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Authored by Louis-Vincent Gave via Evergreen Gavekal blog,

“Lesson: In the real world, ninety-nine cents will not get you into New York City. You will need the full dollar.”

– Bruce Springsteen, Born to Run (back when people wanted to get into NYC, rather than out of it)

“The desire of gold is not for gold. It is for the means of freedom and benefit.”

– Ralph Waldo Emerson

INTRODUCTION

Prior to the Great War, the gold standard* reigned supreme. However, when World War I broke out, most countries abandoned this standard to pay their military expenses with printed money, which devalued their currency. The United States, which was a rising world power at the time, remained off the battlefield for the first two years of the war and became an important supplier to the United Kingdom, France, and other Allied Powers. As a result, the United States became the lender of choice for those that bought US supplies in return for foreign bonds – and gold. When the Great War began in 1914, the British pound was the world’s leading reserve currency. However, five short years later, and the US dollar replaced the pound as the world’s leading reserve currency.

In the decades that followed, the United States once more supplied the Allies with weapons and other goods for World War II. The United States was again paid largely in gold, propelling it to hold the vast majority of the world’s most precious metal in its coffers. This precluded a return to the gold standard by almost all of the countries that had depleted their gold reserves. In 1944, the Bretton Woods Agreement was formulated. Pursuant to this, the Allies, who would go on to win the war the next year, determined that the world’s currencies could no longer be linked to gold, but could be linked to the US dollar, which was, in turn, linked to gold.

Fast forward to today, and more than 61% of all foreign bank reserves are denominated in U.S. dollars – either in the form of cold hard cash or U.S. treasuries. This reserve status is largely based on the strength and size of the US economy and financial markets. However, as the U.S. Treasury has continued to print U.S. dollars to stabilize the economy and markets in response to the havoc unleashed by the Covid-19 pandemic, the once-mighty U.S. dollar has come under some serious pressure.

In this week’s final installment of Louis-Vincent Gave’s three-part series on possible explanations for the recent rebound in global equity markets, Louis considers the possibility that investors are flocking into equities out of fear that the U.S. dollar could be worth a lot less in the years ahead. As you will read, two of the main beneficiaries of this tidal shift have been gold, which recently hit an all-time high, and gold miners, who have outperformed all other asset classes year-to-date.

The jury is still out on whether the dollar’s long run as the world’s leading reserve currency will be sustained in the coming years. However, as discussed in our May 1 newsletter, our bet is that the US dollar will be the major casualty in an era of unbridled monetary and fiscal stimulus.

On the flipside, those who have traded in their greenbacks for gold bars (and other precious metals) are likely to see a red-hot bull run continue to rage on, notwithstanding inevitable corrections along the way.  Speaking of “way”, this bullion bull market might just go way, way above the $2,000/ounce level it has nearly attained.  If it seems incomprehensible that gold might rise as high as $3,000/ounce (as some respected analysts have suggested), is it any more incredible that the Fed’s trove of treasuries, bought with its seemingly limitless bogus bucks, will soon hit $10 trillion? Never say never…especially these days.

* The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold.

Disclosure: Louis Gave has an equity ownership in Evergreen. Louis’ views and opinions are his own, and are not necessarily the views of Evergreen.  Securities highlighted or discussed in this communication are not a recommendation for or against these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time. Please see important disclosures following this piece.

THE CONSEQUENCES OF ‘WORTHLESS CASH’ BY LOUIS-VINCENT GAVE

In the second quarter of this year, global equity markets registered their best quarterly performance in two decades. What was behind this record-breaking rebound? A number of explanations appeared possible. In the first paper of this series, I considered the possibility that markets were pricing in a return to the macro environment that prevailed in the post-2008, pre-Covid-19 world. In the second paper, I pondered the possibility that investors had simply lost their senses. In this, the third paper, I will consider the possibility that the present growth in monetary aggregates is leading investors to conclude that they have no alternative; money is being debased at such a pace that sitting on cash in a bank account is, over the long term, sheer madness.

Over the last few months US monetary growth has broken new highs week-after-week. Today US M2 growth stands at 24.9% year-on-year, more than six times the structural growth rate of nominal GDP. So the idea that cash is in danger of becoming worthless is no delusion; this rate of money printing has never been seen before in the history of the US, or of any other G7 economy.

An uncomfortable diagnosis

Finance 101 teaches that the price of an equity is determined by a company’s future cash flows, discounted by an interest rate, to which is added a risk premium. Theoretically then, to be successful an investor should only have to formulate a view on these three variables. But is it really that simple? Consider the following:

1. Future cash flows. With global economic growth much lower today and for the foreseeable future than anticipated at the start of the year, it is obvious that corporate cashflows will take a hit in 2020, most likely in 2021, and perhaps in 2022 to boot.

2. Interest rates. Interest rates around the world collapsed in the early days of the Covid-19 panic, and the total return on bonds, especially long-dated bonds, went through the roof. However, since April interest rates have largely flatlined, as have total returns on long-dated bonds; in recent months, falling interest rates have stopped being a tail-wind for equities.

