Escobar: Get Ready For A Major Geopolitical Chessboard Rumble

Authored by Pepe Escobar via,

What is left roaming our wilderness of mirrors depends on the mood swings of the Goddess of the Market. No wonder an effect of Eurasia integration will be a death blow to Bretton Woods and “democratic” neoliberalism…

Get ready for a major geopolitical chessboard rumble: from now on, every butterfly fluttering its wings and setting off a tornado directly connects to the battle between Eurasia integration and Western sanctions as foreign policy.

It is the paradigm shift of China’s New Silk Roads versus America’s Our Way or the Highway. We used to be under the illusion that history had ended. How did it come to this?

Hop in for some essential time travel. For centuries the Ancient Silk Road, run by mobile nomads, established the competitiveness standard for land-based trade connectivity; a web of trade routes linking Eurasia to the – dominant – Chinese market.

In the early 15th century, based on the tributary system, China had already established a Maritime Silk Road along the Indian Ocean all the way to the east coast of Africa, led by the legendary Admiral Zheng He. Yet it didn’t take much for imperial Beijing to conclude that China was self-sufficient enough – and that emphasis should be placed on land-based operations.

Deprived of a trade connection via a land corridor between Europe and China, Europeans went all-out for their own maritime silk roads. We are all familiar with the spectacular result: half a millennium of Western dominance.

Until quite recently the latest chapters of this Brave New World were conceptualized by the Mahan, Mackinder and Spykman trio.

The Heartland of the World


Halford Mackinder’s 1904 Heartland Theory – a product of the imperial Russia-Britain New Great Game – codified the supreme Anglo, and then Anglo-American, fear of a new emerging land power able to reconnect Eurasia to the detriment of maritime powers.

Nicholas Spykman’s 1942 Rimland Theory advocated that mobile maritime powers, such as the UK and the U.S., should aim for strategic offshore balancing. The key was to control the maritime edges of Eurasia—that is, Western Europe, the Middle East and East Asia—against any possible Eurasia unifier. When you don’t need to maintain a large Eurasia land-based army, you exercise control by dominating trade routes along the Eurasian periphery.

Even before Mackinder and Spykman, U.S. Navy Admiral Alfred Thayer Mahan had come up in the 1890s with his Influence of Sea Power Upon History – whereby the “island” U.S. should establish itself as a seaworthy giant, modeled on the British empire, to maintain a balance of power in Europe and Asia.

It was all about containing the maritime edges of Eurasia.

In fact, we lived in a mix of Heartland and Rimland. In 1952, then Secretary of State John Foster Dulles adopted the concept of an “island chain” (then expanded to three chains) alongside Japan, Australia and the Philippines to encircle and contain both China and the USSR in the Pacific. (Note the Trump administration’s attempt at revival via the Quad–U.S., Japan, Australia and India).

George Kennan, the architect of containing the USSR, was drunk on Spykman, while, in a parallel track, as late as 1988, President Ronald Reagan’s speechwriters were still drunk on Mackinder. Referring to U.S. competitors as having a shot at dominating the Eurasian landmass, Reagan gave away the plot: “We fought two world wars to prevent this from occurring,” he said.

Eurasia integration and connectivity is taking on many forms. The China-driven New Silk Roads, also known as Belt and Road Initiative (BRI); the Russia-driven Eurasia Economic Union (EAEU); the Asia Infrastructure Investment Bank (AIIB); the International North-South Transportation Corridor (INSTC), and myriad other mechanisms, are now leading us to a whole new game.

How delightful that the very concept of Eurasian “connectivity” actually comes from a 2007 World Bank report about competitiveness in global supply chains.

Also delightful is how the late Zbigniew “Grand Chessboard” Brzezinski was “inspired” by Mackinder after the fall of the USSR – advocating the partition of a then weak Russia into three separate regions; European, Siberian and Far Eastern.

All Nodes Covered

At the height of the unipolar moment, history did seem to have “ended.” Both the western and eastern peripheries of Eurasia were under tight Western control – in Germany and Japan, the two critical nodes in Europe and East Asia. There was also that extra node in the southern periphery of Eurasia, namely the energy-wealthy Middle East.

Washington had encouraged the development of a multilateral European Union that might eventually rival the U.S. in some tech domains, but most of all would enable the U.S. to contain Russia by proxy.

China was only a delocalized, low-cost manufacture base for the expansion of Western capitalism. Japan was not only for all practical purposes still occupied, but also instrumentalized via the Asian Development Bank (ADB), whose message was: We fund your projects only if you are politically correct.

The primary aim, once again, was to prevent any possible convergence of European and East Asian powers as rivals to the US.

The confluence between communism and the Cold War had been essential to prevent Eurasia integration. Washington configured a sort of benign tributary system – borrowing from imperial China – designed to ensure perpetual unipolarity. It was duly maintained by a formidable military, diplomatic, economic, and covert apparatus, with a star role for theChalmers Johnson-defined Empire of Bases encircling, containing and dominating Eurasia.

Compare this recent idyllic past with Brzezinski’s – and Henry Kissinger’s – worst nightmare: what could be defined today as the “revenge of history”.

That features the Russia-China strategic partnership, from energy to trade:  interpolating Russia-China geo-economics; the concerted drive to bypass the U.S. dollar; the AIIB and the BRICS’s New Development Bank involved in infrastructure financing; the tech upgrade inbuilt in Made in China 2025; the push towards an alternative banking clearance mechanism (a new SWIFT); massive stockpiling of gold reserves; and the expanded politico-economic role of the Shanghai Cooperation Organization (SCO).

As Glenn Diesen formulates in his brilliant book, Russia’s Geo-economic Strategy for a Greater Eurasia, “the foundations of an Eurasian core can create a gravitational pull to draw the rimland towards the centre.”

If the complex, long-term, multi-vector process of Eurasia integration could be resumed by just one formula, it would be something like this: the heartland progressively integrating; the rimlands mired in myriad battlefields and the power of the hegemon irretrievably dissolving. Mahan, Mackinder and Spykman to the rescue? It’s not enough.

Divide and Rule, Revisited

The Oracle still speaks.

The same applies for the preeminent post-mod Delphic Oracle, also known as Henry Kissinger, simultaneously adorned by hagiography gold and despised as a war criminal.

Before the Trump inauguration, there was much debate in Washington about how Kissinger might engineer – for Trump – a “pivot to Russia” that he had envisioned 45 years ago. This is how I framed the shadow playat the time.

In the end, it’s always about variations of Divide and Rule – as in splitting Russia from China and vice-versa. In theory, Kissinger advised Trump to “rebalance” towards Russia to oppose the irresistible Chinese ascension. It won’t happen, not only because of the strength of the Russia-China strategic partnership, but because across the Beltway, neocons and humanitarian imperialists ganged up to veto it.

