Nine Chinese Financial Institutions With Over 1 Trillion Yuan In Assets Are Nationalized On The Same Day

Nine Chinese Financial Institutions With Over 1 Trillion Yuan In Assets Are Nationalized On The Same Day

Tyler Durden

Sun, 07/19/2020 – 16:00

Perhaps it’s a coincidence that just two days after we reported that China has been rocked by an “unprecedented” surge in bank runs which forced local regulators to “publicly vouch for the soundness of its lenders as the police halted the run”, on Friday Chinese financial regulators took over a record nine financial institutions which they said broke rules and added risk to a financial system facing increasing headwinds from the coronavirus pandemic. Or perhaps the two are in fact connected, and as faith in China’s financial system sinks and more money is pulled out of the country’s insolvent banks, more banks will be bailed out or nationalized.

Whatever the case, the takeovers of four insurers, two trust firms and three securities companies that managed a combined 1 trillion yuan ($143 billion) in assets represent Beijing’s first major regulatory move this year and follows the extensively documented bailouts of several regional lenders last year. Among the companies taken over the China’s Banking and Insurance Regulatory Commission are Huaxia Life Insurance Co., Tianan Life Insurance Co., Tian An Property Insurance Co. and Yian Property Insurance Co, the regulator said on its website.

Meanwhile, China’s securities regulator said it would take over three other entities—New Times Securities, Guosheng Securities and Guosheng Futures—and two trust firms, New China Trust Co. and New Times Trust Co.

The regulators said the takeovers are aimed at ensuring “stable operations” of the firms, because well, what else can they say: most Chinese financial institutions are insolvent and this is just the beginning? Probably not.

The takeovers continue an effort launched by Chinese authorities in 2019 to prevent systemic risks by taking over failing banks – something Beijing had not done in decades over fears of sparking bank runs – while also curbing debt as the country’s growth slows.

There was another common threat among the insolvent companies. According to the WSJ, many of the newly-nationalized firms have been linked in Chinese media reports to disgraced financier Xiao Jianhua, the founder of Beijing-based Tomorrow Holding which also controlled Baoshang Bank Co., a troubled regional lender that was the subject of the highest profile seizure last year (see “Chinese Bank With $100 Billion In Assets Is Bailed Out“).

As a reminder, Xiao, who is now a Canadian national with vast holdings in Chinese financial firms and ties to China’s military, disappeared in 2017 from a luxury Hong Kong hotel. According to his company and Hong Kong police, after he entered mainland China in January 2017, he hasn’t been reachable since.

Xiao was among Chinese tycoons whose empire fell under intense regulatory scrutiny in recent years, around the time officials cracked down on conglomerates such as Anbang and HNA Group which had racked up massive debt from global acquisition sprees, forcing them to divest overseas assets such as New York’s Waldorf Astoria hotel, in Anbang’s case, and, for HNA, a stake in Deutsche Bank.

* * *

Explaining the takeover of the four insurers, the China Banking and Insurance Regulatory Commission said they had violated China’s insurance law and triggered a takeover article that calls for a government intervention if an insurer’s solvency ratio falls below regulatory requirements. The takeover took effect Friday and will last for at least one year, the statement said.

Similar to an FDIC “failure Friday” event, China’s regulator designated six big Chinese insurance companies and financial institutions to take custody of the companies’ business. When China’s central bank seized Baoshang Bank last year, it similarly asked a state bank to manage the lender’s operations.

Also similar to the Baoshang takeover, regulators said the businesses and insurance policies of the seized companies will continue during the takeover. Eventually, regulators will seek to liquidate assets in the two trust firms and introduce new investors to shore up capital bases.

Meanwhile, as the WSJ notes, analysts have been warning of rising financial risks this year after the Chinese economy slipped into contraction in the first quarter amid effects of the coronavirus. In response to the outbreak, Beijing ordered the nation’s banks to step up lending to struggling small businesses that have long been seen as risky borrowers. As a result, the amount of bad debt in the banking industry quickly piled up in the year’s first half and is expected to continue to rise for the rest of the year.

And while some economists (perhaps those who are sponsored by China) believe Beijing is better positioned to contain financial risks after China’s GDP miraculously rebounded to positive in Q2, others believe that while Beijing is parading with fake economic numbers to boost its global credibility, the reality is that behind the scenes China’s financial system gets ever closer to collase. Indeed, Shen Zhengyang, an analyst at Northeast Securities said some corners of China’s financial system could turn more vulnerable in the wake of the pandemic.

“Regulators are more eager to stabilize the financial markets as the broader economy worsens,” said Mr. Shen. “A direct takeover allows for more efficient coordination.”

Meanwhile, the toxic feedback loop of bank runs, bank failures, and bank nationalizations, leading to more bank runs, more bank failures and more bank nationalizations, will only accelerate until a critical mass is finally hit at which point Beijing will find it impossible to quietly force large, state-owned banks to bailout an increasingly greater percentage of the country’s smaller and medium banks.

via ZeroHedge News https://ift.tt/2WyybTq Tyler Durden

Are Anti-Mask Masks Legal?

Are Anti-Mask Masks Legal?

Tyler Durden

Sun, 07/19/2020 – 15:30

Authored by Jonathan Turley,

There is a new form of protests sweeping across the country as individuals put on anti-Mask masks to defy mandatory mask rules. The anti-masks are made of thin material, mesh or even crochet and are advertised as having no protective qualities for Covid-19.  The question is whether they are legal.  They appear to be so.

