Escobar: A New World Order Takes Shape, Part 2 - Eurasian Consolidation Ends The US Unipolar Moment

Escobar: A New World Order Takes Shape, Part 2 - Eurasian Consolidation Ends The US Unipolar Moment

Authored by Pepe Escobar via The Asia Times,

Read Part 1: How The SCO Just Flipped The World Order here...

Shanghai Cooperation Organization's 20th-anniversary summit heralded the beginning of a new geopolitical and geo-economic order...

The 20th anniversary summit of the Shanghai Cooperation Organization (SCO) in Dushanbe, Tajikistan, enshrined no less than a new geopolitical paradigm.

Iran, now a full SCO member, was restored to its traditionally prominent Eurasian role, following the recent $400 billion-worth trade and development deal struck with China. Afghanistan was the main topic – with all players agreeing on the path ahead, as detailed in the Dushanbe Declaration. And all Eurasian integration paths are now converging, in unison, towards the new geopolitical – and geoeconomic – paradigm.

Call it a multipolar development dynamic in synergy with the Belt and Road Initiative (BRI).

The Dushanbe Declaration was quite explicit on what Eurasian players are aiming at: “a more representative, democratic, just and multipolar world order based on universally recognized principles of international law, cultural and civilizational diversity, mutually beneficial and equal cooperation of states under the central coordinating role of the UN.”

For all the immense challenges inherent to the Afghan jigsaw puzzle, hopeful signs emerged this Tuesday, when Hamid Karzai and Abdullah Abdullah met in Kabul with the Russian presidential envoy Zamir Kabulov, China’s special envoy Yue Xiaoyong, and Pakistan’s special envoy Mohammad Sadiq Khan.

This troika – Russia, China, Pakistan – is at the diplomatic forefront. The SCO reached a consensus that Islamabad will be coordinating with the Taliban the formation of a government also including Tajiks, Uzbeks and Hazaras.

The most glaring, immediate consequence of the SCO not only incorporating Iran but also taking the Afghan bull by the horns, fully supported by the Central Asian “stans”, is that the Empire of Chaos has been completely marginalized.

From Southwest Asia to Central Asia, a real reset has as protagonists the SCO, the Eurasia Economic Union (EAEU), BRI and the Russia-China strategic partnership. The missing links so far, for different reasons – Iran and Afghanistan – are now fully incorporated to the chessboard.

In my frequent conversations with Alastair Crooke, one of the world’s foremost political analysts, he evoked once again Lampedusa’s The Leopard: everything must change so everything must remain the same. In this case, imperial hegemony, as interpreted by Washington: “In its growing confrontation with China, a ruthless Washington has demonstrated that what matters to it now is not Europe, but the Indo-Pacific region.” That’s Cold War 2.0 prime terrain.

With very little potential to contain China now that it’s been all but expelled from the Eurasia heartland, the fallback position had to be a classic maritime power play: the “free and open Indo-Pacific”, complete with Quad and AUKUS, the whole set up spun to death as an “effort” attempting to preserve dwindling American supremacy.

The sharp contrast between the SCO continental integration drive and the “we all live in an Aussie submarine” gambit (my excuses to Lennon-McCartney) speaks for itself. A toxic mix of hubris and desperation is in the air, with not even a whiff of pathos to alleviate the downfall.

The Global South is not impressed. Addressing the forum in Dushanbe, President Putin remarked that the portfolio of nations knocking on the SCO’s door was huge, and that was not surprising at all. Egypt, Qatar and Saudi Arabia are now SCO dialogue partners, on the same level with Afghanistan and Turkey. It’s quite feasible they may be joined next year by Lebanon, Syria, Iraq, Serbia and a cast of dozens.

And it doesn’t stop in Eurasia. In his meticulously timed address to CELAC, Xi Jinping no less than invited 33 Latin American nations to be part of the Eurasia-Africa-Americas New Silk Roads.

Remember the Scythians

Iran as a SCO protagonist and at the center of the New Silk Roads restores it to a rightful historic role. By the middle of the first millennium B.C., Northern Iranians ruled the core of the steppes in Central Eurasia. By that time the Scythians had migrated into the Western steppe, while other steppe Iranians made inroads as far away as China.

Scythians – a Northern (or “East”) Iranian people – were not necessarily just fierce warriors. That’s a crude stereotype. Very few in the West know that the Scythians developed a sophisticated trade system, as described by Herodotus among others, linking Greece, Persia and China.

And why’s that? Because trade was an essential means to support their sociopolitical infrastructure. Herodotus got the picture because he actually visited the city of Olbia and other places in Scythia.

The Scythians were called Saka by the Persians – and that leads us to another fascinating territory: the Sakas may have been one of the prime ancestors of the Pashtun in Afghanistan.

What’s in a name – Scythian? Well, multitudes. The Greek form Scytha meant Northern Iranian “archer”. So that was the denomination of all the Northern Iranian peoples living between Greece in the West and China in the East.

Now imagine a very busy international commerce network developed across the heartland, with the focus on Central Eurasia, by the Scythians, the Sogdians, and even the Xiongnu – who kept battling the Chinese on and off, as detailed by early Greek and Chinese historical sources.

These Central Eurasians traded with all the peoples living on their borders: that meant Europeans, Southwest Asians, South Asians and East Asians. They were the precursors of the multiple Ancient Silk Roads.

The Sogdians followed the Scythians; Sogdiana was an independent Greco-Bactrian state in the 3rd century B.C. – encompassing areas of northern Afghanistan – before it was conquered by nomads from the east that ended up establishing the Kushan empire, which soon expanded south into India.

Zoroaster was born in Sogdiana; Zoroastrianism was huge in Central Asia for centuries. The Kushans for their part adopted Buddhism: and that’s how Buddhism eventually arrived in China.

By the fist century A.D. all these Central Asian empires were linked – via long-distance trade – to Iran, India and China. That was the historical basis of the multiple, Ancient Silk Roads – which linked China to the West for several centuries until the Age of Discovery configured the fateful Western maritime trade dominance.

Arguably, even more than a series of interlinked historical phenomena, the denomination “Silk Road” works best as a metaphor of cross-cultural connectivity. That’s what is at the heart of the Chinese concept of New Silk Roads. And average people across the heartland feel it, because that’s imprinted in the collective unconscious in Iran, China and all Central Asian “stans”.

The Revenge of the Heartland

Glenn Diesen, Professor at the University of South-Eastern Norway and an editor at the Russia in Global Affairs journal, is among the very few top scholars who are analyzing the process of Eurasia integration in depth.

His latest book practically spells out the whole story in its title: Europe as the Western Peninsula of Greater Eurasia: Geoeconomic Regions in a Multipolar World.

Diesen shows, in detail, how a “Greater Eurasia region, that integrates Asia and Europe, is currently being negotiated and organized with a Chinese-Russian partnership at the center. Eurasian geoeconomic instruments of power are gradually forming the foundation of a super-region with new strategic industries, transportation corridors and financial instruments. Across the Eurasian continent, states as different as South Korea, India, Kazakhstan and Iran are all advancing various formats for Eurasia integration.”

The Greater Eurasia Partnership has been at the center of Russian foreign policy at least since the St. Petersburg forum in 2016. Diesen duly notes that, “while Beijing and Moscow share the ambition to construct a larger Eurasian region, their formats differ. The common denominator of both formats is the necessity of a Sino-Russian partnership to integrate Eurasia.” That’s what was made very clear at the SCO summit.

It’s no wonder the process irks the Empire immensely, because Greater Eurasia, led by Russia-China, is a mortal attack against the geoeconomic architecture of Atlanticism. And that leads us to the nest of vipers debate around the EU concept of “strategic autonomy” from the US; that would be essential to establish true European sovereignty – and eventually, closer integration within Eurasia.

European sovereignty is simply non-existent when its foreign policy means submission to dominatrix NATO. The humiliating, unilateral withdrawal of Afghanistan coupled with Anglo-only AUKUS was a graphic illustration that the Empire doesn’t give a damn about its European vassals.

Throughout the book Diesen shows, in detail, how the concept of Eurasia unifying Europe and Asia “has through history been an alternative to the dominance of maritime powers in the oceanic-centric world economy”, and how “British and American strategies have been deeply influenced” by the ghost of an emerging Eurasia, “a direct threat to their advantageous position in the oceanic world order”.

Now, the crucial factor seems to be the fragmentation of Atlanticism. Diesen identifies three levels: the de facto decoupling of Europe and the US propelled by Chinese ascendancy; the mind-boggling internal divisions in the EU, enhanced by the parallel universe inhabited by Brussels eurocrats; and last but not least, “polarization within Western states” caused by the excesses of neoliberalism.

Well, just as we think we’re out, Mackinder and Spykman pull us back in. It’s always the same story: the Anglo-American obsession in preventing the rise of a “peer competitor” (Brzezinski) in Eurasia, or an alliance (Russia-Germany in the Mackinder era, now the Russia-China strategic partnership) capable, as Diesen puts it, “of wrestling geoeconomic control away from the oceanic powers.”

As much as imperial strategists remain hostages of Spykman – who ruled that the US must control the maritime periphery of Eurasia – definitely it’s not AUKUS/Quad that is going to pull it off.

Very few people, East and West, may remember that Washington had developed its own Silk Road concept during the Bill Clinton years – later co-opted by Dick Cheney with a Pipelineistan twist, and then circling all back to Hillary Clinton, announcing her own Silk Road dream in India in 2011.

Diesen reminds us how Hillary sounded remarkably like a proto-Xi: “Let’s work together to create a new Silk Road. Not a single thoroughfare like its namesake, but an international web and network of economic and transit connections. That means building more rail lines, highways, energy infrastructure, like the proposed pipeline to run from Turkmenistan, through Afghanistan, through Pakistan and India.”

Hillary does Pipelineistan! Well, in the end, she didn’t. Reality dictates that Russia is connecting its European and Pacific regions, while China connects its developed east coast with Xinjiang, and both connect Central Asia. Diesen interprets it as Russia “completing its historical conversion from a European/Slavic empire to a Eurasian civilizational state.”

So in the end we’re back to…the Scythians. The prevailing neo-Eurasia concept revives the mobility of nomadic civilizations – via top transportation infrastructure – to connect everything between Europe and Asia. We could call it the Revenge of the Heartland: they are the powers building this new, interconnected Eurasia. Say goodbye to the ephemeral, post-Cold War US unipolar moment.

Tyler Durden Mon, 09/27/2021 - 23:40

Bennett To UN: Israel's Tolerance At "Watershed Moment" As Iran Crossed All Nuclear "Red Lines"

Bennett To UN: Israel's Tolerance At "Watershed Moment" As Iran Crossed All Nuclear "Red Lines"

Israeli Prime Minister Naftali Bennett in his address to the UN General Assembly meeting in New York on Monday warned that Iran's advancing nuclear program has caused Israel's tolerance to hit a "watershed moment"

"Iran's nuclear program has hit a watershed moment and so has our tolerance," Bennett said. "Words do not stop centrifuges from spinning." That's when he emphasized, "All red lines have been crossed," in an ominous tone of forewarning. 

Bennett's UN address Monday, via Reuters

He reiterated prior vows to never allow the Islamic Republic to achieve nuclear weapons capability - an assumption that leaders in Tehran have long disputed. Iran officially calls nuclear arms 'unIslamic' - according to pronouncements over the years by the Ayatollah.

But Bennet in his UN speech alleged that Iran is trying to expand its influence over the whole Mideast region via a "nuclear umbrella" through which it can flex its muscles and dictate its interests - for example in Yemen, Syria, Iraq and Lebanon.

"We will not tire. We will not allow Iran to acquire a nuclear weapon," Bennet said further.

Interestingly, he appeared to lash out at US progressives - including the handful of Progressive Democrats in Congress (namely 'the Squad', which tried to strip an extra $1 billion from a defense bill last week intended to help replenish Israel's 'Iron Dome' munitions) as well as companies which promote the BDS movement to boycott Israel in protest of its treatment of Palestinians:

"Attacking Israel doesn’t make you morally superior. Fighting the only democracy in the ME doesn’t make you woke. Adopting clichés about Israel without bothering to learn the basic facts, well, that’s just plain lazy."

Words alone won't stop centrifuges from spinning, but sanctions relief did. On the other hand, Israeli covert ops triggered an end to intrusive inspections, destroyed an IAEA monitoring camera and triggered 20% & 60% enrichment: https://t.co/lvV889KqUt

— Ryan Costello (@RyeCostello) September 27, 2021

The address follows last week's statement by Iran's foreign ministry which indicated Iran planned to return to Vienna negotiations for the restoration of the JCPOA nuclear deal "very soon". 

Also last week for the first time new Iranian President Ebrahim Raisi addressed a global audience, telling the UNGA meeting via remote feed that Iran is ready and willing to continue Vienna negotiations toward a restored JCPOA nuclear deal, but that Washington must drop its sanctions that contravened the original 2015 deal.

Tyler Durden Mon, 09/27/2021 - 23:20

Texas Attorney General Leads 10-State Coalition Supporting Florida Ban On Big Tech Censorship

Texas Attorney General Leads 10-State Coalition Supporting Florida Ban On Big Tech Censorship

Authored by Katabella Roberts via The Epoch Times (emphasis ours),

Texas Attorney General Paxton announced on Sept. 20 that he is leading a coalition of 10 states in filing an amicus brief with the 11th Circuit Court of Appeals in support of Florida’s law that attempts to regulate censorship on Big Tech social media platforms.

Texas Attorney General Ken Paxton speaks during the launch of an antitrust investigation into Big Tech companies outside the Supreme Court in Washington on Sept. 9, 2019. (Mandel Ngan/AFP via Getty Images)

Paxton signed on behalf of Texas, joining the states of Alabama, Alaska, Arizona, Arkansas, Kentucky, Mississippi, Missouri, Montana, and South Carolina who have also filled an amicus brief in support of Florida’s law.

“The regulation of big tech censorship will inevitably suppress the ideas and beliefs of millions of Americans,” Paxton said in a statement. “I will defend the First Amendment and ensure that conservative voices have the right to be heard. Big Tech does not have the authority to police the expressions of people whose political viewpoint they simply disagree with.”

Florida’s SB 7072 law allows Floridians to take legal action against Big Tech platforms if they censor a user’s content without consistent standards.

The new bill also prevents Big Tech from banning Floridian political candidates. Social media companies that deplatform candidates for statewide office will be fined $250,000 a day. The fine is $25,000 per day when deplatforming candidates for other offices.

