Category: zerohedge

Authored by Brandon Smith via Alt-Market.com,

Once you understand the globalist mindset, almost everything they do becomes rather robotic and predictable.  It should not be surprising that the World Health Organization (WHO), a branch of the United Nations, has been so aggressive in cheerleading for the Chinese government and its response to the coronavirus outbreak. After all, China’s communist surveillance state model is a beta test for the type of centralization that the UN wants for the entire planet. They certainly aren’t going to point out that it was China’s totalitarian system that allowed the outbreak to spread from the very beginning.

Even now Xi Jinping is trying to rewrite history, claiming that he had been swift in responding to the crisis more than a month before he actually did.  The lie that the coronavirus mutated naturally in a food and animal market in Wuhan continues to be peddled by the mainstream media even though no evidence supporting this claim exists.  And China is still releasing rigged death and infection numbers while they have over 600 million people under martial law lockdown and their crematoriums continue pumping out the fumes of the dead 24 hours a day 7 days a week.

Brave health workers like Li Wenliang, who was punished by the government for warning about the virus in December, have died in the process of trying to fight against the centralized behemoth just to get vital information to the world, but that never happened, right? It was actually president Xi and the CPC that saved the day. The WHO and the CPC say so. You’ll never hear the UN praise the efforts of Li Wenliang; they want his name to disappear down the memory hole as much as the Chinese government does.

The developing narrative is a familiar one – Local officials “stifled” the response to the outbreak while the centralized national leadership put things back on track with extreme control measures that have turned the Hubei province into a veritable internment camp. Whatever you do, don’t point out that it was the national government’s habit of imprisoning health officials that release “false information” that led to the delayed reaction on the coronavirus. Also, don’t point out that ground zero for the outbreak is just down the road from the largest Level 4 Biohazard Lab in Asia, because that would make you a “conspiracy theorist”.

The message being pounded into the public consciousness is clear: “Shut up and accept that Centralization works”. Even when it fails miserably, it is still the answer to all our problems. All we have to do is “adjust” the historical record a little bit every time the system breaks and then institute even MORE centralization in response.

In other words, if the interdependent and draconian top-down structure of the globalist state leads to crisis, then it is because it was not centralized ENOUGH. Centralization always begets more centralization.

The financial fascist system of central banking and corporate oligarchy leads to the socialist welfare state, and the socialist welfare state leads to the surveillance state, the surveillance state leads to the martial law state, and the martial law state leads to full-on global governance; an endless elitist empire.

The failings of centralization have caused numerous problems long before it led to a potential pandemic. The pandemic simply clarifies the issue. For example, the breakdown in the global supply chain is becoming a bigger threat by the day.  The Baltic Dry Index a measure of shipping rates as well as global demand for goods, has essentially collapsed.  This should have been the first warning sign that the supply chain was in trouble, but the mainstream doesn’t pay attention to the fundamentals, only stock markets.  Enter Apple, one of the largest companies in the world, which has now abandoned its projections for 2020 and finally admitted that the shutdown of Chinese factories may just be a problem. 

Some mentally challenged people out there are scoffing sarcastically at this issue, saying “Oh no, whatever will we do without i-Phones…?”.  They don’t grasp the wider implications.  If Apple’s production is going down because of the supply chain disruption then this is a signal that multiple companies and most of the economy are also going down because of supply chain disruptions. It’s not about i-Phones, it’s about the bigger picture.

Globalism has led to interdependent economies and nation states that no longer have redundancies in production. We have been forced to rely on production centers on the other side of the world for a vast majority of our goods.

When China shuts down, the US economy loses almost 20% of its supply chain. When Japan, Singapore, Taiwan, Hong Kong and Vietnam shut down from the virus, you can add another 10% to 15% on top of that. Retailers in the US represent around 70% of GDP. Cut off the supply chain in Asia and retailers lose a vast array of goods to sell. The US economy eventually shuts down also, even if the virus never spreads here.

Some people will argue that we don’t need all the “cheap plastic crap” from Asia anyway, and this situation is a “good thing”. Sorry to break it to you, but America’s economy is built on the selling of cheap plastic crap (along with the selling of the fiat dollar as the world reserve currency). Walmart (Chinamart if you discount agricultural products) is the largest employer in the US and the world, after all. Right or wrong, our economic system is so globalized that the fall of the Chinese dominoes will eventually knock down our own dominoes.

But when this disaster occurs and numerous national economies suffer from enforced globalist integration, guess what will happen next? The globalists will ride to our “rescue” with even greater centralization. This was their agenda all along.

Many people in the liberty movement are now aware of the Event 201 simulation, a war game run by globalists in the Bill and Melinda Gates Foundation and the World Economic Forum on a “theoretical” coronavirus pandemic that kills 65 million people. This simulation took place only a couple of months before the real thing exploded in China in December. But hey, maybe that’s all just amazing coincidence. What concerns me even more is the solution that was presented at the end of Event 201 – the creation of a centralized global financial body that would manage the international response to the outbreak.

Isn’t it amazing how every major catastrophe caused by globalism seems to lead to more globalism? One might start to wonder if some of these events were triggered by incompetence, or if they were deliberately engineered. At the very least, crisis events have been allowed to fester unchecked by organizations like the WHO as they continue to write off the coronavirus as a non-issue that is “well under control” by a Chinese government that caused it to spread in the first place.

So here is what is going to happen next:

Best case scenario is that the Western world is mostly unscathed by the virus itself but the economic supply chain suffers major setbacks. The global economy, which was already crashing over the past year due to historic levels of corporate and consumer debt, not to mention faltering exports and freight, is finally tipped over the edge. The massive Everything Bubble, fueled by a decade of inflationary central bank stimulus, implodes. Governments respond with totalitarian measures in the name of “protecting the public”.