A popular video shows a man wearing a mesh mask to a Tampa Walmart and saying “It was almost like not wearing a mask at all. Nobody cared. That’s because it’s not about safety. It’s all about compliance.”

Most laws like Alabama‘s only refer to a “covering” not a mask with protective qualities:

2. Facial coverings for individuals. Effective July 16, 2020 at 5:00 P.M., each person shall wear a mask or other facial covering that covers his or her nostrils and mouth at all times when within six feet of a person from another household in any of the following places: an indoor space open to the general public, a vehicle operated by a transportation service, or an outdoor public space where ten or more people.

Maryland requires masks:

“Facial coverings for individuals.

Effective July 16, 2020 at 5:00 P.M., each person shall wear a mask or other facial covering that covers his or her nostrils and mouth at all times when within six feet of a person from another household in any of the following places: an indoor space open to the general public, a vehicle operated by a transportation service, or an outdoor public space where ten or more people are gathered.”

Even that is subject to exceptions. However, consider the definition of face coverings:

“Face Covering” means a covering that fully covers a person’s nose and mouth, but is not a Medical-Grade Mask. The term “Face Covering” includes, without limitation, scarves and bandanas.”

A mesh mask does cover the fact and, since scarves can be used, there is no effort to indicate a threshold protective level or dimension.  There are vast differences between masks and stores are unlikely to want to police the sufficiency of masks, particularly if the states do not specify minimal standards.  Even creative work on the noun “cover” does not help much.  Oxford defines it as simply “a thing that is put over or on another thing.”  A permeable material still covers the mouth and nose. It just does little else.

Twitter is replete with such anti-masks with such disclaimers as “Stylish, breathable and don’t protect you from a darn thing! Masks required? No problem! Breath free while making a statement.”

Credit: Twitter

It is a statement that most people would not want to make.  However, it is probably legal.  It can bring certain notoriety with a chance of lethal contraction.

However, with cities like Miami threatening $500 fines for failing to wear a mask, more people may choose to protest with these defiant masks — defeating the efforts to curtail the spread.

Given the recent incidents of people flipping out over masks, this is not likely to make things less confrontational. The latest example is some a person named Ruby Musso who filmed herself arguing with staff after she refused to wear a face mask. Multiple employees ask her to leave and she is called a “Karen.” She in turn calls them Nazis.

The store has received threats after the posting of the video.  It has become a familiar scene:

The anti-mask mask is likely to trigger new confrontations as stores or other customers object to failure to follow the “spirit” of these orders while others claim the right to comply in their own defiant way.

By the way, the anti-masks are not the only technical workaround pandemic rules.  New York bars are now reportedly serving “Cuomo Chips” for $1 to get around the ban on alcohol without food.  This is meant to satisfy the requirement that “all restaurants and bars statewide will be subject to new requirements that they must only serve alcohol to people who are ordering and eating food.”

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Struggling Mall Owner Transforms Parking Lots Into Drive-In Movie Theaters

Struggling Mall Owner Transforms Parking Lots Into Drive-In Movie Theaters

Tyler Durden

Sun, 07/19/2020 – 15:00

It’s no secret that an unprecedented implosion in US commercial real estate is underway thanks to the coronavirus pandemic. Mall operators are struggling with retailers who are unable to pay rent

Readers may recall, there’s been a rapid surge in newly delinquent CMBS loans, with much of stress coming from the retail industry. 

Shown here, Trepp’s latest CMBS remittance report shows CMBS delinquencies have recently risen to levels not seen since 2012. 

This brings us to Brookfield Property Partners, a company with hundreds of properties in the US, more specifically, has 168 retail shopping properties, with a total square feet around 152 million. The company’s equity has been halved since the lockdowns as retailers can no longer pay rent, due to a collapse in consumption via broke consumers. 

The C-suite executives at Brookfield Property must have been reading our posts on social distancing will revive drive-in movie theaters (dated in May). Or our latest post from early July showing how Walmart is transforming 160 parking lots into drive-in movie theaters this summer. 

That is because Brookfield Property has just signed a deal with entertainment company Kilburn Live to turn some of its parking lots into drive-in theaters and virtual concerts, reported CNBC

“People are desperate to leave home,” Michelle Snyder, chief marketing officer of Brookfield’s retail arm, said. 

“If we can’t rent the mall, we are going to rent other space,” she added, referring to other large-scale events. “We actually have tons of ideas for our parking lots.”

Mall operators are quickly figuring out their once abandon parking lots could be a gold mine in the age of social distancing. 

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10 Major Investment Implications Of A Weak US Dollar

10 Major Investment Implications Of A Weak US Dollar

Tyler Durden

Sun, 07/19/2020 – 14:30

Authored by Bryce Coward via Knowledge Leaders Capital blog,

With the US dollar index recently having completed a so called “death cross”, we thought it would be a good opportunity to review the investment implications of a potential trend change in the USD. The “death cross” is a technical chart formation in which the 50-day moving average passes under the 200-day moving average. It is a simple measure of trend, but one that historically has preceded further weakness in the USD.

The “death cross” comes at a time when some fundamental forces seem to be suggesting a more durable downtrend in the USD is possible, as opposed to just a short-term reversal in trend. For example:

  • The US budget deficit as a percent of GDP may reach a new record in 2020 at 15-17%. The budget deficit as a percent of GDP is highly correlated with the level of the USD in that wider budget deficits are associated with a weaker currency.

  • The Federal Reserve has clearly signaled that it does not intend to raise rates until 2023 at the earliest, as the “dot plot” of individual Fed governors’ projections suggests. More Fed ease may also be on the way in the form of forward guidance, yield curve control, an inflation symmetry target, and/or a more permanent quantitative easing program. All else equal, these items support the case for a weaker currency.