Big Tech companies that violate the law can be brought to trial for monetary damage, and the state’s attorney general can litigate companies that don’t comply with the law under Florida’s Deceptive and Unfair Trade Practices Act.

Florida Gov. Ron DeSantis signed the bill into law in May but District Judge Robert Hinkle in June granted a temporary injunction preventing the governor from implementing the law after two Internet trade groups—NetChoice and the Computer and Communications Industry Association— filed a lawsuit.

The trade groups argued the law may violate the First Amendment by compelling social media platforms to host offensive speech they otherwise would not and by interfering with their editorial policies.

The coalition in its amicus brief said the district court’s First Amendment analysis is “riddled with errors.”

“It veered off course from the outset by concluding that S.B. 7072 regulates speech, when that law instead regulates conduct that is unprotected by the First Amendment: social media platforms’ arbitrary application of their content moderation policies,” the coalition wrote.

Earlier this month, Texas Gov. Greg Abbott signed Texas’s House Bill 20—similar to Florida’s law—which protects Texans from wrongful censorship on social media platforms.

House Bill 20 prevents social media companies with more than 50 million monthly users, such as Facebook, Twitter, and YouTube, from banning users based on their political beliefs. The attorney general would also be able to take legal action on behalf of Texas residents that were banned or blocked by a platform due to such discrimination.

“We will always defend the freedom of speech in Texas,” Abbott said. “Social media websites have become our modern-day public square. They are a place for healthy public debate where information should be able to flow freely—but there is a dangerous movement by social media companies to silence conservative viewpoints and ideas. That is wrong, and we will not allow it in Texas. I thank Senator Bryan Hughes, Representative Briscoe Cain, and the Texas Legislature for ensuring that House Bill 20 reached my desk during the second special session.”

Tyler Durden Mon, 09/27/2021 - 23:00

China Issues Rare, Strongly-Worded Defense Of Russia Over US "Bullying" Sanctions

China Issues Rare, Strongly-Worded Defense Of Russia Over US "Bullying" Sanctions

It's been no secret that over the past half-decade China and Russia have grown closer, even becoming unlikely allies (unlikely given historic 20th century antagonism), in the face of Washington pressure and sanctions on officials in both countries. 

This growing cooperation on military, economic and infrastructure development fronts has now reached the next unprecedented step of Beijing publicly defending Russia, vociferously condemning the next round of proposed US sanctions on Moscow officials.

China's Foreign Ministry on Monday stated it "strongly opposes" new sanctions on top Russian officials, saying US Congressional leaders are using human rights as a "pretext" for ensuring attempts at improving US-Russia relations fail. "The US hegemonic and bullying practices are rejected by Russia and China and will meet rejection and opposition from more and more countries," the Monday statement said.

Image source: Reuters

"China is strongly against Washington applying unilateral sanctions under the pretext of protecting human rights" given that it "violates the provisions of the UN Charter and acts contrary to generally accepted norms of international law," spokesperson Hua Chunying said in Beijing.

The statement suggested it's another example of the United States' unilaterally 'bullying' behavior (as Chinese officials have increasingly referenced), and that "a growing number of countries" oppose Washington's attempts to punish Moscow while waiving the flag of human rights. 

The new sanctions in question were part of anti-Russian legislation packaged into the US defense spending budget for 2022. Specifically they target 35 top Russian officials, including the mayor of Moscow and Health Ministry head Mikhail Murashko. The legislation also makes continued reference to 'election interference' and other such usual accusations against the Kremlin.

Beijing issuing such a high level public defense of Putin's Russia comes as China is under a similar human rights spotlight as well, particularly over its Hong Kong crackdown of the last few years, and widespread reports of Uighur minority 'reeducation camps' in northwest Xinjiang region. Typically the foreign ministry has deployed the "double standard" and hypocrisy charge in response to Washington criticisms of China. 

China firmly opposes the US unilateral sanctions on the Russian side. The US hegemonic and bullying practices are rejected by Russia and China and will meet rejection and opposition from more and more countries. @mfa_russia pic.twitter.com/h97RD3zgym

— Hua Chunying 华春莹 (@SpokespersonCHN) September 27, 2021

This fresh defense of Russia points to the two countries deepening their united front against their common enemy, also after joint military drills have in recent years been ramped up. Add to this both the US and UK navies lately deploying a more active presence in contested waters South China Sea and near Taiwan, and its recipe for potential major military confrontation between the West and a Russia-China alliance. 

Tyler Durden Mon, 09/27/2021 - 22:40

Pentagon Says It Won't Ask Taliban Permission For Future Afghan Airstrikes

Pentagon Says It Won't Ask Taliban Permission For Future Afghan Airstrikes

Authored by Dave DeCamp via AntiWar.com,

The US has no plans to ask permission from the Taliban if it decides to bomb Afghanistan in the future, the Pentagon said in its latest statements addressing the issue.

Since the withdrawal, the US has maintained that it has "over the horizon capabilities" to carry out airstrikes in Afghanistan. But even though the Taliban is leading the new Afghan government, the Pentagon has no plans to coordinate with them on potential airstrikes.

Image source: US Air Force

"We retain all necessary authorities to execute over-the-horizon counterterrorism operations, and we remain confident in these capabilities moving forward," Pentagon spokesman John Kirby told Military Times.

"Without speaking to specific rules of engagement surrounding airstrikes, there is currently no requirement to clear airspace with the Taliban, and we do not expect that any future over the horizon counterterrorism strikes would hinge on such a clearance," he said.

The US has hinted at further intervention and airstrikes in Afghanistan under the guise of fighting ISIS-K. The Taliban have accepted air support from the US in the past against ISIS-K, but since the withdrawal was completed, the Taliban have said they don’t need foreign help to fight the terrorist group.

The last known US airstrike in Afghanistan took place on August 29th in Kabul, which killed 10 civilians, including seven children. The Pentagon initially claimed the strike targeted ISIS-K, but it was forced to admit that only civilians were killed in the bombing.

Tyler Durden Mon, 09/27/2021 - 22:20

Musk Publicly Praises China For Second Time This Month At Conference Held By China's Cyberspace Administration

Musk Publicly Praises China For Second Time This Month At Conference Held By China's Cyberspace Administration

The latest leg of Elon Musk's China ass kissing tour commenced this weekend in the form of a pre-recorded stream at the World Internet Conference, which was hosted by the Cyberspace Administration of China.

This marks the second instance this month where Musk took an opportunity to praise China for its work in the EV space.

Musk said that China was the “global leader in digitalization" during the event, CNBC reported.

Musk also continued by saying that Tesla would be expanding their investments in China: “My frank observation is that China spends a lot of resources and efforts applying the latest digital technologies in different industries, including the automobile industry, making China a global leader in digitalization. Tesla will continue to expand our investment and R&D efforts in China.”

The Tesla CEO also called out data protection, reassuring those listening that Tesla stores certain types of data locally.

“At Tesla, we are glad to see a number of laws and regulations that have been released to strengthen data management,” Musk said.

He continued: “Tesla has set up a data center in China to localize all data generated from our business here, including production, sales, service and charging. All personally identifiable information is security stores in China without being transferred overseas. Only in very rare cases, for example, spare parts orders from overseas is data approved for transfer internationally.”

We don't know about you, but that sure makes us feel better.

Recall, we pointed out days ago when Musk praised Chinese automakers - also known as Tesla's competition - as “the most competitive in the world”. Musk also said China had "great potential" as a nation for electric vehicles.

In another pre-recorded appearance at the World New Energy Vehicle Congress, Musk said: “I have a great deal of respect for the many Chinese automakers.”

Data security was also a topic Musk talked about, stating that it was the "cornerstone" of the EV industry as it develops.

Then Musk appeared to make a backhanded allusion that Tesla would be turning over whatever data the CCP wanted: “Tesla will work with national authorities in all countries to ensure data security of intelligence and connected vehicles. With the rapid growth of autonomous driving technologies, data security of vehicles is drawing more public concern than ever before.”

Musk continued: “Public sentiment and support for electric vehicles is at a never before seen inflection point because they know it is the future.”

Tyler Durden Mon, 09/27/2021 - 22:00

Container Ships Now Piling Up At Anchorages Off China's Ports

Container Ships Now Piling Up At Anchorages Off China's Ports

By Greg Miller of FreightWaves,

There are over 60 container ships full of import cargo stuck offshore of Los Angeles and Long Beach, but there are more than double that — 154 as of Friday — waiting to load export cargo off Shanghai and Ningbo in China, according to eeSea, a company that analyzes carrier schedules.

Container terminal in Shanghai (Photo: Shutterstock)

The number of container ships anchored off Shanghai and Ningbo has surged over recent weeks. There are now 242 container ships waiting for berths countrywide. Whether it’s due to heavy export volumes, Typhoon Chanthu or COVID, rising congestion in China is yet another wild card for the trans-Pacific trade.

Ship positions as of Friday (Map: eeSea)

Volatile trade flows

Congestion in Chinese ports that slows the flow of exports is bad news for U.S. importers but it could temporarily alleviate pressure on the ports of Los Angeles and Long Beach.

When operations at the Chinese port of Yantian were heavily curtailed by a COVID outbreak in June, ships at anchor in California’s San Pedro Bay declined. The problem for California ports was that the temporary reprieve was soon followed by a surge of delayed cargo.

“The devil in these things is the whiplash effects,” Simon Sundboell, founder of eeSea, told American Shipper. “What you’d rather have is more stability, not these swings, and I think what everybody fears is that the swings will become even more volatile. When the system is already this stretched, all of these unexpected events can be a causal factor in congestion.”

Ships follow the money

A major driver of congestion on both sides of the Pacific Ocean: Landside capacity (terminals, trucking, rail, warehousing) is limited, but the vessel capacity of a single ocean trade lane is highly flexible.

While the number of ships in the world is finite, operators can shift ships to wherever they make the most money. And the trans-Pacific is now a particularly lucrative trade: Spot rates including premiums can top $20,000 per forty-foot equivalent unit (FEU).

“These assets [ships] are super-mobile,” said Sundboell. “What’s happening now is the opposite of what dogged the industry for the past 20 years. Five years ago, people were asking: How can the trans-Pacific rate drop from $2,000 to $1,500 [per FEU] in the space of just six days? It was because you could take a vessel from one place and sail it someplace else, and suddenly there were more ships and a price war and rates dropped.

“Now we’re seeing the opposite,” he said. As ship operators pile more capacity into the trans-Pacific, congestion rises, delays mount, the incentive for shippers to pay premiums is supported, and all-in rates remain at record highs.

Surging number of services

According to eeSea, the number of Far East-West Coast services has surged from 48 in January to 67 this month. In contrast, the number of services on this lane stayed fairly steady last year, at 42-46.

Data for October-December 2021 based on current schedules. Chart: American Shipper based on data from eeSea

In addition, ships are being drawn from other trades to serve as “extra loaders” (ships that perform one-off voyages). In some cases, multiple ad hoc ships are doing multiple round trips — a hybrid of an extra loader and a scheduled service.

“We’re definitely seeing carriers pulling ships from Asia-Middle East and Asia-Africa and putting them into the trans-Pacific trade,” said Sundboell.

“Whether it’s for one round trip as an extra loader or whether it becomes semipermanent, I don’t even think the carriers know themselves right now. They’re just playing the market and if it makes more economic sense to take a ship from the Middle East and put it in the trans-Pacific, they’ll do it, whether it’s for one month, three months or six months — which is why nobody knows what this network is going to look like six months from now.

“The line managers in Copenhagen and Geneva and Marseille are looking at yields per container and costs per container. And not just per container. They’re looking at it per day, and per container-TEU [twenty-foot equivalent per]-mile.”

Trans-Pacific ships getting smaller

Yet another driver of increased trans-Pacific congestion: There are not only more ships, but the ships are getting smaller, meaning that more vessels are needed to carry the same TEUs.  

According to eeSea, the average capacity of ships serving Asia-West Coast services was 8,601 TEUs in January and is 7,125 TEUs currently, a decrease of 17%.

Data for October-December 2021 based on current schedules. Chart: American Shipper based on data from eeSea

American Shipper recently analyzed the average size of vessels at anchorage or drifting off Southern California currently versus the Q1 anchorage peak on Feb. 1 and found a similar drop: from 8,060 TEUs to 6,184 TEUs, or 24%.

Smaller average vessel size “would definitely slow things down further,” said Sundboell.

Some operators have added trans-Pacific capacity by buying ships in the secondhand market or leasing them in the charter market. Most of the ships available for purchase or charter in 2021 have been in smaller size categories. 

Liner companies’ switching of capacity from other trades is also pulling down average size, because the trades being cannibalized use lower-capacity ships. “The reason you have smaller vessels coming in is that they’re taking them from the Middle East and Africa trades,” said Sundboell.

How does this end?

Ship operators can put as many ships as they want into the trans-Pacific to chase record spot rates, leaving other trades short. But ultimately, the imbalance should self-correct.

“It becomes something that balances itself out,” explained Sundboell, noting that if ships are removed from other trades, rates in those trades would rise to the point where it would entice ships back.

“At a certain point, the rates of the trades you’re leaving increase too much or the cost of having the ships sitting at anchor becomes too much [in terms of lost future cargo],” said Sundboell.

In Q1, when anchorages filled off Los Angeles/Long Beach, carriers were unable to get enough ships back to Asia in time to load cargo, so they had to “blank” (cancel) a large number of sailings, which reduced congestion in Q2.

Given the extreme anchorage situations both off China and Southern California, a repeat of the blank-sailing scenario seems likely in Q4 – a worrisome prospect for importers. 

Lack of visibility

But even companies like eeSea that track blank sailings cannot definitely say what will happen in Q4.

In the first half of 2020, when carriers were blanking sailings due to lockdown-induced demand drops, they announced voyage cancellations months in advance, providing an important signal to the market. This year, there is far less notice, because blank sailings are being caused by congestion, not lower forward demand.

According to Sundboell, “For November, there are only eight blank sailings [on Asia-West Coast] and only three in December, but that is just because the carriers have not communicated them yet. We only put a blank sailing into our system when it is confirmed by the carrier.”

Pre-COVID, he said, carriers believed they were tied down by long notice periods for service changes. “But corona gave them a platform to take out capacity with short notice,” said Sundboell. “Now they’re trying to get more capacity in, but they’ve definitely taken the liberty of being both more volatile with their capacity and with the ‘forecasting’ of their service.