Globalist institutions like the IMF step in and suggest that frail national monetary systems come under the management of their Special Drawing Rights basket in order to mitigate the debt crisis. Essentially, this is the first step to global governance.

Worst case scenario, the virus spreads throughout the US and Europe and governments respond the same way China’s government has; martial law and full blown concentration camp culture. This would lead to civil war in the US because we are armed and many people will shoot anyone trying to put us into quarantine camps. Europe is mostly screwed.

The establishment then suggests that paper money be removed from the system because it is a viral spreader. China is already pushing this solution now. Magically, we find ourselves in a cashless society in a matter of a year or two; which is what the globalists have been demanding for years. Everything goes digital, and thus even local economies become completely centralized as private trade dies.

Again, this might be an engineered event, or it might simply be that the globalists are exploiting a natural outbreak. Either way, they are not going to let a good crisis go to waste. Whether or not they succeed is dependent on several factors, but mostly, its dependent on us. How many people will buy into the notion that centralization is the answer to out problems? How many people will realize that centralization is the CAUSE of all our problems? And how many people will fight to prevent ultimate centralization under a psychopathic globalist cult?

A viral outbreak is a significant danger to us all, but an even greater threat is the supposed cure. Trading our economic and social freedom in the name of stopping the coronavirus?  No matter how deadly the bug, it’s just not worth it.

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Now that Apple has opened the floodgates and made it entirely clear that China’s economic collapse will slash revenue guidance on the year and lead to production woes through April, an onslaughter of earnings downgrades from other top technology companies with significant operations in China could be imminent. 

Evidence grows by the day of supply chains grinding to a halt as the second-largest economy in the world falters (as described here last week)…

We’ve described how China’s economic output remains frozen, and even if supply chains were able to restart, companies don’t have enough capital to cover wages, or have delayed or stopped paying workers, suggesting that the Covid-19 outbreak has left businesses on the brink of disaster. Worse, workers can’t freely move around the country, and many are subjected to travel restrictions and quarantines, which has forced a massive labor shortage.

This is creating a perfect storm that could lead to an extended period of depressed factory output, triggering future shortages of products destined for Eastern and Western markets, and even more ripples across global supply chains.

As we’ve routinely noted in the last several weeks, the most exposed sector to the continued crunch across Chinese factories is technology. 

Putting what we’ve already summarized together, there’s no way that full production can be seen by the end of this month or in early March, which means a massive reduction in shipments and product shortages are imminent. This will ultimately force many tech companies with exposure to China to revise their full-year earnings on the year.  

TrendForce published a report earlier this week that serves as a preview of what’s to come for technology shipments. 

The research firm said shipments of smartwatches, smartphones, computers, monitors, TVs, video game consoles, smart speakers, and automobiles, will take a big hit in the first quarter. 

Here’s what the firm said about shipments for smartwatches, smart bracelets, and TWS Bluetooth earphones: 

“In spite of the projected mid-February work resumption date, work stoppages, labor shortages, and material shortages can bring about a decline in 1Q20 production volume, with deferred releases of new products originally scheduled for 1H20 release.

In terms of the Chinese market, Chinese-branded wearables are mainly aimed at domestic sales and therefore expected to suffer more losses in 1H20 compared to international brands. In particular, competitive-priced generic brands and new brands may be even more affected by the outbreak because component suppliers and production capacities are prioritized to fulfill orders from established brands first, and consumers will have reduced willingness to buy in the short term.”

TrendForce said the virus outbreak is having a “high impact on the smartphone industry because the smartphone supply chain is highly labor-intensive. 1Q20 smartphone production is projected to decline by 12% YoY, making it the quarter with the lowest output within the past five years.” 

“Parts in the upstream supply chain, including passive components and camera modules, are also showing shortages, which can potentially continue to negatively affect smartphone production in 2Q20, if the outbreak is not contained by the end of February. Should the outbreak intensify, TrendForce considers market need to be the most important consideration in the long-term analysis of the smartphone industry. Because of the interconnectedness of the global economy, the progression of China’s outbreak damages not only China’s GDP, but also the overall global economy, leading to a reduction of consumer purchasing power and subsequently presenting a difficult challenge for the overall smartphone industry. 2020 smartphone production is projected to reach 1.381 billion units, a 1.3% decline YoY and the lowest output since 2016. Still, due to the outbreak’s mercurial nature, it is entirely possible for 2020 smartphone production to fall below this forecast.”

As for notebooks, LCD monitors, and LCD TVs, these supply chains have been “undoubtedly hit the most by the coronavirus outbreak.” 

“These companies lost precious working days after work resumption was postponed. After their production is resumed, on a whole, operators’ work resumption rate is low. Besides, all types of materials and components are in shortage. Hence, productivity plummets. For TVs and monitors, their manufacturing processes and demand for materials are similar. Therefore, according to TrendForce, in 1Q20, the TV set shipment is predicted to fall from previous prediction (48.8 million units) to 46.6 million units because of the outbreak. The monitor set shipment is projected to decrease from previous prediction (29 million units) to 27.5 million units. To assemble a NB set requires complicated key components. At the current stage, NB’s batteries, hinge, and PCB already experienced shortage or out of stock. This factor might cause some brands’ shipment quantity to remarkably drop from previous prediction (35 million units) to 30.7 million units in 1Q20.