Brzezinski’s perpetual Cold War mindset still lords over a fuzzy mix of the Wolfowitz Doctrine and the Clash of Civilizations. The Russophobic Wolfowitz Doctrine – still fully classified – is code for Russia as the perennial top existential threat to the U.S. The Clash, for its part, codifies another variant of Cold War 2.0: East (as in China) vs. West.

Kissinger is trying some rebalancing/hedging himself, noting that the mistake the West (and NATO) is making “is to think that there is a sort of historic evolution that will march across Eurasia – and not to understand that somewhere on that march it will encounter something very different to a Westphalian entity.”

Both Eurasianist Russia and civilization-state China are already on post-Westphalian mode. The redesign goes deep. It includes a key treaty signed in 2001, only a few weeks before 9/11, stressing that both nations renounce any territorial designs on one another’s territory. This happens to concern, crucially, the Primorsky Territory in the Russian Far East along the Amur River, which was ruled by the Ming and Qing empires.

Moreover, Russia and China commit never to do deals with any third party, or allow a third country to use its territory to harm the other’s sovereignty, security and territorial integrity.

So much for turning Russia against China. Instead, what will develop 24/7 are variations of U.S. military and economic containment against Russia, China and Iran – the key nodes of Eurasia integration – in a geo-strategic spectrum. It will include intersections of heartland and rimland across Syria, Ukraine, Afghanistan and the South China Sea. That will proceed in parallel to the Fed weaponizing the U.S. dollar at will.

Heraclitus Defies Voltaire


Alastair Crooke took a great shot at deconstructing why Western global elites are terrified of the Russian conceptualization of Eurasia.

It’s because “they ‘scent’…a stealth reversion to the old, pre-Socratic values: for the Ancients … the very notion of ‘man’, in that way, did not exist. There were only men: Greeks, Romans, barbarians, Syrians, and so on. This stands in obvious opposition to universal, cosmopolitan ‘man’.”

So it’s Heraclitus versus Voltaire – even as “humanism” as we inherited it from the Enlightenment, is de facto over. Whatever is left roaming our wilderness of mirrors depends on the irascible mood swings of the Goddess of the Market. No wonder one of the side effects of progressive Eurasia integration will be not only a death blow to Bretton Woods but also to “democratic” neoliberalism.

What we have now is also a remastered version of sea power versus land powers. Relentless Russophobia is paired with supreme fear of a Russia-Germany rapprochement – as Bismarck wanted, and as Putin and Merkel recently hinted at. The supreme nightmare for the U.S. is in fact a truly Eurasian Beijing-Berlin-Moscow partnership.

The Belt and Road Initiative (BRI) has not even begun; according to the official Beijing timetable, we’re still in the planning phase. Implementation starts next year. The horizon is 2039.

(Wellcome Library, London.) 

This is China playing a long-distance game of go on steroids, incrementally making the best strategic decisions (allowing for margins of error, of course) to render the opponent powerless as he does not even realize he is under attack.

The New Silk Roads were launched by Xi Jinping five years ago, in Astana (the Silk Road Economic Belt) and Jakarta (the Maritime Silk Road). It took Washington almost half a decade to come up with a response. And that amounts to an avalanche of sanctions and tariffs. Not good enough.

Russia for its part was forced to publicly announce a show of mesmerizing weaponryto dissuade the proverbial War Party adventurers probably for good – while heralding Moscow’s role as co-driver of a brand new game.

On sprawling, superimposed levels, the Russia-China partnership is on a roll; recent examples include summits in Singapore, Astana and St. Petersburg; the SCO summit in Qingdao; and the BRICS Plus summit.

Were the European peninsula of Asia to fully integrate before mid-century – via high-speed rail, fiber optics, pipelines – into the heart of massive, sprawling Eurasia, it’s game over. No wonder Exceptionalistan elites are starting to get the feeling of a silk rope drawn ever so softly, squeezing their gentle throats.

via RSS Tyler Durden

In Argentina “All Bets Are Off” As Peso Disintegrates

“All bets are off” in Argentina” – as Bloomberg puts it – where the value of the local peso has plummeted, falling 20% this week alone. It is now 50$ weaker on the year versus the USD, making it the worst performing currency of 2018 and sending massive shockwaves through Argentina’s economy. The effect on business owners and anyone who transacts in local currency has been profound, according to Bloomberg.

“There’s no clear price reference after the peso plunge,” one business owner told Bloomberg. The price plunge has created havoc for him and his surgical equipment business, where he buys in foreign currencies and sells in pesos.

Unlike hyperinflating economic basket case Venezuela, Argentina is a sizable $640 billion economy that is now being put to the test to see how much strain it can truly endure.

The peso crippling could also be a precursor to political unrest, as President Mauricio Macri’s chances of being reelected are reportedly falling, despite being known as a leader who has been friendly to the markets over the course of his tenure. However, as a result of the recent turmoil, he’s “struggling” to restore investor confidence in the Argentinian peso. 

Argentina and its Central Bank have taken a number of decisive steps to try and halt the plunge, yesterday hiking interest rates to the world’s highest 60%. Previously, the country had requested quicker payouts from the International Monetary Fund, which promptly granted the collapsing country’s request.

And speaking of Argentina $50 billion loan agreement in place with the IMF – the largest ever in IMF history – this isn’t that too different from the country’s 2001 default, when it was on a similar IMF loan program. Since then, the country underwent a “decade of budget-busting left-populist government – and isolation from world financial markets”. 

The result appears to be the country coming full circle. 

Argentinian residents who voted for President Macri went on record telling Bloomberg they “wouldn’t do it again.”

“I see a country that’s lost its way. They need to find a way to stop this slide,” one 46-year-old bank worker told Bloomberg after buying some dollars she hoped to sell later. She concluded, “The problem is, they don’t know what to say.”

The government forecasts now that the economy is going to contract 1% this year despite predictions of 3% growth at the start of this year; the most likely outcome will be a severe recession if not depression. Inflation is at a stunning 30% and is accelerating.

This makes the issue of price discovery incredibly difficult for business owners, who are now purchasing physical supplies as currency hedges. At the same time, vendors are roping in their lines of credit with customers and demanding immediate payment due to the extreme volatility.

President Macri’s plan initially was to reduce the country’s deficit slowly. The goal was to move it from 6.5% of GDP last year to 3.8% of GDP in 2019. Now, it is likely that the government will release a plan for an even lower target for 2019, reportedly below 1.3% of GDP, Bloomberg noted. The problem is that as Greece has shown, such “austere” measures usually end up in a cycle of economic depressions.