“And I think that’s what’s causing the frustration among the BCOs [beneficial cargo owners; the shippers]. A BCO hates having to be forced to get used to the fact that the vessel is always 10 days late — or that they won’t even know when it’s coming. I don’t think that’s what the carriers are aiming to do, but they’ve certainly found wiggle room to change services on short notice that they’ve never had before.”

Tyler Durden Mon, 09/27/2021 - 21:40

Lawyers & Scientists Are Building A Case For Why Natural Immunity Should Be Treated Same As Vaccination

Lawyers & Scientists Are Building A Case For Why Natural Immunity Should Be Treated Same As Vaccination

Now that at least one employer in the health-care field - Michigan's Spectrum Health - has decided to accept proof of natural immunity from prior infection as reason to waive its vaccination mandate for all employees, legal expert (and the reporters who love to quote them) are wondering: will the legality of proving natural immunity potentially win out in court?

The answer to that question, they say, will depend - as all things COVID-related do - on "the science", that nebulous and frequently shifting concept of how prior infection impacts immunity to new variants (and whether vaccine's do as well).

According to a report in Yahoo Finance, the notion that natural immunity is superior is already gaining support in the legal world. Presently, a handful of studies from different countries offer a conflicting view of whether natural immunity actually is superior to vaccinated immunity, or a combination of prior infection and vaccination

Since it's likely the federal government's aim to roll out vaccine mandates that cover practically every US worker (they're not too far off already), the issue of natural vs. vaccine immunity and whether some individuals should receive exemptions based on their antibody levels almost certainly be adjudicated in the federal courts.

At least one attorney quoted by Yahoo agrees:

"I think that a judge might reject a rule that's been issued by a body, like the U.S. Department of Labor or by a state, that has not been sufficiently thought through as it relates to the science," Erik Eisenmann, a labor and employment attorney with Husch Blackwell, told Yahoo Finance.

As we reported when it was first published, a report out of Israel suggests that natural immunity could be many times more effective than the Pfizer vaccine at preventing infection with the delta variant. That study has yet to be peer-reviewed, however, and the world is anxiously awaiting the results.

However, another peer-reviewed study cited by the CDC looks at dozens of cases in the US where certain people who tested positive for COVID never ended up generating the antibodies, which, science dictates, are necessary to fend off future infection.

The CDC also published a study of 246 Kentucky residents, concluding that vaccination offers higher protection than a previous COVID infection. The CDC said the study went through a "rigorous multi-level clearance process" before submission, but now some are concerned it's slightly out of date since it pre-dates the rise of delta.

But as far as supporting natural vs. vaccinated immunity goes, this study is another big one: A C A June study by the Cleveland Clinic and Washington University tracked 52,238 Cleveland Clinic employees found that within 1,359 previously infected and unvaccinated people, none contracted a subsequent COVID-19 infection over the five-month study. The findings led authors to conclude that prior infection makes a person "unlikely to benefit from COVID-19 vaccination."

Then there's this:

In a smaller study conducted by Washington University School of Medicine and published in Nature, senior author Ali Ellebedy, PhD, an associate professor of medicine and of molecular microbiology, found antibody-producing cells in the bone marrow of 15 of 19 study subjects 11 months after their first COVID-19 symptoms. "These cells will live and produce antibodies for the rest of people’s lives. That’s strong evidence for long-lasting immunity,” Ellebedy said.

The legal and scientific standards are intertwined here, but as more data develops that appears to validate the argument that natural immunity is at least as effective as vaccinated immunity, it's more likely that lawyers will succeed in convincing judges that the standard should be "immunity by any means."

Tyler Durden Mon, 09/27/2021 - 21:20

Arizona Senate Hears Of Multiple Inconsistencies Found By Election Audit

Arizona Senate Hears Of Multiple Inconsistencies Found By Election Audit

Authored by Jack Phillips and Mimi Nguyen Ly via The Epoch Times (emphasis ours),

Arizona lawmakers were told on Friday during a hearing on an audit conducted in the state’s most populous county of inconsistencies uncovered during a forensic audit into the 2020 election.

The Arizona state Senate discusses the Maricopa County audit results during a hearing in Phoenix, Ariz., on Sept. 24, 2021. (Allan Stein/Epoch Times)

The Maricopa County audit was commissioned by Republicans in the Arizona Senate.

Senate President Karen Fann, a Republican, issued a letter on the same day to Arizona Attorney General Mark Brnovich recommending further investigation following the audit’s findings. In the letter, she raised concerns over signature verification on mail-in ballots, the accuracy of voter rolls, the securing of election systems, and the record-keeping of evidence related to the elections.

I am therefore forwarding the reports for your office’s consideration and, if you find it appropriate, further investigation as part of your ongoing oversight of these issues,” Fann told Brnovich in the letter.

Brnovich, a Republican running for the U.S. Senate, said in a statement, “I will take all necessary actions that are supported by the evidence and where I have legal authority. Arizonans deserve to have their votes accurately counted and protected.”

His office said that its Election Integrity Unit “will thoroughly review the Senate’s information and evidence.” Specific allegations cannot be commented on until the review is complete, the office added.

Fann said Friday at the hearing that the audit had faced unnecessary obstruction from Maricopa County officials, who went to court in a bid to try to block the audit and subpoenas from the state Senate. While the forensic audit did not uncover a significant difference in the total vote tallies—the difference was only hundreds in the final report— evidence was uncovered of numerous other anomalies, including statutes being broken and chain of custody not being followed, Fann added.

Cyber Ninjas, a Florida-based company hired by the state Senate to conduct the audit, said its review involved over 1,500 people and a total of over 100,000 hours. While the company said it only found in the recount a vote discrepancy of 994 in the presidential race and 1,167 in a U.S. Senate race, the report highlighted potential issues with a combined total of 53,305 ballots.

Maricopa County on Friday issued a series of statements on its Twitter page in response to findings laid out in a purported draft audit report of Cyber Ninja’s forensic audit that had been released ahead of the Senate audit hearing.

The draft audit report’s figures did not entirely correlate with that of Cyber Ninja’s final report. Fann said Friday at the hearing, “As you know somebody leaked one of the draft reports out over the last 24-48 hours. It was a draft report, so I can tell you that what’s in that is not entirely what’s in the final report.” However, some key allegations in the draft report regarding ballots did match that of the final report.

Arizona Senate President Karen Fann talks to reporters in Phoenix, Ariz., on May 26, 2020. (Ross D. Franklin/AP Photo)

23,344 Mail-In Ballots Voted From Prior Address

According to the Cyber Ninjas’ final report, 23,344 mail-in ballots were received from voters’ previous addresses.

“Mail-in ballots were cast under voter registration IDs for people that may not have received their ballots by mail because they had moved, and no one with the same last name remained at the address. Through extensive data analysis we have discovered approximately 23,344 votes that may have this condition,” the report states.

Cyber Ninjas noted in its report that if ballots are sent by forwardable mail, this would violate the Arizona Elections Procedures Manual.

“The Senate should consider referring this matter to the Attorney General’s Office for a criminal investigation as to whether the requirements of ARS 16-452(C) have been violated,” the company stated in the report.

Maricopa County refuted the allegation on Friday, saying, “Mail-in ballots are not forwarded to another address.” It also asserted that voting from a previous address “is legal under federal election law,” such as in the case of American military and overseas voters. The county also said it had 20,933 one-time temporary address requests for the 2020 general election.

Ballots from the 2020 general election wait to be counted at Veterans Memorial Coliseum in Phoenix, Ariz., on May 1, 2021. (Courtney Pedroza/Getty Images)

9,041 More Ballots Returned by Voter Than Received

Cyber Ninjas found that 9,041 more ballots were returned by voters than were sent to them.

According to the report, “9,041 more ballots show as returned in the EV33 Early Voting Returns File for a single individual who voted by mail than show as sent to that individual within the EV32 Early Voting Sent File.” “In most of these instances, an individual was sent one ballot but had two ballots received on different dates.”

Auditors later noted they were told that some of the discrepancies “could be due to the protected voter list,” but were not able to validate that. Maricopa County released a statement to similar effect on Friday.

The county disputed the finding on Twitter, saying the majority of times when there are multiple entries in the EV33 file are when voters “returned a ballot without a signature or with a signature discrepancy,” and in such cases, election staff contact the voter.

In this screenshot from video, ballots are moved from the Arizona State Fairgrounds to a truck for transport to Maricopa County, in Phoenix, Ariz., on July 29, 2021. (Pool via AP)

Cyber Ninjas: Voters Potentially Voted in Multiple Counties

Cyber Ninjas noted that some 5,295 ballots were affected by voters who potentially voted in multiple counties.

The company said that it had compared Maricopa County’s list of all its voters who cast a ballot in the election (also referred to as the VM55 Final Voted File) to the equivalent files of the other 14 Arizona counties, to find a total of 5,047 voters with the same first, middle, last name, and birth year, representing some 10,342 votes among all the counties.

The Ballot Impacted was calculated by the total number of votes (10,342) and subtracting the number of maximum number of potential unique people (5,047). This yielded 5,295,” the report said.

Maricopa County ballots cast in the 2020 general election are examined and recounted by contractors working for Florida-based company, Cyber Ninjas, at Veterans Memorial Coliseum in Phoenix, Arizona, on May 6, 2021. (Matt York/Pool/AP Photo)

Separately, the company found that the number of ballots tallied in the official Maricopa results were 3,432 more than the total number of people who voted.

The official result totals do not match the equivalent totals from the Final Voted File (VM55),” Cyber Ninjas said (P12).

Cyber Ninjas said the finding is significant because “the number of individuals who showed up to vote should always match the number of votes cast.” The company recommended that legislation “that would require the Official Canvass to fully reconcile with the Final Voted File” should be considered.

Cyber Ninjas said in another finding that there were 2,592 more duplicate ballots than original ballots sent to duplication—a process for replacing damaged or improperly marked ballots with a new ballot that preserves the voter’s intent.

“This is probably one of the more interesting parts … that we had more duplicates than original ballots,” Cyber Ninjas CEO Doug Logan said in his presentation on Friday. “According to our counts from our audit, we had 26,965 original ballots and we had 29,557 that were duplicate ballots, and those numbers should be the same.

Based on the numbers received from Maricopa county, we should have had 27,869 of both originals and duplicates and they should have matched up perfectly,” he added.

Other findings of the ballots impacted included 2,382 in-person voters who had moved out of Maricopa County, and 2,081 voters who moved out of state during the 29-day period preceding the election. Responding to the findings, the county said it had completed separate spot checks and found “no discrepancies” for either of the figures.

Cyber Ninjas also reported that there were 1,551 votes counted in excess of voters who voted, as well as a slew of other categories of findings that affected a smaller number of ballots, such as 397 mail-in ballots sent without there being a record of them having been sent, 393 ballots that had incomplete names, 282 votes cast by individuals who “were flagged as deceased,” and 198 votes cast by individuals who registered to vote after the Oct. 15 deadline, among other smaller categories.

Maricopa County ballots cast in the 2020 general election are audited at Veterans Memorial Coliseum in Phoenix, Ariz., on April 29, 2021. (Rob Schumacher/The Arizona Republic via AP/Pool)

17,322 Duplicates of Early Voting Ballot Return Envelopes

Shiva Ayyadurai, who was commissioned by the Senate to “check the signatures or lack thereof” on the early voting ballot (EVB) return envelopes, said during Friday’s presentation that the audit “reveals anomalies raising questions on the verifiability of the signature verification process.”

Ayyadurai said that his team was hired only to verify whether the envelopes contained a signature—not whether the actual signature matched that of the voter in question.

Of the 1,929,242 return envelopes provided by the Senate, 17,322 duplicates were found, with some voters having cast the same ballot three to four times, according to Ayyadurai’s report (pdf). He noted that Maricopa county’s canvass report, meanwhile, did not report any duplicates. 

In response to duplicated ballot allegations, Maricopa County wrote Friday, “Re: duplicated ballots. Every time a voter has a questioned signature or a blank envelope, we work with that voter to cure the signature. That’s our staff doing their job to contact voters with questioned signatures or blank ballots. Only one ballot is counted.”

Among other several key findings, Ayyadurai noted that over 25 percent of the duplicate ballots were received between Nov. 4 and Nov. 9, 2020.

Workers examine ballots cast in Maricopa County in the 2020 election during an audit at Veterans Memorial Coliseum in Phoenix, Ariz., on May 6, 2021. (Matt York/AP Photo)

Allegations of Deletions

Auditors stated in their report that “according to the Master File Table (MFT) of the drives, a large number of files on the Election Management System (EMS) Server and HiPro Scanner machines were deleted.

These files would have aided in our review and analysis of the election systems as part of the audit,” the report reads. “The deletion of these files significantly slowed down much of the analysis.”

Maricopa denied the allegation in a Twitter post on Friday, saying, “Maricopa County strongly denies claims that @maricopavote staff intentionally deleted data.” The county also said it has “backups for all Nov. data & those archives were never subpoenaed.”

While auditors finished part of the audit that deals with the ballots, they say an evaluation of voting machine equipment is ongoing.

“Because the Maricopa County Board of Supervisors and the Arizona Senate have recently settled their dispute concerning outstanding subpoena items, this portion of the audit is not yet complete,” the Cyber Ninjas’ report states.

Response to Findings

Jack Sellers, Chair of the Maricopa County Board of Supervisors, said in a statement in response to the Senate audit hearing, “The Cyber Ninjas’ opinions come from a misuse and misunderstanding of the data provided by the county and are twisted to fit the narrative that something went wrong.”

Once again, these ‘auditors’ threw out wild, damaging, false claims in the middle of their audit and Senate leadership provided them the platform to present their opinions, suspicions, and faulty conclusions unquestioned and unchallenged. Today’s hearing was irresponsible and dangerous.

Arizona Democrats, meanwhile, pounced on the auditors’ report.

“The Cyber Ninjas embarrassed Arizona for months, violated voters’ trust, refused transparency, and stuck AZ taxpayers with a multi-million dollar bill. What’d they find? Biden won,” Secretary of State Katie Hobbs, a Democrat who has frequently criticized the audit and is trying to become Arizona’s next governor, wrote on Twitter. “The so-called leaders who allowed and encouraged this need to be held accountable in 2022.”

Arizona Attorney General Mark Brnovich speaks at a news conference in Phoenix, Ariz., on Jan. 7, 2020. . (Bob Christie/AP Photo)

But Fann has long said that the goal of the audit was to improve Arizona’s election system and wasn’t designed to overturn the results.