3. Risk premiums. If cashflows are bound to disappoint and interest rates are no longer falling, then the only possible explanation for the present bull market is that risk premiums have collapsed. But if so, then why have risk premiums collapsed? The world hardly seems a less risky place than six months ago. On the contrary: every other week seems to bring a new catastrophe. So, to attribute the current bull market to a collapse in risk premiums seems an uncomfortable proposition to say the least.

Or maybe the simpler explanation is that for all the talk about the rampaging equity bull market, global equities aren’t in much of a bull market at all. In the first two papers of this series, I pointed out that the MSCI World ex-US index has flatlined since both 2007 and 2014. Perhaps even more surprising, the Valueline composite index, which is arguably the best proxy for the performance of the median US stock, stands at the same level today as in 1998 (see the chart below).

Admittedly, the Valueline is a price index, and so does not include the contribution of dividends to total returns. Nevertheless, the failure of key broad equity market benchmarks to make anything like new highs despite all the talk of a rampaging equity bull market is remarkable. So where should investors actually look to find this remarkable bull?

Finding the rampaging bull

Defining a bear market is easy enough: if the price of an asset falls by a given amount—for equity indexes, usually -20%—then it is generally accepted that the asset is in a bear market. But if it is to be useful, the definition of a bull market needs to be more complicated. The financial media usually talk about a 20% rise as a “bull market,” but that hardly seems satisfactory. Under that definition, oil, which has more than doubled from its mid-April lows, would be in a bull market. However, very few energy investors have been popping the champagne corks lately.

So, it may be more useful to propose an alternative definition: an asset class is in a bull market when its underlying price continues to make new cycle highs.

This handy definition is particularly useful today, given that markets bottomed in mid-March 2020, and have since rallied hard almost everywhere around the world. Yet within this broad rebound, some assets have gone on to make new highs for the year, while others have not. With this in mind, it is easier to argue that the assets that have made new highs are in a bull market, while those that have yet to recover their start-of-the-year levels still have a lot to prove.

Using this—admittedly self-serving—definition narrows the current bull market down greatly, and so this investigation is within manageable limits. Sticking to the “must have made new year-to-date highs” benchmark, it becomes clear that:

• The rampaging bull is no longer to be found in the world’s bond markets. From late 2018 to March 2020, bond prices continued to shoot up. However, the advance has now stalled. This is an important shift in the investment environment and a message investors should heed (see the chart below).

• The rampaging bull is no longer found in the US dollar. It increasingly looks as if the US dollar bull market may have ended with the blow-off top of March 2020. The US dollar, as measured by the DXY index, is now back trading below its two-year moving average—and this in the middle of a global crisis. Moreover, unless the US dollar rebounds sharply and quickly, the slope of the two-year moving average is soon set to roll over. This is another important shift in the investment environment.

• In a broad sense, equities have now gone nowhere for 30 months. The MSCI World index ex-dividends now stands -2% below where it stood in January 2018, and -6.2% below the levels of February 2020.

Nonetheless, behind this backdrop of flat interest rates, mild US dollar weakness and flatlining—albeit volatile—global equity markets, the rampaging bull has found a home in four different asset classes: (i) Big Tech, (ii) green investments, (iii) precious metals, and (iv) Chinese equities. And of these, precious metal miners have outperformed all other asset classes year-to-date. Let’s look at these four bull markets one-by-one.

The Big Tech bull market

Many liters of ink have been spilled over the Big Tech bull market. The subject is unavoidable, if only because Facebook, Amazon, Apple, Microsoft and Google now account for more than a fifth of the S&P 500. As a result, the decision either to overweight or to underweight Big Tech has made or broken many portfolio managers’ performance in recent years. And it’s likely to continue to do so for a good few years to come.

In Have Equities Become A Bubble?, I reviewed the most cogent argument against overweighting Big Tech—that the law of large numbers presents a serious hurdle to future gains. To illustrate this challenge, let me propose the following exercise. Let’s accept that:

• Over time, the S&P 500 rises by roughly 6% a year (even if this seems optimistic given current equity valuations and interest rates).

• Over the past six years, FAAMG stocks have risen by an average of 26% a year, and that investors paying up record valuations for these stocks are obviously hopeful that these returns will continue.

If we accept these two points, then, as the chart below illustrates, for the maths to “square up,” we would have to imagine the following:

1. If returns for the S&P 500 ex-FAAMG were roughly -5% per annum for the next five years;

2. Then by late 2024, the FAAMG would be larger than the other 494 companies in the S&P 500;

3. And by 2028, at this rate the FAAMG stocks would be bigger than the entire US market, including themselves. It should go without saying that this is manifestly impossible.

As readers will have realized, there is an obvious flaw in the chart above: if the FAAMG do continue compounding at 26% over the coming decade, then as they begin to make up an ever greater share of the S&P 500, the S&P 500 as a whole would begin to compound at a faster rate. And this begs the question whether the S&P 500 can compound at a rate much higher 6%.