Meanwhile, the economy is starting to grind to a halt: labor strikes are also expected, as negotiating with unions is going to be extremely difficult due to the uncertainty with what the value of the currency is.

“Our salaries are constantly eroding,” 62-year-old union leader Ruben Garrido told Bloomberg.

Even those at the upper end of the socioeconomic spectrum are feeling the brunt of the currency’s plunge, but at least  they seem to understand monetary policy better than the country’s central bankers. Alicia Quadri, a dance teacher and former star ballerina at the prestigious Teatro Colon.

“I was hoping to go to Europe with my daughter at the end of the year,’’ she said. “With this exchange rate, I won’t. I’ll wait for things to calm down.’’ When, and how, will that happen? Quadri wasn’t sure.

“They need to get all the major stakeholders, the best economists, to find a solution,’’ a former star ballerina at the prestigious Teatro Colon told Bloomberg. She continued, “But not the IMF, or outsiders. They’ll only make the country take on more debt. And they don’t live through the consequences.’’

via RSS Tyler Durden

The North Koreans Get It: Trump’s Quest For Peace Is Being Sabotaged By His Own Advisors

Authored by Justin Raimondo via,

Korea, Fake News, and What’s Really Going On

The media continues to get the President’s North Korean peace initiative all wrong: in some cases this is due to laziness, Washington-centric group-think, and just plain ignorance. In other cases, it is quite deliberate. Take, for example, the recent “news” that Trump canceled Secretary of State Mike Pompeo’s scheduled trip to Pyongyang due to a “belligerent” letter sent by the North Koreans to the White House. What is the source of this alleged development? A single report in the Washington Post put out there by one Josh Rogin, not a reporter but an opinion columnist with strong neoconservative inclinations. Rogin attributes this information to “two senior administration officials” while admitting that “[t]he exact contents of the message are unclear.”

We don’t know what the letter said, and so we don’t know why Trump canceled the trip. In short, we don’t know anything. That’s the “news,” folks.

So what really happened? Why the cancellation?

We can’t know for certain, of course, since these things are usually kept under wraps, and yet we can speculate if we have the right context, which is something none of these esteemed Korea “experts” and “analysts” – who are often proxies for special interests – provide. What we usually get is either complete misinformation, as in the case of the “belligerent letter,” or else a priori speculation along the lines of “Why would Kim Jong-un give up his nuclear weapons after seeing what happened to Qaddafi?”

A priori arguments are fine in the realm of economics, but they don’t work at all in the foreign policy realm. We need empirical evidence, and to get that it’s necessary to penetrate a famously opaque North Korea and get a handle on what Kim and the rest of the North Korean leadership want to get out of the negotiations. And, more importantly, we have to ask ourselves how well do the lords of Pyongyang understand the dynamics of American politics, which will ultimately determine US policy?

The answer to this last question, it turns out, is pretty damn well, if the North Korean media is any indication. As reported in one of the few reliable news sources that specialize in North Korea,, the North Koreans are basically wondering if Trump is in charge back home:

“There are recent signs that Kim sees trouble ahead for the US-part of his initiatives. An extraordinary article in Rodong Sinmun on August 18 absolves not only President Trump, but also Secretary Pompeo and, indeed, the entire US negotiating team from blame for the failure of the July negotiations, suggesting that “oppositional factional forces” in the US were the culprit. That criticism is clearly aimed at John Bolton, though it never mentions him by name. Beyond Bolton, however, the article for the first time raises the larger issue of the president’s embattled overall political position.”

Unlike the “mainstream” media, quotes directly from the official voice of the regime, Rodong Sinmun:

Congress is tackling the president’s feet, the judicial branch is grabbing him by the collar, and news media are bashing him. [in the past]…infighting between vested interests inside US politics did more damage than differences of opinions between North Korea and the United States did. We see it as a higher priority to straighten out fragmented and messed-up US politics than a quick improvement in North Korea-US relations, which is important.”

The North Koreans are wondering if Trump can deliver – and if he’ll even be in the Oval Office much longer. “Fragmented and messed-up US politics” is synonymous with the possibility that the President may be impeached by a Democratic-controlled Congress, depending on which way the midterm elections go.

Kim is thinking long-term, and the stakes are high. His new policy of “everything for the economy” is a major turnaround in the “Juche” ideology that has displaced traditional Marxist-Leninist thought in North Korea. Indeed, Kim’s “economy first” program is a complete nullification of the old ideology, which tried to build a communist society in complete isolation from the rest of the world. This project was bound to fail, and now Kim and his supporters see no reason to pretend otherwise: they want to link up to the global economy, the way China has.

However, if a rapprochement with South Korea and peace with the United States is only a temporary phenomenon, to be rolled back by whomever takes Trump’s place (Pence? A Democrat in 2020?) Kim’s reversal of North Korea’s isolationist stance is not sustainable. Which is why Rodong Sinmun is among the President’s most intransigent – and perceptive – defenders. Get a load of this:

President Trump has a ‘dream,’ which is about achieving the epochal cause of improving North Korea-US relations and establishing world peace, but he has too many enemies.

“His administration and even his advisors are sleeping in the same bed with the president but dreaming different dreams. They are speaking and acting in a way that is inconsistent with the president’s wish, and they are misleading facts to blur the president’s eyes and ears and steering him toward making unintended decisions.

“President Trump made the ‘fantastic meeting’ come true, something that no other president in US history was able to do, and earned cheers from the world and great support from the public because, as the president himself said, he acted according to his decision and wish, while standing firm against the opposition factions’ offensives and taking what he hears from his advisors with a grain of salt.”

The North Koreans sound like hard-line Trump supporters who bemoan the President’s seeming inability to fulfill his campaign promises. Next they’ll be retweeting Ann Coulter’s complaints about “Where’s that Wall?” My favorite part of all this is their exhortation to Pompeo to “stick with his principles”!

“Secretary of State Pompeo, for his part, must stick with his principles and guts instead of getting forced into ‘an unfortunate fate,’ sternly smash the opposition factions’ unjust and foolish claims, and exercise wisdom and negotiating skills as the top diplomat of the United States in name and substance to make the president’s wish come true.”

That’s right, Pompeo, make the President’s wish come true – and you better get cracking if you know what’s good for you.

The piece raises a number of fascinating questions, one of which is whether we are witnessing the North Korean equivalent of a debate over how to approach the United States. The author contrasts the editorial line of Rodong Sinmum with the recent statements of the Foreign Ministry: the ministry seems to be under the control of the more traditionalist military-oriented faction, if indeed the North can be said to have definable factions (that would be big news). Alongside indications that there is a major shakeup coming in the North Korean leadership, the idea that the North is actually having a public discussion about all this seems to confirm my theory that glasnost is taking hold in Pyongyang.