The pandemic not only negatively affected the production’s supply chain, but it also hurts China’s consumer confidence and reduces end-market demand in the short and long run, respectively. Considering the pestilence’s potentially negative impact to China market’s demand, TrendForce moved down the top 3 application categories’ shipment scales for the year 2020. TVs’ shipment scale was reduced from previous prediction (219.6 million units) to 218.0 million units, down by 0.7 percentage point. Monitors’ shipment was reduced from previous prediction (125.8 million units) to 124.5 million units, down by 1.0 percentage point. Notebooks’ shipment was moved down from previous prediction (162.4 million units) to 160.2 million units, down by 1.4 percentage points.”

We expect a waterfall of negative earnings preannouncements to start for many technology companies with modest exposure to Chinese output. Apple’s downgrade on Monday was only the beginning… 

Wall Street has priced the stock market for perfection while ignoring China’s virus crisis as one of the biggest shocks to hit the global economy since a decade ago. 

Is the virus outbreak in China about to pop the Fed-induced stock market bubble?

Authored by Elisabeth Sabaditsch-Wolff  via The Gatestone Institute,

We recently witnessed two events that indicated the possible demise of liberal democracy. The implications should frighten supporters of democratic forms of government in which individual rights and freedoms are officially recognized and protected, and the exercise of political power is limited by the rule of law.

The growing intolerance of many “left-wing” groups is apparent in the uproar of the democratic election of the state premier of the German state of Thuringia as well as in the performance of the Speaker of the US House of Representatives, Nancy Pelosi, publicly ripping up US President Donald J. Trump’s State of the Union address. It was an official document that belongs not to her but to the public, and of which she was merely its custodian.

That does not even start to mention the entire sham “impeachment” of President Trump, in which centuries of accepted due process were thrown in the gutter. The Senate “trial,” which probably should have been dismissed from the get-go as the “fruit of the poisonous tree” — a legal metaphor meaning that if any evidence is found to be tainted or violates a defendant’s constitutional rights, whatever “fruit” follows from it must be thrown out. The House, however, like the Inquisition, is allowed make up its own rules, and make them up it did. Another central problem seemed to be that a US president is obligated by law — under Ukraine (12978) – Treaty on Mutual Legal Assistance in Criminal Matters, signed in 1998 — not to hand taxpayer money over to the Ukraine without first checking to see that there is no corruption. Trump did, there was not, case closed. Trump was not only totally acquitted in a show trial that should not have existed in the first place, but his accusers seemed more guilty of what he was accused of — the non-crimes of “abuse of power” and “obstruction of Congress” — than he was.

Currently, there is growing concern on both sides of the Atlantic that the ability of many on the political “left” to accept the democratic process and the rights of those with whom one disagrees is becoming increasingly rare. According to Andreas Unterberger, Austria’s most widely read political blogger:

“The left exhibits mocking scorn or even aggressive violence. If a relevant part of the population is unwilling to respect democracy and those with dissenting opinions, then the constitutional state will necessarily implode.”

Sometimes it seems as if the underlying intention is actually to dismantle democratic norms and replace them with authoritarian ones. The thinking seems to be: If you vote any way other than for what we want, the result is automatically illegitimate and need not be accepted. In the US, this view had been evident in the three-year refusal to accept the election of President Trump by the “wrong” people”, as well as a refusal by many last year to accept the vindication of US Supreme Court Justice Brett Kavanaugh in yet another show trial devoid of evidence , and most recently warnings about a refusal to accept President Trump’s acquittal. The title of the latest book by the noted defense Attorney Alan M. Dershowitz, Guilt by Accusation, seems to be fast becoming the norm.

In Germany, the media establishment as well as Chancellor Angela Merkel were shocked to the point of demanding the reversal of the vote for the “wrong” premier of the state of Thuringia because the election came as a result of the “wrong” votes, namely those from the Alternative for Germany party (AfD). Baron Bodissey of the blog Gates of Vienna provided background information:

“The FDP (Freie Demokratische Partei, Free Democratic Party) is a relatively minor conservative business-oriented party in Germany. Nowadays it would be described as “classical liberal” if it were in an American context. In last fall’s state elections in Thuringia, the FDP just barely surpassed the threshold to seat representatives in the state parliament. The Left (Die Linke) gained the greatest share of the vote, but the constellation of leftist parties did not have enough seats to automatically form a government.

“Since then there has been wheeling and dealing by all parties in an effort to establish a viable coalition. Yesterday came a big surprise: with the support of the CDU (Christlich Demokratische Union, Christian Democratic Union) and the AfD (Alternative für Deutschland, Alternative for Germany), Thomas Kemmerich of the FDP was elected minister president (the equivalent of premier or governor) of the state of Thuringia…

[I]t seemed the cordon sanitaire against the AfD had been breached. Up until now, all across Western Europe the major immigration-critical populist parties had been kept out of government: the Sweden Democrats, the PVV in the Netherlands, Vlaams Belang in Belgium, and the AfD in Germany. Even though those “xenophobic” parties are quite popular, they have yet to obtain a majority of the vote in their respective countries, and the other parties simply agree never to join a coalition with them. Did yesterday’s events in Thuringia signal a change?”

Not quite. The cordon shuddered a little bit, but remained intact. It seems the FDP never asked for the support of the AfD, and received it unexpectedly. Mr. Kemmerich and his party were just as appalled by the AfD as [the] leftist parties were. And Mr. Kemmerich announced he would resign his position to force new elections.

