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At first, it was an unthinkable taboo – after all with a banking system that’s twice as large as that of the US, the last thing Beijing wanted (or could afford) was doubts that the people’s trillions in savings were safe as the alternative was not just a collapse of the financial sector but a breach of China’s capital controls firewall as tens of millions of citizens scrambled to shift their savings abroad, in the process obliterating the yuan. Then, starting in early 2019 after several banks which previously refused to published 2018 annual reports either quietly failed or were not so quietly nationalized…

… most notably the inner-Mongolia-based Baoshang Bank which was seized in the first state takeover since 1998, domestic confidence in China’s banking system was suddenly – and perhaps irreparably – shaken, leading to scattered scenes such as these as bank runs erupted across several  Chinese banks , forcing Beijing to unleash unprecedented damage control (and internet censorship) to keep the illusion that all is well.

 

Fast forward to today, when a confluence of the adverse trends that emerged in 2018 and 2019, coupled with the historic economic slowdown in China’s economy, and accelerated by social media-fueled rumors about collapsing banks have sparked what Bloomberg called an “unprecedented” surge of bank runs, forcing regulators and even the police to step in to calm depositors.

According to Bloomberg, in just the past few weeks, worried savers have descended on three banks to withdraw funds amid rumors of cash shortages that were later dismissed as false.

Over the weekend customers rushed to a bank in the northern Hebei province to take out money, prompting local regulators to publicly vouch for the soundness of its lenders as the police halted the run.

Indeed, as Bloomberg adds, “after several bailouts and the first bank seizure in more than two decades last year, the coronavirus outbreak and its economic fallout have exacerbated an already shaky situation in the world’s largest banking system” leading to a sharp erosion of confidence in the $43 trillion banking system among the nation’s more than 1 billion account holders, threatening a cornerstone of China’s rise into an economic powerhouse.

“The perception Chinese savers had of banks being risk free is changing even though in nearly all recent cases their deposits have been protected,” said China International Capital Corp analyst Zhang Shuaishuai.

“Once a rumor like this spreads, it brings immediate liquidity risk to a bank.”

There is probably a reason for why these “rumors” have led to such a dramatic response: they merely bring to the surface whatever most already know, namely that behind its sterling facade, China’s banking system is rotten to the core, with lies upon lies about trillions in non-performing loans…

.. coupled with growing risks from billions parked at China’s unregulated and unstable shadow banking system (best known recently for stories such as this one “Anxin Trust’s $7 Billion Investment Black Hole“)

While regular readers are all too familiar with the story, Bloomberg recaps quickly why it is so crucial for Beijing to preserve the illusions that Chinese savings are sacrosanct and why bank runs can never take hold:

For decades, deposit-taking has provided a stable and low-cost funding base for China’s financial market, playing a key part in the rise of its economy to the second largest in the world. Chinese households hold about 90 trillion yuan ($13 trillion) of bank deposits, more than anywhere else in the world. 

China’s increasingly shaky banking system has also been cited as one of the reasons why Beijing has been aggressively seeking to blow another stock market bubble in hopes it leads to fund flows away from bank savings accounts: after all, it’s politically safer and more palatable to store funds in capital markets rather than in banks, which are looking increasingly shaky by the day. Ultimately, if faced with a decision between another stock bubble-bust cycle, or a loss of confidence in its banks, Beijing will always pick the former.

In any case, regulators are now not only seeking to soothe nerves publicly, but are also raising the protection to preserve this cushion for banks. The run in Hebei came after authorities kicked off a pilot program to limit large transactions in the province. The two-year program, which Bloomberg explains is set to be expanded to Zhejiang and Shenzhen in October to encompass 70 million people, would require retail clients to pre-report any large withdrawals or deposits of 100,000 yuan ($14,000) to 300,000 yuan.

That could be problematic to say the least in a country whose own banking regulator, the China Banking and Insurance Regulatory Commission, on Saturday again warned that lenders are facing a surge in bad debt as the economy sputters at its slowest pace in four decades.

While stopgap measures, which have included rolling over debt and delaying loan payments, have limited an immediate surge in bad debt, the regulator said the fundamental issues of poorly managed banks and the deteriorating ability of companies and individuals to repay loans are still far from solved. They are also asking banks to forgo 1.5 trillion yuan in profit this year by offering lower lending rates, cutting fees, deferring loan repayments, and granting more unsecured loans to small businesses to help the economy.

