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How Surveillance and Propaganda Work in ‘the Free World’

How Surveillance and Propaganda Work in ‘the Free World’ 

A Bloomberg report of October 22 was concise and uncompromising in declaring Russia to be a surveillance state. Harking back to the good old days of the Cold War, as is increasingly the practice in much of the Western media, Bloomberg recounted that “The fourth of 10 basic rules Western spies followed when trying to infiltrate Russia’s capital during the Cold War — don’t look back because you’re never alone — is more apt than ever. Only these days it’s not just foreigners who are being tracked, but all 12.6 million Muscovites, too. Officials in Moscow have spent the last few years methodically assembling one of the most comprehensive video-surveillance operations in the world. The public-private network of as many as 200,000 cameras records 1.5 billion hours of footage a year that can be accessed by 16,000 government employees, intelligence officers and law-enforcement personnel.”

Terrifying, one might think. Straight out of Orwell’s 1984, that dystopian prediction of what the world could become, as noted in one description of how the face of the state’s symbolic leader, Big Brother, “gazes at you silently out of posters and billboards. His imposing presence establishes the sense of an all-seeing eye. The idea that he is always watching from the shadows imposes a kind of social order. You know not to speak out against The Party — because big brother is watching… The face always appears with the phrase Big Brother is watching you. As if you could forget.” Such is the terrifying Bloomberg picture of Moscow where there are supposedly 200,000 video cameras. You can’t blow your nose without it being seen. And wait for the next phase, in which Big Brother will hear you laugh.

 …click on the above link to read the rest of the article…

Historic Typhoon Devastates Japan; Millions Told To Evacuate Amid Flooding, Widespread Outages

Historic Typhoon Devastates Japan; Millions Told To Evacuate Amid Flooding, Widespread Outages

The largest typhoon in recorded history of Japan’s Shizuoka Prefecture caused widespread flooding, power outages and destruction on Saturday, as local authorities warned over 7 million people to evacuate, according to Bloomberg (with other sources quoting figures ranging from 1-4 million). 

Damaged houses in Ichihara, Chiba, on Oct. 12. Source: Jiji Press/AFP via Getty Images

Typhoon Hagibis makes landfall on Japan’s Izu Peninsula with heavy downpours and winds, leaving one person dead and 50 others injured http://xhne.ws/FHjB7 

View image on Twitter
View image on Twitter
View image on Twitter
View image on Twitter

The sky turned brilliant purple right before Hagibis hit.

 …click on the above link to read the rest of the article…

US To Send ‘Thousands’ More Troops To Saudi Arabia

US To Send ‘Thousands’ More Troops To Saudi Arabia

Reuters reports, citing defense or administration sources, that the US is set to send thousands of additional  troops to Saudi Arabia in the wake of last month’s Aramco attacks. 

“The United States is planning to send a large number of additional forces to Saudi Arabia following the Sept. 14 attack on its oil facilities, which Washington and Riyadh have blamed on Iran,” according to a breaking Reuters report

Though the Pentagon has yet to officially confirm the report with comment, Reuters noted the “sources did not specify exactly how many troops would be deployed but said it was expected to be in the thousands.”

And Bloomberg reports this could be as many as 1,800 new personnel, pending an official Pentagon statement:

Defense Secretary Mark Esper is expected to announce a new deployment of U.S. forces to the Middle East as tensions rise over Turkey’s military operations in northern Syria and an explosion on an Iranian oil tanker.

As many as 1,800 military personnel, including two air squadrons, are expected to be deployed to the region,including to Saudi Arabia, according to a defense official.

Earlier in the month the Pentagon deployed 500 troops in coordination with King Salman and crown prince MbS for “regional stability” and to counter Iran. 

Ironically this comes as Trump has promised to “slowly” get “out of the Middle East”.

Capital Flight Is Killing The US Shale Boom

Capital Flight Is Killing The US Shale Boom

Capital Flight

The growth in U.S. shale production is grinding to a halt as low prices put drillers in a financial vice.