The first pillar on which the Big Tech bull market rests is that inflation and economic growth around the world will remain modest for as far as the eye can see. And in a world with low inflation, low growth and low interest rates, investors might as well pay up for aggressive growth stocks. In a low return world, the 15% annual profit growth delivered by Big Tech stands out so blatantly it warrants a 26% share price appreciation.

This brings me back to the challenge of big numbers and the iron law of compounding (Albert Einstein reputedly said that there is no more powerful force in the universe than compounding). This iron law faces an obvious logical challenge.

• Start with the premise that Big Tech’s share price growth can far outpace profit growth because of the lack of GDP growth around the world;

• And GDP growth around the world is weak—say 3%?;

• Then very quickly Big Tech will get too big as a share of global equity benchmarks. And as it does, the return on global equities will have to accelerate from roughly 6% per year now, to 8%, and then 10%, 12% etc;

• But can global equity returns accelerate to 8%, and on towards 12%, if global GDP growth stays weak? Probably not. Such rapid equity gains would likely trigger an economic boom of their own, with roaring animal spirits feeding greater consumption.

• And if growth accelerates, doesn’t that undermine the very first pillar on which the exceptional Big Tech bull market rests. In an accelerating global growth environment, lots of other assets would start to look attractive.

Trying to square this particular circle, investors can come to only one of two possible logical conclusions. The first is that FAAMG stocks will not be able to keep compounding at 26% a year. At some point in the future, we will look back at Microsoft on 11.5 times sales, Tesla on 10.5 times sales, and Facebook on 9.5 times sales and remember the words of Scott McNealy, the CEO of Sun Microsystems, who said of the early-2000 valuation of his company:

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends… That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate… Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

The second possible conclusion to square the circle of FAAMG stocks compounding at such a high rate that the broader market also compounds at an ever higher rate, against a backdrop of weak US and global GDP growth, is that the currency in which all of this is denominated becomes ever more worthless. And in an environment of rapid currency debasement, equities usually outperform bonds and cash, even in the absence of credible GDP growth. One particular example springs to mind.

This brings me to the second bull market that is unfolding: the one we might call “the rise of the green machine”.

The rise of the green machine

In the chart below, the red line tracks the performance of alternative energy stocks around the world. The blue line tracks the performance of more traditional energy providers—mostly oil producers, some natural gas, and a tiny little bit of coal. For most of the past six years, these two energy provider segments delivered roughly the same performance.

This makes sense given that, by and large, alternative energy companies and traditional energy companies sell—at bottom—the same product: energy. The one key difference is the way this energy is produced.

Suddenly, however, the difference in the method of production has become important enough to justify a massive divergence in performance between the share prices of the two groups of energy producers.

This divergence leaves investors facing a question: why should the value of alternative energy producers be climbing to new highs, even as traditional energy producers continue to be the biggest three-legged donkey in the paddock? There are three possible explanations.

1. The first possible explanation is that we are currently seeing a wave of technological breakthroughs in alternative energy. And these breakthroughs are of such a magnitude that they will render carbon extraction obsolete. I have a hard time buying into this explanation.

2. The second possible explanation is that investors have taken leave of their senses. Because of a desire to be seen to be doing the “right thing”, investors no longer care about long term returns on their capital, or even the long term return of their capital. Instead, what matters is the immediate priority of “virtue-signaling” at scale. Cue the current growth of “socially responsible investing,” carbon-free investment mandates, and so on. On a purely superficial and anecdotal basis, this explanation seems to fit in well with the spirit of the times, so this could well be a factor.

3. Having said that, it is the third possible explanation, which I shall call the Cantillon effect at work, which really makes the most sense.

Richard Cantillon, an Irishman who spent much of his life in France, only wrote one book: Essai Sur La Nature Du Commerce En Général. It was only published after his death in the early 18th century and today is seldom studied in economics classes, even though it was a ground-breaking text in the history of political economy, and one which had a huge influence on the likes of Knut Wicksell, the economists of the Austrian school, and the great Irving Fisher.

Cantillon’s starting point was, originally for the times, the value of money. While everyone uses money to measure all the other values in the system, few economists before Cantillon had spent any time trying to understand why money has value in the first place, or just as importantly, why that value changes over time. The reason Cantillon was drawn to the subject may have been because he lived in such extraordinary times.

One of Cantillon’s contemporaries was John Law, who through his Mississippi Company ignited an epic boom and devastating bust in France, which until then had been by far the wealthiest country in Europe. It is fair to say that despite the long list of Englishmen who through history have inflicted such damage on France—Edward the Black Prince, Horatio Nelson, the Duke of Wellington, Brian Moore—none have caused as much damage as the Scotsman Law. However, at least one positive thing came out of the bust: Cantillon’s insights. And these were derived from practical experience; Cantillon was a phenomenally successful speculator, who made out like a bandit in both the South Sea and Mississippi bubbles, first on the way up, then on the way down.

Cantillon’s key insight was that when “new’” money is created, those who are closest to the source of its creation are the first to see the prices of whatever they are selling rise. By contrast, those furthest from the source of the money will be the last to see the prices of their particular wares increase. To cut a long story short, if we define inflation as an increase in the money supply, then its main impact is a change in relative prices—and not, as most people believe, a change in absolute prices.