Alas for China’s regulators, they are facing an uphill battle: with authorities overseeing more than 3,000 banks, most of which are small, rural entities without ready access to capital, their job equates to whack-a-mole – the moment they stop one bank run, several new ones take its place. And so, in another unprecedented move, China now plans to allow local governments to use about 200 billion yuan from bond sales to help smaller banks replenish their capital.

It gets worse.

According to S&P, China’s industry may suffer a whopping 8 trillion yuan increase in bad debt this year. Even without this balance sheet “neutron bomb” small banks are facing a $349 billion shortfall in capital, according to UBS analysts, leading to even more small bank failures. Putting that figure at only $50 billion, the regulator said the shortfall could mean slower profit growth or even sliding profits at some institutions.

Meanwhile corporate bonds are also suffering, adding further pressure on banks and hurting corporate funding. According to Bloomberg data, about 80 billion yuan worth of Chinese bonds defaulted on and offshore so far this year, the most in at least three years.

The result of all this, predictably, has been a collapse in confidence in Chinese banks and its logical next step: bank runs.

In the most recent episodes, authorities stepped in last month to halt banks runs at two local lenders in Hebei and Shanxi. On July 11, savers rushed to withdraw money from Hengshui Bank, also based in Hebei, before the police put a stop to it.

In response, the local offices of the People’s Bank of China and the CBIRC did what China does best: they scrambled to preserve confidence in the system, saying in a joint statement that Hengshui Bank and its branches are legitimate financial entities where any savings under half a million yuan are protected under China’s deposit insurance regulation. They also reassured depositors that their money is safe and urged them not to “blindly” withdraw savings.

In fact, they also urged them not to withdraw savings at all.

When that did not work, police took people into custody, issuing reprimands to those spreading rumors, according to the statement.

Meanwhile, as Bloomberg adds, Hengshui Bank said in an emailed reply on Wednesday that the city government is actively dealing with the issue and called for less publicity for fear the incident leads to regional systemic risks.  In other words, China is now aggressively censoring any online media that discusses China’s questionably solvent banks.

Knowing this won’t work, regulators have been working on a plan since last year that would see more small banks merge to shore up their strength, but so far little of that effort has come to fruition.

“China has too many banks,” said Zhang. “Quite a few of them are weak in corporate governance and earnings capacity. A better option is to take a more proactive approach to restructuring those regional banks.” He is, of course, correct, however any restructuring would require taking a very risk first step of admitting banks have a big problem, and with China having swept up its bank problems under the rug for years, it is anybody’s guess how the world’s largest depositor base reacts on learning that its money resides in the world’s biggest house of cards.

Picking up on what Russell Napier said recently, when the formerly iconic deflationist threw in the towel and now expects inflation because “control of money supply has permanently left the hands of central bankers”, a fund manager who returned 47% this year by betting heavily on gold and Treasuries says the next decade is going to be marked by inflation that central banks are powerless to control.

Diego Parrilla, who heads the $450 million Quadriga Igneo fund dubbed “Doomsday” by Bloomberg, perhaps because unlike most of his peers he refused to buy into the biggest groupthink trade ever namely FAAMG stocks, said unprecedented monetary stimulus is fueling asset bubbles and corporate debt addiction, which renders rate hikes impossible without an economic crash. In the ensuing market mania, the manager whose portfolio is loaded up with cross-asset hedges says gold could rise as high as $5,000 an ounce in the next three to five years, more than doubling from its current price of $1,800 which is just shy of all time highs.

“What you’re going to see in the next decade is this desperate effort, which is already very obvious, where banks and government just print money and borrow, and bail everyone out, whatever it takes, just to prevent the entire system from collapsing,” Parrilla told Bloomberg in an interview from Madrid.

Actually, we get why Quadriga Igneo was called “Doomsday”: it does not shy away from the truth that the Fed has pushed the financial system into a corner where any deviation from massive money injections would lead to catastrophe. Also, unlike most hedge funds – which as we noted earlier no longer function as they should due to central bank interventions – and whose job is to compound steady returns over time, Parrilla’s fund is similar to a “black swan” fund in that it tends to hedge the next big crash while generating capital over time. Managers with a tail-risk bias position for extreme market events, typically bucking mainstream views on Wall Street.

While calls for surging inflation have been often made in the past decade, yet were confined to financial assets while the broader economy suffered from lack of aggregate demand, Parrilla believes that the stimulus packages have exacerbated deeper issues within the financial system, “such as central banks who have kept interest-rates near zero for more than a decade and are willing to re-write the policy rulebook in a crisis.”