The slowdown has been unfolding for much of 2019, but the latest slide in oil prices is another blow to cash-strapped companies. Share prices for many E&Ps are down sharply. For instance, Devon Energy’s stock is down 20 percent since mid-September; EOG Resources is off by 17 percent and Pioneer Natural Resources is down by more than 13 percent. Many other companies have seen similar declines.

Rig counts have fallen by 20 percent since last year, drilling is down, hotel rates are down, and employment is in decline. “If you can’t wring out any costs savings then you’ve got to buy less stuff if you want to get your costs down, and that’s the phase we’re entering into,” Jesse Thompson, senior business economist at the Houston branch of the Federal Reserve Bank of Dallas, told Bloomberg.

As Bloomberg noted, annualized employment grew only 0.7 percent through August, compared to 11.4 percent for the same period in 2018. The unemployment rate has ticked up from 2 to 2.3 percent. The number of fracking crews has fallen to its lowest level in 30 months.

For embattled shale drillers, there is another imminent hurdle that they must clear. For the first time since 2016, Permian shale drillers could see their access to borrowing slashed. Lenders periodically reassess the borrowing base that they offer to oil and gas producers, a so-called “credit redetermination” period.

According to a survey of financial institutions as well as oil and gas firms by law firm Haynes and Boone, the industry is set to see “a decrease in credit availability for producers and a strong interest in alternative sources of capital.”

In other words, lenders are turning off the spigots.

 …click on the above link to read the rest of the article…

Panic In Emerging Markets: South African Stocks On Track For Worst 3Q Since 2011

Panic In Emerging Markets: South African Stocks On Track For Worst 3Q Since 2011

The world is on the cusp of an economic storm, and most global investors haven’t strapped on their rain boots nor deployed their umbrellas for what is coming in 2020. As we note in this piece, the most vulnerable fall first, all eyes on emerging markets for the next domino to drop. 

Bloomberg examines South African financial markets, where the Johannesburg Stock Exchange (JSE) is about to record the worst third quarter since 2011, an ominous sign that the global recovery this year is only a myth. 

Bloomberg notes property and construction sectors of the JSE were the weakest performing sectors, along with technology, telecommunications, retailers, agriculture, education, and financial services. 

South Africa barely avoided a recession in the second quarter, and economists are warning that unless the economy substantially expands in the quarter ahead, below-trend growth will return in 2020.

“South African needs a minimum of 2.5% growth consistently to cause the unemployment rate to fall and to stabilize public debt and at least structurally we’re some distance away from that milestone,” said Standard Bank chief economist Goolam Ballim. 

South Africa faces ever-worsening economic and social problems heading into 2020; a slew of factors are driving the country towards collapse: increasing government debt, disintegrating infrastructure, collapsing education standards, widespread crime and violence, currency volatility, and investment outflows.

JSE, weighed down by domestic issues of an imploding country, is also dealing with a global economic downturn that is heavily weighing on emerging markets. 

The South African rand is likely to break above the 15.2 level as the country’s socio-economic crisis continues to expand into 2020. 

 …click on the above link to read the rest of the article…

Negative Interest Rates Threaten the Financial System

Negative Interest Rates Threaten the Financial System

Markets may need to be rebuilt on a new set of assumptions, but we don’t know what those should be or how they would work.

Negative rates in the U.S. would have profound implications for markets.
Negative rates in the U.S. would have profound implications for markets. Photographer: Drew Angerer/Getty Images

Jim Bianco is the President and founder of Bianco Research, a provider of data-driven insights into the global economy and financial markets. He may have a stake in the areas he writes about.


Former Federal Reserve Chairman Alan Greenspan recently said he wouldn’t be surprised if yields on U.S. bonds turned negative and if they do, it wouldn’t be “that big a of a deal.” That seems to be a sentiment widely held in central banking circles these days, but it’s wrong. Negative interest rates represent a threat to the financial system.