Mr. Kemmerich’s announcement of resignation came as a result of massive intimidation against his family, his children requiring police protection, and “Antifa” protests outside Thuringia’s parliament building. In this context, it is important to note the irony of the political left. The Left Party (“Die Linke”), the successor party of the SED, the Socialist Unity party of the communist German Democratic Republic (DDR), accused the Free Democrats of believing that it was “better to rule with fascists than not to rule at all.” Indeed, there are grounds to argue that it is the Left Party, exhibiting the intolerance of fascists as the predecessors of the Left Party, that was responsible for the cold-blooded murder of Germans trying to escape East Berlin by breaching the Berlin Wall. Even more ironic, it was on the 31st anniversary of the execution of 17-year-old Chris Gueffroy, guilty in the eyes of the ruling elite of wanting to leave the DDR, that the German mainstream media began its campaign of hatred against a democratically elected official.

Adding insult to injury, the strategist of the Left Party had the gall openly to insinuate that Mr. Kemmerich was voted into office “by the grace of those who murdered liberals, commoners, leftists and millions more in Buchenwald [concentration camp] and elsewhere.” In saying this, the strategist and others used what is currently the most potent weapon in political discourse: the instrumentalization of Nazi crimes as a weapon against political competitors. According to the German political analyst Vera Lengsfeld, politicians and media are employing psychological terror by igniting the “Nazi nuclear bomb” and by suggesting that the election of Mr. Kemmerich occurred thanks to a “Nazi party”, namely the AfD. Lengsfeld adds:

“What has taken place in Germany in the past three days can be considered a breach of the dam. Germany is witnessing the gradual erosion of democracy and the rule of law, a process that began in 2015 [during the migrant crisis] and which has become even more visible since and has ended in putsch against democracy.

“Overnight, Germany has turned into an open dictatorship of convictions. Unless true democrats display resistance and firmly defend democracy and the rule of law, it will once again become cold and dark in Germany.”

Dushan Wegner, another political commentator, asks whether a country can call itself a democracy if its chancellor demands the annulment of the election and the Free Democrats buckle in the face of disagreement, only because of the election of a state minister with the help of votes of a party behind a cordon sanitaire. Wegner argues:

“From faraway South Africa, Chancellor Angela Merkel said something very painful and simultaneously very frightening and shocking: ‘The election of the state minister was unforgivable and the vote must be reversed.’

“The chancellor openly demands the annulment of a democratic vote, one that she is unhappy about, and politics remains silent. I find it difficult to call those democrats that do not use all democratic and legal means to remove the chancellor from office.

“Germany currently fluctuates between democracy and absolutism thanks to Angela Merkel. Why bother exercising the right to vote when the ‘wrong’ choice can be annulled by the media and the chancellor through propaganda and veto?

“A Chinese proverb says: ‘May you live in interesting times.’ Yes, these are interesting times, and yes, it is a curse. What is positive about interesting times is that they force us to define our stance. Do we stand for democracy or for elections until the results suit the ruler?”

Josef Hueber explains in a commentary how in a pseudo-democracy, elections mean voting until the result is “correct.” Moreover, it is important to use the right words: the undesirable democratic election is a “political Fukushima”, a breach of the dam, a catastrophe. The consequence of elections can be an “undesirable” or unexpected result for one political side; some will be elated, others disappointed. One could argue that this is democracy; this is how it is supposed to be. The understanding of democratic processes was unveiled with what recently transpired in the Thuringian parliament.

The situation in the United States is not much different. Th recent State of Union (SOTU) address demonstrated clearly what the Democrats’ view of tolerance and respect for the office of the president looks like. What began with the absence of self-avowed democratic socialist Alexandria Ocasio-Cortez, Ayanna Pressley, Maxine Waters and others ended in Speaker of the House Nancy Pelosi ripping up a copy of the speech at the end of the State of the Union address delivered by democratically elected President Donald Trump. By doing so, Pelosi disdained all America, not just the president.

Pelosi disdained the president’s supporters as well as a black girl who wants nothing more than a choice in education; she disdained the Tuskegee airman honored by the president; she disdained the great economic performance of the country. She acted in a petty and classless manner, unfitting for someone holding one of the highest offices in the United States. When asked by a reporter why she tore up Trump’s speech, Pelosi shot back, “Because it was the courteous thing to do considering the alternatives.” What are the alternatives, Madam Speaker? The legal scholar Jonathan Turley, who disagreed with some aspects of the SOTU, said:

“She represents the House as an institution — both Republicans and Democrats. Instead, she decided to become little more than a partisan troll from an elevated position. The protests of the Democratic members also reached a new low for the House. Pelosi did not gavel out the protest. She seemed to join it.

“It was the tradition of the House that a speaker must remain in stone-faced neutrality no matter what comes off that podium. The tradition ended last night with one of the more shameful and inglorious moments of the House in its history. Rather than wait until she left the floor, she decided to demonstrate against the President as part of the State of the Union and from the Speaker’s chair. That made it a statement not of Pelosi but of the House.”

Pelosi’s behavior shows a disappointing lack of argumentative abilities. If tolerance is to mean anything, Pelosi and her fellow Democrats should have exhibited just that. Instead, she, as a role model, did the opposite by engaging in petty and irresponsible behavior, followed by days futilely trying to have her outburst scrubbed from social media.

The entire episode fits seamlessly into a series of illiberal actions by the left in recent times. Consider the shutting down of debates on college campuses, thereby restricting freedom of speech. Or the attack on people wearing MAGA (Make America Great Again) hats. The author Kim R. Holmes explains the left’s increasing intolerance as follows:

“What we call a ‘liberal’ today is not historically a liberal at all but a progressive social democrat, someone who clings to the old liberal notion of individual liberty when it is convenient (as in supporting abortion or decrying the ‘national security’ state), but who more often finds individual liberties and freedom of conscience to be barriers to building the progressive welfare state.”