While the jury is still out on if and when soaring inflation will hit – although we should note that in recent weeks such prominent deflationists as Albert Edwards, Russell Napier and Horseman’s Russell Clark have all shifted to expecting runaway inflation in the coming year – Parrilla may be on to something if only based on the soaring value of his asset portfolio which soared as virus-fueled fear ripped through markets in February and March. The fund is about 50% invested in gold and precious metals, 25% in Treasuries and the rest in options strategies that profit from market chaos, such as calls on gold and the U.S. dollar.

“This is the part that makes us super explosive,” he said.

Quoted by Bloomberg, Parrilla, who previously ran the commodities department for Old Mutual Global Investors, described his investment process as search for anti-bubbles: unusually cheap assets that do well when bubbles burst. It had to wait patiently until its moment came: the Quadriga Igneo fund was launched in 2018 and had returned 10% by the end of the year. Performance was flat in 2019 before exploding by 50% in 2020.

“What we’ve seen over the last decade is the transformation from risk-free interest to interest-free risk, and what this has created is a global series of parallel synchronous bubbles,” said the fund manager, who is also the author of a book called “The Anti-Bubbles: Opportunities Heading into Lehman Squared and Gold’s Perfect Storm.”

“One of the key bubbles is fiat currency, and one clear anti-bubble in this system is gold,” he said, adding that other examples are volatility, correlations and inflation. “It’s a case of when, not if, they will reprice significantly higher.” We, and many others agree.

Parrilla is on a good start: gold has rallied 19% this year and captivated some of the world’s most prominent investors this year, who argue that the rapid expansion of central bank balance sheets will reduce fiat currency values and drive demand for hard assets.

“The bubbles are too big to fail and mommy and daddy will do whatever it takes to prevent this,” said Parrilla, referring to central banks who now step in and prop up capital markets after even a modest drop.

The 2018 Realvision clip below captures some of Parrilla’s core views.

NYC is slowly emerging from its COVID-19-induced shock, and as politicians clash over what NYC’s classrooms will look like next fall (or whether they will reopen at all), thousands of New Yorkers are trying to ditch their city digs and move on out to the suburbs.

Various real estate brokers and market analysts compile data on all aspects of the NYC real estate market. And a recently released survey by Property Shark found that, YoY, sales volume in the city declined by 25%.

But the details of the report are more interesting. As one might expect given its cosmopolitan reputation, Manhattan was the hardest hit of all 5 boroughs. Queens saw its median sales price climb by 10%, while Brooklyn sales activity saw the smallest contraction.

As more signs of life begin to emerge, here’s the rest of the report, courtesy of PropertyShark.

With NYC now in Phase Three of reopening and the rest of the state in Phase Four, the residential market’s performance is of heightened interest, after a tumultuous first half of the year.

The year started off promising increased sales activity, only for projections and expectations to be shattered by the uncertainty and upheaval of March, followed by an April marked by historical lows in sales activity and the strongest pricing trends of 2020 by that point.

As the curve flattened and the general public started becoming accustomed to the new normal, the state started slowly reopening and brought a tentative return of transactional activity in May. June, however, presented a whole new picture with strengthening sales trends and the first significant year-over-year price drop, despite recording the highest median sale price this year at $717,733.

Transactional activity, of course, has trended negative since the start of the crisis. Marched kicked off with sales activity in its first week 15% higher than the same period last year, only to see it drop 36% year-over-year by the end of the month.  Sales activity bottomed out in April at 61% below April 2019, with a mere 1,549 deals recorded in the four boroughs in the entire month.

May, however, brought a tentative return of transactional activity, with a total of 1,337 sales recorded. While that figure may have been lower than April’s 1,549 deals, year-over-year, May marked a 52% drop in sales activity, as opposed to April’s 61%. June saw sales trends strengthen further, with its monthly sales activity the highest since the start of the crisis in March, coming in just 41% lower year-over-year.

It must be noted that June 2020 figures are skewed beyond the pandemic’s effects, since sales activity and the median sale price surged artificially in June 2019 as NYC buyers and sellers rushed to close deals before the new mansion tax went into effect in July 2019. All in all, 1,670 residential sales were recorded between June 1 and June 28, 2020. Of this, 476 were recorded in the third week of the month, marking the strongest week of sales since late March.