Now that we’ve filled in the essential background that we almost never get in the “mainstream” media, perhaps I can shed some light on the actual reasons why the Pompeo visit was postponed, and perhaps even on the contents of the North Korean letter.

My best guess – yes, it’s a guess, but at least it’s an educated one – is that the North Koreans are genuinely worried that Trump is not in control of his own government (true) and may soon be on the way out. Did the letter suggest that perhaps it might be best to wait until after the midterm elections to send Pompeo back to Pyongyang? We may never know, but, given the context outlined above, it’s a lot more plausible than the tale of the “belligerent” letter.

Our ignorance of how North Korea works is apparently not matched by their knowledge of American politics, which seems both extensive and perceptive. Not to mention absolutely necessary. The risk Kim Jong-un is taking cannot be exaggerated: he is willing to junk the North Korean system and his nukes if he’s allowed a place at the global table – and Trump is the only person who wants to take him up on his bet. If the President falls, or is so paralyzed politically that he cannot make a deal, Kim would pay an enormous price. If indeed there was a “belligerent letter,” then perhaps this belligerence was directed at the President’s enemies.

The Rogin column averred that a big obstacle to denuclearization is the failure of the United States to agree to a formal end to the Korean war – we only have an armistice, at this point, which South Korea never signed. A peace treaty never happened: technically, the two sides are still at war. Yet the piece cites the supremely authoritative Rodong Sinmum as stating that such a declaration is only an unimportant “political” formality. There’s another fake news item debunked.

Trump’s desire to finally end this ancient and lucrative conflict, which keeps the money flowing to the Pentagon and its attendant military contractors, is part of what his enemies in the national security bureaucracy find deeply offensive. Their gravy train is about to come to an end! This is nothing less than “treason”!

The North Koreans are no dummies: they know a regime change operation when they see one. As they watch our Deep State go after a democratically elected President whose hopes for peace complement their own, the North Koreans are waiting to see if Trump survives. I can’t say that I blame them.

via RSS Tyler Durden

Profiling Elon Musk’s Worst Enemy

Increasingly of late, discussions about Tesla and its investability have led to discussions about Elon Musk and his at times brittle mental health. While Musk and the brand have always been synonymous, the emphasis on Musk when it comes to the company’s attraction to investors has only increased, with Musk’s recent behavior.

Just over the course of the last three weeks, for instance, Musk tweeted out a questionable (at best) proposal for a go private offer for Tesla that looks to have not materialized in anyway. He also tripled down on comments he made earlier this year about a British cave diver who helped save 12 children trapped in Thailand, tacitly reaffirming his actions when he previously referred to him as a pedophile on Twitter.

But most recently, the deepest dive into Elon’s personal demeanor came from a lengthy write up in the Wall Street Journal that spills even more details about Elon’s ego and, if even possible, raises more questions about the man at the top of Tesla and his battle with what has emerged as his worst enemy: his ego.

The article opens with a previously untold story about Musk inquiring why an assembly line at his Fremont factory had stopped during a tour this spring. After being told that safety sensors held up the line, it is reported that Musk became angry and begin headbutting the front end of a car on the assembly line to make the point that it couldn’t hurt anyone. When he was told a second time that the stoppage was for safety reasons, he reportedly told a senior engineering manager to “get out”. The manager was then fired, though Tesla claims to the WSJ it was for other reasons.

According to the same report, Musk “answers to no one” at Tesla and can frustrate his employees by micromanaging and taking tasks into his own hands. As a result, Musk is now “isolated” after dozens of senior executives have left, because of this behavior. This may lend credibility to long-held beliefs of many company skeptics that Musk could be the reason for the high executive churn at the company.

The article also reaffirms what we already know: that Musk’s friends and family are concerned that he’s working too much. Musk had a different – and totally bizarre – way of describing his actions, including his recent erratic behavior:

“It is better to make many decisions per unit time with a slightly higher error rate, than few with a slightly lower error rate,” he said last weekend in a series of emails with The Wall Street Journal, “because obviously one of your future right decisions can be to reverse an earlier wrong one, provided the earlier one was not catastrophic, which they rarely are.”

When Musk was asked about his go-private Tweet fiasco, he offered up what can only be described as another bizarre answer:

“If the odds are probably in your favor, you should make as many decisions as possible within the bounds of what is executable,” Mr. Musk said in emails to the Journal. “This is like being the house in Vegas. Probability is the most powerful force in the universe, which is why the house always wins. Be the house.”

The Journal delves into his childhood, growing up in South Africa, reaffirming many of the stories and biographical details the mainstream media has already discussed for years. His uncle went on record to say that his curiosity was a driving force, and then he always had an appetite for books and consuming information. Interestingly, the article also notes that Elon’s brother, Kimbal Musk, became his “best friend and confidant” while at school as a child. Kimbal now serves on Tesla’s board, which is under fire by some bloggers and major shareholders for being too complacent.

Most are also familiar with Musk’s successful career leading up to Tesla, which the media has publicized for years.

Where he derives his inspiration is another matter. The Journal famously recanted a story about how Musk, after contracting a case of malaria in Africa “reconsidered his life…and concluded with some grandiosity that he could save humanity by colonizing Mars.”

The article also reaffirmed that Musk works extremely long hours, sometimes as many as 100 to 120 hours a week, according to people close to him. Musk reportedly “expects much the same” of his employees.

Former employees are quoted as stating they prefer to communicate with Musk through e-mail in hopes of a simple “OK” answer. After emails were sent to him, they would “wait nervously” because a lengthy response from Musk would usually be criticism or new orders. Musk also apparently we have managers come to the factory at any and all hours of the night, according to the report.

Musk became so unpredictable that his employees actually tried to anticipate what kind of mood he would be in based on what was happening in his personal life. The Journal stated that some employees even tracked the hair color of his second wife in order to try and get a read on Musk’s mood.

​And while the ongoing criticism of Tesla, even from some of its most outspoken critics, has been that Musk needs a “number two” at Tesla, people familiar with his thinking have told the Journal that he hasn’t found anyone with “expertise or vision” that appeals to him. We wonder if such a person exists.

Musk also reportedly told executives that he didn’t intend on serving as CEO of Tesla for the long term, but rather that his intention was only to bring the company “up to speed” so he could focus on product development. According to the article, the two most likely replacements for Musk as CEO were Doug Field, engineering chief, or Jon McNeill, sales chief. Both no longer work at the company. Instead, Musk has absorbed their rolls instead of hiring replacements.

