Category: zerohedge

Hordes Of Bussed-In Protesters Prepare For DC Disruption Ahead Of Kavanaugh Confirmation

Liberal activists are planning to disrupt the confirmation hearing for Supreme Court nominee Brett Kavanaugh, according to journalists Paul Sperry and Jack Posobiec. 

Sperry reports: “Protesters from several radical leftwing activist groups, including Cntr for Popular Democracy,Women’s March, Indivisible, Moveon.org  &Housing Works, are being bussed into DC to march on the Senate next week & disrupt any vote on Kavanaugh. They’re meeting tonight (Sun) at 7:30 PM for training at St. Stephens of Incarnation Church, 1525 Newton Street NW in the Mount Pleasant area of DC. This church will also provide lodging for the rable and act as their staging ground throughout the week. Protesters’ jail bail, legal fees & transportation being paid for by these leftist groups, many of which are funded by liberal mega donor George Soros and are desperate to derail President Trump’s conservative SCOTUS nomination. (More details to come … )”

Jack Posobiec, meanwhile, claims to have “snuck onto the conference call for organizing against Kavanaugh on Monday and got their entire protest plans.” 

Prepare for a cacophony of rage amid a sea of pink pussy hats… 

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Poll Shows GOP Enthusiasm Rising As Midterms Loom; 70% ‘Satisfied’ With Trump’s Economy

With US stocks trading at record highs despite almost universal underperformance in global markets and the US economy benefiting from a late-cycle boom, Republicans are ready to do everything in their power to ensure that President Trump and his Congressional allies retain their unilateral control of the federal government after the midterms.

According to the latest WSJ/NBC News poll, 61% of Republican voters say they’re very interested in voting on Nov. 6, when Republicans will be looking to stop the Dems from retaking control of the House. To put that number in context, the poll showed that 65% of Democrats said they’re very interested in the vote. Over the first eight months of 2018, Democrats boasted an aggregate 12-point advantage over the Republicans on this metric – an advantage that has shrunk considerably.

Poll

To be sure, Republicans are still facing an uphill battle in the House. According to the poll, a sizable majority of voters say they would rather see Democrats wrest back control of Congress.

The Democratic lead on voter preference for control of Congress is the largest in Journal/NBC polling since Mr. Trump took office. It reflects gains for the party among white, working-class women, as well as among suburban voters and other groups that had been more favorable to the GOP in the past.

“Republicans have had a series of weak surveys; this is beyond weak,” said Bill McInturff, the GOP pollster who conducted the survey with Democrat Fred Yang. “This is a survey that says the Republican coalition at the moment is unhinged and not connected.”

Mr. McInturff emphasized that the poll reflected political conditions “at the moment.”

With the Nov. 6 midterm vote less than two months away, 52% of registered voters said they would rather see Democrats walk away with control of Congress, while 40% said they would prefer Republicans to hold on to both chambers.

That lead is up from 8 points in August. To be sure, when the pool of respondents was reduced to only likely voters, the Democrats’ advantage also shrunk.

Among those considered most likely to vote, a smaller pool than those identified as registered voters, Democrats held an 8-point advantage on the question of which party should control the next Congress. This is the first time in the midterm campaign that the Journal/NBC News poll has delineated which voters are most likely to cast ballots.

Despite most voters’ sunny view of the economy, 59% in the survey said they wanted a change from the direction Mr. Trump has been leading. That group included nearly one-third of Republicans.

Though it’s worth pointing out that Hillary Clinton boasted a similar advantage two months before the 2016 vote (an advantage that turned out to be an illusion).

When the poll turned to issues-based questions like voters’ satisfaction with the president’s performance and the economy, Democrats’ lead faded. Voters are extremely satisfied with the economy, and Trump’s approval rating has remained stable at 44%, among the highest readings since he took office. On the economy alone, voters’ approval has jumped from 63% to nearly 70%.

The poll also found that Mr. Trump’s job approval rating remained stable from August, at 44%. The share of voters satisfied with the economy jumped to 69%, up from 63% in a Journal/NBC News poll in June, and a plurality said Mr. Trump’s policies had helped economic conditions.

In other words, the “blue wave” that the mainstream media has promised its devotees is hardly a guarantee. Indeed, Democrats could endure another dramatic upset in November that could trigger flashbacks of 2016…

Blue

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Iran’s Supreme Leader Calls Attack On Parade A “US Plot”; Tehran Summons Western Ambassadors

Iran’s top cleric and leader Ayatollah Khamenei has pointed the finger at the West for a terror attack on a military parade that took place early Saturday in the Southwest city of Ahvaz, which left 25 people dead and over 60 wounded. 