Overall, May 2020 kept up with that trend too, with the exception of one week, which came in a -3% year-over-year. Despite that, May closed with a median sale price of $705,000, marking a 4% gain over May 2019. Additionally, this also made May the second-most expensive month in NYC up to that point, surpassed only by April’s $712,000 median.

June kicked off with the strongest pricing trends so far this year, posting a median sale price of $743,000, surpassing May figures. That represented a 2% gain over year-ago figures, a notable achievement considering June 2019 featured the strongest pricing trends of H1 2019. The rest of the month however, consistently posted weekly median sale prices lower than their year-ago correspondents – again due to the artificially strengthened pricing trends of 2019.

* * * *

Source: PropertyShark.com

Via AlMasdarNews.com,

Lebanon is turning east for economic support after the lack of progress in talks with Western and Arab states. According to the Associated Press, Lebanon is seeking to secure investments from China, while dwindling its chances of obtaining the support from the West and the Arab states to overcome its financial crisis.

The agency said in a report published Wednesday that Lebanon, which had long been an area of ​​competition between Iran and Saudi Arabia, is now at an important point in the escalation of tensions between China and the West, noting that the government of Hassan Diab, is currently seeking for Chinese support.

The AP noted that Diab received the Chinese ambassador to Lebanon, Wang Qijian, earlier this month, and after that the Lebanese Minister of Industry, Imad Hoballah, was instructed to study cooperation opportunities with Beijing.

The AP report begins:

Facing a worsening economic crisis and with little chance of Western or oil-rich Arab countries providing assistance without substantial reforms, Lebanon’s cash-strapped government is looking east, hoping to secure investments from China that could bring relief.

But help from Beijing risks alienating the United States, which has suggested such a move could come at the cost of Lebanese-U.S. ties.

“We have moved very seriously towards China, but we are not turning our backs on the West… we are going through exceptional circumstances, and we welcome everyone who intends to help us,” the agency quoted a ministerial official, who asked not to be named, as saying.

The official pointed out that China has proposed to contribute to ending the decades-old energy crisis in Lebanon through its government companies, stressing that the Beirut government is currently studying this proposal.

The aforementioned and economic official, Hassan Muqalled, assured the agency that Beijing also offered to establish a network of power stations and a tunnel linking Beirut and the Beqaa Valley, and a railway along the coast of Lebanon.

Muqallah, who visited China several times in 2018 and 2019, estimated the value of the projects proposed by Beijing at $12.5 billion.

The report pointed out that these investments may bring benefit to both parties, pointing out that China may benefit from improving its relations with Lebanon as this country is a springboard for the reconstruction of neighboring Syria.

The report also suggested that the Lebanese port of Tripoli, which has been expanded in recent years, may become an important point in the Chinese “Silk Road” project.

Lebanon is what happens when you create a neoliberal paradise where bankers run the show. https://t.co/Qh9rVkh9e7
They can’t blame the collapse on socialism, so expect to see the west fault Hezbollah rather than the handful of elites who ran a decades long Ponzi scheme government

— Rania Khalek (@RaniaKhalek) July 6, 2020

For its part, the American ambassador to Lebanon, Dorothy Shea, warned the Lebanese government against rapprochement with Beijing, as she said that turning towards the East will not solve all the country’s problems, warning that this rapprochement may take place at the expense of the prosperity, stability and financial sustainability of Lebanon, not to mention its long relations.

“When there is an increase in insolvency risk, what you do not need is more debt. You need less debt.”

That is the common-sense warning from Ed Altman that every talking head in the world seems incapable of understanding or admitting.

Altman, who, along with Oldrich Vasicek, is often described as the father of credit risk modeling, warns that this year’s spate of “mega” insolvencies is just getting started.

On the back of Fed guarantees, global firms have sold a record $2.1 trillion of bonds this year, with nearly half coming from U.S. issuers, according to data compiled by Bloomberg.

“The speed and magnitude of the increase in corporate debt this year poses various risks to an already fragile global economic outlook,” said Ayhan Kose, director of the World Bank Group’s Prospects Group.

While the stimulus-fueled rally in credit markets since March has helped borrowers stay afloat during the coronavirus crisis, Bloomberg’s Denis Wee reports that Altman and others have warned that many companies are just delaying an inevitable reckoning.

“There was a huge buildup in corporate debt by the end of 2019 and I thought the market would gain some much needed de-leveraging with the Covid-19 crisis,” said Altman, who is also director of credit and debt market research at the NYU Salomon Center.

“Now, seems like companies again are exploiting what seems to be a crazy rebound.”