  • The question is weak against what? In our view the euro is one contender. As the 4th chart below shows, the interest rate differential between the Fed Funds rate and the ECB deposit rate is no longer supportive of the USD since that differential has moved from 2.75% to just 0.75% in a matter of a few months’ time.

  • Furthermore, the Fed (so far) appears is creating more money than the ECB in its response to the COVID crisis. That is, the money supply in the US is growing faster than the money supply in Europe. This dynamic is supportive of a stronger euro vs the USD (see chart 5 below).

  • Finally, the unemployment rate in the US is quickly moving to parity with the Eurozone (see chart 6 below). In the past, as the unemployment rate differential between Europe and the US has closed, the euro has strengthened vs the USD.

Given the above, the likelihood of a weaker USD, against the euro and other currencies, seems more probable than in years past. This too is before even considering the implications of a more solidified political union within Europe. As such, examining the asset allocation implications of a weaker USD makes sense at this point, even if the trend is not fully entrenched yet.

In the charts below, we highlight 10 major implications of a weaker USD scenario. In each chart, we plot the DXY index in blue on the right, inverted axis. In this way, when the blue line goes up, it represents a weaker USD. We then plot the relative asset comparison in red on the left axis.

There are several takeaways that are most important from this exercise:

  • Technology, which has been THE leadership group over recent years, is highly unlikely to continue to lead if the USD weakens on a secular basis

  • Areas of the equity market where investors are most underweight (value, international, smaller companies, EM) tended to do the best in a falling USD environment

  • Hard assets outperformed stocks in falling USD periods

  • Credit outperformed stocks in falling USD periods

Therefore, to the extent a falling USD becomes a reality, investors may need to pay attention to and re-familiarize themselves with those areas of the capital markets that have been out of favor (both nominally and relative to US large cap stocks) for the better part of a decade.

10 Implications of a Weak USD Scenario

1) Cyclical over defensive stocks. 

A weaker USD is often associated with rising inflation expectations and faster nominal GDP growth. Companies with high levels of operating leverage (i.e. those companies that are able to raise revenues without raising costs as fast) experience expanding profit margins when either nominal economic growth rises or they can pass along higher input costs to end customers. The materials sector is the epitome of this and the industrials sector is not far behind. At the opposite end of the spectrum are utilities and technology, which have much lower levels of operating leverage in general – the utes because of lack of pricing power and the tech stocks because of lower levels of fixed assets. One exception to this generality is the relationship between the consumer staples sector (a traditional defensive space) and the consumer discretionary sector (a more cyclical area). Staples companies tend to have more pricing power and thus greater operating leverage than do discretionary companies in a period of a falling USD/rising inflation expectations, since the products they sell are less substitutable.

2) Value over growth stocks.

An extension of item #1 is the generalized outperformance of value vs growth in falling USD periods, and for many of the same reasons. One caveat to this however, is the financials sector, which is typically associated with “value”. In previous periods of significant USD weakness, financials have done quite well on a relative basis in part because the yield curve tends to steepen (i.e. the long end rises faster than the short end as inflationary outcomes are discounted). Steeper yield curves are good for bank profits since they borrow short and lend long. However, in a world of financial repression and yield curve controls, the yield curve may be highly unlikely to steepen much at all, thus rendering bank profitability semi-permanently impaired in aggregate. Japanese and European banks are the case studies for this.

3) Small over large stocks. 

The small cap indexes tend to be more “value” oriented simply due to compositional differences compared to the S&P 500. Smaller stocks are also more cyclical than large stocks and often have significant built-in operating leverage. In a weak USD environment, we believe it makes sense to move down the cap scale, whether that be increasing one’s allocation to small cap indexes or substituting capitalization weighted exposure for equal weighted exposure. One benefit of the latter is that it may actually improve a portfolio’s risk profile insofar as exposure to a very few number of enormous capitalization stocks is mitigated.

4) Foreign over US stocks. 

Foreign stocks, due to compositional differences from US large cap stocks, benefit from similar dynamics described above. They also benefit from the currency appreciation component of a falling USD/rising local currency.

5) Emerging markets over foreign developed stocks. 

Many emerging market economies are setup in a pro-cyclical way, which is the opposite of the US economy. This is because inflation tends to be higher among EM countries, they oftentimes have large balance of payments deficits (meaning they need to import capital from abroad), the debt they assume is often denominated in USD or another currency they can neither print or earn revenues in, and they often produce commodities. Below I outline a typical pro-cyclical sequence of events for an emerging market country, which should highlight why these stocks could do well in falling USD periods.

  1. Local currency rises

  2. Foreign denominated debt becomes easier to repay, increasing corporate and sovereign cash flows

  3. Imported inflation goes down from the rising local currency, which raises corporate and household cash flows

  4. Commodity prices in USD terms rise, raising corporate cash flows in local currency terms

  5. The central bank is able to cut interest rates due to lower inflation

  6. Growth accelerates because of central bank rate cuts

  7. Growth accelerates because of increased investment from the newly created excess domestic savings

  8. The better debt and growth profile causes the local currency to appreciate even further, attracting investment from abroad

  9. Rinse and repeat

EM not only outperformed US stocks in falling USD periods, but also foreign developed stocks too.

6) Within EMs, favor the countries that are the most pro-cyclical 

(i.e. those with typically higher inflation and balance of payments deficits) tended to do best in falling USD periods.

7) Precious metals & real assets over stocks. 