Seldom has the left on both sides of the Atlantic exhibited its increasing intolerance of dissenting opinions in a more concentrated manner than these past weeks. The foundations of liberal democracy are shaking noticeably. We are presently faced with yet more politically-based show trials: of the parliamentarian Geert Wilders in The Netherlands and of Matteo Salvini in Italy. It is up to the population and voters to decide whether liberal democracy is worth fighting for.

Back in the summer of 2018, when the IMF handed Argentina an unprecedented $56 billion bailout loan, the largest in IMF history, some warned that this is a case of deja vu similar to the 2001/2002 precedent when Argentina eventually defaulted on its foreign creditors, while humiliating the IMF which had signed off on Argentina’s economic policies that ended up in bankruptcy court. The IMF, however, was confident that this time would be different, and rushed – under now-ECB head Christine Lagarde – to hand to Argentina the greatest amount of money the IMF had ever disbursed to a struggling nation.

It turned out that this time wasn’t different, and after completing a week of meetings in Argentine, the IMF – which so generously handed out other people’s money to prop up the crumbling, corrupt Latin American nation less than two years aqo – finally threw in the towel and admitted that Argentina’s debt load is unsustainable, paving the way for the government to ask private bondholders to take on losses as it prepares to renegotiate its obligations.

The last time IMF officials commented on Argentina’s debt was in the fourth review of the credit line in July 2019, when they called it “sustainable, but not with a high probability.”

Oops. But it gets better.

A “meaningful contribution” will be necessary from private bondholders to restore the country’s debt sustainability, the IMF wrote in a statement Wednesday following talks with Argentine officials during its first technical mission in Buenos Aires under Alberto Fernandez’s presidency.

“The primary surplus that would be needed to reduce public debt and gross financing needs to levels consistent with manageable rollover risk and satisfactory potential growth is not  economically nor politically feasible,” the Fund said, in what may be the most embarrassing moment in the Fund’s history.

Why embarrassing? Because as Hector Torres, a former executive director at the Fund who represented South American countries, said last summer, “The IMF has put a lot in — not just money, but prestige,” to avoid a default. “The fact that the arrangement is not performing well right now is an embarrassment,” he said. Little did he know just how embarrassing it would get.

As discussed previously, Fernandez is seeking to renegotiate billions of dollars in debt with private creditors, including the infamous $56 billion loan with the Washington-based organization.

Argentina’s record IMF loan has been on hold since August after Fernandez pulled off a shock upset of incumbent Mauricio Macri in a presidential primary vote, sending markets reeling.

“IMF staff emphasized the importance of continuing a collaborative process of engagement with private creditors to maximize their participation in the debt operation,” according to the statement. Meanwhile, Argentina’s economy has collapsed, the currency has plunged, bonds prices have been in freefall and debt rose to nearly 90% of GDP at the end of 2019, the Fund said.

But the biggest pain now await bondholders, some of whom were so dumb to actually buy 100 year bonds from Argentina. Guzman warned investors (or at least their replacement since those who made the original investment were surely summarily fired) last week they’ll probably be frustrated with negotiations, which he intends to wrap up by the end of March. South America’s second-largest nation owes over $38.7 billion to bondholders just this year, and payments peak in May. There is no way it can make those payments without magic.

Submitted by Micro Hive; authored by Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

US credit scoring is facing a revamp. Fair Isaac (FICO) recently announced changes to consumer credit scoring that will raise the credit core of highly-rated borrowers and lower that of lower-rated consumers.  While lenders have a choice of ratings methodologies and could take time to adopt the new FICO scoring, Fed surveys show a gradual, but steady, tightening of consumer loans standards is already underway.  With household balance sheets starting to show signs of strain, this trend could have a negative and significant impact on consumption, the main, and already-slowing, engine of US growth.

Healthy consumer balance sheets are often cited as one of the strengths of the US economy.  Average household leverage ratios look good: relative to the crisis peak, debt is down by more than 20 percentage points of GDP and continues to slide lower (chart 1).  The debt service ratio is lower than before the crisis and default rates are back to their pre-crisis levels.  The one–well known– exception to this positive picture, is auto loans, about 9% of total household debt, where delinquencies are nearly back to their crisis peak.

Yet, a detailed look at consumer finances shows cracks starting to appear.  While average mortgage delinquencies are still falling, credit card delinquencies have been rising since 2016 (chart 2). 

At small banks, accounting for about 20% of consumer lending, credit card delinquencies are now well above their crisis peak.  In addition, Discover, the US largest independent credit card network,  has seen a 10% decline in its stock price caused by investor concerns over its classification of compromised loans.  The performance of Fintechs, small but fast growing, could also come under pressure.  Fintechs offer mainly unsecured personal loans,  the fastest growing segment of the consumer credit market, that are used largely to repay or consolidate other debts, especially credit card debt.   Lastly, personal bankruptcy filings increased in 2019 for the first time since 2010.  These weaknesses are puzzling in view of the decline in unemployment to a 50-year low.

Raghuram Rajan, Chicago professor and former Governor of the Reserve Bank of India, who famously predicted the crisis, asserts that widening income inequalities were a major driver of the unsustainable leveraging of low-income US households before the crisis.  Since then, income inequalities have increased, with most of the income and wealth gains accruing to higher-income households (table 1). 

