Category: zerohedge

Authored by Michael Snyder via TheMostImportantNews.com,

Over the past several months, there has been a tremendous amount of debate about almost every aspect of the COVID-19 pandemic.  People have been eager to debate about the severity of the virus, they have been eager to debate about the wisdom of the lockdowns, and they have been eager to debate about the effectiveness of wearing masks.  But the one thing that everyone could pretty much agree on is that eventually this pandemic would end.  Virtually all of us assumed that one way or another eventually most of the population would develop COVID-19 antibodies and that once we got to that point the pandemic would fizzle out.  Unfortunately, it appears that was not a safe assumption to make.

Yes, those that have had COVID-19 do develop antibodies.

But two new scientific studies have discovered that those antibodies start to fade very, very quickly.

For example, a study that was recently conducted in China found that more than 90 percent of COVID-19 patients experience steep declines in COVID-19 antibodies “within 2 to 3 months”…

A new study from China showed that antibodies faded quickly in both asymptomatic and symptomatic COVID-19 patients during convalescence, raising questions about whether the illness leads to any lasting immunity to the virus afterward.

The study, which focused on 37 asymptomatic and 37 symptomatic patients, showed that more than 90% of both groups showed steep declines in levels of SARS-COV-2–specific immunoglobulin G (IgG) antibodies within 2 to 3 months after onset of infection, according to a report published yesterday in Nature Medicine. Further, 40% of the asymptomatic group tested negative for IgG antibodies 8 weeks after they were released from isolation.

And a very large study that was just conducted in Spain found that some patients that had initially successfully developed antibodies “no longer had antibodies weeks later”…

A large study from Spain showed that antibodies can disappear weeks after people have tested positive, causing some to question how possible it will be to attain herd immunity.

A study published in medical journal Lancet showed 14% of people who tested positive for antibodies no longer had antibodies weeks later.

Needless to say, this is absolutely devastating news, and it has very serious implications for vaccine development…

Such findings have implications for vaccine development, since the efficacy of a vaccine hinges on the idea that a dose of weakened or dead virus can prompt your body to generate antibodies that protect you from future infection. If those antibodies are fleeting, a vaccine’s protection would be fleeting too.

Short-lived antibodies also diminish hopes of achieving widespread or permanent herd immunity.

If antibodies can fade in some patients within weeks, and if just about everyone loses them after a few months, that would render any vaccine almost completely useless.

And if these findings are confirmed, we can pretty much forget about ever achieving “herd immunity”.

Instead, we are potentially facing a future in which COVID-19 will be with us permanently, and people will need to understand that there is a possibility that they will be able to get infected repeatedly.

Sadly, there is evidence that this is already starting to happen for some patients.  In a recent article for Vox, a doctor in Washington D.C. named D. Clay Ackerly shared that one of his patients got infected with COVID-19 again three months after being infected the first time…

“Wait. I can catch Covid twice?” my 50-year-old patient asked in disbelief. It was the beginning of July, and he had just tested positive for SARS-CoV-2, the virus that causes Covid-19, for a second time — three months after a previous infection.

And in that same article, Dr. Ackerly explained that other doctors are starting to see similar cases….

Recent reports and conversations with physician colleagues suggest my patient is not alone. Two patients in New Jersey, for instance, appear to have contracted Covid-19 a second time almost two months after fully recovering from their first infection. Daniel Griffin, a physician and researcher at Columbia in New York, recently described a case of presumed reinfection on the This Week in Virology podcast.

If you stop and really think about what all of this means, it will chill you to the core.

It means that COVID-19 is never going away.

And every time you get it, the more severe it is likely to be.  Each time it will do even more permanent damage to your system until it finally finishes you off.

I seriously wish that what I was telling you was not true.  I do not want to have to worry about a potentially deadly virus every time I leave my house.

But sticking our heads in the sand and pretending that everything is going to be okay somehow is not going to do us any good.

In fact, denial can kill you.

A 37-year-old Ohio man named Richard Rose originally thought that all of the fuss about COVID-19 was just “hype”, and he angrily insisted that he would never buy a mask.  The following is what he posted on Facebook on April 28th…

‘Let make this clear,’ he wrote, in a post that was shared 10,000 times.