For Altman, some of the debt sold “kicks the can down the road” for firms that don’t deserve support.

Altman is most famous for his “Z Score”, which is used to predict the likelihood that a business will go bankrupt within the next two years.

The formula is based on information found in the income statement and balance sheet of an organization; as such, it can be readily derived from commonly-available information. The Z score is based on the liquidity, profitability, solvency, sales activity, and leverage of the targeted business. Given the ease with which the required information can be found, the Z Score is a useful metric for an outsider who has access to a company’s financial statements. In its original form, the Z score formula is as follows:

Z = 1.2A x 1.4B x 3.3C x 0.6D x 0.99E

The letters in the formula designate the following measures:

A = Working capital / Total assets [ Measures the relative amount of liquid assets]

B = Retained earnings / Total assets [Determines cumulative profitability]

C = Earnings before interest and taxes / Total assets [measures earnings away from the effects of taxes and leverage]

D = Market value of equity / Book value of total liabilities [incorporates the effects of a decline in market value of a company’s shares]

E = Sales / Total assets [measures asset turnover]

A Z score of greater than 2.99 means that the entity being measured is safe from bankruptcy. A score of less than 1.81 means that a business is at considerable risk of going into bankruptcy, while scores in between should be considered a red flag for possible problems. The model has proven to be reasonably accurate in predicting the future bankruptcy of entities under analysis.

This scoring system was originally designed for manufacturing firms having assets of $1 million or more. Given the targeted nature of the model, it has since been modified to be applicable to other types of organizations.

This approach to evaluating organizations is better than using just a single ratio, since it brings together the effects of multiple items – assets, profits, and market value. As such, it is most commonly used by creditors and lenders to determine the risk associated with extending funds to customers and borrowers.

And judging by the weakness he is seeing in his Z-Scores, for instance, here is UAL (note this is even before Q2’s massive collapse)…

Altman warns, companies are doing the opposite of what they should be doing, which is to de-leverage as the banks did after the global financial crisis of 2008.

Authored by John Solomon via JustTheNews.com,

As President Obama aggressively pursued a nuclear deal with Iran, the FBI used an  operative who worked undercover for years inside Vladimir Putin’s nuclear empire to investigate and raise alarm that Russia was aiding Tehran’s nuclear ambitions.

The undercover work on Iran by William Douglas Campbell was overshadowed by his effort to help the FBI successfully prove that an executive at Rosatom, Russia’s state-owned nuclear energy company, was engaged in kickbacks, bribery and other crimes on U.S. soil and had compromised a U.S. uranium trucking company.

Campbell’s harrowing work posing as a consultant while informing for the FBI inside Rosatom’s Tenex subsidiary from 2007 to 2014 led to the successful prosecution of several players in the kickback scheme, including Russia’s top American nuclear executive, Vadim Mikerin.

The FBI warned the Nuclear Regulatory Commission and other major federal agencies in August 2010 that Campbell had uncovered significant evidence of wrongdoing inside Rosatom’s Tenex agency. But the Obama administration nonetheless proceeded to approve billions of dollars in nuclear fuel contracts and Moscow’s purchase of a large swath of U.S. uranium through a company known as Uranium One.

But Campbell’s efforts to uncover the nuclear alliance between Tehran and Moscow raised similar concerns inside the FBI and are chronicled in the new book Fallout: Nuclear Bribes, Russian Spies and the Washington Lies that Enriched the Clinton and Biden Dynasties.

Agents actually pressed Campbell so hard to get more intelligence on Iran from his Russian contacts that it ultimately blew his cover, the books reveals.

Campbell began providing evidence of the Russia-Iran nexus starting in 2010, including a memo he intercepted inside Rosatom written by an American adviser, Cheryl Moss Herman, who later would go to work in a senior nuclear energy policy job inside the Obama Energy Department.

Herman’s 11-page report, titled “Policy/Legislative Issues Affecting the Business Climate in the U.S. for TENAM/Tenex,” warned there was a growing concern inside Congress that Russia’s determined march into new U.S. uranium business conflicted with Western intelligence that Moscow was still aiding Iran’s illicit nuclear program.

“There are some in Congress who believe that Russia is providing Iran with sensitive nuclear technology as well as the nuclear know-how that will allow it to proliferate a nuclear weapons program, despite Russian Government statements to the contrary,” the report told the Russians.

The FBI had similar concerns. Here are excerpts from the books that reveal just how extensive those concerns were.