Indeed Federal Reserve and Census Bureau data on income and debt distribution show that a large share of American households cannot cover their basic expenses out of income (table 2).  For instance, one-third of Americans in the lowest income quintile cannot pay all their bills, even after skipping needed medical care.  This income shortfall could explain low income households high leverage.

Of course, relative to the crisis the scale of bad consumer debt seems much more limited.  In addition, regulatory tightening since the crisis has pushed risk out of the banking sector.  Risks however are more likely to have been displaced than eliminated altogether.  It may well turn out that consumer credit risks are now concentrated in fintechs.  In any event, those are less systemically important than large deposit taking institutions.

The cracks in household balance sheets are still likely to add to downside risks to growth.  The pre-crisis household debt overhang and subsequent deleveraging were major causes of the recession and weak recovery.   This time around, while the debt overhang is smaller, it also seems concentrated within low income households that have a higher propensity to consume.  Against this backdrop, a continued tightening of consumer credit standards could force low income households to increase their savings.  Consumption growth, that is already slowing and is the US economy main growth engine, could slow further and bring GDP growth below potential.

New threats related to Idlib this week could see the Russian and Turkish armies on a direct collision course. 

Turkey’s President Recep Tayyip Erdogan on Wednesday threatened a full-scale military invasion of the war torn province after the Syrian Army and its Russian ally refused to halt their ongoing offensive. 

“An operation in Idlib is imminent,” Erdogan told Turkish parliament of preparations for NATO’s second largest army. “We are counting down, we are making our final warnings”.

“Turkey has completed preparations for the implementation of its plan on Idlib, just like we did with previous operations. Frankly speaking, an operation in Idlib is only a matter of time,” Erdogan said.

He further emphasized that Turkey “is determined to pay any price to ensure security in both Idlib and Turkey.” The Syrian and Turkish armies have been engaged in sporadic fierce clashes for the past two weeks in Idlib, resulting in scores dead and wounded on each side, though specific numbers are disputed. Turkey has acknowledged at least 13 of its national troops killed.

“We will not leave Idlib to the [Syrian] regime, which does not understand our country’s determination, and to those encouraging it,” said Erdogan. Turkey has thus far sent limited deployments of troops and armored convoys into the northwest Syrian province to support and defend a dozen observation posts. 

The Kremlin was quick to respond to such a threat of major escalation, pointing out that any Turkish offensive against Syrian forces in Idlib would be the “worst case scenario”.

“If it will be an operation against terrorist forces in Idlib, that would certainly be within the spirit” of Russia’s agreements with Turkey, Kremlin spokesman Dmitry Peskov said before adding: “But if it is about an operation against legitimate Syrian armed forces, that would certainly be the worst case scenario.”

The IDPs break into one of the humanitarian supplies warehouses as they are fed up waiting for 6 hours in-line with so little being distributed. #Syria #Idlib pic.twitter.com/OTRyoyN7QH

— Hadi Albahra (@hadialbahra) February 19, 2020

Talks between Turkish and Russian officials earlier this week related to Idlib failed to reach any agreement. This after Erdogan and Trump held a phone call wherein both leaders agreed the Syrian-Russian offensive must be halted “immediately”. 

Mainstream media has also begun to again put Idlib coverage front and center as hundreds of thousands of civilians are said to be fleeing. Erdogan has long expressed fears that a million or more refugees could flood across the Turkish border, adding to the already some three million Turkey says it’s hosting. 

UN figures state that at least 700,000 people have been displaced in Idlib since fighting was renewed in early December. 

As Japanese health officials begin the second day of offloading passengers and crew from the ‘Diamond Princess’ cruise ship that has been under quarantine in Yokohama for the last two weeks, the Japanese press is reporting that two passengers from the ship have died.

The report cites unidentified government officials.

Two passengers from the Japanese cruise ship #DiamondPrincess have died of #COVID19, NHK reports pic.twitter.com/c8iUnAKkJC

— CGTN (@CGTNOfficial) February 20, 2020

Even as roughly 600 passengers disembarked on Wednesday, Japanese officials announced 79 more confirmed cases aboard the ship on Wednesday, bringing the total number of infected to 621 – the largest outbreak outside mainland China.

In the US, the CDC has questioned the wisdom of Japanese officials, and accused them of failing to properly quarantine the ship, particularly after 14 passengers found to be carrying the virus were allowed onto a US evacuation flight.

All of the passengers leaving the ship have reportedly been tested for the COVID-19, according to the cruise line. Several hundred other passengers who aren’t taking repatriation flights to their home countries are expected to leave the ship on Thursday, and it’s unclear what will happen to them after that. Most of the passengers will be ferried back to their home countries, where they will face another two weeks of quarantine.

Japanese health officials are expected to begin offloading more passengers shortly (since it’s already mid-morning on Thursday in Tokyo). It’s not clear how these deaths will affect the process, if at all.

These are the first deaths since Hong Kong reported its second death and Iran reported two virus-related deaths. It brings the death toll ex-China to 9. They marked the second and thirds deaths in Japan, respectively.

Details about the deceased haven’t been released.

Authored by James Rickards via The Daily Reckoning,

One event is taking center stage in the world that affects not only basic survival for millions of people, but the health of the global economy overall.

Of course, I’m talking about the coronavirus outbreak currently playing out before our eyes in China.

China’s economy was slowing substantially before the outbreak of the highly contagious and deadly virus last fall.

This slowing was the predictable result of excessive debt levels, Trump’s retaliation in the trade wars, and China’s encounter with what development economists call the “middle-income trap.”

Developing economies can grow at double-digit rates as they move from low-income (about $3,000 annual per capita income) to middle-income (about $10,000 annual per capita income).

