer, a statistics degree, or a Ph.D. in econometrics to understand that low values of volatility are associated with high prices and high values with low prices.

Figure 2 shows the relationship between WTI prices and the same volatility index. Again, the results are clear. High prices are associated with low price volatility and low prices with high volatility. Volatility alone explains forty percent of the day-to-day variation in WTI prices from 2014 to 2019 in a model where adjustments are made to remove autocorrelation.

The same results are obtained for Dubai crude, even though it is delivered halfway around the world. The long arm of US markets reaches the Persian Gulf. As can be seen from Figure 3, the relationship is essentially identical to those for Brent and WTI. CBOE volatility explains forty percent of the variance in Dubai crude prices, just as it explains the movement of Brent and WTI prices.

These data make it clear that oil-exporting countries seeking higher prices need to reduce volatility. Simply meeting and talking about production cuts no longer seems to be enough. Perhaps investors or speculators hearing the talk no longer believe anything will be done. It is even possible that some participants hear the talk and sell futures or buy puts, betting against OPEC or OPEC+. Their actions boost volatility and drive prices down.

The independent oil producers developing U.S. shale production, as well as participating in offshore developments such as in Guyana, are also affected by price volatility. Take, for example, the impact of price volatility on the share price of Hess, an independent producer, that I show in Figure 4.

In a statistical test in which I regressed the day-to-day change in share price, I found that, since July 1, 2018, changes in volatility explain ninety-seven percent of the variance in the Hess share price. The managers at Hess clearly need to suppress price volatility to boost their share value.

John Hess, Hess’ CEO, has not yet recognized the importance of volatility. (Perhaps he will read of my observation in some report.) Instead, he believes the oil industry needs to hire publicists, as he explained at the recent World Economic Forum in Davos, Switzerland:

“How do you get the hearts and minds of investors back? That is a real challenge for our industry,” said John Hess, the founder of independent U.S. producer Hess Corp.

He said investor frustration with the oil industry was manifested by the fact that the share of energy companies in the S&P index had shrunk to 5.5 percent from 16 percent 10 years ago.

“We will have to compete against other industries in the S&P to create the value proposition that makes us more attractive. A new paradigm is coming up which is to generate free cash and share some of this cash with investors,” he said.

Hess later added that “we [oil firms] need to engage with policymakers and the public to understand the huge task we have ahead.” He and other executives from major oil companies pointed to the billions they believe must be invested in exploration and production.

I note first that the Hess share price has declined twenty-one percent from its peak in August 2014. In part, the decline can be explained by the last line of Mr. Hess’ statement, that is, the company has shared some of its free cash with investors. The company’s dividend yield has been put at 1.75 percent. This would be significantly higher if the firm shared more cash with investors and drilled less. ExxonMobil shares yield 4.3 percent, for example, while the dividend yield on Chevron is four percent.

The simple fact is that Hess seems not to be offering investors an attractive reward. However, the firm’s problems go beyond cash-flow generation. At Davos, Hess, executives from other major oil companies, and OPEC secretary-general Mohammed Barkindo all bemoaned the industry’s inability to attract investors. As Figure 5 illustrates, the share of oil companies in the S&P 500 has declined steadily from the sixteen-percent peak achieved in 2008. Investors are just not attracted to oil.

I doubt many readers believe that Hess, the oil industry as a group, or even the oil industry acting in cooperation with OPEC can change investor views through a public relations campaign. Such efforts are almost always counterproductive unless accompanied by other actions.

There is also little likelihood that policymakers will be convinced to do much “to address the huge task [oil firms have] ahead.” Oil producers and the oil industry are on their own.

There is something, though, that oil-producing countries or even states such as Texas and provinces such as Alberta could do to address the investor issue. Even companies acting alone to avoid violating antitrust statutes could help. All they need do is take steps to lower price volatility.

Let me repeat that statement. Oil producers, oil states, and oil provinces with an interest in higher oil prices can reach this goal by lowering oil price volatility, which they can achieve by intervening in the market to slow price declines or increases.