Khamenei’s condemnation of “plots hatched by US stooges in the region” came simultaneous to Iran summoning the diplomatic envoys of Western countries including the Netherlands, Denmark and Great Britain, for harboring Iranian opposition groups in their countries. 

“It is not acceptable that these groups are not listed as terrorist organizations by the European Union as long as they have not carried out a terrorist attack in Europe,” foreign ministry spokesman Bahram Qasemi was quoted as saying by IRNA, per Reuters.

Government officials also indicated the gunmen which unleashed a hail of bullets on men women and children were disguised as Iranian soldiers: “The terrorists disguised as the Islamic Revolution Guards Corps (IRGC) and Basiji (volunteer) forces opened fire at the authorities and people from behind the stand during the parade,” the regional Governor of Khuzestan Gholam-Reza Shariati told state media. 

Iranian state IRNA news identified that the self-proclaimed “Saudi-affiliated” Al-Ahwaz terrorist group claimed the responsibility for the attack.

Indeed it appears that a group identifying itself as the “Ahwazi Democratic Popular Front” had announced on Twitter some 13 hours before the attack that “Al-Ahvaz will create a challenge for the Iranian occupiers with an attack,” according to a translation of the tweet. 

Iran’s Foreign Minister Mohammad Javad Zarif said in the aftermath that “US masters” and regional terrorist forces should be held accountable for the bloodshed.

Meanwhile Iran’s Supreme Leader ranted against Western and US plotting in his Saturday message, according to a translation and paraphrase by PressTV:

The Leader said the “tragic and sorrowful” incident in Ahvaz and the killing of people by mercenary terrorists once again exposed the cruelty of the enemies of the Iranian nation.

These savage mercenaries who open fire on innocent civilians, including women and children, are linked with the same liars who claim to advocate human rights, Ayatollah Khamenei added.

Khamenei then specifically identified US plotting as motivating the attack: “Their crime is the continuation of plots [hatched] by the US-led governments in the region who aim to create insecurity in our dear country.”

But on Saturday night the US State Department issued a rare statement of solidarity with Iranians in the wake of the terror attack: “We stand with the Iranian people against the scourge of radical Islamic terrorism and express our sympathy to them at this terrible time. The United States condemns all acts of terrorism and the loss of any innocent lives,” according to the official statement. 

Many prominent Western and Gulf-based media outlets refused to use the word “terrorism” in relation to the attack, which reportedly included children among the casualties.

Iran has in the past accused the United States, Saudi Arabia, and European countries for giving support to the MEK and using the opposition group as a proxy force for attacks withing Iran. The controversial Iranian opposition in exile Mujahideen e Khalq (MEK) is considered by Iran and many other countries as a terror organization (and not long ago by the US State Deptartment, though delisted as a terror group under Obama ), but is now given close support by US Congresspersons and Trump admin officials alike. 

Essentially a paramilitary cult, the MEK is suspected of conducting assassinations of high level Iranian figures, especially nuclear scientists and engineers for years, likely at the bidding of foreign intelligence services.

Currently, it is unclear exactly how much external support the Al-Ahwaz separatist group, which has claimed responsibility for the terror attack, receives, if any at all — though Tehran is pointing the finger at Saudi Arabia and its allies.  

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Judiciary Committee’s Lindsey Graham: “I’m Not Going To Ruin Judge Kavanaugh’s Life Over This”

Sen. Lindsey Graham (R-SC), one of the 11 men on the Senate Judiciary Committee, made it clear on Sunday that he will hear out Kavanaugh accuser, Christine Blasey Ford, but that he hasn’t heard enough evidence to “ruin Judge Kavanaugh’s life over this.” 

“What am I supposed to do? Go ahead and ruin this guy’s life based on an accusation?” Graham asked Fox News Sunday host Chris Wallace, adding: “I don’t know when it happened, I don’t know where it happened. And everybody named in regard to being there said it didn’t happen. I’m just being honest. Unless there’s something more, no I’m not going to ruin Judge Kavanaugh’s life over this.” 

“But she should come forward, she should have her say. She will be respectfully treated,” he added.

Graham repeatedly expressed doubt about the allegation during the interview Sunday based on the amount of time that has passed since the alleged assault and the lack of evidence. 

“This accusation has to be looked at in terms of our legal system, Graham said. 