The main requirements are limits on corruption, a large pool of available labor, and an attractive legal environment for foreign direct investment. Once investment is used for infrastructure and labor is mobilized, large-scale basic manufacturing can commence.

This powers growth and the accumulation of hard currency reserves from export earnings.

The difficulty begins when an economy tries to move from middle-income to high-income (about $18,000 annual per capita income). That move requires more than cheap labor and infrastructure investment. It requires applied technology to produce high-value added products.

Only Taiwan, South Korea and Singapore have made this transition, (excluding Japan after World War II, and oil-exporting nations).

This explains why China has been so focused on stealing U.S. intellectual property.

Trump has been closing that avenue. China cannot generate the needed technology through its own R&D. China is stuck in the middle-income trap and a slowdown in growth is the inevitable result.

The story gets worse for China.

As of Friday, the total reported number of people infected by the coronavirus was 64,435. And the death toll was up to 1,383, including three people outside of China.

Those figures are official statistics released by China and other countries around the world where the virus has spread.

However, there is substantial medical, anecdotal, and model-based evidence that the actual infection rate and death rate may be ten to twenty times higher than those official statistics.

Over 60 million Chinese in several major cities are under “lock-down” where individuals are confined to their homes and may only leave once every three days to buy groceries.

Streets are empty, stores are closed, trains and planes are not moving, and factories are shut. The Chinese economy is slowly grinding to a halt.

This not only affects China’s economy as a whole, but the contagion filters down into individual companies that are dependent on China both for supply chain inputs and final sales.

And it will have a rippling effect on the U.S. economy also. This story has a long way to run.

Iranian Supreme Leader Ayatollah Khamenei has marked the latest national event commemorating the death of IRGC Quds Force commander Qasem Soleimani by tweeting a deeply provocative statement asserting that “wealthy Zionists” control America.

The United States has reached the “peak of arrogance,” and is controlled by “wealthy Zionists and their corporate owners,” which makes it a “manifestation of oppression, abhorred by the world,” he said further, as reported in The Jerusalem Post. 

The statement comes after the Islamic Republic’s top cleric and head of the regime previously slammed Trump’s Mideast peace plan “Deal of the Century” as  “satanic” because it ultimately represents the “Jewishization” of Jerusalem and the suppression of Islamic identity. 

“To the dismay of US politicians, the satanic, evil US policy about Palestine — the so-called Deal Of The Century— will never bear fruit, by the grace of God,” Khamenei wrote on his official Twitter account in late January. 

Such inflammatory and religiously charged rhetoric will likely only fuel an ongoing initiative of hawkish Republican Senators to get Khamenei and other top Iranian leaders banned from Twitter and other US social media platforms. 

We are against the rule of oppression and arrogance. This is what we mean by “America.” Today, the peak of arrogance is the US, which is controlled by the wealthy Zionists & their corporate owners. The US is a manifestation of oppression. Thus, they’re abhorred by the world.

— Khamenei.ir (@khamenei_ir) February 18, 2020

Earlier this month the group of Republicans including Ted Cruz (Tx.), Tom Cotton (Ark.) Marsha Blackburn (Tenn.) and Marco Rubio (Fla.) wrote in the letter to Twitter: “While the First Amendment protects the free speech rights of Americans — and Twitter should not be censoring the political speech of Americans — the Ayatollah enjoys zero protection from the United States Bill of Rights.”

“And, as the leader of the world’s leading state sponsor of terrorism — directly responsible for the murder of hundreds of U.S. citizens — the Ayatollah and any American companies providing him assistance are entirely subject to U.S. sanctions laws,” they added.

Twitter has long defended its position of never banning heads of state from the platform, given the need to publicly articulate a country’s positions. 

Israeli media has carefully documented Khamenei’s recent history of lashing out at “Zionists and Jews” on Twitter; however, as The Jerusalem Post notes, he’s long underscored a distinction between political Zionism and adherents of the Jewish religion: 

Last year, the ayatollah said Iran is not antisemitic and that Jews live safely in Iran. In June 2019, he contrasted Iran’s treatment of Jews with “certain old Arab leaders who believed Jews should be thrown into the sea.”He says Iran is only opposed to the “Zionist” regime.

Regardless, American politicians and pundits typically view any and all disparaging remarks about ‘Zionists’ – especially coming out of Iran or the Islamic world in general – as an anti-Semitic trope. 

Authored by Simon Watkins via OilPrice.com,

Historically, Russia goes to great lengths to hide or disguise its strategic intentions but it clearly feels empowered enough in the Middle East to very obviously stake its claim in the region – excluding, for the time being only, Saudi Arabia – by stating that a slew of Russian companies are to spend up to US$20 billion on oil projects in Iraq in the near term.

“Since [U.S. President Donald] Trump outlined the new U.S. foreign policy of not engaging in conflicts abroad unless they were directly aligned with U.S. interests [October 2019], and then effectively withdrawing from Syria and from supporting the Kurds, Russia and China have felt that they can bring forward their plans to bring Iraq within their geopolitical arc of influence,” a senior source who works closely with Iraq’s Oil Ministry told OilPrice.com last week.

“They know that provided that they do not impinge on Saudi Arabia and, at a pinch the UAE and Kuwait, or launch attacks against U.S. personnel, then they can basically do whatever they want anywhere else, hence this announcement from Russia last week,” he added.

Before this announcement – which specifically mentioned Zarubezhneft, Tatneft, and Rosneftegaz as companies interested in pursuing specific but as yet unnamed projects, in addition to those Russia companies already active in the country (including Lukoil, Bashneft, and GazpromNeft) – Russia had adopted its usual stealth approach to building up its presence in Iraq.