Over the last forty-five years, oil ministers from OPEC, and now other producers who have joined their efforts to manage the market, have operated on the belief that they can move the market by issuing statements on production and export decisions after their sporadic meetings. For example, in November 2018, Saudi oil minister Khalid al Falih said, “We need to do whatever it takes to balance the oil market” in a talk he gave a month before an OPEC meeting. The minister likely expected markets to respond positively the day after this pronouncement. In this case, though, prices were down another seven percent within a week.

The story would have been very different had Minister al-Falih or other Saudi officials stepped in and purchased oil. Saudi Arabia could have bought back a cargo scheduled to load if the original buyer agreed. Alternatively, Saudi Arabia could have acquired oil on the Dubai spot market. For that matter, Saudi Arabia could have purchased a cargo of Brent or WTI. All that was needed was an action that took oil off the market.

An easier, quicker tactic would be to buy oil in the futures markets. Indeed, a government purchase of a relatively small number of futures would have stopped the price decline cold. The action would be equivalent to buying physical oil but could occur instantaneously. The price decrease would have been arrested rapidly if these purchases were followed by an agreement to cut supply.

Today, those interested in stabilizing prices—such as ministers from oil-exporting nations—need to recognize their words have little or no impact unless they are accompanied by immediate actions such as canceling shipments or selling physical oil from stockpiles. Oil markets, particularly futures markets, have grown to a point where traders can add or subtract the equivalent of one day’s global consumption, one hundred million barrels, to or from supply in a minute. Furthermore, these volumes are backed by cash held at the world’s major financial institutions.

In less than one month, representatives from the world oil industry will reconvene at the annual CERAWeek conference in Houston. The topic raised by John Hess in Davos will likely be one of the most important subjects discussed. If the executives gathered in Houston actually want to see higher prices, though, they would focus on a price-stabilization program. The futures markets should be seen as a tool that could help them reach their goal.

“Hollywood is now irrelevant,” says IAC Chairman Barry Diller

Diller, the former CEO of Paramount and Fox, talks about the diminished power of movie studios and why “Netflix has won this game” on the latest Recode Decode.

Source: Recode

Before he became a tech mogul, IAC and Expedia Group chairman Barry Diller was a media mogul, working in executive roles at ABC, Paramount, and Fox. But now, he says, the people who used to have all the power in the entertainment business have a lot less.

“Hollywood is now irrelevant,” Diller said on the latest episode of Recode Decode, hosted by Kara Swisher. “… It was these six movie companies essentially were able to extend their hegemony into everything else. It didn’t matter that they started it. When it got big enough, they got to buy it. For the first time, they ain’t buying anything. Meaning they’re not buying Netflix. They are not buying Amazon.”

BOOM: Video surfaces of Nigerian brothers involved in Jussie Smollett hate crime hoax buying red hats, ski masks

(Natural News) Another day, another piece of the “Empire” actor Jussie Smollett hate crime hoax is revealed. As damning evidence goes, this is more damning than most. Video of the two Nigerian brothers identified by Chicago PD as being co-conspirators in the hoax has surfaced showing them buying items they wore during what appears to…

Warsaw And Munich: Whistling Past NATO’s Graveyard

Authored by Tom Luongo,

If the Anti-Iran conference in Warsaw was the opening act, the annual Munich Security Conference was the main event. Both produced a lot of speeches, grandstanding and virtue-signaling, as well as a lot of shuffling of feet and looking at the ground.

The message from the U.S., Israel and Saudi Arabia was clear, “We are still committed to the destruction of Syria as a functional state to end the growing influence of Iran.”

Europe, for the most part, doesn’t buy that argument anymore. Germany certainly doesn’t. France is only interested in how they can curry favor with the U.S. to wrest control of the EU from Germany. The U.K. is a hopeless has-been, living on Deep State inertia and money laundered through City of London.

The Poles just want to stick it to the Russians.

Everyone else has a bad case of, “been there, done that, ain’t doin’ it again.”