“Everything I know about Judge Kavanaugh goes against this allegation,” he continued. “I want to listen to Dr. Ford. I feel sorry for her. I think she’s being used here.” –USA Today

Graham also said he think that people are taking advantage of Ford: 

Both Ford and Kavanaugh are scheduled to testify Thursday before the Senate Judiciary Committee. 

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Understanding The Volatility Storm To Come, Part 1: Fragility In The Market’s Medium

Authored by Christopher Cole via Artemis Capital Management,

What Is Water In Markets? Volatility and the Fragility of the Medium

There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”.

-David Foster Wallace, This is Water (2005)

“This is Water” is the title of a commencement speech delivered by David Foster Wallace that has become a masterpiece of meta-thinking. If you haven’t listened to it, put down this paper and do so now. It is worth 20 minutes of your life.

The Foster Wallace parable of two young fish ignorant of the medium that defines their reality is so important on many levels. Foster Wallace contends that we swim in a world defined by self-centered thoughts, that serve to make reality visible, but should never be mistaken as fundamental truth. 

In capitalism the medium that defines reality is fiat money. To this point, does money exist? This seems silly to ask but it is very important philosophically. Yes, money exists in the sense that you can purchase goods and services with it. At the same time, money is only important because of a collective belief in it, and is worthless without that. This is true of any human construct: markets, words, brands, and nation-states… all abstract mediums that have meaning because we collectively believe they do, and hence they give form to reality, but are not real independent of our thoughts.

In markets and in life, we swim in mediums of thought abstractions… the same way a fish swims in water. When the medium collapses, so does the reality… causing us to question the nature of both. As Foster Wallace eloquently explains, “The immediate point of the fish story is that the most obvious, ubiquitous, important realities are often the ones that are the hardest to see and talk about.”  

Volatility is always the failure of medium… the crumpling of a reality we thought we knew to a new truth. It is the moment where we learn that we are a fish living in a false reality called water… and that reality can change… or there are other realities. True volatility isn’t the change of the thing, it’s the changing of the medium around it and the realization that the thing never really existed in the first place. 

This is all you need to know to understand when the volatility storm will truly come. It is not about valuations, money printing, or where the VIX is at any point. When the collective consciousness stops believing growth can be created by money and debt expansion the entire medium will fall apart violently, otherwise it will continue to be real. The belief that the medium is the reality is what holds the edifice together temporally. 

This letter is divided into three key themes: The first part will discuss fragility of the market medium; the second will discuss how the volatility in February was a symptom of a much greater liquidity problem; and the third will discuss how flows are more important than fundamentals when the medium dominates truth. 

Out of the fishbowl and down the drain we go…

Part 1: Fragility in the Medium

Investors swim in a pond of bid and ask prices. Without a bid and ask there is no price discovery… and the market… like a fish out of water… dies. Now here is an interesting question: does the market create value, or can value exist without a medium to facilitate it? A silent revolution is now being fought for the soul of investing between two contradictory schools of meta-thinking, each with their own strategies and central planning philosophies to support them. These two schools are the following:

1) Value is independent of the medium and intrinsic to the asset: The classic school of investing embodies the value investing principals of Graham and Dodd as put into practice by investors like Warren Buffet (younger version), Seth Klarman, and David Einhorn. In this school, the bid and ask prices of an asset do not represent value any more than a picture of a “pipe” is a real pipe. Liquidity is a highly flawed medium to express value. Although prices may fluctuate they are independent from the intrinsic worth of an asset. If you want to smoke a pipe, the picture is not sufficient to provide value. 

2) Value is generated from the medium. In the second school, liquidity is the sole determinant of value as defined by a constant bid and ask price. An asset is only worth what someone is willing to pay for it at any given moment. If Facebook, Snapchat, Tesla, Ethereum, and Ripple keep going up, who cares why, as long as someone is willing to pay. When market participants gain confidence in a quantitative investment factor (growth, low volatility, cat ownership of company management), it becomes real, regardless of whether it makes sense. As long as people supply a bid and ask price, the medium is the reality, so to speak. The school is also supported by modern central banking policies.  If a picture of a pipe looks like a pipe, it is a damn pipe, especially if people buy more tobacco. 