Little explanation needed in terms of the precious metals complex or TIPS. However, it’s important not to lump all commodities together. For example, soft commodities have largely underperformed US large stocks (and just gone down in general) regardless of the direction of the USD.

8) Copper over gold. 

Copper has tended to outperform gold in periods of USD weakness, perhaps because copper benefits from both rising inflation and real growth.

9) Credit over stocks. 

To the extent that higher corporate revenues from inflation pass-through makes debt servicing easier, credit benefited from USD weakness.

10) High yield credit over investment grade credit. 

Among credits, the most accurately indebted companies have fared the best in periods of USD weakness.

 

 

 

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Chinese Ambassador Struggles To Explain Shocking Footage Of Handcuffed & Blindfolded Uighurs Loaded Onto Train

Chinese Ambassador Struggles To Explain Shocking Footage Of Handcuffed & Blindfolded Uighurs Loaded Onto Train

Tyler Durden

Sun, 07/19/2020 – 14:00

During a Sunday morning BBC news program, China’s ambassador to the UK Liu Xiaoming was in a rare segment asked point blank about viral footage which purports to show a terrifying scene from Xinjiang province of Muslim minority Uighurs being handcuffed and loaded onto train cars

While the footage, which appears to have been secretly caught via drone, appears to be a year old or more, it resurfaced in recent weeks, gaining millions of views and reigniting allegations of Uighur people being mass shipped to communist ‘reeducation’ camps and sprawling detention centers

During the tenses Andrew Marr Show segment, Liu described Xinjiang simply as “the most beautiful place.”

Showing the shocking footage which many observers said echoes Jews being mass loaded onto cattle cars during the Holocaust to be taken to their deaths, Marr pressed the Chinese ambassador with:

“Can I ask you why people are kneeling, blindfolded and shaven, and being led to trains in modern China? What is going on there?” 

To which Liu replied: “I do not know where you get this video tape. Sometimes you have a transfer of prisoners, in any country.” And Liu then questioned the authenticity and location of the video: “I do not know, where did you get this video clip?” 

Marr then said Western intelligence agencies and Australian experts have backed or ‘verified’ the clip, though this remains uncertain, to which the ambassador said tersely:

“The so-called ‘western intelligence’ keep making false accusations against China.”

He added: “They say ’one million Uighur has been persecuted, do you know how many population Xinjiang has? Forty years ago it was four or five million, now it is 11m people.”

And addressing widespread, persistent accusations of ongoing ethno-religious cleansing of Chinese Muslims in the provice, Liu said: “People say we have ethnic cleansing, but the population has doubled in forty years.” 

Marr promptly rebutted: “According to your own local government statistics, the population growth in Uighur jurisdictions in that area has fallen by 84% between 2015 and 2018.” Liu responded: “That’s not right. I gave you the official figure as a Chinese ambassador. This is a very authoritative figure. 

The two also sparred over sanctions. “If the UK goes that far to impose sanctions on any individuals in China, China will certainly make a resolute response to it,” the Chinese ambassador said. “You have seen what happened between China (and) the United States. They sanctioned Chinese officials, we sanctioned their senators, their officials. I do not want to see this tit-for-tat between China-US happen in China-UK relations,” he added.

And then this biting line: 

“I think the UK should have its own independent foreign policy rather than dance to the tune of the Americans like what happened to Huawei.”

The degree to which this video is or can be verified by US intelligence will be interesting. It could be invoked when potential further human rights related sanctions are rolled out, given the escalating tit-for-tat between Beijing and the Trump administration.

via ZeroHedge News https://ift.tt/2Bi80Jw Tyler Durden

Paper Assets And Promises Often End In Default

Paper Assets And Promises Often End In Default

Tyler Durden

Sun, 07/19/2020 – 13:30

Authored by Bruce Wilds via Advancing Time blog,

During times of financial disruptions defaults rise in importance and move front and center. The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value, a default falls into this area. In the last decade, debt has soared across the globe. With this in mind, you never want to be caught on the wrong side of a debt default. That is the place where you don’t get paid or are paid with a less valuable currency that has seen its value eroded by inflation. A debt default can take many forms but what they have in common is they all can be considered as reneging on financial obligations. Generally, we make a distinction between public and private debt but even that may become blurred when a government in need of funds has to seize or take over assets or institutions.

Relationship Of Tangibles To Intangibles

An area of great concern should be the growth in non-recourse loans, this includes unsecured personal loans. The fact these are particularly dangerous has not discouraged many investors from becoming seduced into thinking the yield justified rolling the dice and putting at least some money at risk. The chart to the right shows how intangible assets have grown, be cautious if you are owed money, that falls into the area of an intangible asset. The problem is that lenders will find little help in recovering their money from an expensive legal system that has become overwhelmed by the complexity of modern life.

An example of this is explored in a recent article by Mish Shedlock reported how changes in the bankruptcy laws have made it easier for small companies to now file and sidestep their debt obligations. Thanks to the Small Business Reorganization Act of 2019 (SBRA), as of February 19, 2020, new rules make it easier for small businesses to file for chapter 11 and to simply walk away from obligations. The law is the most significant change to the bankruptcy code since 2005 and bodes poorly for those thinking a contract is still a binding agreement.