Musk also reportedly told aides he wasn’t afraid to step out of the CEO role, but rather that he worried about risks to the company if he stepped down. Now, with the SEC undertaking a formal investigation into Musk over his go private tweets, the decision to step out of the role of CEO may not be his anymore.

According to the Journal, Musk may also have more than a trace of narcissism, finding delight in the public spotlight. He’s quoted in a 1999 CNN interview by saying that he’d like to be on the cover of Rolling Stone, which he was in 2017. He also helped advise director John Favreau and actor Robert Downey, Jr. on the Tony Stark character for the Iron Man movies.

As for Musk’s obsession with short sellers? It hasn’t subsided at all. The WSJ claims that Musk follows the Twitter “$TSLA” cashtag and that he believes that short sellers aren’t just betting against Tesla, but rather they are trying to “undermine his good intentions in the world”.

Musk has also spent time trying to reach out and silence his critics. Aside from the recent high profile story, in which he called the boss of the popular Tesla critic, “Montana Skeptic”; Musk also reportedly emailed the CEO of Volkswagen to ask if an employee of his was criticizing Tesla on Twitter using a pseudonym.

Could his time be better spent? It must be unclear to Musk.

But one thing is clear to us: Musk and Tesla are joined at the hip regardless of how much Musk or the Board of Directors may or may not like it.

“Everyone that believes in the company would prefer the controversy incited by Elon would be toned down, but you can’t have Tesla without Elon Musk to drive it,” Brett Winton, the research director at ARK Invest told the Wall Street Journal.

The question of whether or not Musk’s critical entanglement with Tesla is clear to all investors – and, correspondingly, how it could affect the investment thesis – remains to be seen.

via RSS Tyler Durden

Google’s New AI Can Predict Earthquake Aftershocks

Authored by Danica Simic via,

Researchers that study earthquakes have been trying to model earthquake aftershocks for many years, and now, Google’s new AI can do it for them. Thanks to the new neural network, researchers can fairly precisely predict earthquake aftershocks, as well as scale how strong they would be. Nevertheless, there needs to be much more research done before the algorithm reaches perfection.

Rapid development of artificial intelligence has allowed scientists to use it for various things, like the World Cup predictions or planet exploration. However, Google and a Harvard team collaborated to focus AI toward something that is extremely difficult to be predicted by humans – earthquake aftershocks.

The team trained its newly developed neural network, similar to the one that helps run Facebook photo tagging, as well as Amazon Alexa’s voice transcription, using a database containing more than 131,000 earthquakes and the locations of their respective aftershocks.

Doing so allowed them to determine where the future aftershocks would take place. The network itself is rather interesting, it takes the data, regardless of whether it is pictures of someone’s face or locations of earthquake aftershocks, and the algorithm will attempt to find the underlying pattern. The network uses pixel arrangements of a person’s face in order to attempt facial recognition. In terms of earthquakes, Google’s AI can use that to explain why an aftershock would occur in a certain area.

The findings of the team were published in a paper in the scientific journal Nature on Aug. 29. In the paper, researchers explain that one of the reasons for algorithm accuracy is that they use two complex metrics that were previously thought to be associated with aftershocks. Those are called maximum shear stress change and the von-Mises yield criterion. The two metrics are often used in studying bendable materials like copper or aluminum. However, the metrics are not used in earthquake aftershocks predictions. Given the new discovery, scientists may start using it.

More time to pass

Unfortunately, the neural network can’t start working immediately to predict earthquakes, and will take more time to develop.

“We’re quite far away from having this be useful in any operational sense at all. We view this as a very motivating first step,” Harvard researcher Phoebe DeVries, coauthor of the paper told the BBC.

Nevertheless, even though the predictions are not 100% accurate and need refinement, scientists are pleased with the outcome of Google’s new AI as no one else has come so far when it comes to these predictions. Perhaps more accurate algorithms or other systems are just around the corner.

“Aftershock forecasting in particular is a challenge that’s well-suited to machine learning because there are so many physical phenomena that could influence aftershock behavior and machine learning is extremely good at teasing out those relationships,” DeVries told Science Daily.

“I think we’ve really just scratched the surface of what could be done with aftershock forecasting…and that’s really exciting.”

Anyhow, Google’s new AI is a firm step forwards to a better recognition of earthquake aftershocks, and being able to prepare ourselves before they strike, knowing how disastrous and scary they can be.

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JonesTrading General Counsel Fired After Arrest For Sex With Minor

The general counsel of JonesTrading – an equities and derivatives broker-dealer used by institutional money managers and hedge funds – was fired after he was arrested on charges that he engaged in sex acts with a minor.

As Bloomberg first reported, Jason Lavender, 44, was arrested on Aug. 23, according to the Sheriff’s Office in Ventura County, California.

Jason Lavender, former JonesTrading General Counsel.

He pled not guilty to six felony counts, including two counts of lewd act upon a child, two acts of oral copulation of a person under 16 and two acts of “anal & genital penetration by foreign object” according to court records. Lavender was released after posting $240,000 bail.

According to Bloomberg, Lavender was terminated on Aug. 24 from the company. In a memo sent to JonesTrading’s employees the same day, Chief Operating Officer Steve Chmielewski said that Lavender was no longer working at JonesTrading, according to a copy of the memo seen by Bloomberg.

“Mr. Lavender, who had worked at JonesTrading for less than 5 months, was terminated immediately once we became aware of the appalling charges that were filed against him,” Chief Executive Officer Alan Hill said in a statement. “These charges were unrelated to JonesTrading’s workplace. Given the sensitivity of this matter and out of respect for anyone affected by his alleged actions, we are unable to comment further.”

Patrice Koenig, a prosecutor with the Ventura County District Attorney’s office, said that Lavender faces a maximum sentence of six years in state prison if convicted, although he is unlikely to receive the maximum sentence because he doesn’t have a criminal record.

The alleged acts took place over a two-month period, from June 18 through Aug. 20, Koenig said, declining to provide further details. Lavender is due back in court Sept. 18 for a so-called early deposition conference where prosecutors and his lawyers will discuss the possibility of a guilty plea, Koenig said.

Ron Bamieh, Lavender’s lawyer, declined to comment on the claims.

“We’re reviewing the discovery that’s been provided to us by the district attorney,” Bamieh said.

Before joining JonesTrading, Lavender was senior corporate counsel for Charles Schwab Corp.’s broker-dealer subsidiary. He has a degree from the University of California Hastings College of the Law in San Francisco.

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Once The Bubbles Pop, We’re Broke

Authored by Charles Hugh Smith via OfTwoMinds blog,

I hate to break it to you, but the everything bubble isn’t permanent.