The second meta-view of value is now winning the revolution and dominating central banking and institutional asset flows. Passive and factor-based investments are just the most obvious symptom of this new worldview. If value is “created” by the medium of money, you don’t need to pay people to find it, hence active investors should be replaced by passive index funds, systematic trading, and factor-based quantitative investments.  Today fundamental discretionary traders only account for 10% of trading volume in stocks according to J.P. Morgan, while rules-based strategies account for 60%. Since the recession $2 trillion in assets have migrated from active to passive strategies. Starting this year, over 50% of the assets under management in the U.S. will be passively managed according to Bernstein Research. Almost a decade of unprecedented global monetary stimulus resulted in the best risk-adjusted returns for passive investing in over 200 years between 2012 and 2017. Large capital flows into stocks occur for no reason other than the fact that they are highly liquid members of an index, and those capital flows chase the hottest ETFs and collections of stocks (FANGs). 

Value investing has had the longest period of underperformance in history when compared to buying whatever is “hot”. The chart above shows the performance of a pure value strategy versus momentum. Deep value significantly underperformed momentum just prior to recessions in 1999 and 2007. If you are old enough you may remember the December 1999 Barron’s cover article titled “What’s Wrong, Warren?”. The article asserted Buffet’s value strategy was old fashioned and he was “losing his magic touch”. Recently the WSJ has printed several similar articles discussing how active managers are underperforming and losing assets due to stubborn adherence to value principals. 

As it turns out, the institutional investors herding into passive and factor investments may be smoking something out of their own Magritte Pipe. Passive is just a crowded “liquidity momentum” trade and its outperformance compared to active managers may be self-fulfilling and ultimately de-stabilizing in the long run.   When passive investing becomes dominant ‘excess returns’ are actually diminished and volatility should rise.  What they claim as being low cost, actually comes at great expense in the long-run. What they think of as diversification is actually dangerous herding. What they see as alpha is actually an illusion of value created by the reliance on the medium. 

Michael Green at Thiel Macro first introduced me to his theory that passive investing crowds out the excess return (‘alpha’) available to active management. Mike also challenged me to prove it to myself by building my own theoretical model. I took his advice and built a market simulation whereby the main variable is the influence of passive vs. active participants. My simulation generates 25,000 days of equity returns using a supply-demand model randomized according to geometric Brownian motion with a drift factor based on constant percentage passive flows. Active participants become engaged based on varying degrees of intensity depending on whether the market drifts too high (selling pressure) or too low (buying pressure). The active players then impact the market by helping to push prices back into equilibrium. It is important to note that in this simulation the proportion of active to passive investors remains constant. In real life, this will shift over time.

Two key themes emerge when the market is dominated by passive investing as seen above:

1) “Excess Return” or Alpha available to active managers is diminished (blue line in graphic)

2) Volatility is amplified. (black line in graphic)

Green’s theory that the alpha available to active managers is destroyed by the dominance of passive flows was not intuitive to me at first. I was inclined to believe the exact opposite: that the greater the degree of passive actors the more inefficiencies are available for exploitation. That is true to a certain point. When the market is dominated by passive players prices are driven by flows rather than fundamentals (see right tail of blue line). In my simulation, the excess alpha available to active participants peaks when passive investors comprise 42% of the market, then drops dramatically the more the passive share increases. When passive participants control 60%+ of the market the simulation becomes increasingly unstable, subject to wild trends, extreme volatility, and negative alpha. In the real world, because the ratio between active to passive is not constant, the instability threshold will occur at a much lower threshold as investors shift their preference to passive in real-time. 

A good metaphor is to think of passive investors as a drunk man at the bar and active investors as his sober guide. The drunk man is hoping to walk home safely but is highly influenced by the prevailing flow of foot traffic. Fortunately, when the drunkard gets too far off the safe path, his sober guide takes over and corrects him. Now, the dual journey home is a choppy pull and push affair, but everyone gets home safe. Now in a world where passive dominates, the drunk become so strong that his sober guide is not strong enough to influence him. Unencumbered the drunk man can now move much faster in any given direction, right or wrong, but he is also more likely to get lost. The drunk man walks from the bar… starts heading toward his house… takes a wrong turn up a mountain… and right off a cliff… to his death.

The irony of the Bogle-head crowd is that they tout efficient market hypothesis to support passive investing while simultaneously failing to comprehend how the dominance of the strategy causes markets to become highly unstable and inefficient. The most immediate realities are the ones that are the hardest to see… If you want to know when volatility will truly arrive, watch the shift in the medium.

* * *

Part 2: Volatility Reflexivity and Liquidity coming soon…

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Giuliani Vows Regime Change At “Iran Uprising” Event; MEK Supporters Chant John McCain’s Name

Speaking at an MEK-linked event called the “Iran Uprising Summit” in New York City on Saturday, Trump lawyer Rudy Giuliani told an audience that the Iranian government is “going to be overthrown” as soon as revolutionary “conditions” are ripe.