They know supporting the fiction that the War in Syria was a war against the evil President Bashar al-Assad is counter-productive.

The geopolitical landscape is changing quickly. And these countries, like Hungary, Italy, and the Czech Republic, know that the current policy trajectory of the Trump administration vis a vis Russia, Iran and China is a suicide pact for them.

So they show up when called, receive our ‘diplomats’ and then pretty much ignore everything they said. This is what happened, ultimately, in Munich.

Even the EU leadership has no illusions about the goals of the U.S./Israeli/Saudi policy on Syria. And that’s why they refused to shut Russia and Iran out of the Munich Security Conference despite the hyperventilating of Pompeo’s amateur-hour State Dept.

The Syria Hangover

These countries are struggling with the after-effects of eight years of war displacing millions who Angela Merkel invited into Europe for her own political purposes.

The resultant chaos now threatens every major political power center in Europe, which could culminate in a Euroskeptic win at the European Parliamentary elections in May.

Continuing on this road will only lead to Russia, Iran, Turkey and China forming a bloc with India to challenge the economic and political might of the West over the next two decades.

So it was no surprise to see Israeli Prime Minister Benjamin Netanyahu glad-handing looking for support to beam back home for his re-election campaign.

It was also no surprise to see NATO Secretary General Jens Stoltenberg grovel at the feet of the U.S. over the shared mission because he knows that’s where the gravy flows from.

But there was no statement of purpose coming out of Munich after two days of talks. Warsaw already set the stage for that. Vice-President Mike Pence fell completely flat as the substitute Trump. Secretary of State Mike Pompeo looked sad and confused as to why no one applauded him for his cheap and empty rhetoric about how evil Iran is.

The Syria operation was put together by the U.S., Israel, Saudi Arabia and Qatar with the expressed purpose of creating a failed state of ungoverned fiefdoms. Syria was to be carved up piecemeal with a great land grab for all major partners getting a piece.

Israel gets a buffer zone east of the Golan Heights, Turkey gets Idlib, Afrin and Aleppo. The Kurds get everything east of the Euphrates. And Europe gets pipelines from the Arabian peninsula.

Meanwhile Iran loses Syria and Lebanon, Russia gets pushed out of the European gas market (along with the putsch in Ukraine) and the center of the country is a hot mess of terrorism which can be exported all around the region and further directed against Russia and Iran.

It all looked so good on paper.

But, as I’ve described multiple times, it was an operation built on perception and the false premise that no one would stand up to it.

In came Russia in October 2015 and the rest, unfortunately for the neocons, is just a chase scene.

Sanctions Cut Both Ways

Because for Europe, once it became clear what the costs would be to continue this project, there was little to no incentive to do so. That’s why they sued for peace with Iran by negotiating the JCPOA.

For every MAGApede and Fox News neocon who excoriates Obama for giving Iran $150 billion dollars (of their own money back which we stole) I remind you that it was Obama in 2012 that signed the sanctions which froze that money in the first place.

The JCPOA was signed because in 2014 the Syria operation looked like it was on auto-pilot to success. Iran could have their money back because it wouldn’t matter. They would be vassals and the money wouldn’t buy them anything of substance.

It was Russia and China’s making the move into Syria that changed that calculus.

That’s why the only ones who keep pushing for this balkanization strategy are the ones who still stand to gain from it. The U.S., Saudi Arabia and Israel. It was clear in Munich that Russian Foreign Minister Sergei Lavrov was the man everyone wanted to talk to.

Everyone has cut bait. Even the Saudis are hedging their best cozying up to Vladimir Putin.

The U.S. still needs to project power globally to support the dollar and its obscene fiscal debauchery. Israel is staring at a future in which its myriad enemies have won and the Saudis need to rule the Sunni Arab world by leading them in a war against Iran.

The Warsaw Summit was a triumph only insofar as the U.S. can still call its allies to attention and they’ll do so. But that’s about it. But it was clear at Munich that Europe isn’t buying what the U.S. is selling about its relationship anymore.