SBRA Highlights

  • Applies to businesses with $2.7 million in liabilities, raised to $7.5 million under coronavirus stimulus

  • Owners continue operating their business while in court

  • Owners can retain equity after exiting bankruptcy

  • Owners can modify residential mortgages if a home was collateral for a business loan

  • Faster turnaround to save time and minimize legal fees

  • Owners generally have three to five years to repay creditors

  • Creditors can be paid based on a business’s projected income

Legislation that allows easy bankruptcy protection is a gift for anyone wanting to plot a course forward by exploiting those stupid enough to loan them money. This includes landlords and suppliers willing to extend them credit during hard times. To be clear, a default results in a transfer of wealth. This is not always clear in that the party to which the wealth is transferred may have already squandered it, this means it only reduces his financial obligations. Making it easy for someone to run up obligations and not meeting them undercuts the idea we as a society must take responsibility for our actions.

It is also important to make a distinction between public and private debt. Many investors have become seduced into thinking the backing of government adds tremendous validity to both the explicit and implied warranty that come with government-backed instruments. History, however, has shown public debt can also be mishandled, in several ways. One example from the past was how Henry VIII, in addition to engaging in an epic debasement of the currency, seized all the catholic church’s vast landholdings. While not strictly a bond default, actions such as these accompanied by imprisonment or even executions can still be considered as reneging on financial obligations. It is difficult to argue this doesn’t constitute some kind of default.

Inflating away debt is another form of defaulting on debt. We should consider the possibility that inflation has been kept in check primarily because we as a society have invested a large percentage of our wealth into intangible products or goods such as stocks, bonds, and even currencies.  If faith drops in intangible “promises” and wealth shifts into tangible goods seeking safety inflation would soar. This would drive interest rates upward and result in massive losses for bondholders. To give you a sense of what this may mean to U.S. Treasury Bond investors a 10-year treasury bond issued at a 2.82% interest rate could see a 42% loss in value from a mere 3% rise in interest rates. This means if you’d held $100,000 in these bonds before rates rise, you would only be able to sell those bonds for $58,000 in the secondary market. Please note the $58,000 you get back would also be affected by a loss of purchasing value lost from inflation.

A debt default that results from the collapse or failure of an institution, financial mechanism, or even a financial instrument and can result in a rapid shift in the value of assets. This has been witnessed time and time again as a stock suddenly becomes worthless. The word “collapse” has a way of conjuring up the image of something falling or crashing in but it is important to note subtle details of the way this occurs can have a great effect on the damage it creates. Many of the economic crises we encounter in our complex modern world have the potential to spread from one institution to another creating contagion and resulting in a destructive domino effect. The massive derivatives market that is touted as one of our modern financial tools is often sighted as having the potential to wreak havoc in this way.

Defaults often fuel the collapse of what some people label as Ponzi-type schemes, underfunded pension funds can be considered in this category. Pensions and promises will be broken so get ready for more pain. This is especially true in the public sector where the 25 largest U.S. public pensions face about $2 trillion in unfunded liabilities. One reader on another site compared pensions to a Ponzi scheme where benefits are paid out to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. I fear the future will prove him mostly right. The financial stress caused by defaults is often the final straw that brings collapse and causes things to cave in upon themselves.

This Chart Is From Before Recent Problems!

One thing is clear, we are only beginning to see the tip of the iceberg when it comes to this growing problem and just how many pensions are severely underfunded. This is a problem that exists all over the world. Remember the PBGC, America’s safety net for failed pensions has far less in the way of total assets than liabilities. A message from the head of the PBGC in the 2019 annual report states, “The Corporation is in a difficult financial position today.” He goes on to say, “Without reforms, our Multi-employer Insurance Program – the backstop that is the last resort for retirees when a plan fails is very likely to become insolvent in 2025, leaving participants and beneficiaries with significantly less than the level of benefits guaranteed by the PBGC.”

A “bank bail-in” is another way to disguise a massive default and it can happen here in America. An example of just how delusional we have become as to the fragility of our financial system is that many people have taken comfort in the efforts to control the banking sector through legislation following the 2008 crisis. The Dodd-Frank Act of over 2,300 pages allows this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debt holders, and other unsecured creditors including depositors.

Many who have read my blog have indicated to me they strongly feel a major financial reset will take place in the future. Those invested in bonds should not underestimate the power of inflation to strip them of their wealth. Never before do I remember seeing so many predictions of interest rates remaining low forever and a day. We should have a problem lending hard-earned money out for lengthy periods and we should be wary. Rates are based on predictions of future government deficits and events around the world that may or may not unfold as expected. Part of a conundrum we face is that far more freshly printed money has flowed into the system than new tangible assets created to back it.

An issue that merits far more attention than it gets is the massive role our government plays in the economy. I contend that in the case of a financial crisis brought on by a large number of defaults it will act as a net under the economy making painful deflation unlikely. This means, in the end, those in power and control of the financial system are more likely to engineer an inflationary exit from this mountain of debt. As stated earlier, paying back debt with something of lower value is another way the system masks a default.

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“Zero Logs” VPN Company Exposes Millions Of User Logs

“Zero Logs” VPN Company Exposes Millions Of User Logs

Tyler Durden

Sun, 07/19/2020 – 13:00

A Hong Kong-based UFO VPN – which claims a ‘zero logs’ policy, maintained a database without any password, exposing over 20 million user logs per day which consisted of 894 GB of data.

The logs reportedly included passwords, IP addresses, geographical location, connection timestamps, session tokens, device information and the OS used.

This is in stark contrast to UFO VPN’s stated privacy policy that “We do not track user activities outside of our Site, nor do we track the website browsing or connection activities of users who are using our Services.”

The exposure, discovered by Comparitech security‘s Bob Diachenko, was discovered after search engine Shodan.io indexed the server hosting the data. Diachenko discovered the exposed data four days later and notified UFO VPN. Two weeks later, he notified the hosting provider, and the next day – more than two weeks after UFO VPN was notified, the database was secured.

