Month: August 2020

Turkey’s military has announced it will hold “shooting exercises” – or live-fire drills in the eastern Mediterranean from Sept.1 through the 2nd, after a series of military drills in the area meant as a ‘show of force’ in protection of Turkish oil and gas exploration vessels.

This means we could witness simultaneous, dueling military exercises given Greece, Cyprus, Italy, and France are themselves holding joint drills this week, after the EU has threatened sanctions on Turkey, and as the maritime dispute rapidly escalates. 

Crucially, Erdogan is now bluntly warning Greece that Turkey ready to go to war and that “no concessions” will be made amid a flurry of European diplomatic activity and mediation attempts. 

Tensions within NATO are breaking point, given especially France spearheading the Greek cause.

“The Turkish navy issued the latest advisory, known as a Navtex, on Thursday saying it will hold the shooting exercises in the eastern Mediterranean off the coast of Iskenderun, northeast of Cyprus,” Al Jazeera reports.

Germany has called for urgent talks toward deescalating the crisis:

Germany called for an end to military drills taking place in the eastern Mediterranean in a bid to defuse tensions between Greece and Turkey, which are embroiled in a dispute over offshore energy exploration rights. https://t.co/3atRKTt3PZ

— AP Europe (@AP_Europe) August 27, 2020

Turkey’s Foreign Ministry has slammed France’s involvement, with spokesman Hami Aksoy accusing Paris of violating treaties related to Cypriot independence going back to the 1960s (very ironic considering Turkey has for decades occupied northern Cyprus).

The statement further charged France with “dangerously” stoking tensions in sending its ‘Lafayette’ frigate and three Rafale fighter jets to Cyprus.

Walmart shares are surging Thursday morning following a new release via CNBC that states the mega-retailer is interested in teaming up with Microsoft to buy TikTok.

“The way Tik Tok has integrated e-commerce and advertising capabilities in other markets is a clear benefit to creators and users in those markets,” the retailer said in a statement. “We believe a potential relationship with Tik Tok US in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses.  We are confident that a Walmart and Microsoft partnership would meet both the expectations of US Tik Tok users while satisfying the concerns of US government regulators.”

Walmart shares are up 2.3% to $133.70 on the TikTok headline.

Just another stock pump? 

Authored by Seth Levine via RealInvestmentAdvice.com,

These are genuinely fascinating times to be an investor. Markets seem to be going through a generational phase shift, and not necessarily for the best. I see a culture that is leading itself away from prosperity and towards the abyss, and I’m helpless to stop it.

My emotions run the gamut watching events unfold, oscillating between indifference and unbridled rage. I can end up in a dark place.

“Just burn it all down!” I think at times. It turns out that I’m not alone, though frankly, I wish I were. While my nihilistic outbursts seem justified, they’re just as harmful as the culture I’m repudiating.

In my last article, I postulated how the ideology of postmodernism permeates financial markets. I see it manifesting as heavy-handed regulations, endless interventions, and a neurotic obsession with markets’ continual rise. Here, I will comment on the reaction to this, which I see as nihilism. To be sure, I believe postmodernism’s influence on markets is negative, so I’m sympathetic to this opposing view. However, the perceived antidote may be just as dangerous as the poison.

What is Nihilism

Nihilism is another philosophical framework. Like postmodernism, it has variants. Some common threads are that life is meaningless, pursing values is pointless (and even childish or silly), that the world is unknowable, and that this is all just some kind of arbitrary social construct. Whatever the particulars, nihilism is pessimistic, cynical, and focuses on destruction.

Nihilism refers to a number of different views in philosophy, all of which express some form of philosophical pessimism. Different forms of nihilism hold variously that human values are baseless, that life is meaningless, that knowledge is impossible, or that some set of entities does not exist.

Wikipedia

Holding these views creates a psychological state of hopelessness, angst, and rage. Why devote yourself to a career if life is meaningless? Why struggle to solve interesting problems if knowledge is impossible? And if this is just some kind of dream or a social construct, who really cares what happens? F*ck it! And look at those pathetic fools who think that this matters!

When some men fail to accomplish what they desire to do they exclaim angrily, “May the whole world perish!” This repulsive emotion is the pinnacle of envy, whose implication is “If I cannot have something, no one can have anything, no one is to be anything!”

Friedrich Nietzsche, Daybreak via Explaining Postmodernism

Nihilism’s purpose is destruction. It does not seek to create anything positive or right a wrong. Rather, its focus is the elimination of negative elements (real or perceived). While this removal can be useful in the pursuit of values—and even necessary—achievement and creation is what makes for a healthy life. Absent this context, the nihilist’s central purpose is solely the pursuit of destruction.