OK, I get it–the Bull Market in stocks is permanent. Bulls will be chortling in 2030 that skeptics have been wrong for 22 years–an entire generation. Bonds will also be higher, thanks to negative interest rates, and housing will still be climbing higher, too. Household net worth will be measured in the gazillions.

Here’s the Fed’s measure of current household net worth: a cool $100 trillion, about 750% of disposable personal income (DPI):

Household net worth has soared $30 trillion in the past decade of permanent monetary and fiscal stimulus. No wonder everyone is saying Universal Basic Income (UBI)– $1,000 a month for every adult, no questions asked–is affordable, along with Medicare For All (never mind that Medicare is far more expensive than the healthcare provided by other advanced nations due to rampant profiteering, fraud and paperwork costs–we can afford it!)

And we get to keep the Endless Wars ™, trillion-dollar white elephant F-35 program, and all the other goodies–we can afford it all because we’re rich!

We’re only rich until the bubbles pop, which they will. All speculative bubbles deflate, even those that are presumed permanent, And when the current everything bubble pops, net worth–and all the taxes generated by bubble-era capital gains–vanish.

Take a look at the Federal Reserve’s Household Balance Sheet (June 2018):
$34.6 trillion in non-financial assets
$81.7 trillion in financial assets
$15.6 trillion in total liabilities ($10 trillion of which is home mortgages)
$100 trillion in net worth

So $25 trillion is in real estate. When the housing bubble pops, $10 trillion will go poof. Maybe $12 trillion, but why quibble about a lousy $2 trillion? We’re rich!

Consumer durables are worth $5.7 trillion, minus consumer debt of $3.8 trillion. As we know from the 2008-09 recession, the value of used boats, BBQ grills and assorted other gew-gaws drops to near zero (boats abandoned to avoid slip fees, etc.), so shave off the phantom $2 trillion in consumer durables.

Stocks held directly and indirectly, $28 trillion. Stocks are overvalued by half, so once reality sets in $14 trillion will vanish into thin air.

Non-corporate businesses currently worth $11.9 trillion–in the depths of a recession, many will close and the market value of the struggling survivors won’t be much. Let’s say $5 trillion vanishes.

That’s $30 trillion up in smoke, and we haven’t even gotten to pensions and $15 trillion in “other financial assets.” Whatever they are, we can bet that $10 trillion in pension entitlements and “other financial assets” disappear, too.

So a reasonable estimate is post-bubble, household net worth drops by 40%, or $40 trillion. This is actually being generous, as this leaves a $20 trillion gain since 2000, a period in which GDP rose from $10.2 trillion to $19.5 trillion:

I hate to break it to you, but the everything bubble isn’t permanent. Extend this geometric line of net worth a decade and then extend the GDP line a decade; at that point, our wonderful assets will be worth $1,000 trillion while our real-world economy will have grown to $25 trillion. Does history suggest this is possible, or likely? Will the pundits still be declaring that this is all quite reasonable considering how well the economy is doing?

We’re only rich until the bubble pops – then we’re broke.

*  *  *

Back to School Book Sale: 57% off the Kindle edition and 25% off the print edition of The Nearly Free University and the Emerging Economy ($2.99 Kindle, $15 print). My new book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.

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Senator Chris Murphy: “The Survival Of Our Democracy” Depends On More Censorship

Authored by Daisy Luther via The Organic Prepper blog,

Welcome to the United States of Censorship.

Your tour guide today is Senator Chris Murphy, a Democrat from Connecticut, tweeted some pro-censorship nonsense the other day. In doing so, Murphy proved that (a) he doesn’t understand the First Amendment, (b) he wants the internet to be an echo chamber, and (c) he must have slept through high school civics class.

Murphy tweeted that “the survival of our democracy” was dependent upon even MORE censorship.

(Psst: NOT a democracy. I Googled it for you, Chris. How the heck did you get elected when you don’t even know this? I guess there isn’t a quiz you’ve gotta pass to be a Senator.)

Anyone north of a Hillary-Clinton-loving liberal knows that there’s war on our opinions, while the folks who control the media can say practically anything they want. (Like when CNN anchor Chris Cuomo defended Antifa and freaking compared them to WWII soldiers storming the beach at Normandy, even though he says he didn’t.)

Some background information on the wave of censorship

At the center of this brouhaha is Alex Jones’s InfoWars, an ultraconservative, conspiratorial media outlet who was recently deplatformed by anyone who matters in the media world.

While I’m personally not a fan of Jones or his website, I’m even less of a fan of censorship. Apple, Facebook, Spotify, and YouTube all removed Jones’s accounts within hours of one another, which is blatantly a colluded effort to silence his opinions. And whether you like Jones or not, this should scare the crap out of you if you don’t wish to live in an America that only allows one philosophy.

But it didn’t start with Infowars. The purge has been going on for quite some time.

Since mid-2016 the big 4 tech companies – Google, Facebook, Twitter and, the biggest social media platform in the known universe, YouTube, have engaged in secretive/open policies of censorship. It began with Amazon-owned, Washington Post running an article announcing Prop-Or-Not in which some unknown shadowy people had decided there were 200 different websites that were engaged in spreading Russian propaganda. Nothing could have been further from the truth and this experiment actually unleashed unintended consequences that took more than a year for these tech giants to reign in. Each of the 200 websites traffic exploded to the upside, in some cases doubling there traffic from the previous month.

The next step was unleashed by YouTube in what was dubbed “AdPocalypse” due to the way YouTube began systematically stripping ad revenue from content creators. Not all content creators and not all videos published by these select content creators were affected, but it was devastating to some of us…

…There was no rhyme or reason behind this on-going attack to our revenue base. AdPocalypse continues to this day with the added bonus of shadow banning. More about shadow banning in a moment.

When Natural News was first threatened and then had 140,000 pages de-indexed, Mike Adams took action, hired an attorney and had everything put back into place in short order. This was the warning shot to all other websites, including The Daily Coin, that something major was coming down the pike.

This is now the third phase of what seems to be a coordinated effort among these companies. Google began de-indexing pages from established websites like InfoWars and Natural News. This practice is alive and well today. (source)

And remember when Milo Yiannopolis got deplatformed? He was on top of the world for his alt-right commentary, he had a book deal, he was filthy rich, and he was everywhere. Until suddenly he wasn’t. He was all but erased by the Gods of the Internet. Media outlets like Mashable are filled with glee. “Deplatforming works,” they crowed, overjoyed about the fates of Yiannopolous and Jones.