Those who are close to the central bank get rich; those who are not get poor. As a result, investment piles into the “favored” sectors, while the rest of the economy is starved of money. Eventually, these changes lead to a misallocation of capital with the appearance of multiple false “natural rates,” while there is only one market rate. It is in this mechanism that we find the origin of the market crashes which, as night follows day, always come after major misallocations of capital.

As an example, Cantillon cited the 16th and 17th centuries’ massive increase in Latin America’s production of silver, most of which was “captured” by the King of Spain. As a result, the prices of the goods bought by the Spanish court skyrocketed immediately, while food prices took a long time to follow. And when the production of silver eventually collapsed, all the “court-linked sectors” went bankrupt.

Fast forward to today, and is it possible to imagine a sector closer to power than alternative energy? Which of today’s professional politicians does not want to be seen to be writing checks for the clean energies of the future, produced right here at home? And at the same time, is it possible to think of an industry further from the center of power today than big oil?

When former vice president Joe Biden announces a plan to spend US$2trn once he’s elected on a “green new deal,” is the motivation behind his largesse the promise of future financial returns? Or is it the desire to signal virtue? (With other people’s money, naturally; the US is already running multitrillion US dollar budget deficits, with a debt-to-GDP ratio now higher than at its World War II peak. But who’s counting?)

I would argue the latter. This implies that the performance of the alternative energy bull market is an especially strong signal of a Cantillon effect unfolding right in front of our eyes. And on the other side of a Cantillon-effect bull market always lies currency depreciation.

This brings me to the third of today’s bull markets: precious metals.

The bull market in precious metals

Year-to-date, gold and silver miners have outperformed all other major asset classes. This outperformance has come against a backdrop of steadily rising gold prices, and sharp rallies in silver prices. Gold has now made new all-time record highs in every currency except the US dollar. And when it comes to the US dollar, if you look at quarterly averages for the price of gold, then the average price in 2Q20 of US$1,780/oz was a shade above the average price of US$1,772 at the peak of the previous bull market in 3Q12.

If anything would confirm that the current bull market is driven primarily by currency debasement, it would be the outperformance of gold and silver against all other assets. As it turns out, the metals themselves are not outperforming tech. But gold and silver miners are. The question is whether this outperformance carries an important message about today’s world.

Historically, once gold bull markets get going, they tend to be long, drawn-out affairs, interrupted only by sharp tightening from the US Federal Reserve, as in 1981, or by a sustained rise in the US dollar, as in 2012. Today, neither appears to be on the cards. So, what will stop the bull market in gold?

One answer might have been a major bust in the emerging markets. Most of the physical demand for gold today comes from India, China, South East Asia and the Middle East. The Indian sub-continent weighs especially heavily in the supply and demand equation. When things go well in India, the marginal rupee tends to find its way into gold. And when things go badly, it has generally flowed out of gold. This pattern makes the current bull market all the more remarkable: gold prices have been rising even though the Indian economy has ground to a standstill.

However, even as India has hit the skids, the world’s second gold market, China, has been thriving. Or at least its stock market has been ripping higher.

The China bull market

With Covid-19 originating in China, the US-China relationship deteriorating further, China imposing a highly unpopular security law on Hong Kong, global trade collapsing, the UK banning Huawei, China and India coming to blows in the Himalayas, and the Chinese government doing far less fiscal and monetary stimulus than any other major government, who would have thought that the CSI 300 would be outperforming all other major markets year-to-date, except for the Nasdaq? Yet, that is exactly what is happening. And just as success has many fathers, there are probably several germinal forces behind the rising Chinese equity market.

The most obvious hand is that of the government. The market had been grinding slowly higher, like other markets, until an editorial on the front page of the China Securities Journal highlighted that a bull market would be most welcome at the current juncture. The army of Chinese retail investors did not need to be told twice, and the domestic Chinese equity market promptly gapped higher.

But why, following the 2015 debacle, would the Chinese government decide to take another swig from this particular chalice? Possible explanations include:

1. The need to keep capital markets on an even keel as Xi Jinping “ties up loose ends” in Hong Kong. Stepping into Hong Kong was a big change of policy for Xi. Until May, the “vibe” coming out of Beijing had been that Hong Kong was a problem for Hong Kong’s government to solve. This changed once Shanghai failed to get the Alibaba secondary placement, and once US senators started tightening the conditions for Chinese corporates listing in New York. All of a sudden, with Hong Kong the only major capital market still open for Chinese business, settling the Hong Kong situation became Xi’s priority. And now that Hong Kong is Xi’s problem, he needs to make a success of it.

2. The need to promote consumption, especially of bigger ticket items such as cars and household appliances. Usually, this is done through the promotion of real estate. But real estate is already buoyant, and a number of cities are back flirting with bubble territory. Promoting further real estate gains from here could lead to an even bigger hangover when the party ends than a stock market boom.

3. The desire to attract foreign capital. As it becomes increasingly obvious that the US-China divorce will be messy, China needs to dedollarize its trade and its economy even faster than it anticipated. The obvious way to do this is by promoting the renminbi as a separate trade currency. But of course, foreigners are only likely to want to keep their working capital or their savings in renminbi if renminbi-denominated assets are seen as an attractive destination.