Nihilism in Investment Markets

I see streaks of this destructive craze in financial markets. There are various undercurrents of “burn it down”… well, more like “burn it the f*ck down!” (aka BITFD). Factions of investors aren’t just angry; they’re enraged over what investing in today’s markets has become (real or perceived). They resemble nihilists.

This market nihilism manifests in a few ways. These include:

• The suspicion that markets are “rigged” such that they only rise

• Feeling that markets now resemble casinos and bear little resemblance to the “fundamentals.”

• A desire for destructive monetary policy

• Anger over passive investing’s success

There are probably more. Note the streaks of helplessness, confusion, futility, and rage. These create a reflexive loop such that markets seem foreign and unrecognizable. They aren’t what they used to be. The rules changed. They are infuriating to trade. BITFD!!!

The basic anger is logical—many things are actually and deeply unjust. The intensity of the anger is the deep desire for substantive change. It’s a driving force for change in the right direction. The feeling of hopelessness against the powers that be exacerbates it. I also think [BITFD] is somewhat metaphorical—i.e. they don’t mean to literally burn everything down in an apocalyptic manner, or do they?

Denise Shull, The ReThink Group

Note that sentiment’s essential characteristic is negativity. There are even traces of alienation. The focus is not on trying to make the most of these markets, as messed up as they may be (real or perceived). Instead, it’s to condemn them all together.

Markets are Rigged

As noted in my previous article, there’s a constituency of investors who see the investment markets as rigged. Central banks and covert “plunge protection teams” backstop equity markets to ensure that they never decline. Masterfully choreographed presidential tweets about vaccines and trade deals arrest any stock market softness. The “fundamentals” are weak, and these interventions prevent investment markets from properly functioning.

What’s the point in doing investment research if governments, central banks, elites, and the Pentavirate ensure that all stocks rise all the time? How can one possibly demonstrate his/her skill when the entire market only goes up such that cheap ETF’s perform best? If it weren’t for the Fed and … oh, BITFD!!!

Well, it’s a well-known fact, Sonny Jim, that there’s a secret society of the five wealthiest people in the world, known as The Pentavirate.

Markets are Now Casinos

It is widely believed that investment prices reflect the fundamentals of the underlying asset. These vary by type and come in many flavors: earnings, leverage, cash flow, supply/demand, inflation, etc. Thus, prices reflect what’s happening in the “real world.” Wall Street and Main Street are synched.

Today, though, there’s a sense that the link is severed. If markets don’t reflect the fundamentals, then what makes them tick? If analysis no longer explains market moves, then what does? Price fluctuations appear random. Investing becomes a game of chance. As a result, the investment markets resemble a casino. If investing skill does not connect to returns, then what’s the point?

BITFD!!!

Desires for Destructive Monetary Policy

These notions feed into views on monetary policy. Healthy capital markets create prosperous economies. Thus, rigging them—even if only to rise—sows the seeds of harmful crashes that are even larger than otherwise possible if left alone. Like brush fires, small and frequent ones are preferable to large, uncontrollable, and catastrophic ones. Low interest rates and market interventions like quantitative easing (QE) interfere with markets’ abilities to self-correct and perpetuate growing imbalances. Financial markets are now an avalanche waiting to happen.

There are rightful critiques of such interventions. However, many prescribed fixes lead only to destruction. Their goals are strictly to disrupt the current state of affairs. They are not sustainable solutions. Thus, they are nihilistic. Take these two, for example, 1) setting monetary policy randomly, and; 2) appointing an erratic personality as president of the Federal Reserve.

Stan Druckenmiller

Stan Druckenmiller had a fascinating proposal, that on its surface, feels like the opposite of a technocrat. His proposal was, that at every Fed meeting, there should be a random number generator, and if it spits out a particular range, the Fed randomly raises or lowers interest rates by 25 basis point.

Why would you do that? Well, simply, because it reduces people’s willingness to engage in leveraged speculation.

Mike Green, Williams and Fleck, The End Game, Ep. 3

Take the proposal to set interest rates randomly. It aims to reduce “leveraged speculation.” That seems desirable on the surface, right? However, the result would be harmful. First, there’s nothing inherently evil about speculation (leveraged or not). Speculation is at the core of investing and entrepreneurship. Adding more uncertainty (i.e., randomness) reduces our ability to engage in productive speculation. So while “evil” speculation might slow, so would innovation. Secondly, if monetary policy were set randomly, then one could literally gamble on it. Gambling’s popularity suggests that randomness wouldn’t eliminate speculators.

Hugh Hendry

The same goes for Hugh Hendry’s recommendation. In a recent report, Hendry suggests that investment markets would benefit from more chaos(!). He postulates that chaos could break the malaise and force banks to lend more, hence boosting economic output. Appointing Joe Rogan to head the Fed might do the trick according to Hendry.