‘I’m not buying a ******* mask. I’ve made it this far by not buying into that damn hype.’

Sadly, he eventually got infected, and COVID-19 killed him on July 3rd…

Richard Rose, a 37-year-old man from Port Clinton, Ohio, recently died from coronavirus after slamming “hype” about the pandemic on Facebook.

Rose’s family told Cleveland CBS affiliate 19 News the US Army veteran died at home on July 3, just three days after testing positive for COVID-19.

He was a healthy 37-year-old man.

If the virus can take him down, it could potentially take just about anyone down.

So please take this pandemic seriously.

Over the past week, we have seen daily numbers soar to levels that we have never seen before, and some experts believe that the numbers will continue to go higher as we approach the end of the year.

And as I just discussed above, if those that have had the virus quickly lose immunity, there will be nothing to stop this virus from sweeping across the globe year after year.

Needless to say, a lot more scientific studies need to be conducted, and hopefully those additional studies will show that the studies that were done in China and Spain were completely wrong.

But at this point the outlook for fighting this virus is exceedingly bleak, and scientists assure us that it is just a matter of time before a pandemic that is even worse comes along.

US District Judge Amy Berman Jackson demanded more information concerning President Trump’s decision to commute the prison sentence of Roger Stone – a longtime ally who avoided a 40-months in prison sentence for making false statements to special counsel Robert Mueller’s team during the Russia investigation.

According to AP, Berman Jackson ordered the parties to provide her a copy of Trump’s executive order commuting Stone’s sentence, as well as clarity for the scope of the clemency – including whether Stone’s two-year supervised release is covered by the decision.

To answer Berman Jackson’s question, Trump commuted “the entirety of the two-year term of supervised release with all its conditions.”

The president told reporters on Monday that he was getting “rave reviews” for his action on Stone and restated his position that the Russia investigation “should have never taken place.”

Democrats lambasted Trump’s decision as having undermined the rule of law, and Republican Sen. Mitt Romney of Utah, the only Republican to vote to convict the president during his impeachment trial, called the clemency decision “unprecedented, historic corruption.” Mueller himself defended the Stone prosecution in a Washington Post opinion piece in which he said Stone “remains a convicted felon, and rightly so.”

Although presidents have broad authority to commute prison sentences and issue pardons, the brief order from Jackson — who presided over Stone’s trial last year — made clear that the judge still is seeking information and clarity about the clemency, including the actual executive order from the White House. -AP (via WTOP)

The order was entered into the docket several hours later.

Meanwhile, CNBC reports that President Trump on Monday did not rule out pardoning Michael Flynn, his first national security adviser, depending on how his case goes.

To review, after evidence that the FBI was running a ‘perjury trap’ on Flynn regarding his communications with the former Russian ambassador during the post-election transition, the DOJ asked the court to throw out his conviction.

Judge Emmet Sullivan denied the request, and instead hired a third-party attorney to justify his decision.

After a federal appeals court panel of three judges ruled against Sullivan – ordering him to dismiss the case, Sullivan requested a full panel, ‘en banc’ review.

“As I have said from the inception of my representation, the government has long withheld evidence of Mr. Flynn’s innocence,” said Flynn’s attorney Sidney Powell.

“The FBI and [special counsel’s office] made up this prosecution and coerced his plea by multiple means.  The result for which we have steadfastly and relentlessly worked is his complete exoneration by the Department of Justice and the judicial system.”

Authored by Charles Hugh Smith via OfTwoMinds blog,

You better bow low and pay up, peasant, or your voice in the digital world will disappear just as quickly as your democracy’s control over Big Tech.

Who’s the junior partner in global hegemony, Big Tech or the U.S. government? The question would have been laughable just a few years ago, but now it’s a viable debate when we ask questions like: which one plays a larger role in your daily life, Big Tech platforms or the government? If controlling the flow of data is now the primary means of production, then who owns control of data flows? As we all know, the answer is Big Tech platforms: Google, Facebook, Apple, Microsoft, Amazon, Twitter, Netflix et al.