It’s an not only an abusive one with Trump applying maximal economic pressure but also a wholly unrealistic one. Foreign policy midgets like Pompeo and Pence were literally pleading with everyone to not undermine their latest plan to make the world safe for Israel and Trump’s moronic Energy Dominance plan.

Whistling in Munich

In the end, the whole Munich affair looked like a bunch of people gathering to whistle past the graveyard of the fraying post-WWII institutional order. Trump wants Europe to pay for NATO so we don’t but Europe doesn’t want NATO on Trump’s terms which put them in the cross-hairs of his power play with Russia and China over the INF treaty.

Putin has built a version of fortress Russia that is for all practical purposes impregnable, short-of an all-out nuclear conflict which no one except maybe the most ideologically possessed in D.C. and Tel Aviv wants.

The naysayers have had their day but the weapons unveiled by Putin at last March’s State of the Union address changed the board state in a way that requires different tactics. I said so last March and it identified a shift narrative for all of us as to what Putin’s long-game was.

These new weapons represent a state change in weapons technology but, at the same time, are cheap deterrents to further escalation.  They fit within Russia’s budget, again limited by demographic and, as I pointed out in a recent article, domestic realities

…[They highlight] we’re not winning in technology.  So, all we can do is employ meat-grinder policies and force Russia and her allies to spend money countering the money we spend.

It’s a game that hollows everyone out.  And it’s easier for Putin to sell the defensive nature of his position to Russians than it is to sell our backing Al-Qaeda and ISIS to defeat them.  Because that reality has broken through the barrier to it.

And that’s why Europe is so unwilling to go along with Trump on the INF Treaty, Iranian regime change and even his Arab NATO plan. They are the ones being asked to be on the front lines, pay for and fight a war against their best interests.

And that’s why no one was willing to join the latest ‘coalition of the willing’ in Munich to perpetuate the conflict in Asia. They’ll go along with Trump’s plans in Venezuela, it doesn’t cost them anything strategically.

But even Merkel knows that in light of the events of the past three and a half years, the right move for Europe is to cut a deal with Russia and Iran while keeping their head down as the U.S. loses its mind.

*  *  *

To support more work like this and get access to exclusive commentary, stock picks and analysis tailored to your needs join my more than 235 Patrons on Patreon and see if I have what it takes to help you navigate a world going slowly mad. 

One-Third Of Millennials Believe They Have A Better Chance Of Dating An A-Lister Than Owning A Home

There isn’t a lot American millennials wouldn’t do to have a chance at owning a home some day.

According to a survey of 500 millennials conducted by OnePoll, nearly half of millennials would swear off Instagram forever, and one in four would be willing to spend a week in jail, if it would help them one day achieve the American dream of owning their own home. One in four survey respondents said they would have attended the Fyre Festival – the doomed festival on a Bahamanian island that led to millions of dollars in lawsuits and a jail sentence for its organizer.

In a sign of how desperately out of reach most millennials consider homeownership to be, some 30% of respondents said they felt they had a better chance of dating an A-list celebrity than ever owning their own home. Meanwhile, 40% of respondents said they felt homeownership is “completely out of the question” unless they inherit property from their parents, and 42% said they would like to buy a home, but they simply can’t afford it. Nearly half of respondents believe (correctly) that buying a home would be more difficult now than it was 30 years ago. In a similar vein, only 8% of millennials disagreed with the belief that life is harder now than it was for Baby Boomers.

Here’s a complete rundown of the survey responses, courtesy of the New York Post.

Post

In another unsurprising finding, nearly one-quarter of respondents said they have actually put off having children because they can’t afford homes. And this state of affairs is unlikely to change – at least not any time soon. Burdened by student debt, another study published late last year found that half of millennials have no money saved for a down payment.

Cash-hoarding Japanese firms please investors as share buybacks hit record

February 17, 2019

By Ayai Tomisawa and Alun John

TOKYO/HONG KONG (Reuters) – Japanese share buybacks have hit a record this fiscal year and are set to maintain the booming growth as cash-rich companies bow to pressure from investors and the government to boost returns and improve governance.