“Our No. 1 goal is to make sure those laws are followed,” Fann said during Friday’s hearing, adding that there are “a lot of people” with questions about the state’s election integrity. Citing a poll, Fann said that 45 percent of Arizona’s voters had significant distrust in the election system.

Ahead of the official release of the report on Friday afternoon by the state Senate, Trump said the audit uncovered “significant and undeniable” fraud in the 2020 presidential election.

The audit has uncovered significant and undeniable evidence of fraud!” he said in an emailed statement. “I have heard it is far different than that being reported by the fake news media.”

Trump added, “Until we know how and why this happened, our elections will never be secure. This is a major criminal event and should be investigated by the Attorney General immediately.”

Arizona was one of several key swing states, including Georgia, Pennsylvania, Nevada, Michigan, and Wisconsin, that were certified for Biden during the Nov. 3 election. Trump won those states, with the exception of Nevada, in 2016. According to official results, Biden won Arizona over Trump by a margin of just over 10,000 votes.

Maricopa County hasn’t responded to The Epoch Times’s request for comment.

Tyler Durden Mon, 09/27/2021 - 21:00

Despite Record Cargo Backlogs, Ports Of L.A. And Long Beach Still Don't Operate Around The Clock

Despite Record Cargo Backlogs, Ports Of L.A. And Long Beach Still Don't Operate Around The Clock

Some of the busiest U.S. ports, including many in California, are still struggling with how to deal with significant cargo backlogs. 

Yet, despite the backlog, the busiest U.S. port still shuts down for hours on most days and is closed on Sundays, the Wall Street Journal reports. "Tens of thousands" of containers remain stuck at the ports of Los Angeles and Long Beach. More than 60 ships are lined up to dock, the report says.

More than 25% of all American imports pass through one of the two ports. LA and Long Beach collectively manage 13 private container terminals. Long Beach officials finally said last week they would try operating 24 hours a day between Monday and Thursday. LA says it's going to keep existing hours and wait for the rest of the supply chain to extend their hours first. 

Gene Seroka, executive director of the larger Port of Los Angeles, said: “It has been nearly impossible to get everyone on the same page towards 24/7 operations.”

Ports in places like Asia and Europe, for contrast, have operated around the clock "for years", the report notes. 

Uffe Ostergaard, president of the North America region for German boxship operator Hapag-Lloyd AG said: “With the current work schedule you have two big ports operating at 60%-70% of their capacity. That’s a huge operational disadvantage.”

As the shortage continues, all members of the supply chain including truckers, warehouse operators and railways, are blaming each other for the shortages of products. All parts of the supply chain are also struggling with a shortage of labor. 

A longshore shift at either of the two ports used to be either 8AM to 4PM or 6PM to 3AM. Overnight shifts of 5 hours were "rarely used" because they are up to 50% more expensive, the report says. 

The International Longshore and Warehouse Union says their members will work a third shift, but only after the pileup of containers is fetched out of the port so there is space.

Frank Ponce De Leon, a coast committeeman at the ILWU, said: “Congestion won’t be fixed until everyone steps up and does their part. The terminal operators have been underutilizing their option to hire us for the third shift.

Meanwhile, elsewhere in the supply chian, Federal safety regulations prevent commercial truck drivers to 11 hours of driving in a 14 hour workday. Port truckers like to start early in the morning so they can maximize the number of loads they can transport in a day.  

Tom Boyle, chief executive of Quik Pick Express LLC, a trucking and warehousing provider, told the Journal: “The biggest issue it probably comes down to is labor.”

Rail operator Union Pacific says it sees most delays when it picks up cargo from ports and hands it to trucks at destinations. 

Wim Lagaay, chief executive of APM Terminals North America, who operates at the port of LA, said: “If you work a gate 24/7 it will improve your velocity. Up to 30% of overall truck appointments are not met because there are not enough trucks, drivers or chassis.”

Matt Schrap, chief executive of the Harbor Trucking Association, added: “There is too much congestion from empty containers on terminals. The shipping lines aren’t moving the boxes out, which is preventing us from returning empties that we are storing in our yards."

Mario Cordero, executive director at the Port of Long Beach concluded: “It’s impossible to effectively move such volumes if we don’t move to 24/7 operations across the supply chain. They do it in other parts of the world.”

Tyler Durden Mon, 09/27/2021 - 20:40

Here's What 'No-Coiners' Don't Get: It's Not Up To The Government

Here's What 'No-Coiners' Don't Get: It's Not Up To The Government

Authored by Mark Jeftovic via BombThrower.com,

My last couple of posts, the first on why a China-style Bitcoin ban can’t happen in Westernized liberal democracies  and the second on how cryptos are a beneficial counterforce to the coming CBDCs seem to have a hit a nerve.

More people than usual made the trip all the way over here to my blog to be sure to tell me how clueless I am and there was a lot of defeatism  in the comments on Zerohedge that all converged around a theme that governments will simply not permit the use of cryptocurrencies once their existence ceases to suit them.

I’ve been involved in cryptos since 2013, and for a long time I too was strategizing out the game theory around why would governments permit cryptos to gain traction.

It wasn’t until relatively recently, that I started to fully grasp something I read a long time ago, before all this crypto business ever started. It was in a rather obscure book by one W R Clement called Quantum Jump: A survival guide for the new Renaissance and it helped me understand the key point of today’s post.

I started alluding to it in A Network State Primer that described how what we understand as “the nation state” is in the process of losing relevance to ascendent network states and crypto-claves. You can chart out the structural differences between those three different governance models based on what the architecture of the monetary layer is:

When it comes to technological leaps like the internet and then public key cryptography and decentralized, non-state, sound money; those who eschew the new paradigms generally do so because they have difficulty fitting the new model into their worldview.

People like Alvin Toffler called this “Future Shock” and he ascribed it mostly to an accelerating rate of change. He wasn’t wrong about that, but what Clement layered atop of that was the ascending level of abstraction.

In the 1400’s the seemingly innocuous discovery of perspective opened the floodgates to the Gutenberg Press and double-entry accounting which opened the path for the Renaissance, the Enlightenment and the Industrial Revolution. Each revolution occurred despite the objections of the incumbent power structures of their day, and that made for volatile, even violent transitions.

In the mid-90’s people were trying to wrap their heads around “cyberspace”. Somebody once wrote in Mondo2000 (I can’t remember who it was, sorry) that “cyberspace is where you are when you’re on the phone”. Meanwhile US lawmakers were calling the internet  “a series of tubes”.

That contrast results from differing levels of abstraction.

Which brings us to the entire point of today’s post.

Levelling up to the next plateau of abstraction alters the architecture of the intellectual constructs upon which systems are based. What worked at the lower level of abstraction not only doesn’t work at the higher abstraction levels, it malfunctions. Clinging to it creates absurdities. Atrocities.

Further, once the level of abstraction jumps, it is the proverbial Promethean dynamic. In this chapter of history, Satoshi has stolen the secret of fire from the Gods and given it to the people. (He did so anonymously, I presume, in an effort to avoid the part where his gizzard is eaten by vultures for all eternity).

But it’s done now, humanity possesses the secret of decentralization and cryptography and nothing short of a complete and total system collapse can undo the newfound cognitive horizons that will accompany it. If society stays on the rails, then the new model will keep spreading at that higher level of abstraction and it will keep accelerating.

In other words, now that cryptos have created non-state, decentralized, open source money, the dynamics of finance and economics have irrevocably changed, and there’s nothing the priests of the temple at The Fed can do about it.

Any attempt by nation states and central banks to preserve the old system, to extend the lifespan of their fiat currencies by porting them into digital forms like CBDCs are simply trying to linearly extrapolate something into a landscape that has fundamentally changed. Faster horses in a new era of cars.

This is what no-coiners do not understand, granted, because many of them are engaged in livelihoods which depend on them not understanding it:

It is not a question of whether governments will permit Bitcoin and cryptocurrencies to exist.

It is a question of whether governments can successfully adapt to the new reality created by the dawning of the decentralized era.

So while policy makers can and will regulate the on-ramps and off-ramps (the exchanges), this is to be expected and it’ll be around these chokepoints where some sort of equilibrium between these two monetary universes will take form.

This diagram depicts the core thesis of The Crypto Capitalist Letter. It’s that the institutionalized financial repressions of NIRP, ZIRP, targeted inflation and coming regimes of UBI, MMT and CBDC-driven social credit are such that capital will exodus from the global bond and fiat bubbles over into the anti-fiat world. Anti-fiat includes gold and silver, it includes real estate, income producing businesses, commodities, intellectual property and cryptos.

It is true that regulations can ramp up and clamp down and become more repressive, for awhile. But as we’re seeing in the world today, the pandemic emergency response is wearing thin and people’s patience for things like lockdowns and mandatory vaccinations is beginning to wane. Here in the West, people were willing to have their freedoms curtailed to meet the exigencies of a global crisis, but they will not countenance government overreach as a way of life. In an ironic sense, the kind of Big Government that may have previously taken decades to creep into intolerable levels may have just accelerated its own rejection and obsolescence with the near ubiquitous, rampant mishandling of COVID.

No matter what happens, the nation state monopoly over the issuance of money is over. That’s why it really doesn’t matter if governments “ban” cryptos. Increasingly higher levels of wealth and capital that are moving into the crypto economy are on a one-way mission: it has no intention of ever returning to the fiat side of the system.

*  *  *

I cover this dynamic extensively in The Crypto Capitalist Letter, a long with a tactical focus on publicly traded crypto stocks. Get the overall investment / macro thesis free when you subscribe to the Bombthrower mailing list, or try the premium service for a month with our fully refundable trial offer.

Tyler Durden Mon, 09/27/2021 - 20:20

China Bans Advertisements For 'Cosmetic Beauty' Loans

China Bans Advertisements For 'Cosmetic Beauty' Loans

A few weeks ago, Beijing abruptly scrubbed one of China's most famous actresses from the Chinese Internet, then outlawed the portrayal of "sissy men" - that is, men dressed effeminately, weak or woman-like (the South Korean boy band sensation BTS comes to mind) in Chinese movies and TV.

Now, as President Xi pushes China to embrace more elements of its Marxist-Leninist founding principles, another cosmetics-related order comes down from on high.

This time, Reuters reports that China on Monday banned advertisements for so-called "medical beauty loans" from playing on televisions, radios and online platforms, saying such advertisements enticed young people with low interest rates, while misleading consumers and causing other "adverse effects".

With the Evergrande debt crisis still in the news, the timing of this latest crackdown is interesting. It seemingly kills two birds with one stone. It's pressing back against cosmetic surgeries which are becoming increasingly popular in the US and China. Many original Communists looked down on makeup and fashion, and cosmetic surgery likely would have been forbidden in many early Communist societies. It was once said that the original Bolsheviks didn't wear makeup.

Beijing has also recently cracked down on out-of-control online fandoms where fans sometimes would even have plastic surgery to look more like their idols.

As one CNBC reported out, the decision to ban advertisements for these types of loans might not have been on anyone's  'bingo card' for what Beijing might do next.

Medical beauty loans def wasn’t in my bingo card for what China will go after next

Also: if they did this in Lebanon that would truly be the end of the nation https://t.co/X74hPfirS4

— Joumanna Bercetche 🇱🇧 (@CNBCJou) September 27, 2021

But it fits in with how President Xi is trying to remake China according to its original Marxist-Leninist principles.

Tyler Durden Mon, 09/27/2021 - 20:00

Pritzker Goes To Bat For What The Wall Street Journal Calls "One Of The Greatest Fiscal Cons In History"

Pritzker Goes To Bat For What The Wall Street Journal Calls "One Of The Greatest Fiscal Cons In History"

Authored by Mark Glennon via Wirepoints.org,

President Biden and his allies in Congress are having a rough time winning support for a new, historic, gigantic spending plan, but they knew who to call for help.

On Friday, Gov. JB Pritzker joined Biden on a Zoom call to with local reporters to make the case for the pending federal legislation.

You may know the bill as the “$3.5 infrastructure bill,” which is what it has been commonly called in the media.

But that’s just a testament to media distortion. It’s not $3.5 billion and it’s not infrastructure.

The true cost is likely to be $5 to $5.5 trillion over ten years according to the bipartisan Committee For A Responsible Budget.

A primary gimmick being used, it said, is pretending that programs intended to be permanent expire, which they say obscures “the true cost of the legislation and put program beneficiaries at risk.”

A Wall Street Journal editorial detailed various “time shift gimmicks” and also explained how some states will be stood up for paying, on their own, part of the cost of new, universal pre-K entitlement and free community college. Hence, their preface: “Behold one of the greatest fiscal cons in history.”

“The press has reported almost none of this,” said the Journal about the phony cost estimates.

The Biden’s Administration’s answer to the cost issue is astonishing, even by its standards. The cost is actually “zero,” they say. Biden himself said the cost is “nothing.” On what basis? They claim they will raise taxes enough to cover the cost.

How’s that for chutzpah? As long as you are billing taxpayers, you can say it costs nothing.

And infrastructure is only a small part of what it’s about, even by CNN’s charitable description: “The sweeping 10-year spending plan marks the biggest step in Democrats’ drive to expand education, health care and childcare support, tackle the climate crisis and make further investments in infrastructure.”

The bill in fact includes a massive expansion of multiple government dependency programs, which CNN tried to list, based on “what we know so far,” as they candidly put it last week. Does anybody really know besides a few insiders?

Adding to the guesswork, House Speaker Nancy Pelosi signaled over the weekend that the size of the bill may be negotiated down, but she also said the first vote may come as early as today, Monday. If that happens, don’t expect most members of Congress to have an honest understanding of what they will be voting on.

What’s most troubling is the timing of the expansion of dependency programs. If ever there was a time to move people out of government dependency and into employment it is now. It doesn’t get any better than this. Jobseekers today have the best job market in American history – over 10 million jobs are unfilled while just 9 million are unemployed. Many employers are desperate for workers. The bill’s supporters, however, measure success by how many can be added to government programs.

The U.S Chamber of Commerce has it right: “This reconciliation bill is effectively 100 bills in one representing every big government idea that’s never been able to pass in Congress,” Chamber President and CEO Suzanne Clark said. “The bill is an existential threat to America’s fragile economic recovery and future prosperity. We will not find durable or practical solutions in  one  massive  bill that  is  equivalent to  more  than  twice the  combined  budgets  of all 50 states.”

Getting back to the Pritzker and Biden Zoom call with local reporters, why did they do it that way? Why not also release the tape of the call so we could see for ourselves? Instead, we got only the media’s post-digestion remains. Dare I say that we should be suspicious of how Biden and Pritzker deal with questions and the media, and with what comes out at the end?