As Mark, Jesse and I discuss in our latest salon, The Rise and Fall of the Neo-Feudal Network State, these platforms have become defacto sovereign states with global hegemony over surveillance, censorship, data collection and behavioral influence–what Jesse calls network states.

Since the leadership of these private-sector sovereign entities is effectively monarchical, it is also effectively neofeudal: these platforms are private, closed source systems, managed by black-box algorithms hidden from users and regulators. This is the acme of neofeudalism: there is no democratic control at all by users or citizens.

Whether Facebook will ever hit upon a more coherent approach to protecting the free expression of the powerless as well as the powerful depends on whether it ever comes to grip with its own role as the largest censor in the history of the world. (emphasis added by CHS)

“Facebook is governing human expression more than any government does or ever has,” said Susan Benesch, a faculty associate at Harvard University’s Berkman Klein Center for Internet & Society. “They have taken on the task of defining hate speech and other unacceptable speech, which is a quasi-sovereign power… and we the public have no opportunity to contribute to the decision-making, as would be the case if the decisions were being made by a government.”

Indeed, despite company executives’ paying lip service to the concept of democracy from time to time, Facebook is structurally monarchical.

To the University of Virginia media studies professor Siva Vaidhyanathan, campaigners against Facebook need to come to grips with the global nature of its threat.

“The US got off easy in 2016– the same year that Rodrigo Duterte took over the Philippines by riding Facebook to victory, and two years after Narendra Modi took over India by riding Facebook to victory. Much of the world suffers from all of the Facebook maladies much worse than the US.”

Vaidhyanathan argued that solutions to Facebook’s ills cannot be achieved with oversight from above but will require a more fundamental shift from below. “The root of Facebook is the fact that it is a global intrusive surveillance system that leverages all that behavioral data to target both ads and non-ad content at us.”

– Source: ‘Too big to fail’: why even a historic ad boycott won’t change Facebook.

In other words, the lords of Big Tech control the digital means of production, and the peasants and serfs are powerless. That is the perfection of neofeudalism. As Mark and Jesse posit, this has effectively flipped the central states (governments) into the junior partners of the privately owned network state/central state global hegemony.

In response, governments now view the quasi-sovereign Big Tech platforms domiciled in their borders as key allies in the struggle for global hegemony. Hence we are witnessing pushback against Chinese social-media giant TikTok, which as Jesse points out, is indeed a global platform for propaganda just like Facebook, Google, et al.

Recall that propaganda isn’t just what you’re allowed to see, it’s also what you’re not allowed to see and also what’s being promoted on Page One in your feed and what’s been buried on Page 23 (to use an old-media analogy).

Meanwhile, these privately owned quasi-sovereign networks are immensely profitable, as they sell the data they collect to advertisers and marketers, including political campaigns. Apple, Google, Amazon, Facebook etc. wield more political power and influence than traditional political advocacy groups because their cash hoards are so stupendous.

The feedback loop is ominous: as government regulators are throttled or marginalized by political pressure bought by privately owned quasi-sovereign Big Tech platforms, the platforms are in effect protected from any democratic control exerted by the citizenry in their nominal “home nation,” not to mention the citizenry they influence in other nations.

Unlike the old monopolies like Standard Oil, the quasi-sovereign Big Tech platforms are the media, so there’s nothing left to balance their skyrocketing power. As we discuss in the podcast, their control is (in Jesse’s term) molecular, so they’ve effectively dismantled the legacy social-political structures such as working class, middle class, etc.

With mass media replaced by Big Tech’s data-flow / behavioral-control molecular media, political coherence has been lost, and so divide-and conquer control mechanisms are now essentially infinite: any group, no matter how coherent, can be splintered into warring fragments by the Big Tech Neofeudal Nobility.

After all, they have the data and they can use it however they want, with no limits or controls by users, citizens or nominally democratic governments.

How do we change the leadership of our Neofeudal Nobility, the privately owned, quasi-sovereign Big Tech platforms? The short answer is: we don’t. There is no mechanism left for influencing anything in the monarchies of Facebook, Google, Apple, Amazon, etc al.