This last explanation brings me back to the thesis developed in the book that Charles and I wrote a little over a year ago: that China is now actively attempting to dedollarize pan-emerging-markets trade. This matters enormously, because should China succeed, emerging markets across Asia, Africa, Central Asia and Eastern Europe will find themselves needing far fewer US dollars. A world in which the US dollar’s share of global trade starts to shrink rapidly— still highly hypothetical—is a world which would rapidly find itself with far too many US dollars floating abroad.

A world with an overflow of US dollars would be a very different world from the one we inhabit. It would be a world in which:

• Precious metals would likely go through the roof.

• Asia, including China, would outperform meaningfully.

• The only thing to own in the US would be the businesses in which the US has a clear comparative advantage.

Now, come to think of it, isn’t this precisely what we are seeing today?

The executive director of the Bethany-Fenwick Chamber of Commerce, Lauren Weaver, told USA Today that “our businesses (located on the southern tip of the Delmarva Peninsula) have 12 weeks to make money to survive the rest of the year…  sales for the town’s 75 or so beach-district merchants are down 40% to 70% compared with a year ago.” 

Weaver warned: “A lot of them are not going to survive” this season. 

Bethany-Fenwick is an upscale beach community, home to wealthy elites, such as Joe Biden. 

The virus pandemic has made it challenging for local businesses to operate, many of whom only make money during the summer months. 

Down the street, about 20 minutes south, revenue for businesses in Ocean City, Maryland, is down 20% to 25%, said Susan Jones, head of the Ocean City Hotel-Motel-Restaurant Association. 

Jones said the city’s decision to reopen beaches in early May despite the virus pandemic helped businesses survive. She said this year is a not a profitability story, but rather a breakeven story. 

Back to Rehoboth and Dewey Beaches, which are a string of beach towns that generate more than $3.5 billion in annual revenue, according to Southern Delaware Tourism. Much of the area is dependent on travel and tourism.

It may look a bit different this year – but we’re still here! …on the beach off Garfield Parkway (beach entrance – south).

Join us at 6am every day (weather permitting) ☀️🏖🐬 pic.twitter.com/ohB2tYg6Dn

— Bethany Beach Yoga (@BethanyBchYoga) July 23, 2020

Bethany was shut down for 2.5 months to mitigate the virus spread, reopened in early June with stores and restaurants operating at 30% capacity. Capacity has doubled to 60% in July; the recovery, however, is anything but smooth. 

The reopening of eateries in Dewey has been rough. Gov. John Carney had to shut down restaurants before July 4 holiday, one of the biggest revenue days of the year for businesses in the area, after tourists tested positive for COVID-19. 

The Bethany Beach Ocean Suites Hotel said the average summer rate is $799 per night, has been dramatically reduced following a rash of cancellations.  

Alex Heidenberger, who co-owns Mango’s eatery in Bethany, said he “cried” when the governor decided to shut restaurants ahead of July 4th weekend. 

Heidenberger said, “Mango’s revenue fell by $300,000 in the weeks before and after July 4, accounting for the bulk of the $400,000 in losses the restaurant has sustained during the crisis.”

“To take two steps back, that is the worst possible scenario,” said Heidenberger. 

During the good times, he said the restaurant made $200,000 per week in sales, and around $2 million in summer revenue. This summer, he said, Mango’s sales have been halved.

“It’s really devastating us,” he said. “I’m operating at a loss,” adding that, “every day is a new challenge — it’s just exhausting.” 

Heidenberger said he hasn’t paid the mortgage in four months. Profitability at the restaurant has collapsed. With the beach town in crisis, he has had to serve as a lifeguard on the beach as a shortage in beach crew was due to lockdowns. 

“I’m working harder than I have ever worked in my life,” he said, adding that he puts in about 80 hours a week at the two restaurants. Yet, “I have no money… This is all I think about. I don’t sleep.”

He wasn’t sure if Mango’s was going to make it through the summer:

“I don’t know what the future is going to be,” Heidenberger said, noting his family already has closed two restaurants in D.C. as a result of the pandemic. At the same time, he said, “This is all I know. This is what I love.”

A similar collapse is happening in beach communities in California, Florida, New Jersey, and Texas.

Authored by Mark Hemingway via RealClearPolitics.com,

Just a few weeks ago the idea of “peaceful riots” would have seemed absurd, but the American media is nothing if not inventive these days.

Earlier this week, ABC News reported, “Protesters in California set fire to a courthouse, damaged a police station and assaulted officers after a peaceful demonstration intensified.” Legal scholar Eugene Volokh wonders how this terminology would work in the real world: “You are being charged with an intensified peaceful demonstration, in the second degree. How do you plead?”

Indeed, the media’s commitment to tempering their descriptions of violent riots sweeping the nation as “mostly peaceful” is relentless – that particular phrase has become a media cliché practically overnight. Of course, America’s police officers could also be accurately described as “mostly peaceful,” but any journalist who dared to give cops the same generous benefit of the doubt would likely cause a riot in their own newsroom.