If the subsequent reports in Crain’s and the Chicago Tribune are correct, Pritzker spoke primarily about the expansion of benefits directed toward children. One is child care, lack of which “is holding back our recovery,” he said.

Child care costs no doubt have always been a problem that keep some people from working, but did it occur to any of the reporters on the call to ask Pritzker this: Why would child care be more of an issue today, with the state’s unemployment rate at 7%, than it was before the pandemic when the rate was under 4%? To our knowledge, nobody ever asks that question.

And think about the expansion of the per-child tax credit in the pending legislation, which is the most expensive element in the bill. In concept, that’s a popular idea and has significant bipartisan support, primarily because it is projected to lift many out of poverty. The credit would be for $3,000 to $3,600 per child, depending on age.

But it’s hardly for the poor alone. The credit does not even begin to phase out until relatively high income levels — $75,000 for single parents and $150,000 for married couples. There would be no work requirement to get the credit, and the pending bill would end long-standing rules requiring a child to be a relative of the person taking the credit, as CNBC reported. Instead, whoever is caring for the child could take the credit, regardless of whether they’re related. Seems like a formula for abuse and a step toward making the federal government the family provider.

Whatever the issues are with the pending legislation, Pritzker undoubtedly is thrilled with the prospect of more federal cash flowing into Illinois. That would allow him to kick the can again on addressing the state’s structural deficit, and continue to announce program after program of new spending as he has been doing recently with federal assistance already received.

Biden called the right guy for help.

Tyler Durden Mon, 09/27/2021 - 19:40

Biden Gets Booster Shot, Says 97% Of Americans Need To Be Vaxx'd To Return To Normal

Biden Gets Booster Shot, Says 97% Of Americans Need To Be Vaxx'd To Return To Normal

Just like he did when he received his first jab last year (before he was president), President Joe Biden, 78, posed for the cameras on Monday as he received his first booster jab while cameras clicked and flashed, and he delivered some brief remarks to the public.

The FDA granted an emergency use authorization last week for booster doses of Pfizer's COVID-19 vaccine six months after the completion of the two-dose course for those 65 and older, those with some underlying conditions and those who work in high-risk environments. The Centers for Disease Control and Prevention also recommended a booster shot for these groups of people.

Video of Biden's third inoculation circulated widely on Twitter Monday. Before he received the jab, Biden delivered a brief statement, claiming the White House is preparing for a possible government shutdown as leaders struggle to pass a budget by the end of this month.

Speaking on Monday, Biden emphasized that even though booster shots are important, getting fully vaccinated with the two-dose regimen is even more so.

"Let me clear. Boosters are important. But the most important thing we need to do is get more people vaccinated," the president said before getting his jab. "The vast majority of Americans are doing the right thing. Over 77% of adults have gotten at least one shot. About 23% haven't gotten any shots, and that distinct minority is causing an awful lot of us an awful lot of damage for the rest of the country. This is a pandemic of the unvaccinated. That's why I'm moving forward with vaccination requirements wherever I can."

The president said he thinks the US is "awful close" to having enough of its population vaccinated though he added that he's not a scientist. "But one thing is for certain. A quarter of the country can't go unvaccinated and us not continue to have a problem."

As for the Moderna and J&J jabs, boosters will likely be approved for those as well.

"Well, I think what's going to happen is you're going to see that, in the near term — or we're probably going to open this up anyway," he told reporters after a speech on the administration's vaccination campaign. "They're constantly looking at — we're looking at both Moderna and J&J. And we're both — as I said in the speech — in addition to that, we're also looking to the time when we're going to be able to expand the booster shots, basically, across the board."

At one point during the briefing, Biden said in response to a question that the US vaccination rate would need to be essentially 100% for the American economy to return to "normal".

To be clear, that directly contradicts findings from scientists who believe COVID is now endemic in the human population and will never go away completely.

Furthermore, here is the all-knowing Fauci in May:

“If we get to the president’s goal - which I believe we will attain - of getting 70 percent of people getting at least one dose, adults that is, by July 4, there will be enough protection in the community that I really don’t foresee there being the risk of a surge."

Bear in mind that Norway, which has just lifted 100% of all its COVID restrictions and has actually returned to normal, has a 67% vaccination rate among its population.

Readers can watch two clips from the briefing below:

And readers can watch the full press briefing below:

Tyler Durden Mon, 09/27/2021 - 19:20

North Korea Launches "Unidentified Projectile" Into Sea Of Japan

North Korea Launches "Unidentified Projectile" Into Sea Of Japan

Just days after Pyongyang said they're open to "constructive" talks with South Korea, and two weeks after the rogue nation fired a "new type long-range" cruise missile, South Korea's Yonhap News Agency reports North Korea fired at least one unidentified "projectile" from its eastern coast Tuesday. The latest tick-up in missile firings comes as tensions between the U.S. and China continue to boil, and a US British warship sailed through the Taiwan Strait on Monday. 

Details are scant at the moment, and there's no confirmation if the projectile was a ballistic missile banned under U.N. Security Council resolutions and or how many were fired and how far it traveled. 

"Tuesday's launch could be designed to test whether the South would still brand it as a provocation," Yonhap said. It was noted the projectile landed in the Sea of Japan. 

Three days ago, the powerful sister of North Korean leader Kim Jong Un, Kim Yo Jong, made a surprise statement indicating Pyongyang would be open to talks with South Korea but on condition that Seoul would press the Biden administration to relax the U.S. continued crippling sanctions on the isolated country. The latest firing may indicate talks are not going well. 

Two weeks ago, North Korea test-fired a "new type long-range" cruise missile that would give the country a "strategic significance of possessing another effective deterrence means for more reliably guaranteeing the security of our state and strongly containing the military maneuvers of the hostile forces," North Korea's state-owned media KCNA said. 

If the projectile is confirmed to be a ballistic missile, it would be the third launch this year. 

Today's launch most likely had Beijing's full blessing (if not direct order) as Sino-U.S. relations continue to deteriorate.

Tyler Durden Mon, 09/27/2021 - 19:15

Senate Republicans Vote Down Pelosi's Debt Ceiling Bill, As Expected

Senate Republicans Vote Down Pelosi's Debt Ceiling Bill, As Expected

Having detailed the 'debt limit game of chicken' last week, tonight's vote in the Senate is exactly what was expected.

Senate Republicans on Monday voted down the House-passed bill to fund the government through Dec. 3 and raise the debt limit.

The final vote was 48-50 (60 votes were needed to advance the measure), with Senate Majority Leader Chuck Schumer (D-N.Y.) changing his vote from Yes to No so he could later bring the bill back up for a vote.

"I changed my vote from yes to no in order to reserve the option of additional action on the House-passed legislation. Keeping the government open and preventing a default is vital to our country's future and we'll be taking further action to prevent this from happening this week," Schumer said.

All Republicans voted against the bill as expected.

Senate Minority Leader Mitch McConnell (R-Ky.) has said he will vote for the "clean" continuing resolution if Democrats' move forward with that plan.

“For more than two months now Senate Republicans have been completely clear about how this process will play out. So let me make it abundantly clear one more time, we will support a clean continuing resolution that will prevent a government shutdown. ...We will not provide Republican votes for raising the debt ceiling,” said Senate Minority Leader Mitch McConnell (R-Ky.).

Congress is now just 72 hours away from a potential shutdown, and as Goldman's Alec Phillips wrote today, assuming that Republicans do not vote for a debt limit suspension in the near-term, this seems likely to come to head in the second half of October.

The deadline is not entirely clear, but we think it is most likely to fall in late October.

We expect the Treasury to provide a specific projection sometime after Oct. 1.

A deadline still a few weeks off makes it less likely that Congress will deal with it in the coming week.

If not, the debt limit is likely to get tangled up in other issues later in October, including another shutdown deadline (if Democrats decide to extend spending authority for a few weeks instead of a couple of months) and the debate over the pending fiscal packages.

The most likely scenario seems to be that Democrats will need to pass a debt limit increase via the reconciliation process with only Democratic votes, but there are several procedural and political disadvantages to doing this.

With no attractive options, it is hard to see Congress acting on the debt limit until the deadline for action seems imminent.

The market is already pricing in issues until mid-November (and the bid for short-term debt has sent the early October bill yields negative...

We can already hear the virtue-signaling cries from Schumer and Pelosi over the fact that Republicans are about to plunge America into its darkest period of history ever (well at least since the January 6th amble-around-the-Capitol).

Schumer has already called the GOP position “unhinged,” arguing that there was a choice between “preserving our full faith and credit or vote in favor of an unprecedented default.”

They are “deliberately sabotaging our country’s ability to pay the bills and likely causing the country’s first-ever default in American history,” Schumer said.

To pre-empt those anguished comments, here is Nancy Pelosi herself from January/February 2018...

Let’s be very clear: the reason Congress is facing another stop-gap spending bill is because of @HouseGOP & @SenateGOP incompetence. They must stop governing from manufactured crisis to crisis, & work with Dems to pass the many urgent priorities of the American people. #DoYourJob

— Nancy Pelosi (@SpeakerPelosi) February 6, 2018

This is the first time in recent memory that a government shutdown has been possible when one party — one party — has controlled the White House, House, & Senate. The Republicans own that. #DoYourJob

— Nancy Pelosi (@SpeakerPelosi) January 18, 2018

“Holding the debt limit hostage ... is a dangerous, illogical, and irresponsible way to express that concern,” the Democratic lawmakers wrote.

His response - in the words of Nancy Pelosi - #DoYourJob!

Tyler Durden Mon, 09/27/2021 - 19:06

Goldman Cuts China's Q3 GDP Growth To 0% As A Result Of Growing Energy Crisis

Goldman Cuts China's Q3 GDP Growth To 0% As A Result Of Growing Energy Crisis

It's not just Europe that is suffering the mother of all commodity and energy price shocks: slowly but surely a similar fate is befalling China, where a perfect storm of increased regulation, extremely tight global energy supply, the escalating trade spat with Australia, surging coal prices and a crackdown on carbon has led to energy shortages first at factories and manufacturers and more recently, mass blackouts hitting tens of millions of residents in at least three Chinese provinces (as we discussed earlier).

In our commentary to China's growing energy problem we said that "while the blackouts starting to hit household power usage are at most an inconvenience, if one which may soon result in even more civil unrest if these are not contained, a bigger worry is that the already snarled supply chains could get even more broken, leading to even greater supply-disruption driven inflation."

But there's more than just supply chains: as Goldman's China strategist Hui Shan writes in a note published late on Monday, "the recent sharp cuts to production in a range of high-energy-intensity industries add to the already significant downside pressures in the growth outlook."

While the Goldman strategist explains more in detail further, the production cuts are due primarily to increased regulatory pressure on provinces to meet energy use targets for 2021 but also reflect surging energy prices in some cases. He notes that the NDRC issued ratings in mid-August showing nine provinces as performing poorly based on H1 energy usage, and reportedly intensified its efforts to bring underperformers into line in mid-September.

Based on the number of provinces (9 in NDRC ‘red’ classification) and share of industrial activity affected (Goldman estimates 44%), as well as informed assumptions about the extent of the cutbacks, the bank has estimated the hit to industrial production and overall economic activity for the remainder of the year. The bank's initial estimate is roughly a 1 percentage-point annualized hit to Q3 GDP growth and double this impact on Q4 growth. The bank then also adjusted its fiscal deficit estimates to reflect a smaller augmented deficit
for 2021 (11.0%, vs 11.6% previously), accounted for by a lower deficit in the second half of the year: "This trims our growth assumption by about 25bp in Q3 and 50bp in Q4, given a relatively low multiplier and typical lags."

Putting it all together, Goldman's new growth forecasts for Q3 shrink to flat, or 0% qoq (4.8% yoy), for Q4 to 6% qoq ann (3.2% yoy), and for 2021 as a whole to 7.8% (down from 5.1%, 4.1%, and 8.2% yoy previously.) Here, Goldman caveats that "considerable uncertainty" remains with respect to the fourth quarter, with both upside and downside risks relating principally to the government’s approach to managing the Evergrande stresses, the strictness of environmental target enforcement and the degree of policy easing. In short, how Beijing responds will impact the forecast. Regardless of said response, however, Goldman also takes down its 2022 GDP growth forecast to 5.5% yoy, well below China's new redline in the 6% range.

* * *

Elaborating further, Goldman writes that in recent weeks markets have been focused on developments with respect to Evergrande, its real estate development business, and risks to the broader Chinese property sector. The downward pressures on property sales and construction have added to a myriad of other headwinds for the economy including a relatively tight macro policy stance (epitomized by a balanced official fiscal budget in H1), Covid-related restrictions to counter local outbreaks, and regulatory tightening across a range of other sectors.

To this, we can now add a "new but tightening" constraint on growth from increased regulatory pressure to meet environmental targets for energy consumption and energy intensity (the so-called “dual controls”). As part of the country’s longer-term goal to reach peak carbon emissions by 2030, policymakers formulated shorter term targets for 2021 in March’s Government Work Report – including a 3% reduction in energy intensity of GDP this year. The National Development and Reform Commission (NDRC) monitors these at the provincial level on a quarterly basis. In August, it released a report classifying 9 provinces as category “red” – having missed their H1 targets, including Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi and Jiangsu (Exhibit 1). Another 10 provinces were classified as “yellow”. In mid-September, the NDRC published a plan for “dual controls” and was reported to pressure provinces that had lagged behind to curb energy use.

Why did the energy use targets become binding so soon after being implemented?

While it presumably was not the intention of policymakers to provoke a sharp tightening, at least when the goals were initially formulated, the peculiar nature of the Covid shock has made the economy more energy-intensive, at least temporarily. The boom in exports has boosted energy-intensive manufacturing industries (Exhibit 2), while Covid-related restrictions have primarily affected interaction-intensive service businesses. Meanwhile, efforts to reduce coal-fired related emissions and a reduction in coal imports have affected supply levels at least on the margin, contributing to the  sharp increase in prices discussed earlier.

What follows below is Goldman's attempt to quantify the impact of these production cutbacks on growth in Q3 and Q4.

First, quantifying the impact of energy-related production cuts.

Given the uncertainty associated with the degree and duration of production cuts, Goldman has made a number of simplifying assumptions to size the impact on GDP. Exhibit 4 displays these assumptions and calculations.