“It is incremental colonialism, beginning one day with one relatively small contract being taken up by some Russian company nobody has heard of, then more Russian companies turn up in the same place under ‘contractor’ terms having been engaged by the company you gave the original contact to, then security companies turn up to guard all of the personnel, and suddenly you have a major Russian occupation of part of your key oil and gas infrastructure,” the Iraq source underlined.

The oil and gas prize for the Russians in Iraq is, of course, huge, but many in the industry do not realise that it is still underestimated. The official figures for oil are that Iraq has around 149 billion barrels of reserves (18 per cent of the Middle East total and 9 per cent of the global total) and is currently the second-largest oil supplier in OPEC, after Saudi Arabia. All of this oil coming at a mean average ‘lifting cost’ per barrel in Iraq of US$2 to US$3 per barrel, according to the IEA, at least as competitive as Saudi Arabia. For gas, the official figures are slightly less impressive, but they are likely even more underestimated than the oil figures, with Iraq having about 135 trillion cubic feet of reserves (the 12th largest in the world), mostly associated at the moment with oil fields in the supergiant fields in the south of the country. However, despite the occasional increase in reserves estimates over the past few years – extremely modest by the standards of its neighbours, incidentally – much of Iraq still remains unexplored or under-explored compared with other major oil-producing countries.

According to the International Energy Agency (IEA), and derived from the landmark United States Geological Survey (USGS) 2000 assessment and subsequent updates, the level of ultimately recoverable resources at that time was around 232 billion barrels of crude and natural gas liquids. Even this, though, might prove on the low side, added the IEA, as a detailed study by Petrolog around that time reached a similar figure but did not include the parts of northern Iraq in the KRG area or examination of the geological anomalies prevalent in the central and western regions of the country. Even using the much more conservative USGS number, Iraq had just a decade ago only produced around 15 per cent of its ultimately recoverable resources, compared with 23 per cent for the Middle East as a whole at that time. At that point, of the 530 potential hydrocarbon-bearing geological prospects identified by – only – geophysical means in Iraq only 113 had been drilled, with oil being found in 73 of them, a success rate of 65 per cent. Although more of these geophysically-identified sites have now been drilled many more new ones have arisen due to identification by more sophisticated analysis of seismic and historical data.

“The Russians have done their own testing of potential oil and gas reserves over the years and they think it is about double the current official estimates on both of those [oil and gas],” the Iraq source told OilPrice.com last week.

This is one of two key reasons why Russia has exploited every opportunity to expand its footprint in the north and south of Iraq. In the north it has been extremely successful so far in using its corporate proxy, Rosneft, to gain control over key elements of the region’s oil and gas infrastructure while in the south it had been forced by the U.S.’s own former ambitions to tread more stealthily. Although it has always been able to rely on being able to use Iran’s political and military over Iraq for its own purposes, these had to be sidelined for a while, at least whilst the real power in Iraq – Moqtada al-Sadr – was getting settled in to his power-broking role. As this was initially founded on the ultra-nationalist message (‘Iraq for the Iraqis, with no undue foreign influence’, in essence) of his election-winning ‘Sairoon’ power bloc, Moscow was able to tinker only the edges.

In such strategies, though, Russia is a master, and the influence it can ultimately wield starting from such a tiny access point is absolutely extraordinary. The most recent example of this – and a template for such strategies for any aspiring superpower, frankly – was the ‘awarding’ of a hitherto unknown development block in the middle of a wasteland by a hitherto unknown Russian company at a time when no one else was aware that anything was due to be awarded. As highlighted in-depth by OilPrice.com at the time, Russia’s Stroytransgaz (an almost unknown Russian oil and gas company – except by the U.S. whose Office of Foreign Assets Control extensively sanctioned it in 2014) signed a preliminary contract with the oil ministry in Baghdad for oil and gas exploration in Anbar province (a wasteland as far as Iraq’s oil and gas sector development goes). On the face of it, there was – and is – no real prospect of any substantial amounts of oil or gas being recovered from its Block 17 and additionally stationing any normal oil and gas workers there would be perilous to say the least, as it is an area torn by warring tribal communities, which even Islamic State avoided where possible.

The key to this, though – and vital in understanding the purpose behind the announcement of a doubling (possibly tripling) of Russian overt investment into Iraq – is that the area is critical in Russia fortifying its presence in the central Middle East and being able to secure a warm water multi-layered military presence in the Mediterranean.

“Russia risked full-on military confrontation with the U.S. to get a full-scale Black Sea port [Sevastopol] with access into the Mediterranean when it annexed Crimea in 2014, so there’s nothing it won’t do to build out its foothold in Syria and in the transit and supply route to Syria, which includes Iraq,” said the Iraq source.

In this context, then, Block 17 in Anbar – and the US$20 billion investment announced last week – makes perfect sense for the Russians, as it intends to secure what the U.S. military used to call ‘the spine’ of Islamic State where the Euphrates flows westwards into Syria and eastwards into the Persian Gulf. Along the spine running from east to west are the historical ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha, and then there is Syria, with its key strategic ports of Banias and Tartus. By happy ‘coincidence’ both Banias and Tartus are also extremely close to the massive Russian Khmeimim Air Base and the S-400 Triumf missile system. Although the base only came in to operation in 2015 supposedly to help in the fight against Islamic State, Russia appears to have changed its tactical plans for it, having also signed a 49 year lease on it, with the option for another 25 year extension. A short flight away is Russia’s Latakia intelligence-gathering listening station.