If bad actors managed to get their hands on the data before it was secured, it could pose several risks to UFO VPN users.

The plain-text passwords are the most clear and direct threat. Hackers could not only use them to hijack UFO VPN accounts, but might also be able to carry out credential stuffing attacks on other accounts. If the same password is used across multiple accounts, they could all be compromised.

IP addresses could be used to discern users’ whereabouts and corroborate their online activity. VPNs are often used to hide users’ real locations and online activity.

The session secrets and tokens could be used to decrypt session data that an attacker might have captured. For example, if an attacker intercepted encrypted data being sent through the VPN on a compromised wi-fi network, they could conceivably decrypt that data with this information.

Email addresses could be used to target users with tailored phishing messages and scams. –Comparitech

The company told Comparitech in an email: “Due to personnel changes caused by COVID-19, we’ve not found bugs in server firewall rules immediately, which will lead to the potential risk of being hacked. And now it has been fixed,” adding “We don’t collect any information for registering.”

“In this server, all the collected information is anonymous and only be used for analyzing the user’s network performance & problems to improve service quality. So far, no information has been leaked.”

Comparitech disagrees, and believes that the exposed data was not anonymous.

UFO VPN says it has 20 million users, and claims to offer “bank grade protection” in addition to their “zero log” policy. It’s focus is unblocking content such as region-locked streaming service Netflix, as well as blocked apps and websites.

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“They’re Liars” – NYC’s ‘Black Lives Matter’ Mural Defaced For 3rd Time In Under A Week

“They’re Liars” – NYC’s ‘Black Lives Matter’ Mural Defaced For 3rd Time In Under A Week

Tyler Durden

Sun, 07/19/2020 – 12:30

Authored by Zachary Stieber via The Epoch Times,

Two black women were arrested Saturday for defacing New York City’s “Black Lives Matter” mural, which sits just outside Trump Tower in the borough of Manhattan.

It’s the third time the painted words were defaced in under a week.

Video footage showed the women dumping black paint on the yellow words before one got down on her hands and knees and spread the paint around with her hands.

“They do it for black people, right? Black lives matter. Black lives matter, but you want to defund the police for black people – you’re lying. No, we’re not standing for Black Lives Matter. We want our police. Refund our police,” the woman said as she dumped paint on the mural.

“Ya’ll don’t care about black lives,” she added later.

A New York Police Department (NYPD) detective told The Epoch Times that the situation took place at approximately 3 p.m.

A “Black Lives Matter” mural that was painted on 5th Avenue in New York City, on July 13, 2020. (David Dee Delgado/Getty Images)

“Police observed a 39-year-old and 29-year-old females pouring black paint on the BLM painting on the roadway,” the spokeswoman said in an email.

“The individuals were taken into custody and charged with criminal mischief.”

The women were identified as Staten Island residents Edmee Chavannes, 39, and Bevelyn Beatty, 29.

Both women wore shirts that said “Jesus Matters.”

As police officers tried arresting the women, one of the officers slipped on the paint and hit his head on the pavement. The NYPD declined to give details on his condition.

At least five officers were on the scene.

An NYPD officer falls during an attempt to detain a protester pouring black paint on the Black Lives Matter mural outside of Trump Tower on Fifth Avenue in the Manhattan borough of New York on July 18, 2020. (Yuki Iwamura/(AP Photo)

Three people were arrested Friday for dumping blue paint on the mural.

Those vandals were named as Juliet Germanotta, 39, Luis Martinez, 44, and D’Anna Morgan, 25. They were also charged with criminal mischief before being released.

A man who has yet to be arrested dumped red paint on the mural on July 13.

The mural was painted onto the city street on July 9 on orders from New York City Mayor Bill de Blasio. The Democrat participated in the painting, along with his wife, Chirlane McCray.

“When we say, ‘Black Lives Matter’, there is no more American statement, there is no more patriotic statement, because there is no America without black America,” he said at the time.

Critics say the city should be focused on concretely improving the lives of minorities.

The “refund the police” remark by one of the women arrested Saturday was referring to the Black Lives Matter movement’s efforts to defund the police.

Lawmakers in the city recently slashed $1 billion from the NYPD’s budget.

via ZeroHedge News https://ift.tt/3fPBkWU Tyler Durden

Blast Hits Power Plant In Central Iran Sunday As Mainstream Media Admits ‘It’s Likely Israel’

Blast Hits Power Plant In Central Iran Sunday As Mainstream Media Admits ‘It’s Likely Israel’

Tyler Durden

Sun, 07/19/2020 – 12:00

Yet another strange and unexplained explosion has rocked central Iran on Sunday, reports state-owned Islamic Republic News Agency (IRNA).

Citing no injuries during the large explosion, it occurred at a power station in the city of Islamabad, which is in the central province of Isfahan. 

At this point, the spate of ‘mystery’ blasts and fires which has damaged key military, nuclear, and industrial sites across Iran – especially in and around Tehran – is approaching a dozen in only the past month.

A separate, prior explosion in Iran over the weekend.

Like with many of the prior incidents, many of which were deadly, Iranian officials downplayed that it was potentially Israeli or US-backed sabotage on its facilities, saying it was likely caused by the erosion of a transformer.

Separately on Sunday, cellophane factory in northwest Iran erupted in fire. Video and images showed a huge cloud of smoke billowing from the site through the day as firefighters struggled to put it out.

Iran’s civil defense organization chief, Ghulam Reza Jalali, was cited in state media as saying Iran is not ruling out sabotage on the power plant either by internal opposition groups or externally supported entities.