First, the bank categorizes affected regions by their 1H 21 energy control ratings given by the NDRC. For the nine provinces where the rating is red, the local governments need to aggressively reduce energy consumption to meet the year-end target and we assume the largest production cuts in those provinces. This means even more pain is coming.

Second, Goldman divides industries by their energy intensity. For ferrous metals, non-ferrous metals and non-metal mineral products, the NDRC labels them as “high energy intensity” sectors and they are also cited most frequently in the news related to the latest power cuts (see here for example). Therefore, the bank assumes the sharpest production cuts (20-40%) in these three industries. Petroleum, coking & nuclear fuel and chemical material & product are also labeled as “high energy intensity” sectors, and are likely to suffer medium levels of production cuts (10-20%). Mining, textile, paper making, chemical fiber and rubber & plastic product require significant energy inputs and have been quoted in news articles as well. Goldman assumes 5-10% of production cuts depending on the province for these industries.

Altogether, Goldman expects the 10 days of production cuts at the end of September to reduce real GDP growth by nearly one percentage point (annualized) in Q3. The rightmost column in Exhibit 4 shows the hit to the level of GDP in Q3 for each set of industries; these sum to 23bp, and given this is a quarter-on-quarter change, the annualized change is slightly less than one percentage point (92bp).

Assuming the production cuts continue in Q4 and affect 10 days per month, they would reduce Q4 real GDP growth by about 1.8% sequentially. Here, Goldman hands out the usual caveats: namely that there is a great deal of uncertainty in our estimates. On the one hand, the bank assumes no places outside of the red and yellow provinces and no industries beyond the 10 industries mentioned above are affected, which will likely underestimate the actual production impact. On the other hand, affected companies may resort to shifting maintenance timing in response to power cuts and production may increase in provinces with non-binding energy caps, leading to less damage to overall growth.

Cutting fiscal deficit forecast

After Chinese authorities quickly unwound the macro policy easing deployed in the first half of 2020, credit growth decelerated, excess liquidity was drained, and the fiscal deficit declined. In fact, fiscal policy normalized so quickly that the country ran an official deficit of zero in the first half of the year. Goldman had expected some reduction in the overall fiscal deficit, but the tighter-than-expected H1 caused the bank to revise its deficit estimate for 2021 lower. While there has been some fiscal easing in July and August, this partly reflects typical seasonal patterns and the deficit is tracking below these downwardly-revised estimates. Significant off-budget elements of the augmented deficit including policy bank lending, trust lending, and land sales are tracking below the bank's forecasts, and the latter in particular seems likely to continue to underperform given the ongoing property market tightening and failed land auctions seen in recent months. On the other hand, local government special bond issuance has accelerated somewhat but remains below the pace needed to fully utilize this year’s quota. Therefore, Goldman is revising a second time, and moving its forecast for the full-year augmented deficit to 11.0% from 11.6% previously.

Adjusting the new second-half deficit forecasts 1.2% lower and applying a multiplier of 0.2 (as well as a modest lag to some spending), Goldman now estimates an impact on qoq annualized growth of roughly -1/4pp in Q3 and -1/2pp in Q4.

The new GDP growth forecasts

Combining these new estimates for the impact of supply-side cuts to energy-intensive production and slightly less support from fiscal policy, Goldman cuts its growth forecasts for:

As a result, Goldman's year-over-year forecasts are now just 4.8% for Q3, 3.2% for Q4, and 7.8% for 2021 as a whole.

Finally, the lower starting point for early 2022 activity pulls the growth forecast for that year down one tenth, to 5.5%, despite modestly stronger sequential growth as restrictions become less binding and policy eases.

Uncertainties and policy response

While the third quarter is nearly over, uncertainty around the Q4 pace remains very large, and a lot of this comes down to the stance of both macro and regulatory policy, i.e., Beijing's reponse. Key drivers of the Q4 outcome will include the timing and extent of:

  1. government measures to stabilize housing sector activity and stretch out the deleveraging in the property sector,
  2. any temporary relaxation of regulatory pressures to meet energy use targets, and/or
  3. macro policy support.

Each of these factors could materialize on either the positive or negative side relative to these new reduced growth forecasts.

Tyler Durden Mon, 09/27/2021 - 19:04

Misguided Petition Demanding Permanent Monthly $2,000 Stimulus Checks Nears Huge Milestone

Misguided Petition Demanding Permanent Monthly $2,000 Stimulus Checks Nears Huge Milestone

Authored by Brad Polumbo viaFEE.org

The federal government has already spent an astounding $42,000+ per federal taxpayer on ostensibly-COVID-related relief and spending programs.

(Did you see that much in benefits?)

Yet millions of Americans are evidently unsatisfied - and are demanding permanent $2,000 monthly “stimulus” checks.

A Change.org petition originally created in 2020 continues to gain support and is now closing in on 3 million signatures. As Newsweek reports, reaching this huge milestone would make it one of the most popular Change.org petitions of all time.

Fourth stimulus check update: Petition for monthly $2,000 nears 2.9 million supporters https://t.co/BCvmdiHPHE

— Newsweek (@Newsweek) September 18, 2021

The petition calls on Congress “to support families with a $2,000 payment for adults and a $1,000 payment for kids immediately, and continuing regular checks for the duration of the crisis.” An addendum to the petition argues that Congress should set up “stimulus” checks that automatically kick in when certain economic thresholds are reached, applying to the current pandemic and all future recessions.

Simply put, a lot of people want a lot more taxpayer-financed checks. Here’s why this push is so misguided.

The petition is being promoted under the hashtag #MoneyForthePeople, and with the general argument that the American people deserve financial support during what continues to be a difficult time for many. Yet the entire concept of permanent stimulus checks as “giving money to the people” is falsely framed.

Resources cannot be created out of thin air. And, as Margaret Thatcher famously said, “the trouble with Socialism is that eventually you run out of other people’s money.”

Indeed, you run out of it very quickly. Such a vast public expenditure can and will not be financed solely by taxing “the rich” or “Big Business,” both mathematically speaking and because they have the resources to easily evade taxes or pass along the costs.

Here’s the simple truth. To give working-class Americans monthly “stimulus” checks would require, directly or indirectly, vastly increasing the taxes those same Americans must pay. To pretend otherwise is to fall victim to what economist Ludwig von Mises dubbed the “Santa Claus principle.”

“The truth is the government cannot give if it does not take from somebody,” Mises explained in Bureaucracy.

“The government and its chiefs do not have the powers of the mythical Santa Claus. They cannot spend except by taking out of the pockets of some people for the benefit of others.”

This is why many government “stimulus” schemes don’t actually stimulate the economy at all. They simply move money around, taking it from one place in the economy and redistributing it elsewhere—typically losing much of it to waste and fraud in the process. So, too, the newfound destination for the funds is virtually always less economically productive than the original, because it’s determined by political influences rather than market factors.

The same flaws plague the push for perpetual $2,000 relief checks.

You aren’t truly helping anyone by taking money out of their wallet and placing it back a few months later, or by doing the reverse. And, in keeping with the federal government’s penchant for efficiency, the first several rounds of stimulus checks involved billions sent to dead people and millions sent to random Europeans. Similar dysfunction would inevitably accompany more permanent redistribution schemes.

It’s eminently understandable that Americans continuing to struggle would be drawn to the idea of perpetual “free” government aid. Yet the idea of getting something for nothing is just a soothing fiction—just like Santa Claus.

Tyler Durden Mon, 09/27/2021 - 19:00

NY Gov Confirms National Guard Will Fill In For Fired Healthcare Workers Who Refuse Vax

NY Gov Confirms National Guard Will Fill In For Fired Healthcare Workers Who Refuse Vax

As New York braces for a flood of unemployed front-line healthcare workers who refuse to get the Covid-19 vaccine (regardless of whether they have 'natural immunity' from a previous infection), Governor Kathy Hochul (D) made it official on Monday - that the National Guard will be deployed to fill vacancies after hundreds of hospital workers are set to be fired effective this evening.

Effective midnight tonight, nurses and hospital staff that did not get the vaccine will be fired

NY Gov Hochul will deploy the National Guard to fill for the hospital staff shortages pic.twitter.com/5qojb82Idy

— Jewish Deplorable (@TrumpJew2) September 27, 2021

The move comes after Hochul previously threatened to replace unvaccinated hospital workers with 'foreign workers'.

Once heralded as heroes for treating Covid patients before the vaccine, front-line healthcare workers who refuse to take the jab are in good company with teachers, police, NBA players, and other professionals whose unions have opposed vaccine mandates.

According to CDC irector Rochelle Walensky, the loss of unvaccinated healthcare workers is a 'challenge.'

As Jack Phillips of the Epoch Times writes:

Centers for Disease Control and Prevention (CDC) Director Rochelle Walensky said COVID-19 vaccine mandates for healthcare workers will likely create staff shortages around the United States, coming as some hospital CEOs have issued warnings.

We have seen that these vaccine mandates get more people vaccinated,” Walensky said during a “Good Morning America” appearance on Monday. “It absolutely creates a challenge. What I would say is [we need] to do some work … to understand where their hesitancy is so we can get them vaccinated and get them back to work,” she said.

In New York, Gov. Kathy Hochul said in a Saturday statement that she may direct the state’s National Guard to replace healthcare workers who resign or are terminated due to the state’s vaccine mandate. The governor also floated the idea of using out-of-state nurses, accredited healthcare workers from other countries, or tapping retired nurses who were vaccinated to replace them.

During her interview Monday, Walensky acknowledged that staff shortages “absolutely” create “a challenge” and didn’t offer a definitive plan to address the potential shortfall of healthcare workers.

“What I would say is [we need] to do some work, to educate these healthcare workers,” she added, “to meet them where they are, to understand where their hesitancy is so we can get them vaccinated and get them back to work.”

The deadline for New York state’s healthcare workers to receive the Covid vaccine is Monday, Sept. 27. According to the governor’s office, about 16 percent of the state’s medical workers have not received the vaccine.

Earlier this month, Lewis County Health System Chief Executive Officer Gerald Cayer said the Lewis County General Hospital in Lowville will not have the capacity to deliver babies in the near future after six employees at the firm’s maternity ward resigned instead of taking the vaccine.

If we can pause the service and now focus on recruiting nurses who are vaccinated, we will be able to reengage in delivering babies here in Lewis County,” Cayer said at a news conference on Sept. 10.

A federal judge on Sept. 14 temporarily suspended the statewide vaccination mandate for healthcare workers after a group of healthcare workers filed a lawsuit against the state, arguing that their Constitutional rights were violated because religious exemptions were not allowed.

Last week, 10 individual state hospital security officers filed a lawsuit against Hochul, Heath Commissioner Howard Zucker, and the New York State Health Department and are seeking to partake in regular COVID-19 testing instead of being forced to receive the vaccine.

Tyler Durden Mon, 09/27/2021 - 18:40

Morgan Stanley Dismisses Market's "Strong Rebound", Remains Bearish On Coming Earnings Disappointment

Morgan Stanley Dismisses Market's "Strong Rebound", Remains Bearish On Coming Earnings Disappointment

For just a few hours last Monday, Morgan Stanley's chief economist felt vindicated: with stocks tumbling on Evergrande default fears, Wilson emerged from his faux-bull cocoon (having raised his year-end S&P price target from 3,900 to 4,000 in August in a note that reeked of disgust with what he was being told to do) and warned that an "Ice is coming", referring to a 20% drop in stocks as opposed to the more modest 10% correction envisioned in his "fire" scenario, saying that "the "ice" scenario is starting to look more likely, and could result in a more destructive outcome – i.e. a 20%+ correction", a drop he expects will take place some time this fall.

Wilson also predicted that with earnings growth and PMIs set to drop, it would adversely impact forward PE multiples and by extension the S&P.

Well, what a difference 7 days makes: with Evergrande default fears now long forgotten amid still unconfirmed speculation that China will somehow make it all better and nationalize the troubled developer with little to no offshore contagion, the S&P is almost 150 points from its "Evergrande Monday" lows and once again pushing back toward all time highs (even if with a major rotation in the leadership as tech stocks are now sliding, having been replaced by value, cyclical and reopening names) in the process yet again foiling Wilson's bearish visions.

So has the market's sharp post-opex bounce changed the mind of the chief strategist that this seemingly invincible market will never go down again more than just a token 5% move?

Today we got the answer in Wilson's latest weekly warm-up not, in which he makes it clear that his bearish outlook remains, and as he explains, "our process tells us the risk-reward remains unattractive at the index level given slowing growth and rising rates. Meanwhile, price action can be interpreted bullishly or bearishly. With 3Q earnings season likely to bring a much more muted outcome, we remain defensive in our positioning."

We'll get to why in a second, but first Wilson - realizing that he would get a criticism for what many viewed as a premature victory lap - spends the first few paragraphs of his latest note going over the details of his analytical process. This is how he lays it out:

Our equity strategy process has several key components. Most importantly, we focus on the fundamentals of growth and valuation to determine whether the overall market is attractive and which sectors and stocks look the best/worst. The rate of change on growth is more important than the absolute level, and we use a market-based equity risk premium framework that works well as long as you apply the correct regime when using it. In that regard, we’re an avid student of market cycles and believe historical analogs can be helpful. For example, the mid cycle transition narrative that has worked so well this year is derived directly from our study of historical economic and market cycles.

The final component we spend a lot of time on is price. While most would call this technical analysis, we’d like to think we do it a little bit differently. Markets aren’t always efficient, but we believe they are often very good leading indicators for the fundamentals—the ultimate driver of value. This is especially true if one looks at the internal movements and relative strength of individual securities. In short, we find these internals to be much more helpful than simply looking at the major averages.

This year, we think the process has lived up to its promise quite well with the price action lining up nicely with the fundamental backdrop. In short, the large cap quality leadership since March is signaling what we believe is about to happen—i.e., decelerating growth and tightening financial conditions. The question for investors is whether the price action has fully discounted those outcomes.

With that disclosure in hand, and with the clear understanding that at least in his view investors are not discounting any adverse outcomes at this point, Wilson proceeds to discuss the recent market action, noting that stocks "sold off hard last Monday on concerns about the Evergrande bankruptcy" and while he adds that it is the Morgan Stanley "house view" that it likely won’t lead to a major financial contagion, "it will probably weigh on China growth for the next few quarters which means that the growth deceleration we are expecting could be a bit worse."

The other reason Wilson suggests was behind the market weakness early last week "likely had to do with concern about the Fed articulating its plans to taper asset purchases later this year and perhaps even move up the timing of rate hikes to next year. On that score, the Fed did not disappoint as they pretty much told us to expect the taper to begin in December. The surprise was the speed in which they expect to be done tapering—by mid 2022. This is about a quarter sooner than the market had been anticipating and does move up the odds for a rate hike in 2022."