“I don’t know when we’re going to overthrow them. It could be in a few days, months, a couple of years, but it’s going to happen. They’re going to be overthrown, the people of Iran have obviously had enough,” said Giuliani at the event hosted by the Organization of Iranian-American Communities at a Times Square hotel. 

“The sanctions are working. The currency is going to nothing … These are the conditions that lead to successful revolution, and, God willing, non-violent revolution,” he said.

The speech came the same day a terror attack on a military parade took the lives of over 24 people and wounded scores more in the southwest Iranian city of Ahvaz, including children and civilians.

Guiliani’s regime change commentary also follows claims by White House and State Department officials that US is not seeking a change of government in Tehran. 

The group is made up of Iranian expat and political opposition communities in the US and is tied to the controversial Iranian opposition group in exile, Mujahideen e Khalq (MEK), which is considered by Iran and many other countries as a terrorist organization.

It is essentially a paramilitary cult and is suspected of conducting assassinations of high level Iranian figures, especially nuclear scientists and engineers for years, likely at the bidding of foreign intelligence services, as was up until a few years ago a designated terror group by the US State Department, though delisted under the Obama administration. 

Iran has recently accused the US, Israel, and regional allies like Saudi Arabia of stirring unrest inside Iran. Indeed Iran’s supreme leader Ayatollah Khamenei specifically blamed  “US plotting” as being behind the attack on the Ahvaz military parade on Saturday: “Their crime is the continuation of plots [hatched] by the US-led governments in the region who aim to create insecurity in our dear country,” he said according to state media. 

The MEK’s leader, Maryam Rajavi, also addressed the conference via Skype alongside Giuliani. Both praised President Trump’s dismantling of the Iran nuclear deal brokered under Obama, and his aggressive sanctions regimen currently sending the Iran’s currency and economy into a tailspin. Rajavi claimed during her speech that the MEK has organized special “Units of Rebellion” to cause riots and mayhem inside Iran.

MEK events have been known to include high profile American speakers who are reportedly paid hefty speaking fees. The late Senator John McCain was a fixture at their annual rallies in Paris, and former Obama NSC director Gen. James Jones also addressed Saturday’s event in New York City, and praised Trump policy on Iran. 

Perhaps one of the more bizarre moments of the so-called “Iran Uprising Summit” was the tribute video to John McCain. Immediately after the video the audience began chanting his name out of appreciation of his consistently pro-regime change and hawkish policies. 

In response to Giuliani’s statements expressing approval for future Tehran regime overthrow, the State Department attempted to distance itself, saying in a statement that Trump’s personal lawyer doesn’t speak for the administration. 

However, the White House has vowed to maintain economic pressure on the Islamic Republic with more sanctions to snap into place on November 4. The sanctions will especially target Iran’s energy sector, possibly dealing a final death blow to the already crippled economy.  

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Andy Xie: Change Is Coming & With It, A Reckoning

Authored by Andy Xie, op-ed via The South China Morning Post,

Andy Xie says both China and the US have built their economies on financialisation while ignoring the people’s concerns, and the trade war will hasten the reckoning both countries need…

The door for compromise and restoring a functional relationship between the United States and China appears to have closed. The 10 per cent tariffs on US$200 billion of Chinese goods, rising to 25 per cent from January 1, is the final straw. There will be more negotiations to come. At some point, there may be announcements of compromises and a positive outlook. But, for now, the reality is that China and the US have gone into rivalry mode – a rivalry that will define the 21st century.

The dispute began with US President Donald Trump’s complaints about the bilateral trade balance and access to China’s market. It then morphed into a dispute on intellectual property rights violations and China’s economic model of subsidising technology development. Now, it is about global strategic rivalry.

The US’ contention is that China makes money from the US and is using it to push America out of Asia and elsewhere. It is difficult to see how the US could climb down from this position. To follow its rhetoric, it will try to cut off China from its market and block technology exchanges.

This rivalry may bring short-term pain to both nations, and to the world, but it may prove beneficial to all in the long run.

The lack of external checks has led to rising internal imbalances in both countries. Since the end of the cold war, the US has been marred by surging inequality, while bubbles and ignorant hubris have come to occupy the central ground in China’s economic management and political thinking.

Financial speculation and corruption have become normalised around the world. The titanic rivalry between the world’s No 1 and No 2 economies will put all on their toes. Some of the most egregious trends could be reversed.