Meet the new boss, worse than the old boss. You better bow low and pay up, peasant, or your voice in the digital world will disappear just as quickly as your democracy’s control over Big Tech.

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WHO’s Tedros says the global pandemic could get “worse and worse and worse” but big-tech stocks keep going “higher and higher and higher”… until Dallas Fed’s Kaplan pooped in the punchbowl and virus news from California didn’t help…

This was Nasdaq’s worst day since 6/26 and a major 4%-plus reversal intraday

For a brief few minutes, the S&P 500 got back into the green for the year (above 3230.78)…

Source: Bloomberg

But could not hold it…

The early Short-Squeeze evaporated…

Source: Bloomberg

Beware…

AMZN lost $120 billion in market cap today from top to bottom…

And then there’s TSLA which soared out of the gate to almost $1800 before tumbling back to try and cling to unchanged…

Cyclicals were bid early on but ended lower along with Defensives…

Source: Bloomberg

And today saw a massive reversal in MTUM…

And Value soared…

Source: Bloomberg

VIX soared back above 32 – its highest since June…

China continues to power higher despite officials warning “investors” over excess speculation (after they encouraged them to get in). ChiNext – the small-cap, tech-heavy index – is up 22% in July, but the last week has seen the big-tech indices flat as tech takes off…

Source: Bloomberg

Treasury yields ended the day lower (after rising into the cash equity open)…

Source: Bloomberg

But bonds never played along with the early exuberance in stocks…

Source: Bloomberg

The dollar index spiked back into the green as stocks began to dive…

Source: Bloomberg

EM FX tumbled as the selling began (led by BRL and MXN)…

Source: Bloomberg

Cryptos tumbled with the equity weakness…

Source: Bloomberg

Despite the dollar gains, copper and PMs managed to hold gains but oil ended lower…

Source: Bloomberg

Finally, Bloomberg’s Richard Breslow summed up the farcical, fantasy world of dissonance in which we are living rather well today:

“It does seem a tad mean-spirited to see all of this equity green, oodles of stories talking about optimism over global growth, and just not feel all warm and fuzzy. I wonder if it is on purpose or subconscious that for all the upbeat verbiage there is a noticeable dearth of the words “risk-on” in market commentaries. Somehow that strikes me as oddly appropriate.

Probably, a better term for today’s price action would be “Fed-up,” because we should accept the fact that we are here for only one reason. The global economy has certainly bounced off the lows.

But it’s hard to express optimism when it’s taken for granted that it can’t, by any measure, be expected to thrive without continuing life support.“

Nothing else matters…

Source: Bloomberg

We do note, however, since The Fed balance sheet flattened, the market has largely gone sideways as the prediction markets price in a Democrat sweep of White House, Congress, & Senate…

Source: Bloomberg

Via SchiffGold.com,

Gold pushed above $,1800 last week, although it wasn’t able to hold that level through close on Friday. The yellow metal finished the week around $1,799 an ounce.

But on his podcast Friday. Peter Schiff said there was nothing bearish about the yellow metal not holding $1,800 on a weekly basis. In fact, overall, the chart for gold looks fantastic.

There’s really nothing that’s technically significant about $1,800. It’s just a round number that sounds good. And I think psychologically, having gone above it may mean something and there may have been some resistance just below that round number. But if you just look at the gold chart, it still looks fantastic. It continues to make new bull market highs.”

Monday morning, gold was back above $1,800, trading at around $1,810 per ounce. And we’re edging closer and closer to the all-time highs of $1,900.

But ever since the price of gold bottomed out in December of 2015, and now we resumed a bull market, the high that we just made this week is the highest price we’ve traded since making that low in December of 2015.”

Gold has been at record levels in other currencies for months.

That’s important when you consider that gold is a global commodity — global money — that people in every country still compare the purchasing power of their individual currency to the price of gold. And so, people all around the world are watching the price of gold steadily hit record highs measured in their own currency. Or, a better way to look at it is they’re seeing the purchasing power of their own currency hitting all-time record lows measured in the price of gold.”