Curiously last week's rally happened in the aftermath of the market's perplexing kneejerk response to the Fed meeting on Wednesday, when stocks rallied even as bonds sold off sharply, particularly at the back end. Real 10-year yields were up 11bps in 2 days and are now up 31bps in just 8 weeks (Exhibit 1). That according to Wilson is "tightening of financial conditions for sure" and should weigh on PEs overall but it also has big implications for what should work at the sector/style level (Exhibit 2).

In short, Wilson digs in and claims that higher real rates should mean lower P/Es overall which likely means lower S&P 500, thus validating his bearish view which still sees the S&P dropping some 20% from its current perch to hit 4,000 by year end. However, he concedes, "it may also mean value over growth and small caps over Nasdaq even as the overall equity market goes lower."

Which brings us to the key question we spent quite some time discussing last week, namely why did stocks rally so much into the end of the week on what Wilson says are odds that growth will decelerate more than expected from Evergrande and financial conditions may tighten faster?

Here Wilson is at least honest - as he puts it - and says "we’re not sure but we think this may be a time when the markets are playing tricks on investors and even setting a bit of a trap." Actually it's simpler than that and has to do with the gamma reversal and technical flows we pointed out last week, but one has to be a "greek geek" - like Nomura's Charlie McElligott - to get that.

The other explanation proposed by Wilson is "that investors were somewhat positioned for bad news going into the Fed meeting and the actual event simply served as a relief that it didn’t lead lower prices. This price action drove many investors to chase on Thursday for fear of missing out. In short, don’t underestimate the power of price to determine how investors interpret the facts. Just like negative price action can get people to sell the lows, positive price action can force people to buy", he concludes.

Whatever the reason for the initial bounce, it quickly accelerated and there was "a lot of excitement last Thursday when stocks rallied sharply back above the 50 day moving average, a key barometer for many and a key level of support throughout this year for the S&P 500." That this happened when the 50DMA was broken "on near record levels of volume in both the cash and derivatives markets" only punctuated the strength of the rebound. By Friday, that moving average had been reclaimed and closed above it for the week, an important technical win as even Wilson admits. However, he then adds, from his vantage point, "the very well defined uptrend that has been established over the past year was broken and not reclaimed. Instead, it looks like the rally from Wednesday to Friday was simply "filling the gap" created from Monday's break."

His conclusion on upcoming market action will hardly come as a surprise to those who have followed Wilson's progressive pessimism across 2021: pointing to the market's inability to recover its prior trendline, he says "this leaves the technical picture very uncertain in our view and one can now break either way. With our fundamental view skewing poorly at the moment, we lean to the bearish outcome."

Getting back to his process, Wilson then says that he has high conviction that "earnings growth is likely to decelerate more than what the current consensus is forecasting." Furthermore, he thinks the market is starting to agree with that view and points to market breadth as a good leading indicator for earnings revision breadth where he says "direction is clear" and pointing to the newly shrinking market breadth, he reminds readers that earnings revision breadth is a good leading indicator for the overall market.

It will therefore hardly come as a surprise that with Wilson still clearly bearish, his advice to clients is "don’t get too caught up in last week’s strong rebound from Monday’s sharp sell off" which he views as a clean break of the uptrend and a filling of the gap created from Monday's crack. And with the technical picture murky, "that's a time to trust the fundamental and cycle analyses which suggest lower equity prices ahead" and as growth decelerates and financial conditions tighten, valuations are likely to fall from their lofty levels.

* * *

With all that in mind, Wilson goes back to his core fundamental thesis which is simple: after a blockbuster Q2 season, earnings are set to drop substantially as a result of the margin compression we discussed most recently over the weekend, to wit:

Since the second quarter of 2020 earnings results have come in much higher than consensus forecasts. Earnings beats ranged from 14% - 22% over this period while the median beat rate since 2008 is only 5%...We do not think companies will continue to beat at such an unprecedented rate and believe 3Q could see a material change in the more recent trend as supply chain issues and labor shortages pose a risk to both top line and margins.

We looked at how 3Q earnings estimate revisions have trended at the industry group and sector level. Significant cuts have occurred in insurance, capital goods and transportation. Consumer Durables is the only area that has seen significant positive revisions at the industry group level. 3Q S&P 500 estimates have fallen by 77 bps over past 4 weeks. We expect more downside.

No surprises there, as the margin compression story is a familiar one ("Margins Crushed As Producer Prices Explode At Record Pace In July"). To Wilson, however, this is the story and one which the market refuses to even consider:

2022 consensus margin estimates are historically lofty...we examine the risks to margins in coming quarters through two different top down approaches. The spread between GDP growth and wage growth correlates fairly closely with operating margins over time. Based on our economists' estimates, this spread should decelerate in coming quarters, which suggests margins should contract, not expand as bottom-up consensus expects.

Further, corporate transcript mentions of "cost pressures" and related terms are historically elevated. When this has happened in the past, margins have consolidated.

Wilson's final bearish point is that companies are reaching the limit on how much of rising input costs they can pass on to consumers. As he puts it, while "many investors that we speak to are optimistic about corporates' ability to pass on cost through pricing and protect margins" he would caution that "prices in several consumer end markets are already at a level that is inhibiting demand. We think the risk of this dynamic (high prices leading to demand destruction) spreading to other areas of consumer demand is especially elevated because goods consumption is already so far above trend—in other words, high prices are that much more of a deterrent given households have already overconsumed in many areas."

Translation: absent another multi-trillion stimmy - and thanks to the chaos in the democratic party we know one is unlikely to come - Wilson's call for a 20% drop in stocks in the next few months remains intact.

Tyler Durden Mon, 09/27/2021 - 18:20

State Dept Says About 100 US Citizens Seeking To Leave Kabul - Foreign Airlines Staying Away

State Dept Says About 100 US Citizens Seeking To Leave Kabul - Foreign Airlines Staying Away

It's been nearly a month since the last US military plane departed Kabul international airport with the last American troops and civilians. But as many international correspondents on the ground in the Afghan capital have made clear, US citizens are still there, having been trapped for weeks amid charges that President Biden abandoned them to uncertain fates under hardline Taliban rule. 

The State Department announced Monday that according to its count, about 100 American citizens and lawful permanent residents are currently seeking to leave Kabul. This number could likely be significantly higher, given in the same statements a US official admitted the number is not precise and changes daily. "About 100 US citizens and lawful permanent residents are ready to leave Kabul, Afghanistan," an official was cited in The Hill as saying.

Image via The Daily Mail/Newscom

Crucially, there was no mention of precisely when they will actually depart or indication that any concrete plans have been put in place, only that "We’re also going to continue working closely with other governments and with a range of outside advocates to support Afghans wanting to leave the country," as the US official explained. 

Within two weeks of the US pullout the Taliban had announced Kabul's airport was fully operational with the help of Qatari and Turkish technicians, and domestic flights quickly resumed. However, foreign airlines have not returned to the country, making it effectively impossible for trapped Americans to fly out of the country, despite "assurances" recently given by the Taliban that any foreign nationals wishing to leave would be given safe passage.

The Taliban on Monday began urging foreign airlines to return to the country:

Afghanistan’s Taliban government Sunday asked foreign airlines to resume commercial flights to and from Kabul, saying problems at the capital city’s airport had been resolved and the facility "is fully operational."

The newly established Taliban foreign ministry said "As the problems at Kabul International Airport have been resolved and the airport is fully operational for domestic and international flights, the IEA assures all airlines of its full cooperation."

US lawful permanent resident trapped in Afghanistan with family: 'I don't believe I'm getting out safe'https://t.co/eKJVbCz8kP

— Fox News (@FoxNews) September 24, 2021

Meanwhile the Biden administration is coming under increased pressure to rescue the tens of thousands of Afghans who had worked with US-NATO forces as translators and local staff during the two-decade occupation (commonly estimated at 100,000 or more people). As one Fox report underscores, lawmakers are demanding that the US cut through red tape and fast-track local Afghan allies' legal path to enter to the United States.

John Sifton, the Asia Advocacy Director for Human Rights Watch, said in a Fox interview, "They are operating in a sense of incredible fear because nobody knows what the Taliban are going to do. And separately Michigan Republican Rep. Peter Meijer said "Many are hiding in safe houses or are constantly changing locations."

The Congressman and Army Reserve veteran described: "There's already been a significant amount of retributive killings," adding that "Folks are getting dragged out of their house and killed."

Tyler Durden Mon, 09/27/2021 - 18:00

"The Endgame Of Communist Rule Has Begun": Evergrande's Fall Shows How Xi Has Created A China Crisis

"The Endgame Of Communist Rule Has Begun": Evergrande's Fall Shows How Xi Has Created A China Crisis

Authored by Niall Ferguson, op-ed via Bloomberg.com,

The developer’s collapse isn’t leading to global contagion, but China’s looming economic disaster might...

A major mistake of the Cold War was the tendency of Western observers to overestimate the Soviet Union. I have often wondered if the same mistake is being repeated with the People’s Republic of China. Then again, for every article over the last 10 years that predicted China’s economy would overtake that of the U.S., there were at least two prophesying a “China crisis.”

“The endgame of Chinese communist rule has now begun,” wrote David Shambaugh in 2015.

Wisely, he added: “Its demise is likely to be protracted.” 

That same year, Jim Chanos of Kynikos Associates warned, “We’re getting inexorably to a tipping point in China.”

Last week began with yet another China tipping point. The impending collapse of the giant property developer China Evergrande Group, we were warned, could be China’s “Lehman Moment.” For 24 hours, global stock markets retreated by a couple of percentage points. By Tuesday morning, however, the story appeared to be over. The jitters subsided and investors got back to parsing the utterances of U.S. Federal Reserve Chair Jay Powell to make sure that nothing he said was surprising.

So if the China crisis never happens — no matter how many times China permabears like Chanos predict it — does China eventually overtake the U.S.? Thus far, it has done so only in terms of gross domestic product adjusted on the basis of “purchasing power parity,” which allows for the fact that a meal in Chongqing is quite a bit cheaper than one in Chicago. On a current dollar basis, China’s GDP last year was still just 72% of U.S. GDP, even with Hong Kong included.

Will China surpass America? No, I don’t think so. Nearly three years ago, in the heat of a lively debate in Seoul, I bet the Chinese economist Justin Yifu Lin 20,000 yuan (roughly $3,000) that China’s economy — defined as GDP in current dollars — would not overtake that of the U.S. in the next 20 years. I am sticking with that bet, even if the Lehman Moment for the Chinese financial system never comes. Here’s why.

Let’s begin by recalling how many experts believed the Soviets would overtake America. In successive editions, the economist Paul Samuelson’s hugely influential economics textbook carried a chart projecting that the gross national product of the Soviet Union would exceed that of the U.S. at some point between 1984 and 1997. The 1967 edition suggested that the great overtaking could happen as early as 1977. By the 1980 edition, the time frame had been moved forward to 2002-2012. The graph was quietly dropped after that.

Samuelson was by no means the only American scholar to make this mistake. A late as 1984, Harvard’s liberal guru John Kenneth Galbraith could still insist that “the Russian system succeeds because, in contrast with the Western industrial economies, it makes full use of its manpower.” Economists who discerned the miserable realities of the planned economy, such as G. Warren Nutter of the University of Virginia, were few and far between — almost as rare as historians, such as Robert Conquest, who grasped the enormity of the Soviet system’s crimes against its own citizens.

We know now how wrong Samuelson, Galbraith et al. were. After 1945, according to the late Angus Maddison’s estimates, the Soviet economy was never more than 44% the size of that of the U.S. By 1991, Soviet GDP was less than a third of U.S. GDP.

China has of course learned lessons from the Soviet experience. Beginning in the late 1970s with Deng Xiaoping, China’s leaders understood that the Communist Party could harness market forces for the perpetuation of their own power, but they must never relax the party’s political grip. If there is one thing the CCP can be relied on never to produce, it is a Chinese Mikhail Gorbachev.

In the same way, the Chinese have learned from the American experience. I remember vividly how, in the wake of the 2008 collapse of Lehman Brothers, eminent Chinese economists visited Harvard (where I taught at the time) and doubtless many other institutions to research the causes of the global financial crisis. Somewhere in President Xi Jinping’s office there must be a copy of the report they subsequently wrote. If there is another thing the CCP can be relied on never to produce, it is a Chinese Lehman Moment.

Yet, as the great English historian A.J.P. Taylor once observed of the French Emperor Napoleon III, he “learned from the mistakes of the past how to make new ones.” As I contemplate Xi, I find myself wondering if the Communist Party has inadvertently produced a Chinese version of Napoleon III, whose reign was also marked by rampant real estate development. (The Paris you see today was in large measure the achievement of his prefect of the Seine, Georges-Eugene Haussmann.)

Evergrande is mainly significant as an illustration of how the Chinese economic model has evolved over the past decades of urbanization on steroids. It is China’s second-largest property developer, with an estimated $355 billion of assets across 1,300 developments. It has around 200,000 employees, and usually hires 3-4 million laborers a year for construction work.

It is also the most-indebted property developer in the world, with on-balance-sheet liabilities equivalent to nearly 2% of China’s annual GDP, and off-balance-sheet obligations equal to another 1%. Among its liabilities are $37 billion in bills and trade payables owed to suppliers and contractors, and an estimated $6 billion in high-yielding wealth management products, which it has sold to more than 80,000 retail investors.

Evergrande is just one of many such leveraged real estate companies in China. It just happens to be the most overstretched, so it was the first to get in trouble when the government introduced its “three red lines.” These specified that a property developer’s ratio of liabilities to assets must be below 70%; its ratio of net debt to equity below 100%; and its ratio of cash to short-term debt at least 100%. Evergrande was on the wrong side of all three lines, but it was in good company. Of the country’s 15 biggest developers, only one is fully compliant with the new rules, according to data in the South China Morning Post.

When the Chinese government decides to make an example of an over-leveraged player, we know what happens next, and it’s not a global financial crisis — not even a domestic one. There will be some more brinkmanship, as there was last week, with some bondholders (onshore) getting paid and others (offshore) being asked to wait. But at some point soon — probably before the October holiday — the government will force through a formal restructuring and bankruptcy process. Those considered politically important will get off lightly; the politically disposable will lose their shirts; a few top executives will face jail. That was what happened with the travel conglomerate HNA Group Co. in 2018. It was what happened to Baoshang Bank Co. in May 2019.