The short-term pain is quite visible in China. Its stock marketis plummeting. And the property market is on edge and may soon follow. It would be wrong to blame it on the trade war.

China’s stock market bubble didn’t fully deflate in 2015. The government used multiple instruments to prop up the market, and it was trying to revive it with a tech bubble.

Hence, the market has never reached a sensible valuation. Tech concept stocks came down from a 10-mile high to a five-mile high but never touched the ground. What’s happening to the stock market should be viewed as unfinished business from 2015. The trade war was merely a catalyst.

Property is the big one among China’s bubbles. Its bursting would have a major impact on the construction industry and, more importantly, local government finance. The current monetary easing is clearly aimed at shoring up the market. There could be more supporting measures to come.

We can’t rule out a 2008-style stimulus with a very low mortgage rate and small down-payment requirements. While these measures may slow the process, the property market will burst.

East Asian economies have experienced property bubbles due to export promotion through undervaluing exchange rates, which leads to a monetary boom. When exports slow, the bubble bursts.

There are arguments about how export dependent China is. At 20 per cent of GDP, China’s export ratio seems much lower than that of other East Asian countries during their boom. The low figure is actually due to China’s hinterland effect. The Eastern Seaboard of four provinces and one city account for two-thirds of the country’s exports.

They also account for all the financial support for the central government, and the subsidy transfers to the hinterland. The efficient part of China’s economy is as export dependent as the other East Asian economies were.

The US has suffered little from the trade war so far. The damage to farmers from declining soybean prices is the most visible aspect, and the government is coming up with money to cover their losses. The US stock market has been very resilient despite lofty valuations, rising interest rates and the trade war.

The key support seems to come from stock buybacks, thanks to Trump’s tax cut and tax amnesty for repatriating offshore profit. I believe the tax cut is merely delaying the market’s fall. The delayed timing, though, has emboldened the Trump administration to pursue the trade war.

The big cost will come if and when supply chains are moved out of China. The process is inflationary. It is not just inflating the US$500 billion of imports from China. Imports from other countries will also rise, due to less competition from China. Inflation raises living costs for most Americans who live from pay cheque to pay cheque.

It will also force the Federal Reserve to raise interest rates more than expected. The US has been experiencing one bubble after another for the past two decades. The low interest rate, justified by imported deflation, is the main culprit. The US’ bubbles seem resilient for now. They will soon follow China’s and burst.

Bubbles bursting is a necessary condition to bring sense to all players. Policymakers have been paying too much attention to asset prices. One major factor is that they hang out with speculators at places like Davos. This is why, despite incredible economic growth since 1989, most people are discontent.

The world needs a new generation of policymakers who don’t hobnob with billionaire speculators and who understand workers’ concerns.

Unfortunately, the change will not come smoothly. Political turmoil in the West is very much about this. A heavy price has to be paid to bring about the change.

The Sino-US rivalry is the main driving force to bring about the needed global change. The Beijing-Wall Street axis has been driving the global economy towards speculation and inequality.

In 2008, Beijing and Washington pumped in massive amounts of money to bail out speculators in the name of saving the economy and helping workers. The reality is that they used workers’ money to enrich parasites.

We are living in a world in which wealth is theft, as Karl Marx once said. The sooner this world ends, the better. People may despair in the coming years over the ensuing chaos, but a better world will emerge.

As in everything else, competition enhances efficiency. At the end, both China and the US will become better countries.

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New Footage Shows China Testing “Rare” Hypersonic Glide Weapon

First discovered by The Drive on Friday, new footage has surfaced on social media showing the Chinese military testing three hypersonic glide vehicles from a high altitude balloon. The footage is a reminder that a hypersonic arms race is indeed underway, with the US, China, and Russia.

The Drive cannot authenticate if the wedge-shaped payloads harnessed underneath the high-altitude balloons are, in fact, hypersonic weapons, but @Defengchao who posted the footage on Twitter is confident that they are.

“A test using a high-altitude balloon to launch the flight vehicle has been successfully performed, allegedly, this was exactly the test which closed a large area of airspace in the Northwest of China,” tweeted @Defengchao.

@Defengchao then posted a video showing the launch of the high-altitude balloon carrying the hypersonic weapons from a military facility in northwestern China.

This balloon could have been launched into what is termed “near space,” defined as the area of Earth’s atmosphere between the Armstrong limit (11–12 mi) above sea level, where the hypersonic weapons were then released and glided back to Earth reaching speeds plus Mach 5 (+3,836 mph).