The same thing is happening to Americans.

We’re seeing our purchasing power decline. Americans can buy less gold with their dollars today than they could a week ago, a month ago, a year ago, two years ago, five years ago, It’s just that it’s not at an all-time record low — yet.”

Peter said that’s coming. There’s no way the dollar is going to be the only currency in the world that’s not hitting record lows in terms of gold.

In fact, I think ultimately we’re going to start losing a whole lot more value than a lot of these other currencies. And that’s because of the amount of money that we are currently printing. You can’t create trillions and trillions of dollars out of thin air, and we’re going to continue to do this until the bottom drops out. And then we’ll probably keep doing it, even beyond that.”

Officials in the Trump administration, especially Steve Mnuchin, are pushing for even more fiscal stimulus. That money will also have to printed.

It’s going to be conjured into existence out of thin air by the Federal Reserve. And you can’t keep conjuring trillions of dollars out of thin air and handing them out without destroying the purchasing power of the dollars that already exist. And that also means that the new dollars will buy less than the old dollars bought before the new dollars were created.”

The only thing propping up the greenback at this point is its status s the reserve currency. But Peter asks the operative question: how long will it maintain that privilege if the US continues to flood the world with dollars?

In this podcast, Peter also talks about the trade relationship between the US and China and products that confiscatory taxation is coming down the pike.

Soaring coronavirus cases? Bullish.

Record number of unemployed? Bullish.

Biden winning the presidential election on November 3, undoing Trump’s tax reform and hiking corporate taxes from 21% to 28%, resulting in a huge hit to corporate aftertax income? After Goldman revealed one month ago that its clients were losing sleep over the possibility of a Democratic sweep in November – one which Goldman calculated would wipe out 20 EPS from the S&P in 2021…

… it took a lengthy refutation from Morgan Stanley to mute Goldman’s skepticism, and to convince investors that a Biden victory would also be Bullish for stocks.

However, since quite a few investors and traders remained skeptical that a Biden victory would allow the current meltup in markets to continue, Morgan Stanley was joined by more banks in its assessment that no matter who wins in November, it will be bullish for stocks.

First, a quick reminder of the Morgan Stanley punchline: this is what the bank’s policy strategist Michael Zezas wrote on June 21: “election outcomes remain uncertain, but we think their influence on current policy choices and future policy paths is supportive of risk assets today.” And this is how we “translated” this statement: “no matter who the president is, they won’t allow stocks to drop.”

Then, last week, it was JPMorgan’s turn to claim that “Biden’s agenda backed by a Democratic Congress is less threatening in its entirety than in some of its headline components.” The bank then tried to goalseek Biden policies as favorable for stocks, saying that “his published program entails a clear hit to corporate profits through higher taxes, but with eventual offsets such as redistribution to lower and middle-income households through a higher minimum wage and broader healthcare coverage, plus a national boost via infrastructure spending.” JPM also predicted that a Biden admin would “guarantee” a less-combative foreign policy “which is bearish for volatility, though the odds of tariff rollback are tougher to handicap. Hence why our US Equity strategists have framed a Democratic sweep elections as potentially neutral-to-positive for markets.”

To be sure, spinning a Biden victory as bullish may not be quite so simple, which is why even JPM felt the need to hedge, saying that “the risk is that markets focus on the tangible negatives (corporate tax hikes) rather than the less tangible positives (foreign policy) in the weeks preceding the election or just following it.”

And now, making a full circle, none other than Goldman also concedes that despite the clear hit to after tax corporate profits as a result of Biden tax hikes, a Biden presidency would also not be all that bad.

First, presenting the bearish case, Goldman;s Tony Pasquariello, head of global HF sales, writes that “the dominant market issue in our view so far has been Vice President Biden’s proposal to reverse half of President Trump’s cut in the corporate income tax rate from 35% to 21%, which we think could become a strong possibility in the event of a Democratic ‘sweep.’  given that such a reversal would translate directly into a hit to after-tax earnings, the implication is that it would flow through to a notable hit to US equity market valuations.” However, as the Goldman partner adds next, “the picture may be more complicated, however” as “there is a good chance that any shift would be fiscally neutral and could also be phased, so the full market impact would depend on what other measures accompanied it… we think more attention should be focused on the international implications, where a Democratic presidency is likely to move away from the aggressive use of trade policy in the current administration and adopt a more favorable view of international institutions and alliances.”