The most sanguine take I read last week came from the always interesting MacroPolo series of papers published by the Paulson Institute, founded by former Treasury Secretary Hank Paulson (himself something of an authority on Lehman Moments). According to Houze Song, the Evergrande crisis was the result of a policy error, because “China’s financial regulators … preoccupied with stifling a property and land sales bubble … mandated banks to cut back on mortgage loans.” Fewer mortgages drove down housing prices, pushing Evergrande to the brink of insolvency. However, everything will turn out fine because:

1) The central bank will further relax mortgage policy to alleviate the liquidity crunch for the property sector;

2) Property sales will rebound as demand for housing remains healthy;

3) The more vulnerable firms will be able to sell their assets (e.g., land) to raise cash.

“These dynamics will be mutually reinforcing,” he concludes, “and will help to stabilize the property sector as it muddles through this year.”

The People’s Bank of China has already taken action. On Thursday, it sought to alleviate the financial stress with the equivalent of $17 billion in the form of seven- and 14-day reverse repurchase agreements, its largest open-market operation since January. Evergrande shares in Hong Kong duly rallied. Crisis over. Stand down the plunge protection team.

All this goes to show that a Lehman Moment was never in the cards. China’s state-controlled financial system has state-controlled crises, which are targeted at particular firms “pour encourager les autres”— not to trigger the kind of generalized bank run that drove the global financial system to the point of collapse in the winter of 2008-2009. 

Nevertheless, it is possible to avoid financial contagion without necessarily avoiding a more insidious macroeconomic contagion. As the Harvard economist Ken Rogoff showed last year in a paper co-authored with Yuanchen Yang of Beijing’s Tsinghua University, real estate plays an even bigger role in China’s economy today than it did in the U.S. economy on the eve of the financial crisis. The impact of real estate-related activities amounted to 18.9% of U.S. GDP in 2005, its pre-crisis peak. The equivalent figure for China in 2016 was 28.7%. None of the 10 other countries in their sample come close, except Spain on the eve of the financial crisis (28.7% in 2006).

The detail is eye-popping. In all, around 27% of Chinese bank loans come from the real estate sector. Real estate is the main form of collateral for loan securitization. In 2017, almost 18% of the urban labor force was employed in real estate and related industries. In 2018, the sale of land by local governments accounted for as much as 35% of their revenues.

Much as happened in Japan in the housing bubble of the late 1980s, the market value of China’s housing stock is now more than double that of the U.S. and triple that of Europe. This means that housing wealth forms a significantly larger share of overall assets in China (78%) than it does in the U.S. (35%). Rogoff and Yang conclude that Chinese households’ consumption is therefore “significantly more sensitive to a decline in housing prices” than that of their American and Japanese counterparts. A “20% fall in real estate activity could lead to a 5-10% fall in GDP, even without amplification from a banking crisis, or accounting for the importance of real estate as collateral.”

To put it simply, China’s growth has been boosted for many years by the construction of an excess supply of housing units. This has been financed by an unsustainable mountain of debt. As the Beijing-based economist Michael Pettis noted last week, “China’s official debt-to-GDP ratio has soared by nearly 45 percentage points in the past five years, leaving it with among the highest debt ratios for any developing country in history.”

Relative to the size of the economy, nonfinancial corporate debt in China is now even bigger than it was in Japan in the late 1980s. And both tower blocks and debts have been going up at a time when the Chinese workforce has begun to come down. With the birthrate falling, the total population is forecast by the United Nations to shrink by around 25% by the end of the century — conceivably even by 50%.

The result is not so much the proverbial bridges to nowhere as homes for no one. Between a fifth and a quarter of Chinese housing stock is estimated to be empty. Last week, the Rhodium Group’s Logan Wright estimated that there was enough empty property in China to house more than 90 million people.

Of course, no “China crisis” article for the past 20 years has been complete without images of uninhabited ghost cities. But there was always the counterargument: “If you build it, they will come.” Well, they built 15 high-rise apartment blocks in the southwestern city of Kunming back in 2013. Unfortunately, the developer ran out of money and the buildings turned out to be defective. Last month, “Sunshine City II” was spectacularly demolished in a succession of controlled explosions. That one video clip impressed me more than all the ghost city videos I’ve seen over the years. Nothing says “wealth destruction” quite like toppling tower blocks.

The crisis in real estate has much wider ramifications than the inevitable restructuring of Evergrande. Other developers are under pressure (the fact that one is called Fantasia says it all). Housing sales are down. So are land sales by local governments. Exposed banks are under pressure, as are the steel producers and iron-ore exporters who for so long grew rich on Chinese construction. And, as falling apartment prices reduce household wealth — just as Rogoff and Yang foresaw — we can expect a significant impact on consumption. The August data already showed a decline in year-on-year retail sales growth from 8.5% in July to 2.5%, though this partly reflected the effects of anti-Covid restrictions. That slowdown seems likely to persist through September and October.

For years, Pettis and others have argued that China’s growth rates were artificially inflated and that the steroid-free growth rate was probably half the official target. Some China economists quoted in the press last week suggested a growth rate closer to 4% in the coming decade. Leland Miller, of China Beige Book, even suggested a rate of 1% or 2% 10 years from now.

It will be interesting to see if the International Monetary Fund revises down its growth projections for China in next month’s World Economic Outlook. Back in the summer of 2020, the IMF thought China’s economy would grow 9.2% this year and 5.7% next year. The 2021 figure has since been lowered to 8.1%. The most recent 2023 projection was 5.4%. All these numbers look on the high side to me, even allowing for the unreliability of Chinese statistics.  (Thank heavens the managing director of the IMF would never contemplate overstating China’s economic performance! Oh wait, that’s precisely what Kristalina Georgieva is accused of having done when she was at the World Bank.)

Many foreign investors have been on the wrong side of all this. In the 15 months through June 2021, they poured $527 billion into Chinese stocks and bonds. A good deal of that money found its way via the offshore dollar bond market into high-yielding real estate debt. Among the funds known to hold Evergrande debt are Fidelity International Ltd., UBS Asset Management, Amundi Asset Management SA, and BlackRock Inc. Last week it fell to Ray Dalio of Bridgewater Associates to rally the China bulls. The Evergrande crisis was “all manageable,” he said. The system would be “protected.” But it Is striking that on Aug. 3, George Soros warned investors in China that they faced “a rude awakening,” and on Sept. 6, he called out “BlackRock’s China Blunder.” When Soros and Kyle Bass are on the same side, things get interesting. (Bass’s fund, Hayman Capital Management, has been short China for years.)

“The regime which is destroyed by a revolution is almost always an improvement on its immediate predecessor,” wrote Alexis de Tocqueville in “The Old Regime and the Revolution.” “And experience teaches that the most critical moment for bad governments is the one which witnesses their first steps toward reform.” I often thought of that passage as I watched Gorbachev inadvertently destroy the Soviet Union by trying to reform it. Only recently did it occur to me that it might also apply to Xi, the anti-Gorbachev. Although his reforms go in the opposite direction from Gorbachev’s — turning back the political clock to Marxism-Leninism, rather than forward to liberalism — the effect may be the same.

Xi’s crackdown on the property developers is just the latest blow he has struck against “capitalism with Chinese characteristics.” First in line were the big tech companies —  Alibaba Group Holding Ltd., Tencent Holdings Ltd. and ride-sharing leader Didi Global Inc. Then it was the turn of the for-profit education sector. All of this reflects Xi’s conviction that China needs to move from “fictional growth” to “genuine growth,” and his determination to make the old CCP slogan of “common prosperity” a meaningful antidote to the rampant inequality of the “get rich quick” era. Investors who have ignored this anticapitalist turn in China have only themselves to blame if they have lost money.

Likewise, analysts who continue to predict a Chinese economic takeover of the world have only themselves to blame if they have failed to learn the lessons of the Soviet collapse. Perhaps, to paraphrase Taylor, Xi has learned from the crises of others only how to make a crisis of his own.

Tyler Durden Mon, 09/27/2021 - 17:40

Crypto Mining Is About To Go Nuclear

Crypto Mining Is About To Go Nuclear

When you think about it, bitcoin and nuclear power may be a match made in heaven. Bitcoin is currently under fire for not being environmentally friendly and nuclear power appears to finally - with the help of Sprott cornering the uranium market - be on the verge of being recognized as a true ESG solution in energy. 

Now, the synergies are starting to surface. Talen Energy Corp. has just entered into a joint venture with bitcoin mining company TeraWulf that has started development for a mining facility on a plot of land the size of four football fields next to Talen's nuclear plant, the Wall Street Journal reported this weekend.

Paul Prager, chief executive of TeraWulf said: “At the core of bitcoin mining is energy and energy infrastructure."

Talen Energy President Alex Hernandez said: “We are building demand adjacent to the existing nuclear plant."

Other nuclear projects, like Startup Oklo, who is planning on building a small fission power plant, have signed supply deals as well. Startup Oklo Inc. has signed a 20 year deal with Compass Mining, for example. 

Sean Lawrie, partner at consulting firm ScottMadden Inc., said of the synergies: “Both industry’s challenges are the other industry’s positives."

While Bitcoin's environmental impact has been challenged, even by advocates like Elon Musk, nuclear power has also fallen out of favor over the last decade, following the 2011 Fukushima disaster.

Travis Miller, energy and utilities strategist for Morningstar, told the WSJ of nuclear plants: “They’re still making money because they’re still running, but it’s very hard for them in the current power markets to recover a fair return on their maintenance investments."

Hernandez continued, speaking about Talen: “We find ourselves in a place where the power markets continue to be oversupplied, and in general with a few exceptions, pretty weak."

For the time being, nuclear tie ups with crypto miners won't stave off planned nuclear plant closures, according to Bill Dugan, a director at Customized Energy Solutions.

"It would have to be a lot of them aggregated together," he said.

The appeal of such JVs for bitcoin miners is immense, however. It allows miners to advertise that they have an environmentally sound source of power. 

Maxim Serezhin, chief executive at Standard Power, which is building a nuclear-powered bitcoin-mining facility, told the WSJ about deciding to use nuclear as an environmentally friendly option: "That was a big differentiator for us.”

Finally, Miami Mayor Francis Suarez has been touting Miami as a destination for crypto miners. He says that the nearby nuclear-power plant owned by Florida Power & Light Co. gives his city environmentally friendly appeal for miners. 

Recall, we have constantly pointed out here on Zero Hedge that nuclear remains one of the only true ESG options for power going forward, and we have long been bullish on uranium. A coupling between crypto mining and nuclear could obviously be incredibly bullish for uranium, should crypto reach peak adoption. 

Tyler Durden Mon, 09/27/2021 - 17:20

Most New York Healthcare Workers Fired Over Vaccine Mandate Won't Get Unemployment Insurance

Most New York Healthcare Workers Fired Over Vaccine Mandate Won't Get Unemployment Insurance

By Kelly Gooch of Becker's Hospital Review

Healthcare workers who are fired for refusal to comply with the state's COVID-19 vaccination mandate likely won't be eligible for unemployment insurance, according to state officials.  

In a statement released Sept. 25, New York Gov. Kathy Hochul's office said the New York Department of Labor has issued guidance to clarify that terminated workers won't be eligible for the benefits unless they have a valid physician-approved request for medical accommodation.

The governor's office made the announcement at the same time it unveiled a plan to address staffing shortages should a large number of healthcare workers leave hospitals and other facilities because of the state mandate.

New York's mandate requires healthcare workers at hospitals and nursing homes to receive their first vaccine dose by Sept. 27.

Workers at additional entities covered by the mandate, including diagnostic and treatment centers, home health agencies, long-term home healthcare programs, school-based clinics and hospice care programs, must have at least one dose by Oct. 7.

"Workers in a healthcare facility, nursing home, or school who voluntarily quit or are terminated for refusing an employer-mandated vaccination will be ineligible... absent a valid request for accommodation because these are workplaces where an employer has a compelling interest in such a mandate, especially if they already require other immunizations," according to the New York Department of Labor website.

Ms. Hochul's office has said the state will consider deploying National Guard members, as well as partnering with the federal government to deploy disaster medical assistance teams to help local healthcare systems.

The office said the governor's plan also includes the preparation of a state of emergency declaration to boost workforce supply and allow qualified healthcare professionals licensed in other states or countries, recent graduates, retired and formerly practicing healthcare professionals to practice at New York facilities.  

Tyler Durden Mon, 09/27/2021 - 17:00

Proxy Advisory Firm To Tesla Shareholders: Time To Ditch Kimbal Musk And James Murdoch

Proxy Advisory Firm To Tesla Shareholders: Time To Ditch Kimbal Musk And James Murdoch

Tesla investors are being told to reject board members James Murdoch and Kimbal Musk heading into Tesla's annual general meeting.

The recommendation is being made by the largest proxy advisory firm, Institutional Shareholder Services, Bloomberg reported. They made the recommendation in a September 24 report to clients.

Tesla currently has 9 directors and its annual general meeting is slated for October 7th. The meeting will take place at Tesla's new factory in Austin, Texas. 

Out of the company's board, Murdoch and Musk are the two names standing for re-election. Murdoch was previously CEO of 21st Century Fox from 2015 to 2019. Kimbal Musk is a self-described "entrepreneur" who showcased his true business acumen during the recent trial over the Solar City acquisition, where analysis of his testimony seemed to reveal he knew little about disclosure requirements or how mergers and acquisitions work. 

Antonio Gracias will not stand for re-election and will not be replaced, according to the report. 

The ISS report said Tesla directors have gotten “outlier levels of pay without a compelling rationale” and that there's no good reason current directors' options were “so much larger than director compensation at peer companies.” 

The report continued: “Tesla’s non-employee directors are highly compensated as compared to directors at companies in the same GICS sector and index or indeed as compared to directors of even the largest U.S. public companies."

“Directors Robyn Denholm and Hiromichi Mizuno received total compensation of $5.76 million and $9.23 million, respectively, while outgoing director Antonio Gracias received compensation of $1.19 million,” it said. 

“In each case, the vast majority of this compensation came in the form of stock option grants valued by the company at $5.63 million for Denholm, $9.21 million for Mizuno and $1.16 million for Gracias.”

We can't help but think that ISS does, in fact raise a great question. We've seen companies with questionable financials pay extra in audit fees before. So, what does it mean when a company's directors are compensated so much higher than peers? What might be the motive behind such exorbitant payments?

Tyler Durden Mon, 09/27/2021 - 16:40