If people can’t bear higher interest rates, then let’s give them something else. CHAOS, anyone (emphasis added)? If I were at the Fed, I would appoint podcast-superstar Joe Rogan. Joe Rogan for president! No, not of the White House, but the Fed! …. Just the shock and the majestic irresponsibility of having Chairman Joe at the table should do it (emphasis added). … the Fed, would insist that private-sector bank loan growth must be maintained at 50% above its rolling five-year average. Failure to comply and… ka-boom!

Hugh Hendry, The Dawn of Chaos

While I have the utmost respect for Hendry, this seems like a preposterous proposal. Capital flows to where returns are best. Chaos is decisively bad for investment and economic growth. History is littered with failed economies lead by erratic dictators. Chaos does not breed prosperity; it breeds poverty and despair (and ka-boom!).

To be sure, I’m quite sympathetic to these stances. As I’ve written, I believe that cheap Fed liquidity has only encouraged more debt creation in the economy. However, neither proposal seeks to improve the monetary system (like my favorite alternative to disband the Federal Reserve system and replace it with a free banking regime). Instead, they solely seek to destroy the existing one. What comes after the ruin? Blank out.

Lamenting Passive Investing’s Success

In my view, the rise of passive investing also plays a part in this narrative. Passive investing has replaced many professional active managers. The former has wrecked the latter’s livelihood.

Source: Counterpoint Global Insights

From the active manager’s perspective, underperformance is unexplainable other than the markets have become rigged. Their careers have been wrecked not by a lack of skill, but by the unjust environment. For the active manager, it’s as if they’re up against a horror film monster. There’s no apparent weakness to attack. Such breeds alienation, anxiety, and a whole host of negative emotions. BITFD!!!

It’s tempting to succumb and pray for destruction believing that skill will shine in a down-market. But this is the wrong approach. A more constructive view is to build a better investment process for the current landscape, even if that means rethinking everything.

Don’t BITFD, Take Markets Back.

Investing is a distinctly human action. Thus, the financial markets merely reflect ideas that permeate our culture. While I find the dominant, postmodern ones dangerous, I take no comfort in the opposition. Like a child throwing a tantrum, BITFD is nothing more than an emotional outburst. It’s not a strategy for building a better system. Destroying existing markets is pure nihilism.

Contrast this with the founding of America. The Founding Fathers did not react to the colonial injustices and tyranny with BITFD. Instead, they revolted to take control and build an entirely new political system. Such is a positive, rational, and pro-life mentality. Imagine if instead, they resorted to burning down the colonies? There’d be no America!

To be sure, we are in desperate need for a change in course in the financial markets. They are invaluable to a modern society and a great engine of prosperity. Breaking them purely out of hatred is akin to cutting off one’s nose to spite his/her face. It’s nihilism.

So please, no! Don’t BITFD. Let’s take back (intellectual) control of the investment markets. Let’s revolt and overthrow the bankrupt incumbent orthodoxy. Capital markets are far too valuable to relinquish or recklessly destroy in an emotional-charged outburst. We need them to build a better future. After all, that’s what investing is all about.

NASDAQ has filed with regulators to allow companies to debut on its exchange using direct listings, in addition to the traditional initial public offering, according to Reuters. The move seems to indicate sure-fire demand to step away from traditional IPOs – and the high costs associated with the traditional method of going public. 

The SEC already allows direct listings for companies that don’t raise capital in the process of going public. In 2018, Spotify became one of the first major companies to go public through a direct listing. The NYSE is also seeking the same concession from the SEC, having filed in June for a similar rule change.

A direct listing essentially means that a company would set a non-binding price range ahead of trading with a fixed number of shares being sold.

While a company can’t open more than 20% below the set range, it can run as high as it would like above it. The NYSE’s proposal mandates that companies would need to open within that price range.

Many venture capital firms had been critical of the IPO structure in the past, claiming it allows banks to sell stock at a discount to their clients before the public has a chance to buy. 

This year there have been 109 U.S. IPOs, according to Reuters, inclusive of SPAC listings. They have averaged a gain of 35.7% on their first day traded. SPAC listings have become more popular over the last two years, perhaps offering a glimpse into the shift away from IPOs. 

NASDAQ made the request on Monday in a filing it submitted to the Securities and Exchange Commission. The filing had been in the works for about a year. 

As excerpted from Michael Every of Rabobank

The hole in Jackson Hole is the total absence of political economy. You can fiddle with targets and acronyms all you want, but the real problems are structural and hence political. Even some Fed economists recognise this. As one example, consider this recent research paper: “Market Power, Inequality, and Financial Instability”. Its abstract argues:

“Over the last four decades, the US economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage, and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.”

Congratulations to the two economists involved. In capital vs. labour power they have rediscovered what Marx first said around 150 years ago in one (wrong) form, and what Keynes and Kalecki showed to be true, including predicting negative interest rates as the final destination, around 80 years ago: it’s the political-economy, stupid. You either do something about that or you do nothing at all – apart from pushing up asset prices to make rich people richer in the erroneous belief that somehow this will then help poor people. Don’t expect any recognition of that at Jackson Hole today, of course, from the Fed or any other of the central bankers dialling in from home.