In short, ignore the spike in corporate taxes and focus on the fact that the Deep State is about to take over US foreign politics, returning US policy “back to normal” and assuring that the wealth redistribution mechanism of the pre-Trump days works on all cylinders just as it used to back in the day.

Now that the Fed’s release of POMO is more of a periodic affair than every Friday, moments ago the NY Fed published its latest POMO schedule for both Treasurys and MBS for the next two weeks, covering the period July 14 – July 27.

In line with the recent Fed disclosure that the central bank will purchase about $80 billion in Treasurys monthly, the latest schedule shows an average daily purchase of about $4.5 billion, or $40.2 billion spread over 9 days; for MBS the average daily is nearly identical, at $4.6 billion daily, or $46BN spread over 10 days.

Here is the latest summary of Treasury POMOS. Of note: the biggest POMOs will take place on July 14 and July 24, when the Fed will monetize $12.825BN and $8.825BN worth of US debt.

The Agency MBS can be found at the following link.

The visual summary of all TSY/MBS POMO since the start of QE Unlimited on March 13 is shown below. Since then, a total of $2.82 trillion in TSY and MBS have been purchased by the Fed in the open market.

Authored by Mike Shedlock via MishTalk,

There will be another COVID stimulus package from Congress. But Democrats and Republicans have competing views…

Which View Will Win?

• Democrats want to extend benefits.

• Republicans, led by Trump seek a back-to work bonus.

Fox News comments Here’s what Trump’s back-to-work bonus could look like

Republicans are resisting an extension of the $600 expanded unemployment benefit implemented as part of the CARES Act in March, and the Trump administration has instead pushed a so-called “back-to-work bonus.”

Ohio Republican Sen. Rob Portman has a plan that would provide individuals returning to work with a temporary $450 a week payment on top of their wages for several weeks.

Kudlow called Portman’s plan a “good idea” during an interview with Fox News.

Texas Republican Kevin Brady has proposed turning unemployment benefits into a bonus for returning to work. Specifically, it would give workers two weeks’ worth of $600 payments if they find a job, or $1,200.

Expiring Benefits

The $600 pandemic benefit will expire on July 31 unless Congress agrees to an extension. At the end of June, more than 19 million people received benefits.

At Least for a While, It Pays Better to Be Unemployed

On May 18, I commented At Least for a While, It Pays Better to Be Unemployed

That must end, not slowly, but immediately. Unemployment insurance should never pay more than someone was making before.

Pick a limit, but I suggest something like 60% maximum.

If you make it zero, you immediately throw people off the cliff edge via government-mandated shutdowns.

Trump’s View

Trump wants to cut payroll taxes (FICA etc.) for those who find a job.

The nice thing about Trump’s idea is the that it benefits lower wage employees the most because of the FICA cutoff at $137,700 for 2020.

But what if previously-employed people cannot find a job or simply do not want to?

Two Flawed Approaches

• House Speaker Nancy Pelosi’s approach encourages people not to work.

• Republican approaches punish people who genuinely want a job but cannot find one.

The correct compromise is not to to do both but rather to provide some benefit to those who return to work while tapering benefits for those who don’t to ensure people do not take advantage of free benefits.

As a Libertarian, it pains me to suggest government to do anything. But doing nothing also implies there never would have been any shutdowns, with clearly disastrous consequences. 

In this case, if Government mandates a shutdown, then it has to properly mitigate the consequences. Competing views show that is easier said than done.

Getting the compromise wrong would be a huge disaster.

Update (1500ET): The State Department has confirmed the policy change in a press release attributed to Sec Pompeo. Read the whole statement below:

The United States champions a free and open Indo-Pacific. Today we are strengthening U.S. policy in a vital, contentious part of that region – the South China Sea. We are making clear: Beijing’s claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them.