To review, all of this comes after earlier this month an advanced centrifuge assembly plant at Iran’s Natanz nuclear site was destroyed in a mysterious fire which is increasingly being blamed on Israeli or US intelligence:

A former official suggested the blaze could have been an attempt to sabotage work at the plant, which has been involved in activities that breach an international nuclear deal.

On 26 June, an explosion occurred east of Tehran near the Parchin military and weapons development base that the authorities said was caused by a leak in a gas storage facility in an area outside the base.

Other recent incidents reported by Iranian news agencies include a fire at industrial complex where gas condensate storage tanks are sited, one at a petrochemical factory and an explosion in Tehran, the capital, which killed two people.

Mainstream media is also increasingly laying blame on an Israeli Mossad sabotage campaign, especially prior to the US presidential election, given concern that if Joe Biden takes the White House, Israel will be pressured to stop such sabotage campaigns possibly leading to war.

“Israel has long targeted nuclear programs in the Middle East in secret, open, and openly secret ways,” writes Vox. “Simply put, officials in Jerusalem worry Iran could more credibly threaten Israel’s existence if it had a nuclear weapon,” the report adds.

via ZeroHedge News https://ift.tt/2CrGRnV Tyler Durden

Stocks Struggle As The Bull Market In Virus Cases Rises

Stocks Struggle As The Bull Market In Virus Cases Rises

Tyler Durden

Sun, 07/19/2020 – 11:30

Authored by Lance Roberts via RealInvestmentAdvice.com,

Technically Trapped

Last week, we discussed why we were taking profits in positions that had gotten egregiously overbought for the second time this year. To wit:

“For the second time in a single year, we have begun the profit-taking process within our most profitable names. Apple, Microsoft, Netflix, Amazon, Costco, PG, and in Communications and Technology ETFs.”

That turned out to be timely as technology shares struggled to maintain their altitude. The tight “wedge” pattern that has developed suggests a downside break could quickly lead to a test of the 50-dma. Such would equate to about a 7% decline. 

Furthermore, the S&P 500 continues to remain “technically trapped” between the June highs and the recent consolidation lows. With the market overbought on a short-term basis, the upside has remained limited. However, there is substantial support between the current uptrend line and the 50- and 200-dma’s, limiting downside risk at this juncture.

We will update our risk/reward ranges below. However, as noted previously, July held to its historical performance tendencies. However, the risk comes in August and September, where outcomes tend to be more volatile.

“In the short-term, the bulls remain in charge currently, and as such, we must be mindful of those trends. Also, the month of July tends to be one of the better performing months of the year.”

The Bull Market In Virus Cases

August and September’s seasonal tendencies will also be impacted by the ongoing “bull market” in “virus” cases. Our colleague Jeffrey Marcus noted a critical point for our RIAPro subscribers (30-day Risk-Free Trial)

“The question for clients is this: ‘Is the pattern of the past 5-days a broadening of the rally since
March 23rd lows, or are investors moving too far out on the risk curve?’ Experian’s 4 possible Covid-19 economic scenarios may provide an answer. The worst scenario was a W-shaped.”

“There were 72,045 new cases of Covid-19 in the U.S. The second worst daily number to date (chart below). Although the market seems to have ignored the worsening numbers so far, the V-shaped scenario seems a long-shot at this juncture.

Can the U.S economy somehow rebound with ever-increasing cases of Covid-19? The market action over the past 5-days seems to depend on the belief of recovery, and the hope cheap valuations will buffer against tough financial conditions. Clients should own stocks of companies that can prosper during a pandemic ridden economy. Such is as opposed to just ‘hoping’ stocks with rocky roads ahead will continue to rally.”

It is unlikely that a “bull market” in the number of new virus cases can co-exist with a bull market in stocks for long.

Economic Expectations Slow

The most significant risk to the current bull market in stocks comes in two specific headwinds – Congress and the Fed. At the end of the month, the additional $600/week in jobless benefits will expire. Such is no small matter, as noted by CNBC:

  • 25.6 million individuals will lose the additional benefit on July 25th.

  • $15.4 billion in additional weekly economic benefit nationwide up from states spending less than $1 billion pre-pandemic.

These payments have been a big part of the boost to retail sales over the last couple of months. Retail sales comprise roughly 40% of Personal Consumption Expenditures, which equates to about 70% of the GDP calculation. In other words, it is not a trivial matter.

While it seems like a “no-brainer,” that Congress should extend the benefits, there are some issues which could get in the way:

  1. Political football (R) – Republicans intend to end the enhancement to jobless benefits as they view it as a disincentive for people to return to work. 

  2. Political football (D) – Democrats realize an election is soon. If the economy is doing well due to the benefits, the odds increase for a re-election of the incumbent.

  3. Debt Ceiling Debate – With the debt-ceiling, the debate on the next “continuing resolution” will become problematic. For conservative Republicans up for re-election, unbridled spending is going to become problematic.

Even with the current support in place, the initial rebound of economic activity off the lows has begun to slow and stabilize at a level lower than pre-pandemic.

Such should NOT be a surprise with 36.4 million workers either on, or waiting for, unemployment benefits.

Federal Contraction

The other headwind for the market comes from the very thing that boosted asset prices to start with – the Fed’s balance sheet expansion. Over the last couple of months, the slowing rate of advance for the market has coincided with a reduction in the Fed’s “emergency measures.”

As noted previously, the limit to the Fed’s QE program is the Government’s Treasury issuance. An improving economy increased tax revenues, and improved outlooks began limiting the Fed’s ability to engage in more extensive monetary interventions.