To understand why, let’s start with the existing fractional reserve banking system, which is more than a century old. For every dollar that goes into a bank, some set amount (usually about 10%) must go into a reserve account to be overseen by the central bank. The rest is either lent out or used to buy securities.

In other words, the fractional reserve banking system is leveraged to interest rates. This works when rates are positive. Loans are made and securities bought because they will generate income for the bank. In a negative rate environment, the bank must pay to hold loans and securities. In other words, banks would be punished for providing credit, which is the lifeblood of an economy. As German bankers recently explained to the European Central Bank:

We already have a devastating interest rate situation today, the end of which is unforeseeable,” Peter Schneider, who represents public-sector savings banks in the southern German state of Baden-Wuerttemberg, said on Wednesday. “If the ECB aggravates this course, that would hit not only the entire financial sector hard, but especially savers.

 …click on the above link to read the rest of the article…

“Big Short” Investor Michael Burry Explains How Index Funds Will Trigger The Next Crash

“Big Short” Investor Michael Burry Explains How Index Funds Will Trigger The Next Crash

After years of radio silence, Dr. Michael Burry – the small-time stockpicker who rose to fame for his bets against subprime mortgage bonds featured in the book (and later film) “the Big Short” – is once again doing the media rounds, talking about his latest equity plays and sharing his thoughts about the next big market blowups.

And in an interview with Bloomberg, Burry doesn’t disappoint. At one point, he shares his skepticism about passive investing, and the flood of money that has poured into index funds since the financial crisis. Burry sees similarities between these funds and the CDOs that nearly brought down the financial system in the run-up to the crisis.

Burry, who made a fortune betting against the CDOs, argued that these passive flows are distorting prices for stocks and bonds in much the same way that CDOs did for subprime mortgages. Eventually, the flows will reverse at some point, and when they do, “it will be ugly.”

“Like most bubbles, the longer it goes on, the worse the crash will be,” Burry, who oversees about $340 million AUM at Scion Asset Management in Cupertino, said.

That’s one reason he likes small-cap value stocks: they tend to be underrepresented in index funds, or left out entirely.

Here’s what Burry had to say on a number of topics:

Index funds and price discovery:

Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets.

The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies – these do not require the security- level analysis that is required for true price discovery.

 …click on the above link to read the rest of the article…

Burgundy’s Vineyards Haven’t Been This Hot And Dry Since “The Black Death” In The 14th Century

Burgundy’s Vineyards Haven’t Been This Hot And Dry Since “The Black Death” In The 14th Century

Vintners in France haven’t seen such a succession of hot weather and dry harvest since the 14th century, during a time called “the Black Death”, according to Bloomberg. Has a nice ring to it, doesn’t it?

Though these weather extremes may seem normal to those under the age of 30, they are unprecedented by historical standards, going all the way back to when Europe was recovering from the pandemic that trounced its population. This is the conclusion of researchers who examined temperature, grape harvest and wage data dating back to 1354.  

In their paper, the authors led by Thomas Labbe conclude: 

“Outstanding hot and dry years in the past were outliers, while they have become the norm since the transition to rapid warming in 1988. Hotter temperatures over the last three decades have resulted in Burgundy grapes being harvested on average 13 days earlier than they were over the last 664 years.”

The study underscores how the effects of climate change are forcing some populations to adapt to new cycles.

Comparing land surface temperatures from June to July 2019

The hotter temperatures have an effect on Burgundy’s farmers tending to their vineyards, itinerant harvesters, merchants and consumers. 

Through looking at about 300 documentary weather reports, the researchers looked at the legendary hot summer of 1540 that dried up the Rhine River. That year, workers harvested grapes that looked like “withered raisins” and “yielded a sweet sherry-like wine which made people rapidly drunk.”

Doesn’t sound that bad to us…

Regardless, Hugh Johnson, a well known wine critic, said tasting the 1540 vintage was “one of the most memorable moments of his career”. 