That’s why it was almost shocking to read an Associated Press report earlier this week from reporter Mike Balsamo, who embedded with federal law enforcement protecting the Mark O. Hatfield courthouse in downtown Portland.

“I watched as injured officers were hauled inside. In one case, the commercial firework came over so fast the officer didn’t have time to respond. It burned through his sleeves and he had bloody gashes on both forearms. Another had a concussion from being hit in the head with a mortar,” Balsamo reported.

“The lights inside the courthouse have to be turned off for safety and the light from high-powered lasers bounced across the lobby almost all night. The fear is palpable. Three officers were struck in the last few weeks and still haven’t regained their vision.”

Despite the obvious evidence of organized violence, Balsamo’s report is about the only good-faith effort from the national press attempting to inform the public about the current plight of law enforcement. Meanwhile, the media have spent weeks going out of their way to portray rioters as unambiguous freedom fighters.

When protesters in Portland organized a “Wall of Moms” to stand between federal marshals protecting the courthouse and the rioters throwing bricks and shooting fireworks, it prompted gushing media coverage. Columnist Jonathan Alter called the Wall of Moms a “brilliant tactic that may forever change social protest,” apparently unaware that groups such as Hamas have been cynically using human shields for decades. Following their 15 minutes of fame, you will not be surprised to learn that the group has descended into “Judean People’s Front” infighting over the leader’s allegedly insufficient fealty to Black Lives Matter. In spite of media wish-casting, the Wall of Moms was never a morally serious effort.

Naturally, the big beneficiaries of this one-sided media narrative about riots are Democratic Party politicians. On Wednesday, acting Secretary of Homeland Security Chad Wolf announced that the federal government had reached a deal with the city of Portland to downsize the federal law enforcement presence at the courthouse that was clashing with protesters. However, Wolf’s statement made it clear that the deal was contingent on the city stepping up its own police presence to protect the building, which was all the federal government had asked the city to do months ago.

Rather than admit the deal was a tacit acknowledgement Portland had failed its basic responsibility to maintain law and order, Oregon Gov. Kate Brown pretended it was a victory against jackbooted feds who “acted as an occupying force and brought violence.”

But Brown’s rhetoric is dishonest, as she knows better than most. There were nightly riots for weeks before the feds arrived in downtown Portland. Along with Minneapolis and Seattle, Portland holds the dubious distinction of being a city that has failed to protect its own buildings. Rioters had already burned the Multnomah County Justice Center jail and the Portland Police Bureau headquarters, just a few blocks away from the federal courthouse.

Speaking as an Oregonian and former resident of Portland, I’ll note that the city’s problems go far beyond the recent riots. Business leaders have been begging City Hall to address law and order issues for years. In 2017, the CEO of Columbia Sportswear, one of Oregon’s most beloved companies, wrote a blistering op-ed about the city’s problems.

“A few days ago, one of our employees had to run into traffic when a stranger outside our office followed her and threatened to kill her,” Tim Boyle wrote.

“On other occasions our employees have arrived at work only to be menaced by individuals camping in the doorway. And our employees have had so many car break-ins downtown that we have started referring to parking in Portland as our ‘laptop donation program.’ Given these experiences, it is a relief when the only thing we are dealing with is the garbage and human waste by our front door. Think about that for a minute. This is outrageous and unacceptable.”

Anyone who has spent time in Portland comes to understand the mutually beneficial relationship between the homeless and itinerant gutter-punks who are the main source of the city’s crime and violence and the left-wing activists whose radical agenda of decriminalization lets them control the streets. After police responded to Boyle’s plea to keep excrement out of the doorway of his business, Boyle found himself on the receiving end of organized protests, forcing him to shut down Columbia’s flagship store downtown.

The city has also been capitulating to threats of left-wing political violence for years. Also in 2017, Portland canceled its annual Rose parade after “anti-fascists” threatened violence because members of the Multnomah County Republican Party were among the many civic groups slated to march. It’s one thing to claim that violence is justified against unwanted federal officers invading your city – but threatening local residents with violence because they are Republicans?

Even then, the city rolled over and in doing so conceded that violent left-wing activists control Portland. That’s not hyperbole – taking control of the city was literally one of the threats made in the anonymous email that caused officials to cancel the parade: “You have seen how much power we have downtown and that the police cannot stop us from shutting down roads so please consider your decision wisely.”

Who exactly is in charge in Portland? Well, it’s not Mayor Ted Wheeler, who’s spent years openly disparaging and undermining his own police force even as he let antifa direct traffic in his city. You’d think this would endear Wheeler to the radicals he’s trying to appease, but when he recently made a supportive appearance at the courthouse protests downtown the crowd booed and yelled at him to resign.

At this point, it’s insulting to insist that American consumers of news can’t distinguish legitimate protest from violent rioting that has devastated Portland and dozens of other cities. Similarly, there’s plenty of room for criticism of heavy-handed federal and police tactics, while still understanding that we can’t stand by and let violent mobs burn courthouses. But if covering a story from multiple angles used to be the norm in the media, it’s not anymore.