Instead, we get the irony-free Bloomberg headline “Stock Market Warns Workers That They’re the Problem for Business”, quoting a global macro strategist who argues “labour-light” firms beat big employers by 37 percentage points in terms of stock performance, and that 2020 is a “bear market for humans” as Covid-19 is “just accelerating social transformation, concentration of wealth in a few hands, massive inequalities, competition issues and all that.“ Perhaps if all companies fired all their workers we would get the best stock market ever? The data are unequivocal, right?

Again, sarcasm aside, we are back to political-economy.

Politicians have the power to deal with social transformation, concentration of wealth in a few hands, massive inequalities, competition issues and all that. Or they do if they aren’t listening to economists and central bankers who won’t address these issues because “economics is a science and not political”.

Again, there’s the real hole in Jackson Hole.

The Pentagon revealed Thursday that China’s People’s Liberation Army (PLA) “warning” to the US on Wednesday involved the firing of “four medium-range missiles into [an] area between Hainan and the Paracel Islands,” a defense official was quoted in FT.

Among them included nuclear-capable DF-26 missile and the anti-ship DF-21D ballistic missile. Beijing said they demonstrated the PLA’s ability to deny outside military access to the South China Sea.

The missiles were fired in response to the major incident from Tuesday, wherein China’s PLA military angrily charged that a US U-2 spy plane entered a ‘no-fly zone’ off China’s coast while the PLA conducted live-fire military drills.

The PLA has since ratcheted up its drills, with FT reporting Thursday the military “announced it was conducting another live fire exercise in waters off the eastern city of Taizhou, bringing the number of drills off its coast this week to five.”

Defense Secretary Mark Esper, meanwhile, vowed the US would never “cede an inch” in the Pacific and accused China of ultimately putting soldiers’ lives at risk with its hugely escalatory actions. 

Ironically this is precisely what China accused the US of doing on Tuesday with the U-2 flyover. It’s defense ministry had issued what appeared veiled threat saying an “unexpected incident” could have easily resulted over the US spy plane operation.

Esper said in Wednesday comments: “To advance the CCP’s agenda, the People’s Liberation Army continues to pursue an aggressive modernization plan to achieve a world class military by the middle of the century.” 

He said this on the same day the Trump administration blacklisted 24 Chinese companies also along with targeted individuals related to their construction activities which assist the PLA in their South China Sea territorial ambitions and expansionist claims.

“This will undoubtedly involve the PLA’s provocative behavior in the South and East China Seas, and anywhere else the Chinese government has deemed critical to its interests,” Esper added. 

With all of this building tension now showing itself in US spy missions and reactionary PLA missile firings into the South China Sea, the situation is indeed dangerous and ripe for a dreaded “unexpected incident” scenario which China watchers have long warned about, or rather, barreling toward a Thucydides Trap.

And if that seems overly alarmist, consider this: “The US Navy has 38 ships under way in the Indo-Pacific region right now, and we will continue to sail, fly and operate wherever international law allows. Our naval forces remain ready to respond to any threat to our allies and partners” — Vice-Admiral Scott Conn, commander of the US Navy’s Third Fleet, boastfully stated.

Authored by Paul Joseph Watson via Summit News,

A CNN reporter described the mayhem in Kenosha as “mostly peaceful” even as cars set on fire by rioters burned behind him.

Omar Jimenez describes “multiple locations that have been burning in Kenosha, Wisconsin over the course of the night” before characterizing the unrest as “largely peaceful.”

The CNN chyron below Jimenez described the events as “fiery but mostly peaceful.”

.@CNN chyron: “Fiery But Mostly Peaceful Protests After Police Shooting” #KenoshaRiotspic.twitter.com/W7TVmmmUhf

— Andy Ngô (@MrAndyNgo) August 27, 2020

Next time someone’s house is burning down, I’m sure the scene will be described as “fiery but mostly peaceful.”

Earlier this week, CBS News pulled a similar stunt when host Gayle King described “a second day of peaceful protests, which is what the Black Lives Matter is really about.”

In reality, there have been no “peaceful” protests in Kenosha. Every night has been a running battle between police and rioters.

Every night, car dealerships were set ablaze, stores were looted and people trying to protect their businesses were viciously assaulted.

A second day of peaceful protests gave way to clashes overnight in Wisconsin.

This comes after 29-year-old Jacob Blake was shot multiple times in the back by police as he tried to get into his car. He remains hospitalized in stable condition.@MolaReports has the latest. pic.twitter.com/4Ljb0hZFq0

— CBS This Morning (@CBSThisMorning) August 25, 2020

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