For a few years there, Yiannopoulos was a reigning troll of the alt-right. He championed the ability to demean anyone anywhere, and called it free speech… Yiannopoulos’ rise and influence crystallizes how social media can amplify a fringe voice by coalescing followers and normalizing once-abhorred opinions and groups, which leads to real world violence.

Eventually, however, Yiannopoulos took it too far for social media, his speaking sponsors, and even his bosses to handle…

“My events almost never happen,” Yiannopoulos wrote.. “And when I get dumped from conferences, BARELY ANYONE makes a sound about it — not my fellow conservative media figures and not even, in many cases, you guys.”

Milo’s events don’t happen because his words, and the real world action they’ve inspired, triggered “de-platforming.” De-platforming is the idea that the best way to combat hate and vitriol in the real world is to take away amplification, usually online. It most recently regained prominence amidst the wide scale ban of Alex Jones and InfoWars from every major platform he had, except Twitter.

…The fact that Yiannopoulos has found his reach and influence so depleted that he can’t get new gigs and takes to comments on Facebook to complain shows the real world effect that de-platforming a toxic public figure can actually have. Indeed, the pro-InfoWars fervor surrounding Alex Jones’ ban from social media lasted about 24 hours; much more enduring is his silence. (source)

Again, whether you love or hate these websites and people that have been attacked doesn’t matter. I’m not a fan of Jones or Yiannopolous, but I am a fan of their freedom to say what they want, even if it’s abhorrent. The folks who run the information world are starting with the sites that are the most blatantly controversial because that’s how they get people on board with this purge.

They will not stop there, with the most abhorrent. The rest of us are next.

A quick segue into the protections of the First Amendment

One quick point I’d like to insert here so that it’s perfectly clear. There is a difference between censorship and violating the First Amendment.

Yes, Google, Facebook, Apple, YouTube, and the like are all private entities. They’re allowed to have whatever they want on their platforms. Their censorship is NOT covered under the First Amendment. 

BUT…when they collude to silence a point of view that they don’t like, we’re at the top of a greasy slide straight into a pit of complete and utter censorship.  While it isn’t covered by 1A, it is no less dangerous.

Ben Shapiro explains:

…it is a problem. It’s a problem because these policies are extraordinarily vague. These policies aren’t merely designed to crack down on speech openly advocating or threatening violence, or containing obscenity. These policies are deliberately unclear as well as political.

What, for example, constitutes “hate speech”? Much of what Jones and his employees say is absolutely rotten pig excrement, but there’s no definition of hate speech that has a limiting principle. Is it “using dehumanizing language to describe people who are transgender” to state that transgender people suffer from a mental disorder? Or that they are not in fact members of the gender to which they claim membership? What constitutes “hate speech” when discussing the relationship between radical Islam and terrorism? None of this has been made clear.

Furthermore, it won’t be made clear, because the political Left has no clear standards. … How exactly are we supposed to trust in free and open debate when those setting the limits are openly setting them up with embedded double-standards?

The answer is, we don’t. Trust in social media is declining nearly as fast as trust in media overall. There’s a reason for that. And it’s not because social media tolerates voices like Jones. It’s because they don’t tolerate voices like Jones while tolerating voices who are just as bad on the political Left – and they show no signs of limiting their censorship to Alex Jones. (source)

So when you’re arguing about this, just remember, it isn’t the First Amendment being breached here, but it is still insidious. Just because it isn’t unconstitutional doesn’t mean that it isn’t censorship.

Censorship is defined as the suppression of speech, public communication, or other information, on the basis that it’s considered by the government or a private institution to be objectionable, harmful, sensitive, or inconvenient.

So yes, call it what you want, but it is classically, totally, absolutely censorship.

Back to Senator Murphy’s Twitter rant

So, anywho, let’s go back to Senator Murphy, who really is only saying what a whole bunch of other people believe. It’s just scarier because he has the political oomph to make his Orwellian dreams a reality.

It all started when he tweeted this:

Infowars is the tip of a giant iceberg of hate and lies that uses sites like Facebook and YouTube to tear our nation apart. These companies must do more than take down one website. The survival of our democracy depends on it.”

Trust me when I tell you it won’t stop at Alex Jones. Senator Murphy doesn’t want it to stop at Alex Jones. He wants the sweep to continue and scoop up anyone with whom he disagrees. And not just on social media. Did you notice he was saying that he wanted entire websites to disappear? This is a totally different ballgame, friends. This is the beginning of the end.

John Nolte wrote for Breitbart (please swallow your disdain for Breitbart, commenters. I quoted CNN too):

InfoWars being silenced tightens the free speech circle, brings the line closer to you and I, especially in a terrifying and chilling climate where the left-wing establishment are deciding what “lies and hate” are.

Killing the InfoWars canary, however, will also embolden the censors at CNN and those like Murphy in the political world. They see that dead canary as a success, and as a blueprint to come after the rest of us. And make no mistake, we are all next.

Finally, and this is important, what Murphy is calling for is even more extreme than what happened to InfoWars.

Murphy is calling for “websites” to be taken down — entire websites.

In deleting their accounts, what Facebook and YouTube did to Infowars is bad enough, but Jones still has his own site, his own outlet; and now we have a sitting United States Senator is calling for that to be removed. (source)

But, even CNN is nonplussed about the disappearing of Jones from the internet. CNN. Columnist LZ Granderson wrote:

But that doesn’t mean I view systematically scrubbing him from the internet, as Apple, Facebook, and YouTube have tried to do, as a victory. Why? Because I enjoy hip-hop, Elvis Presley, and “The Catcher in the Rye” — and at some point in our country’s history, all three were in the sights of people who didn’t approve of its content (or in Elvis’ case, hips).

Restricting offensive or harmful language for the greater good is all fine and dandy until you become beholden to a definition of “greater good” you don’t agree with. Or when you oppose a politician’s view of “offensive.”

Today the mob is for you, but tomorrow you could be Larry Flynt, who endured decades of court cases and was shot because people thought the content in Hustler Magazine was not worthy of First Amendment protection. Times are obviously different today — paging Kim Kardashian — but the tendency to cherry pick the Constitution remains.

Again, I don’t like what Alex Jones has to say. But I do like the fact I can call him an idiot. That’s America, baby. (source)

When even CNN, that bastion of anti-Trump groupthink, agrees that this is a dangerous, horrifying slippery slope, I think we can all agree we’ve gone way beyond dangerous.

via RSS Tyler Durden

So, Trade Negotiations With Canada Are Going Great

President Donald Trump has confirmed that he publicly said he couldn’t publicly say that he was killing a trade deal with Canada, because it would kill the trade deal with Canada, which is now dead.