Ultimately, members of the media have a choice to make – you can be honest about the alarming evidence of law and order breaking down in American cities. Or you can continue to torch your credibility by downplaying the nightly violence for reasons that appear overtly partisan. Please consider your decision wisely.

The nation’s coin shortage, prompted by less cash circulating as a result of Covid-19 – is getting worse.

And believe it or not, cash is still being used in 49% of payments that are $10 or below, according to a recent study by the Federal Reserve Bank of San Francisco, reported on by Bloomberg.

The irony of the situation lies in the fact that the Fed can print trillions for bonds, but can’t come up with a couple of quarters to do its laundry. Despite the Fed’s best efforts to keep money circulating, there is still a coin shortage in the U.S. The effects are being felt in places like laundromats, where coins are used to do laundry.

Brian Wallace, president and CEO of the Coin Laundry Association (we swear this is an actual organization), said: “This is just an unexpected wrench in the works that I don’t think any of us could have anticipated, finding ourselves short on quarters.”

Only about 20% of laundromats offer a card option and 27% accept credit cards. In other words, most laundromats still rely on coins to do business. 

“The people that show up to the laundromat each weekend are there for a purpose. It’s an essential service. Anything that impedes that progress certainly impacts tens of millions of families that use vended laundry each week,” Wallace continued. 

Coinstar, which processed $2.7 billion worth of coins last year, collects an 11.9% fee from customers. The company has said its business has decreased during the lockdown, but it is now starting to see a slight bounce back. And despite operating in Japan, Canada, Italy, and several other European countries, it hasn’t seen the same issues outside the U.S. 

“There’s something unique about the U.S. that we can’t figure out why this has come to this crisis,” says Jim Gaherity, chief executive officer of Coinstar. “I don’t refer to it as a shortage, I refer to it as ‘We don’t have coin moving.’ It’s there, it’s just not in the right place.” 

Jerome Powell said in June that the shortage would be temporary, while at the same time U.S. mints spool up more production.

The Fed has, in the interim, put together a “coin task force” to liaise with companies like Coinstar to help come up with solutions. Organizations like the Coin Laundry Association have suggested the Fed distributing additional coins and prioritizing to “consumer businesses in the essential critical infrastructure workforce.”

Banks and businesses are also offering premiums and deals for turning in your coins. One Wisconsin bank is offering a $5 bonus for every $100 worth of coins that are turned in. Recall, days ago, we wrote that Chick-Fil-A was giving away free food to customers who paid in coins. 

Submitted by South Front,

The joint Russian-Turkish patrol set to be held in southern Idlib on July 29 was delayed due to increased military tensions and the inability of Ankara to ensure the security of the patrol in its area of responsibility. And the situation does not seem to be improving.

According to pro-militant sources, on the evening of July 29th and morning of July 30th, the Syrian Army launched over 500 shells at militants’ positions in the Zawiya Mount area, including Kansafra, al-Bara, Kafar Aweed, Fatterah and Erinah. In response, Hayat Tahrir al-Sham and its allies struck Syrian Army checkpoints at Kafr Nabl, As Safa, Hakoura and in nearby areas.

In the last few days, Hayat Tahrir al-Sham and the Turkistan Islamic Party reinforced their positions on the contact line with the Syrian Army, south of the M4 highway. Their forces reportedly remain on high alert. Pro-government sources say that the inability of Ankara to secure another joint patrol in southern Idlib is a signal that the militants are preparing for offensive actions there.

Meanwhile, the Syrian Army uncovered a hideout that had been used by militants working as organ traders in the village of al-Ghadfah in southern Idlib. According to Syria’s state-run news agency SANA, government forces found human organs, including hearts, livers and heads in the hideout. The organs were preserved in jars with chloroform. The jars carried the names of the victims. Personal IDs of the victims, men and women, were also found in the hideout.

The hideout included a room designated for religious studies with radical ideological publications. This indicates that the site had belonged to one of the multiple militant groups that still operate in Greater Idlib thanks to the Turkish opposition to counter-terrorism operations there.

Al-Ghadfah is located in the vicinity of the city of Maarat al-Numan and for a long time it has been controlled by Turkey’s main partner in Idlib – Hayat Tahrir al-Sham. The town was liberated by the Syrian Army and its allies in January 2020.

Lt. Sharif al-Nazzal of the Syrian Military Intelligence Directorate (MID) was assassinated in the town of Sahem al-Golan in western Daraa on July 29. The lieutenant was with another intelligence officer known as “Abu Haider”, when they were attacked by unidentified gunmen. Both officers were shot dead on the spot.

Opposition sources claimed that al-Nazzal, a native of Sahem al-Golan, was close to Lebanon’s Hezbollah and Iranian forces. The officer headed a detachment of the MID in the western Daraa countryside. No group has claimed responsibility for the assassination. Nonetheless, in previous stages of the conflict Israel was extensively supporting militant groups in southern Syria. It is possible that Tel Aviv may have access to cells of these groups for support with particular operations.