High temperatures don’t necessarily guarantee quality harvests, according to the research, which notes that the duration of ripening and winemaker styles are also important inputs.

 …click on the above link to read the rest of the article…

Bangladesh’s Central Bank Offers Amnesty To Delinquent Borrowers, Prompting Mass Default

Bangladesh’s Central Bank Offers Amnesty To Delinquent Borrowers, Prompting Mass Default

Bangladesh’s Central Bank in May introduced an amnesty program that allowed delinquent borrowers to make a small upfront payment and then pay off the rest of their debt over 10 years at favorable interest rates, according to Bloomberg.

However, the plan also triggered a rush by healthy companies to reschedule debt on the same terms which, in turn, now threatens to overwhelm the country’s banks.

The program is also seen as encouraging those with debt to default. Big surprise, right?

Anis A. Khan, managing director of Dhaka-based Mutual Trust Bank Ltd. said: 

“I’m traumatized by non-performing loans. Borrowers have been using every excuse they can find — from a death in the family to political uncertainty — to try to get onto the central bank program.”

The initiative is available to borrowers until September 7 and created a “perverse incentive” to default. Now, the country is expecting that nonperforming loans may rise significantly from 11.9% in March as a result of the program.

The upfront payment was lowered to 2% from 10% for those who are defaulting for the first time. The maximum interest rate over the next 10 years was set at 9%, even if borrowers were paying as high as 15% previously.

And like all other great “Band-Aid” fixes to debt problems, the initiative has backfired: it has created a sense among Bangladeshi companies that people can get away without paying back their loans. That, in turn, poses a threat to the wider economy and a banking system that is already overwhelmed with defaults.

The central bank, meanwhile, says that the policy will help revive lending growth in an economy that is dependent on attracting investment to sustain growth. Asian Development Bank predicts that the country’s economy will expand 8% over the next two years.

Shitangshu Kumar Sur Chowdhury, banking reforms adviser at Bangladesh Bank said:

 …click on the above link to read the rest of the article…

Economic Collapse Imminent: Zimbabwe At ‘Tipping Point’ With ‘Wheels Coming Off’

Economic Collapse Imminent: Zimbabwe At ‘Tipping Point’ With ‘Wheels Coming Off’ 

Zimbabwe’s economic situation will continue to sour in 2H19 due to unfavorable weather conditions, foreign currency shortages and widespread power cuts, its finance minister said, as he responded to a deteriorating economic outlook by blacking out inflation statistics through the second half, and finally acknowledged what the International Monetary Fund told him in April: economic turmoil ahead.

Prices of essential goods and services have, in some cases, quadrupled this summer, due to the government renaming the RTGS currency as the Zimbabwe dollar, which has been on a rapid decline amid shortages, including electrical power, petrol products, American dollars, and food, reported Bloomberg.

Many Zimbabweans who supported the toppling of decades-long ruler Robert Mugabe two years ago are discovering that their economic situation is the most serious in a decade.

Emmerson Mnangagwa replaced Mugabe in 2017, he promised millions of Zimbabweans of an economic revival and that we are “open for business.” The sugar high of optimism only lasted for a short time; the effects of money supply expansion through the sale of Treasury bills under Mugabe’s rule has outweighed any positive advancements in the last several years. Mnangagwa outlawed the American dollar in favor of local currency that can’t be traded internationally, effectively making it extremely difficult for international firms to do business in the African country.

“Zimbabwe is at a tipping point and if it falls over the edge it’s going to be quite a long way in coming back,” said Derek Matyszak, a Zimbabwe-based research consultant for South Africa’s Institute for Security Studies. “The wheels are falling off. There is no way out of a Ponzi scheme other than a massive infusion of cash to pay off your creditors.”
*chart

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$1.6 Trillion Fund Spots A New, Ticking Time Bomb In The Market

$1.6 Trillion Fund Spots A New, Ticking Time Bomb In The Market

First it was the shocking junk bond fiasco at Third Avenue which led to a premature end for the asset manager, then the three largest UK property funds suddenly froze over $12 billion in assets in the aftermath of the Brexit vote; two years later the Swiss multi-billion fund manager GAM blocked redemptions, followed by iconic UK investor Neil Woodford also suddenly gating investors despite representations of solid returns and liquid assets, and most recently the ill-named, Nataxis-owned H20 Asset Management decided to freeze redemptions.