Let’s review. Earlier this week, the Trump administration announced a rewrite of the North American Free Trade Agreement (NAFTA), which is a 24-year-old agreement between the U.S., Canada, and Mexico. The only problem was that the announced deal was between only the U.S. and Mexico. For various political reasons on both sides of the Rio Grande, it was critical that the trade deal be officially presented to Congress by end of the week, so getting Canada on-board became an immediate priority.

Fast-forward to Thursday, when Trump told reporters for Bloomberg that he was deliberately undermining the negotiations with Canada by refusing to make any concessions.

“It’s going to be so insulting they’re not going to be able to make a deal,” said Trump, who is supposedly renowned for his ability to, well, make deals.

Though he made those comments in an off-the-record meeting, undisclosed sources passed the president’s words along to the Toronto Star‘s Daniel Dale, who reported them Friday morning.

Canadian trade officials, understandably, were not thrilled. Trade talks concluded Friday with no agreement between the U.S. and Canada.

Having sunk the negotiations that he apparently intended to sink anyway, Trump confirmed that he had intended to sink them all along in a Friday afternoon tweet.

For what it’s worth, Bloomberg tells Axios that their reporters abided by the terms of the off-the-record agreement with the president. It remains unclear how Trump’s comments got passed along to Dale, but this White House is notoriously leaky and it’s pretty unlikely that Trump and the Bloomberg reporters were the only ones in the room when Trump said what he said about Canada.

I’m not sure which part is more alarming, to be honest. Is it that Trump knew it was important to keep his negotiating strategy a secret, and then immediately blabbed about it to a reporter? Is it that Trump was secretly (or not so secretly) plotting to kill the trade deal with Canada in the first place? Or is it that Trump was clearly negotiating in bad faith all week with a major trading partner, ally, and neighbor—you know, the kind of behavior that not only sank this trade deal but makes every other future negotiation and communication between Ottawa and Washington more fraught?

That Trump seems to relish engaging in this sort of behavior is not merely unpresidential. It’s childish, and it is dangerous. It’s no wonder that he’s become so deeply unpopular in other countries that politicians now have a domestic political incentive to avoid engaging with America, as new polling from Pew highlights.

All of this should stand against the backdrop of Trump apparently believing himself capable of restructuring the unfathomable complexities of global trade. Never has he seemed less capable of such a task.

from Hit & Run

Weekend Reading: Are Emerging Markets Sending A Signal

Authored by Lance Roberts via,

I have been, and remain, bearish on emerging markets for three reasons:

  1. As discussed yesterday, the U.S. is closer to the next economic downturn than not. When the U.S. enters a recession, emerging markets are hurt considerably more given their dependence on the U.S. 
  2. International risks in countries like Turkey, Greece, Spain, France, Italy, etc. 
  3. A strong dollar from flows into U.S. Treasury bonds for a “safe haven.” 

I recommended in January of this year to remove all international and emerging market exposure from portfolios and have been updating that position since each week in the newsletter:

“Emerging and International Markets were removed in January from portfolios on the basis that “trade wars” and “rising rates” were not good for these groups. With the addition of the “Turkey Crisis,” ongoing tariffs, and trade wars, there is simply no reason to add “drag” to a portfolio currently. These two markets are likely to get much worse before they get better. Put stops on all positions.”

This has been the right call, despite the plethora of articles suggesting the opposite.

For example, in January, Rob Arnott stated:

“Look at value in emerging markets. In the U.S., value is trading about 25% cheap relative to the market. In emerging markets, it’s close to 40% cheap. 

That’s pretty cool. If you can buy half the world’s GDP for nine times earnings or buy the U.S. for 32 times earnings, I know where I’m going to put my money.”

Now, I am not arguing Rob’s point. But, my position is simply that the economic dependency of emerging markets on the U.S. is extremely high. Therefore, when the U.S. gets a “cold,” emerging markets get the “flu.” 

Over the last 25-years, this has remained a constant.

In 2000, 2007 and 2012, emerging markets warned of an impending recessionary drag in the U.S. (While 2012 wasn’t recognized as a recession, there were many economic similarities to one.)

Currently, emerging markets have once again diverged from the S&P 500 suggesting economic growth may not be as robust as many believe. While a 2-quarter divergence certainly isn’t suggesting a “financial crisis” is upon us, it does suggest that something isn’t quite right with the global economic backdrop.

Lisa Abramowicz recently noted the problem with EM default risk in some of the emerging markets.

While the markets are currently dismissing Turkey, Brazil, China and Russia as non-events, the problem is the issue of funding needs for these countries.

“The second, more salient point is that a key reason for the solid growth across emerging markets in recent years, has been the constant inflow of foreign capital, resulting in a significant external funding requirement for continued growth, especially for Turkey as discussed previously.

But what happens if this outside capital inflow stops, or worse, reverses? This is where things get dicey. To answer that question, Morgan Stanley has created its own calculation of Emerging Market external funding needs, and defined it as an ‘external coverage ratio.’ It is calculated be dividing a country’s reserves by its 12-month external funding needs, which in turn are the sum of the i) current account, ii) short-term external debt and iii) the next 12 months amortizations from long-term external debt.”

Given the ongoing pressures of “tariffs,” trade wars and rising geopolitical tensions, the risk of something going “wrong” has become increasingly elevated.

Yet, market participants are ignoring the risk simply because prices are rising. As Doug Kass noted yesterday:

There is nothing like stock price advances to change sentiment. 

Just like fear dominates politics these days, the opposite is occurring in the markets as greed has emerged as a byproduct of sharply rising prices (which have desensitized investors to risks, doubt, and fear).

Besides growing economic ambiguities, the most notable lack of criticism is the unusual nature of the last decade, in which interest rates sustained themselves around the world at generational low levels. To presume that foundation to be sound in the future (particularly when a pivot of global monetary restraint has already started), is to congratulate Lance Armstrong for his Tour de France wins without noting his use of illegal drugs.

T.I.N.A. (‘there is no alternative’) is no longer a present condition as 1-month, 3-month, 6-month and 1-year Treasury yields are now at their highest levels in 10 years:

There is now an alternative.”

“The magnitude of the market’s rise in the month of August is almost certainly borrowing from future returns. In the extreme, a more durable and significant top may be forming.”

Higher borrowing costs on the short-end reduces consumption and the demand for imported goods. Emerging markets are likely already signaling there is an issue from the Federal Reserve’s actions, and the consequence historically has not been good. But, as I quoted yesterday:

Unfortunately, Powell left the unsettling feeling that monetary policy can be summarized as ‘We plan to keep hiking until something breaks.’” – Tim Duy

Just something to think about as you catch up on your weekend reading list.

Economy & Fed


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“Stay humble…or the market will do it for you.” – Anonymous

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