Early Saturday morning, @Defengchao released more footage of the hypersonic weapons. Cao said the three scale models (D18-3S, D18-1S & D18-2S) released in the test, were manufactured by the Chinese Academy of Sciences (CAS).

Cao specifically said one of the weapons had a cantilever wing design, a rare hypersonic configuration that hints China’s hypersonic program is rapidly accelerating.

In another tweet on Saturday morning, the mysterious Twitter user, most likely directly or indirectly connected to the People’s Liberation Army (PLA) said to expect more tests in the future.

Last month, we reported that China allegedly tested a new hypersonic missile that would be capable of penetrating any missile defense system in the world.

The Starry Sky-2, which is an experimental design known as “waverider,” rides the shock waves generated during flight. The missile could one day carry conventional and or nuclear warheads undetected through US missile defense shields.

According to the China Academy of Aerospace Aerodynamics (CAAA), an aerodynamic research institution in Beijing and part of the state-owned China Aerospace Science and Technology Corporation (CASTC), conducted the hypersonic missile test in northwestern China.

The CAAA released a statement, indicating the Starry Sky-2 was carried into space by a solid-propellant rocket before separating.

After separation, it descended to lower altitudes as it autonomously conducted extreme turning manoeuvers, reaching Mach 5.5 for more than 400 seconds, and reached a top speed of Mach 6, or 7,344km/h (4,563mph), the CAAA WeChat statement said.

The test was deemed a “complete success,” stated CAAA, which posted a series of behind the scenes images of the experiment on social media. “The Starry Sky-2 flight test project was strongly innovative and technically difficult, confronting a number of cutting-edge international technical challenges.”

However, the CAAA did not mention what the intended purpose of the missile would be used for, other than commenting on how hypersonic technologies could further China’s aerospace industry.

Although, the missile is still in the development stage and probably a few years out from series production, waveriders could be used to carry conventional and or nuclear warheads capable of penetrating the world’s most advanced anti-missile defense systems.

Earlier this year, Gen. John Hyten, commander of U.S. Strategic Command, told the Senate Armed Services Committee that the US is extremely vulnerable to future attack via hypersonic missiles.

“The first, most important message I want to deliver today is that the forces under my command are fully ready to deter our adversaries and respond decisively, should deterrence ever fail. We are ready for all threats. No one should doubt this,” Gen. Hyten said in his opening statement.

However, in a follow-on conversation with Sen. Jim Inhofe, R-Oklahoma, Hyten cautioned:

“we [US] don’t have any defense that could deny the employment of such a weapon [hypersonic missiles] against us.”

Hyten suggested the US is powerless against hypersonic weapon threats and has to rely on nuclear deterrence. He added, “so our response would be our deterrent force which would be the triad and the nuclear capabilities that we have to respond to such a threat.”

In mid-April, Lockheed Martin announced that it had won a $928 million contract to develop a hypersonic missile for the Air Force to counter Chinese and Russian missile defense systems.

During the recent discussion at the Center for a New American Security (CNAS) in Washington, D.C., Gen. Paul Selva, vice-chairman of the Joint Chiefs, said China has yet to “mass deploy hypersonics or long-range [tactical] ballistic missiles,” however, “they are able now to deploy those capabilities at a large scale” if they decide to move in that direction, he added.

Gen. Selva then dropped a bombshell indicating the Pentagon is behind in the demonstration of hypersonic technologies, but he did mention that the Pentagon still holds an advantage when it comes to sensor and sensor-integration technologies.

“If we just sit back and don’t react we will lose our technological superiority” over China, Selva said.

While the Chinese continue to further their hypersonic program, it seems as the US is falling further behind the curve.

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WaPo Concealed Kavanaugh Party Claim From Public After Coordinating With Accuser: Strassel

The Washington Post has been busted by WSJ columnist Kimberly Strassel for intentionally withholding information from their reporting of Christine Blasey Ford’s claim that Brett Kavanaugh sexually assaulted her at a high school party in the early 1980s, which “further undercuts the Ford accusation.” 

Strassel obtained a copy of the email WaPo sent to Mark Judge, one of the teenagers Ford claims was at the party – revealing that the Post knew the names of those at the alleged party, as well as the fact that one of them was a woman – Ford’s “longtime” friend Leland Keyser (then Ingham).

Publicly, the Post reported that there were four boys at the party the same day they revealed to Judge that they knew there was a girl. 

What’s more, WaPo now writes: “Before her name became public, Ford told The Post she did not think Keyser would remember the party because nothing remarkable had happened there, as far as Keyser was aware.” 