By this point, a pattern had emerged, one which Bank of England Governor Mark Carney described best when he said last month that investment funds that promise to allow customers to withdraw their money on a daily basis are “built on a lie.” 

And now, the chief investment officer of Europe’s biggest independent asset manager agrees with him, because while for much of 2019 the biggest risk bogeymen were corporate credit, leveraged loans, and trillions in negative yielding debt, gradually consensus is emerging that investment funds may be the basis for the next liquidity crisis.

“There is no point denying we are faced with a looming liquidity mismatch problem,” said Pascal Blanque, who oversees more than 1.4 trillion euros ($1.6 trillion) as the CIO of Amundi SA, according to Bloomberg’s Mark Gilbert who in a Bloomberg View piece writes that Blanque told him that the prospect of melting liquidity is one of “various things keeping me awake at night.”

Continuing the discussion of illiquid institutions, Blanque said that market making, where firms generate prices at which they are willing to either buy or sell financial products, is effectively “a public good” (or “public bad”, if it is being done by HFTs who disappear at the first sign of volatility, and them having to take on real positional risk).

 …click on the above link to read the rest of the article…

Beijing Accuses Washington Of “Undermining Global Stability” In New Defense Report

Beijing Accuses Washington Of “Undermining Global Stability” In New Defense Report

For the first time since President Xi began his second term in 2017, China has released a defense white paper that doesn’t elaborate on the country’s military priorities so much as it criticizes Beijing’s chief political adversary – the US – while defending the Communist Party’s right to impose its rule over China’s wayward provinces, including Hong Kong, which is still being rattled by protests, and Taiwan.

It’s the latest sign that tensions between Beijing and Washington over the latter’s support for Taiwan – Washington recently approved the sale of $2 billion in tanks and anti-aircraft missiles – might not only scupper trade talks, they could be the spark that ignites World War III. And what’s more, it comes hours after the White House confirmed that the next round of in-person trade talks had been set for next week. Remember, Beijing has repeatedly threatened to use military force against any foreign power who interferes in its relationship with Taiwan, while Taiwan’s leaders have insisted that they would never submit to Communist Party rule, Bloomberg reports.

China

The paper, titled “China’s National Defense in the New Era” – in a reference to a popular Xi slogan – accused the US of provoking competition among major countries, and noted that the “international security system and order are undermined by growing hegemonism, power politics, unilateralism and constant regional conflicts and wars.”

 …click on the above link to read the rest of the article…“(The US) has provoked and intensified competition among major countries, significantly increased its defense expenditure, pushed for additional capacity in nuclear, outer space, cyber and missile defense,” the paper said.

The white paper noted recent patrols by Chinese warships and warplanes around Taiwan, insisting that the operation was intended to send a “stern warning” to Taipei.

 …click on the above link to read the rest of the article…

“Abrupt, Alarming” Leveraged Loan Collapse Highlights Fragile Nature Of Credit Markets

“Abrupt, Alarming” Leveraged Loan Collapse Highlights Fragile Nature Of Credit Markets

A leveraged loan taken out by a company called Clover Technologies about five years ago lost about a third of its value without warning over the past week, according to BloombergThe “alarming” and “abrupt” collapse of the recycling company’s debt surprised even sophisticated investors that deal in leveraged loans.

And even though the loan isn’t large by Wall Street standards – $693 million – it serves as a much needed and stark reminder of the capital that has flocked to leveraged loans in search of yield. The leveraged loan market today is $1.3 trillion and low rates have caused an explosion in borrowing and lax standards in underwriting. The market can also be thin, and this means that collapses like Clover’s can happen quickly and without warning.