In the South China Sea, we seek to preserve peace and stability, uphold freedom of the seas in a manner consistent with international law, maintain the unimpeded flow of commerce, and oppose any attempt to use coercion or force to settle disputes. We share these deep and abiding interests with our many allies and partners who have long endorsed a rules-based international order.

These shared interests have come under unprecedented threat from the People’s Republic of China (PRC). Beijing uses intimidation to undermine the sovereign rights of Southeast Asian coastal states in the South China Sea, bully them out of offshore resources, assert unilateral dominion, and replace international law with “might makes right.”

Beijing’s approach has been clear for years. In 2010, then-PRC Foreign Minister Yang Jiechi told his ASEAN counterparts that “China is a big country and other countries are small countries and that is just a fact.” The PRC’s predatory world view has no place in the 21st century.

The PRC has no legal grounds to unilaterally impose its will on the region. Beijing has offered no coherent legal basis for its “Nine-Dashed Line” claim in the South China Sea since formally announcing it in 2009. In a unanimous decision on July 12, 2016, an Arbitral Tribunal constituted under the 1982 Law of the Sea Convention – to which the PRC is a state party – rejected the PRC’s maritime claims as having no basis in international law. The Tribunal sided squarely with the Philippines, which brought the arbitration case, on almost all claims.

As the United States has previously stated, and as specifically provided in the Convention, the Arbitral Tribunal’s decision is final and legally binding on both parties. Today we are aligning the U.S. position on the PRC’s maritime claims in the SCS with the Tribunal’s decision. Specifically:

The PRC cannot lawfully assert a maritime claim – including any Exclusive Economic Zone (EEZ) claims derived from Scarborough Reef and the Spratly Islands – vis-a-vis the Philippines in areas that the Tribunal found to be in the Philippines’ EEZ or on its continental shelf.

Beijing’s harassment of Philippine fisheries and offshore energy development within those areas is unlawful, as are any unilateral PRC actions to exploit those resources. In line with the Tribunal’s legally binding decision, the PRC has no lawful territorial or maritime claim to Mischief Reef or Second Thomas Shoal, both of which fall fully under the Philippines’ sovereign rights and jurisdiction, nor does Beijing have any territorial or maritime claims generated from these features.

As Beijing has failed to put forth a lawful, coherent maritime claim in the South China Sea, the United States rejects any PRC claim to waters beyond a 12-nautical mile territorial sea derived from islands it claims in the Spratly Islands (without prejudice to other states’ sovereignty claims over such islands). As such, the United States rejects any PRC maritime claim in the waters surrounding Vanguard Bank (off Vietnam), Luconia Shoals (off Malaysia), waters in Brunei’s EEZ, and Natuna Besar (off Indonesia). Any PRC action to harass other states’ fishing or hydrocarbon development in these waters – or to carry out such activities unilaterally – is unlawful.

The PRC has no lawful territorial or maritime claim to (or derived from) James Shoal, an entirely submerged feature only 50 nautical miles from Malaysia and some 1,000 nautical miles from China’s coast. James Shoal is often cited in PRC propaganda as the “southernmost territory of China.” International law is clear: An underwater feature like James Shoal cannot be claimed by any state and is incapable of generating maritime zones. James Shoal (roughly 20 meters below the surface) is not and never was PRC territory, nor can Beijing assert any lawful maritime rights from it.

The world will not allow Beijing to treat the South China Sea as its maritime empire. America stands with our Southeast Asian allies and partners in protecting their sovereign rights to offshore resources, consistent with their rights and obligations under international law. We stand with the international community in defense of freedom of the seas and respect for sovereignty and reject any push to impose “might makes right” in the South China Sea or the wider region.

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With the 4th anniversary of a landmark ruling by a UN tribunal fast approaching, the State Department is planning a major policy change that could swiftly lead to even more heightened military tensions between Washington and Beijing in one of the world’s most dangerous geopolitical powder kegs: the South China Sea.