And instead of reporting this, the Post allowed Ford’s claim tha there were four boys at the party stand until word of Keyser’s alleged attendance became public knowledge late last week. 

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Is The Oil Burden A Rising Problem?

Authored by Daniel Lacalle via DLacalle.com,

While markets become increasingly bullish, oil prices are close to a “warning zone” where the barrel could be one -if not the only- catalyst of a major slowdown.

In my book “Escape from the Central Bank Trap”, I explain the concept of the “Oil Burden”. It is the percentage of global GDP spent on buying oil. It is often said that when the oil burden reaches 5-6% of GDP it can be a cause of a global slowdown.

The mistake that many make is to think that the oil burden is a cause and not a symptom.

In the past, we have seen that a period of abrupt increases in oil prices was followed by a recession or a crisis. However, not because oil prices rose rapidly, but because the dramatic increase in commodities’ prices was caused by a bubble of credit and excess monetary stimuli.

In reality, the oil burden is perfectly manageable at 5% of GDP because the energy intensity of GDP growth is diminishing. We are less dependent on energy to create growth in the economy.

Global energy intensity (total energy consumption per unit of GDP) declined by 1.2% in 2017, slightly below its historical yet unstoppable trend (-1.5%/year on average between 2000 and 2017 and -1.8% in 2016). In fact, global energy intensity is down 54% since 1990.

So the problem is not the oil burden by itself but the cause of the price spike.

When oil prices rise abruptly we should be concerned, because they can cause a domino effect on the real economy. When the reason for the price increase is not fundamental, we have a major problem.

Why are oil prices rising abnormally in recent months?

  • Supply manipulation.  Despite inventories falling, OPEC has maintained a tight grip on supply, unjustified from the premise of an oil glut that is inexistent or from the premise of “low” prices, which are comfortably above $70 a barrel. By being greedy and keeping supply tight, OPEC is hurting its customers -mainly Europe- and creating the foundations of a forthcoming bust cycle.

  • Iran sanctions. The reality is that Iran sanctions have a very small impact on the supply market, 600,000 barrels a day reduction in exports. These could be easily offset by higher OPEC and non-OPEC output, but if supply limits remain, the impact on marginal prices is exaggerated. OPEC produced 32.79 million barrels per day in August, up 220,000 bpd (barrels per day)from July’s revised level and the highest this year. However, the lid remains on the maximum output despite Libya coming back to normalized levels.

  • Venezuela production collapse. The Maduro regime’s disastrous management of the state-owned PdVSA has led the country to cut production to 1.4 mbpd (million barrels per day) and likely end 2018 at 1mbpd. The combined impact of Venezuela and Iran could have easily been offset by higher Saudi and OPEC production, helped by higher non-OPEC output.

  • Inventories continue to fall. Crude inventories fell for the fifth consecutive week. Stocks are at 394.1 million barrels at the end of the week (22nd Sept 2018) in the US, the lowest level since early 2015. OPEC cannot hang on to the message of an oil glut. It is not evident anywhere anymore.

  • US oil production continues to rise and provide positive surprises. U.S. crude oil production is expected to rise 1.31 mbpd to 10.68 mbpd in 2018,  according to the U.S. Energy Information Administration. Production will average 11.7 mbpd in 2019.

  • What about demand? High prices are already affecting oil demand in India and Europe. India total demand fell month-on-month in July. Demand was 358 kb/d lower, and demand growth has stalled. In Europe, a slowdown in industrial production and consumer spending is evident, while the emerging market crisis and China slowdown are also clear risks to the optimistic expectations of demand growth posted by OPEC and the EIA.

The risk, therefore, is that too much greed may break the camel’s neck. Imposing artificially higher prices on the world through supply management always backfires. Many oil analysts wonder why oil is not at $100 a barrel with all the above-mentioned issues.

The supply management’s desired “boom” is smaller than expected due to lower energy intensity and high global debt, and the risk of an abrupt bust is exacerbated because price increases are not based on fundamentals.

The global oil burden will rise to 3.1% of global GDP in 2018 from 2.4% in 2017 and -if Brent goes to $80 for an entire year- could soar to 4% of global GDP. This is deemed as manageable by most analysts. However, “manageable” is a scary concept that was used numerous times in the past before a bust.

The risk for the economy may not be the oil burden in itself, but a rising oil burden that is entirely driven by supply manipulation, disconnected from supply and demand reality and affordability.

If you believe rising oil prices prove the success of OPEC’s boom cycle creation, be careful about the bust. It will be self-inflicted.

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