Soren Reynertson of investment bank GLC Advisers & Co said:

“When buyers head for the exits at the same time, prices can drop fast and furiously given the lack of liquidity.”

Clover had been operating since 1996 when it was an acquired by Golden Gate in 2010 for an undisclosed sum. Golden Gate piled debt onto the underlying company to extract dividends from it using the leveraged loan market as a wallet. The company took out loans that funded dividend payments totaling at least $278 million and then the company went back to the loan market in 2014, asking lenders for $100 million extra to make an acquisition.

The loans were bought mostly by mutual funds and collateralized loan obligations, which bundle this type of debt into higher rated securities. And there’s been little trouble finding buyers for CLOs in recent years, with high grade bond yields hovering near zero.

 …click on the above link to read the rest of the article…

Global Central Banks “Are Trapped By Their Own Inflation Targets”

Global Central Banks “Are Trapped By Their Own Inflation Targets”

Negative Rates Would Lead To #Chaos

Central bankers attending the G-7 meeting are sounding remarkably coordinated in their message. The global economy is growing but inflation isn’t. And that, along with the oft-cited global headwinds, means they’re ready and able to add more liquidity to the system. In the case of the U.S. they have virtually promised that it’s underway. They can assure markets that they’re “ready.” But the far more important assertion is driving home that they’re still “able.”

Inevitably, and understandably, the question of whether they’re running out of ammunition to conduct further monetary easing has been the subject of debate. But the last thing they can afford to let happen is for investors, corporations or consumers to conclude that they’re near the end of the line.

Monetary policy is a transmission mechanism that largely works through expectations. Nothing will crater inflationary expectations, alter the spend-versus-save dynamic, affect capital-investment decisions and tighten financial conditions faster than the admission that little more is possible.

They’re in fact trapped by their own inflation targets. No one realized that it’s easier to get inflation down than up. Therefore, central bankers need to keep considering, and in some cases delivering, more and more extreme forms of easing.

Zero rates begot quantitative easing which led to negative rates. While financial markets give the appearance of stability through asset bubbles, higher asset prices haven’t led to them fulfilling their mandates.

There is a reason there’s so much academic interest in discussing the potential benefits of policies like helicopter money and modern monetary theory — ideas that would have previously been dismissed out of hand. Officials need to convince themselves of the potential efficacy of these notions in order to get the rest of us to believe they’re legitimate options. The truth is, they really don’t know why inflation has remained such a problem. Therefore the proper cure remains elusive.

 …click on the above link to read the rest of the article…

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

There is a reason James Simons’ RenTec is the world’s best performing hedge fund – it spots trends (even if they are glaringly obvious) well ahead of almost everyone else, and certainly long before the consensus.

That’s what happened with Deutsche Bank, when as we reported two weeks ago, the quant fund pulled its cash from Deutsche Bank as a result of soaring counterparty risk, just days before the full – and to many, devastating – extent of the German lender’s historic restructuring was disclosed, and would result in a bank that is radically different from what Deutsche Bank was previously (see “The Deutsche Bank As You Know It Is No More“).

In any case, now that RenTec is long gone, and questions about the viability of Deutsche Bank are swirling – yes, it won’t be insolvent overnight, but like the world’s biggest melting ice cube, there is simply no equity value there any more – everyone else has decided to cut their counterparty risk with the bank with the €45 trillion in derivatives, and according to Bloomberg Deutsche Bank clients, mostly hedge funds, have started a “bank run” which has culminated with about $1 billion per day being pulled from the bank.

As a result of the modern version of this “bank run”, where it’s not depositors but counterparties that are pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely, Deutsche Bank is considering how to transfer some €150 billion ($168 billion) of balances held in it prime-brokerage unit – along with technology and potentially hundreds of staff – to French banking giant BNP Paribas.

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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