Since Trump’s inauguration, the Pentagon has stepped up Naval operations in the contested territory, and sent dozens, if not hundreds, of destroyer-class ships and others to engage in “Freedom of Navigation” operations – or “Freeops”, for short. Most recently, the US sent two aircraft carriers to the area to hold military exercises…while Chinese ships held exercises of their own nearby.

In a copy of the draft statement reviewed by WSJ, the administration claims that China’s refusal to acknowledge the landmark ruling and continue with its claims of supremacy over the area poses “the single greatest threat to freedom of the seas in modern history.”

“China’s maritime claims pose the single greatest threat to the freedom of the seas in modern history,” according to a draft seen by Journal. “We cannot afford to re-enter an era where states like China attempt to assert sovereignty over the seas,” the draft said.

China’s territorial claims fall within what’s known as the nine-dash line, or the “Cow’s Tongue”, named for its peculiar shape.

At the time of the 2016 ruling, the Obama Administration decided not to get involved, and official set America on a course of non-interference in the area.

That changed almost as soon as Trump was inaugurated, as the president promised to reverse the Obama Administration’s policy of cooperation and appeasement in favor of a more resolute stance. The Trump Administration has recently stepped up its criticism of the region’s maritime claims. Even the Philippines, which initially brought the case against China to the Hague back in 2013, is no longer pressuring Beijing to obey the ruling, after President Rodrigo Duterte was elected with a mandate to negotiate directly with Beijing.

Since the ruling, China has continued efforts to build artificial islands and fortify them with weaponry, leading to the creation of what Steve Bannon has described as “mobile aircraft carriers”. Bannon has repeatedly warned that China is the most pressing threat to American security and economic interests.

While Beijing mostly just whines and complains when the US sends navy ships within 12 miles of the Spratly islands, we suspect the Foreign Ministry’s response once Washington confirms the policy change will be even more aggressive. Perhaps the decision might even spur the People’s Liberation Army-Navy to speed up their plans for fortification and weaponization, just like the initial ruling appears to have done.

In an almost verbatim repeat of what the new head of the NY Fed’s Markets Group (aka the de facto head of the Plunge Protection Team), Daleep Singh said last week, when discussing the Fed’s purchases of corporate bonds and ETFs, saying that “If market conditions continue to improve, Fed purchases could slow further, potentially reaching very low levels or stopping entirely”, moments ago Dallas Fed President (and FOMC voter) Robert Kaplan said emergency lending facilities launched by the central bank were necessary to support market function, but they won’t be left in place indefinitely.

“A number of those actions were necessary. The key is what we do from here. How long does this need to go on for?” asked the former Goldman partner, adding that he is a “believer that we will need to get back to more unaided market function without as much intervention from the Fed. We’re just not at that point yet.”

Did the nearly $10BN in daily purchases of Treasurys and MBS give it away?

Sarcasm aside, and clearly unaware of the reflexivity behind the market and the Fed’s balance sheet, Kaplan said that “I think it’s wise for us to be telegraphing as the economy improves we’ll be appropriate in showing restraint and pulling back some of these programs.”

Of course, the moments the Fed “telegraphs” the economy is improving and does in fact “pull back” on some of these programs which are charted below..

… is the moment stocks will plunge, as by now even 10 year old Robinhood traders know that without the Fed propping up risk assets every single day, stocks will plunge until such time as the Fed resumes these emergency programs.

In fact, one can argue that today’s swoon in Tesla and the broader Nasdaq, which has since affected the broader market, took place just after Kaplan warned that the Fed’s market support won’t last forever, to which markets made it clear that the support better last forever, or the Fed will have another crash on its hands in no time.

And speaking of Tesla, – TSLA shares have plunged almost $300 from record highs hit just a few hours earlier…

… and the Nasdaq is suddenly rolling over hard, leading the rest of the market lower…

And suddenly, 400,000 Robinhood’rs were silenced…

Especially the 40,000 or so that added today:

Only 18.7K new greater fools now. Was almost 40K earlier pic.twitter.com/A0WXf9H6sr

— zerohedge (@zerohedge) July 13, 2020