In recent weeks, SoftBank Group Corp, Sony, Itochu Corp and other companies have announced plans to buy back shares worth more than 1.3 trillion yen, bringing the total value of buybacks flagged since April 1 to over 6.5 trillion yen ($58.92 billion).

That is already the most for any fiscal year since 2003 when new and stricter buyback rules were unveiled, according to financial data service firm I-N Information Systems.

Japan Buyback – https://tmsnrt.rs/2E9ABPV

Investors have long criticized Japanese companies for hoarding cash rather than investing it or returning it to shareholders, pushing down their returns on equity (ROE), a measure of the amount of profit a company generates from the money invested in it.

Buying back shares reduces a company’s equity base, boosting its ROE.

“This past month has seen a lot of very positive shareholder-friendly activity from a wide array of Japanese companies,” said Seth Fischer, founder and chief investment officer of Oasis Management, citing actions by SoftBank, Sony, Haseko, Tokyo Tatemono and Toppan Printing.

“To attract foreign investors, companies should continue this path of increasing shareholder returns, while continuing to improve their corporate governance.”

Activist investor Oasis, among others, has been vocal in urging Japanese companies to boost returns. In December, Oasis failed to block the sale of Alpine Electronics to its larger affiliate Alps Electric, but Alps did announce a 45 billion yen buyback in January, the third largest buyback that month.

Japan Inc is under pressure to appease foreign investors after they sold 13 trillion yen of Japanese stocks in 2018, more than four times the net sales in 2015 and 2016, and a sharp reversal of the net 1.9 trillion yen bought in 2017.

“Recently, the global economy is weak and the Japanese market has fallen as foreign fast money has been selling aggressively,” said Archibald Ciganer, co-head of Japanese equity at money manager T.Rowe Price.

“But those Japanese companies that have good governance are taking advantage of cheaper stock prices and putting a floor under their stock price through buybacks.”

Share buybacks have had political pushback elsewhere. In the United States, Senator Marco Rubio last week announced plans to tax buybacks in an effort to encourage companies to reinvest spare cash instead of returning it to shareholders.

In Japan, though, policy makers have been urging companies to pay more attention to the wishes of investors, most notably through the country’s corporate governance and stakeholders codes. Guidelines released last year urged firms to focus on their financial management policies, including the amount of cash they had on hand.

According to Ministry of Finance data, Japanese companies had internal reserves worth a record 446.5 trillion yen at the end of their latest fiscal year.

Japanese companies’ ROEs are expected to fall below 10 percent this fiscal year for their first decline in three years, according to Nomura Securities.

“Many Japanese companies simply have too much cash on their balance sheets weighing down their ROEs. Better capital structure management is definitely needed,” said Kin Chan, chief investment officer of Argyle Street Management.

Foreign investors outflow – https://tmsnrt.rs/2BMtYl1

A revision to Japan’s corporate governance code last year, designed to push companies to sell stakes in other companies, is also driving buybacks.

“Dissolving cross shareholdings, and increasing dividends and buybacks are two ways to make Japanese companies more attractive to foreign investors,” said Patrick Moonen, principal multi asset strategist at Netherlands-based NN Investment Partners.

Further buybacks are expected. Analysts at Goldman Sachs predict that buybacks will reach 7.8 trillion yen for the 12 months to the end of March 2020.

Currently, 56 percent of Japanese non-financial companies in the benchmark Topix index sit on net cash – meaning they have funds left over even if they paid all debts tomorrow. That compares with less than 20 percent in the United States or Europe, according to figures from brokerage CLSA.

“I tell investors that the presents are still under the Christmas tree,” said Nicholas Smith, CLSA’s Japan strategist.

(Reporting by Ayai Tomisawa in Tokyo and Alun John in Hong Kong; Editing by Muralikumar Anantharaman)

We Are Change TV.US