In one debriefing, for instance, Campbell related to his handling agents that Mikerin had identified a specific Russian company that was facilitating business between Iran and Tenex.

“As I have mentioned previously they do all the uranium business between Russia and Iran,” Campbell wrote of the intermediary. “Vadim is involved in the process under the same kind of payment network between Iran and the special TENEX group.

“I have asked him if he visits Tehran and he indicates he will not go because he feels it will cause trouble both for [U.S.] relations as well as his US travel.”

Such intelligence was intriguing for FBI counterintelligence, especially as the Obama administration secretly began discussions with Tehran aimed at reaching a deal to delay Iran’s nuclear weapons program.

In 2010, Campbell had obtained from his Russian sources a nonpublic report from the International Atomic Energy Agency (IAEA), the UN watchdog that was bird-dogging Iran’s illicit nuclear weapons program. The public version of the May 2010 report identified current enrichment-related activities inside Iran, including evidence that UN inspectors gathered related to a uranium enrichment plant in Natanz.

While U.S. officials likely already knew the contents of the report, Campbell’s acquisition had provided valuable insight: an IAEA report marked “restricted” for limited distribution had fallen into the hands of Rosatom’s leadership quickly. The long arm of Putin’s nuclear team knew few bounds.

Campbell continued to provide fragmentary intelligence on the Moscow-Tehran nuclear dealings, including additional IAEA reports that the Russians had obtained.

But in early 2012, a harbinger arrived that the bureau was preparing to pull out its operative and finally close the counterintelligence gathering part of the probe and transition to criminal prosecutions.

Special Agent [Timothy] Taylor contacted Campbell with the most specific instruction the team had ever given him over the years: a detailed list of 15 questions that the bureau wanted asked of Mikerin.

The questions were transmitted via the secret Sigma email accounts that the bureau had set up with Campbell. All were about Iran:

• Is Iran seeking to create a weapon, either through obvious means, or through the design of their nuclear program?

• Are there any other countries, other than Russia, partnering to help Iran’s nuclear program?

• If there are other countries participating, what model for security and nuclear power generation is Iran following?

• What security measures has Iran put in place at nuclear facilities to prevent the computer failures, the failure of automated systems, or a computer virus?

• What political issues are of concern to Russia if they are to continue to support the Iranian nuclear program?

• If Iran is seeking to enrich uranium to HEU, what is the timeframe in which they expect to achieve that level?

• How many Russian employees are currently working on Iranian projects?

• How many Iranian scientists are currently working on nuclear energy projects? Who are they? What are their specialties?

• What is the megawatt capacity of Bushehr?

• What are the long-term goals for the facility?

• Are there other facilities currently enriching uranium?

• Have there been requests for assistance or indications of interest in new facilities?

• How may centrifuges are currently operating at Bushehr?

• What are the safety standards to which Iranian nuclear facilities are built? IAEA standards?

• How is Iran prepared to ensure force protection and answer international security concerns? · Are there concealed or restricted areas at Iranian nuclear facilities where Russians are not allowed to visit? Where are they, and what do the Russians feel is going on there?

• Are there temporary storage facilities where nuclear materials are stored? How are they secured?

• How is new and used nuclear material moved and stored, and by whom?

When Campbell got this list, he joked that the FBI was signing his death warrant. The questions were too specific, the kind only an American spy might ask. Campbell had already been threatened by the Russians with polonium poisoning to ensure that he would not betray their criminal network.

The FBI, however, would not back off, insisting that Campbell press ahead and corner Mikerin with the Iran questions. The agents even coached him on how he could put his Russian friend at ease while unloading this barrage of inquiries.

“As discussed: You spoke with contacts who understand US policy. After the conversations you wrote down notes and have some ideas. You believe that Russia, Rosatom and Tenex could improve working relations with the US by being transparent about activities in Iran. You believe that it would be easier for Tenex to do business in the US if the US knows that Rosatom and Tenex have their fingers on the pulse of what is going on in Iran and can ensure that the nuclear energy is being produced responsibly and safely,” the agents wrote Campbell in their instructions.

It might have sounded good to the agents, but after 30 years in the business of spying, Campbell knew that these questions would blow his cover, or at the very least break the bond of trust that he had built with his Russian targets.

Campbell was right.

Mikerin refused to provide much in terms of answers, and soon backed away from his longtime Sigma consultant.

Campbell’s work for Tenex dwindled, and his access to Rosatom diminished.