Jerome Powell noted the Fed has to be careful not to “run through the corporate bond market.” The Fed is aware if they absorb too much of the Treasury or Corporate credit markets, they will distort pricing and create a negative incentive to lend. Such impairment would run counter to the very outcome they are trying to achieve.

As noted last week, there is already a “diminishing rate of return” on QE programs. 

“Instead, as each year passed, more monetary policy was required just to sustain economic growth. Whenever the Fed tightened policy, economic growth weakened, and financial markets declined. The table shows it takes increasingly larger amounts of QE to create an equivalent increase in asset prices.”

“As with everything, there is a “diminishing rate of return” on QE over time. Since QE requires more debt to be issued, the consequence is slower economic growth over time.

Who Ya Gonna Believe

My friend Doug Kass also made a salient comment regarding the economic risk in front of us.

“Some fundamental investors (like myself) are looking closely at the flattening high-frequency economic data, and the rising chorus of company executives flagging economic and market uncertainties over the last few days.

Specifically, the management of Citigroup, Wells Fargo, JPMorgan, and Goldman Sachs all echoed the same mantra. They are surprised by how optimistic the economic and business forecasts have grown, and the enthusiastic embrace of the capital markets.

These wise managers of businesses have their feet on the ground and virtually dismiss a “V” type recovery that many have endorsed. To paraphrase, they all see many possible outcomes (many of which are adverse and not market-friendly).

Look to the ground, not to the sky – believe them (bank CEOs) and not the markets’ seductive lying eyes.”

As noted above, the data does confirm those views. More importantly, there is another issue that derives from a weaker economic outlook.

Stocks Are About To Get A Lot More Expensive

As Eric Parnell recently wrote:

“The current forward price-to-earnings ratio on the S&P 500 based on 2020 earnings is 35.6 times earnings. The historical average forward price-to-earnings ratio on the S&P 500 dating back a century and a half is 15.6 times. Thus, today’s valuation is more than +125% greater than the historical average.

The forward P/E ratio on the S&P 500 has been higher than 35.6 only two other times in history. Both are recent episodes. The first was from 2001-Q1 to 2002-Q2 during the bursting of the technology bubble. The second was from 2008-Q2 to 2009-Q1 during the Great Financial Crisis.

During both of these past episodes, the P/E ratio moved in excess of 35 times forward earnings, because while the S&P 500 price was falling (the “P” in the P/E ratio), the earnings were falling much faster (the “E” in the P/E ratio). In contrast, the P/E ratio has moved in excess of 35 times forward earnings today because the S&P 500 price is rising even though earnings are falling considerably.”

More To Go

That is correct, and the issue currently is that expectations for earnings are still far too high through the end of 2020, and into 2021. As I discussed previously:

“Currently, estimates have only been reduced by 34% of their previous peak. Such comes at a time where economic growth is weaker, job loss is higher, and consumption will drop lower than any previous point except during the ‘Great Depression.’”

“We are watching the chart closely as we expect that earnings will eventually drop closer to $60/share to align with historical norms. As such, stock prices will have to correct to align with those earnings.”

(Note: Since that writing, trough estimates have declined to $91.79. The current bear market P/E is currently 35.13x.)

However, even those estimates are likely optimistic, given the data that is coming in. We would not be surprised to see a negative sign in front Q2-GAAP earnings before it is over. 

At the moment, such “fundamental relics” like earnings may not seem to matter. Such has always seemed to be the case, just before they begin to matter, and matter a lot.

Updating Risk/Reward Ranges

As noted last week:

“The [advice to reduce risk] played out well this past week, given daily swings in the market. While the market was up for the week, it has not reclaimed the June highs. As such, the consolidation continues with risk/reward remaining primarily ‘neutral’ with a ‘negative’ bias.”

That advice remains this week. After several failed tests of the June highs this week, we derisked our portfolios and added to our hedges. Even with those adjustments, our portfolios continued to perform as the rotation to “risk-off” sectors kept markets stable. The reason for the derisking is the negative tilt to the risk/reward ranges currently. 

  • -4.3% to initial March reflex rally top vs. +2.1% all-time highs.* (Negative)

  • -5.4% to 50-dma support vs. +2.1% to all-time highs.* (Negative)

  • -7.2% to 200-dma support vs. +2.1% to all-time highs.* (Negative)

  • -9.6% to -15.8% to previous consolidation vs. +2.1% to all-time highs.* (Negative)

(* If the market breaks out to all-time this analysis is no longer valid and risk/reward ranges will recalibrate for the breakout.)

The Risk Of Confirmation Bias

I have written many times previously about the dangers of getting trapped into a “bullish” or “bearish” mindset. As an investor or portfolio manager, your job is to view the markets for opportunities to increase capital and protect it from loss.

As Doug noted this week:

“There are many who see the markets as “Them versus Us.” The bulls vs. the bears, the fundamentalists vs. the technicians, and so on. I view the investment marketplace as me vs. the markets, and not me vs. opposing views.

The most significant risk to any investor long-term is getting trapped in “confirmation bias.” Such is the psychological impediment of seeking out information that confirms your existing predisposition. However, such inherently leads to adverse outcomes as investors become blind to the risk that inherently upends their future outcome. 

In the end, it does not matter IF you are “bullish” or “bearish.” The reality is that the “broken clock” syndrome owns both “bulls” and “bears” during the full-market cycle. However, grossly important in achieving long-term investment success is not necessarily being “right” during the first half of the cycle, but by not being “wrong” during the second half.

via ZeroHedge News https://ift.tt/2WAib3D Tyler Durden