Two members of the US-backed Revolutionary Commando Army militant group based in al-Tanf were detained by the Syrian Army near the US-controlled zone. The detained persons were moving on a motorcycle and possessed assault rifles and night-vision goggles. They were reportedly involved in an information gathering operation about civilian and military facilities in the Homs desert.

In the past, Damascus has repeatedly claimed that the US was planning to use its proxies in al-Tanf for destabilizing operations in the government-controlled area.

Elon Musk’s distaste for the U.S. is starting to become palpable – and U.S. citizens should not take to it kindly. 

The Tesla CEO – who has made himself billions off the back of U.S. government subsidies and the U.S. taxpayer – took to the “Daily Drive” podcast on Friday to make it clear exactly what country his allegiances lie with.

On the podcast, reported by CNBC, he called the people of China “smart” and “hard working” while at the same time calling U.S. citizens “entitled” and “complacent”. He specifically called out both New York and California, states whose taxpayers have literally funded Tesla’s business with massive tax breaks amounting to billions. 

When asked about China as an EV strategy leader worldwide, Musk responded:  “China rocks in my opinion. The energy in China is great. People there – there’s like a lot of smart, hard working people. And they’re really — they’re not entitled, they’re not complacent, whereas I see in the United States increasingly much more complacency and entitlement especially in places like the Bay Area, and L.A. and New York.”

He then compared the U.S. to losing sports teams: “When you’ve been winning for too long you sort of take things for granted. The United States, and especially like California and New York, you’ve been winning for too long. When you’ve been winning too long you take things for granted. So, just like some pro sports team they win a championship you know a bunch of times in a row, they get complacent and they start losing.”

Recall, Tesla secured $1.6 billion in loans from the Chinese government to help build its Shanghai factory, which helped the company resume normal operations post-Covid this year. 

Musk – apparently completely devoid of any humility to the amount of money he has received from the U.S. taxpayer – defended his company by say it hadn’t received as much government support from the Chinese government as most competitors: “They have been supportive. But it would be weird if they were more supportive to a non-Chinese company. They’re not.”

Tesla’s total government assistance in the U.S. has surpassed $4.9 billion, according to CNBC. 

When asked about his company’s stock, Musk responded: “It’s not worth trying to massage the stock market or manage investor expectations. It’s just. You know? At the end of the day, if you make great cars and the company’s healthy and making great products investors will be happy…If you make lousy products your customers will be unhappy and then your investors will be unhappy.”

Musk then, seemingly unaware that bumpers are falling off of Model 3s as we speak, encouraged entrepreneurs to “focus on the product” when making something new: “My advice, you know, to corporate America or companies worldwide is spend less time on marketing presentations and more time on your product. Honestly that should be the number one thing taught in business schools. Put down that spreadsheet and that PowerPoint presentation and go and make your product better.”

Recall, we have often brought up Musk’s ties to China here on Zero Hedge. We even asked back in April whether or not Musk risks becoming a Chinese asset. The automaker’s quick move to Shanghai and willingness to cozy up to the Chinese government has certainly raised some interest amidst skeptics and short sellers. 

Regardless, we have a couple questions for Uncle Sam: why sit idly by and allow this public company CEO to not only spit in the SEC’s face by committing securities fraud and telling them to s*ck his c*** – but also rip off the American taxpayer at the same time. At what point does enough become enough?

Move to China then you twat https://t.co/4PaWqWG9Ha

— Quoth the Raven (@QTRResearch) July 31, 2020

 

Authored by Vasko Kohlmayer via LewRockwell.com,

On July 5th of this year – following weeks of steady decline – the United States recorded 263 deaths from COVID-19. This was the lowest daily toll in nearly three and half months. The July 5th figure represented a 90 percent drop from the peak which occurred April 21st. On that day there were 2748 deaths from COVID-19 (see worldometers.info for data).

The sharp decrease in COVID deaths was obviously a most welcome development. One would expect it would have quickly generated a spate of celebratory headlines.

However, this is not what happened that day.

Below is a collection of links to some of the news items put forward by US media on July 5:

• MORE COVID PEAK: Florida infected rise by record 11,458 on Saturday…

• 57,683 cases single day in USA…

• Once lauded, Texas now grapples with one of country’s worst outbreaks…

• Hospitals in at least 2 counties reach full capacity… 

• PHOENIX SICK… MORE RULES IN MIAMI… 

• Governors stress ‘personal responsibility’…

• Virus floats in air as aerosol…

• Masks putting people at each other’s throats…

• Why testing crisis hasn’t been solved…

• ‘You started the corona!’ Anti-Asian hate incidents explode…

• STUDY: DNA Linked to Covid-19 Inherited From Neanderthals…

• NBA Reopening Is Warning Sign for Economy…

• MLB and NFL hit by setbacks…

• Do politicians who pushed for reopening now have regrets? 

It is quite astonishing that among these headlines there is no mention of the 90 percent drop in the daily death toll. Reading through them, one would have no idea that there has been such a dramatic improvement. Quite on the contrary, the impression is that things are as dire as ever.

Neither are these items an inaccurate sampling of the kind of material put out by mainstream media outlets that day. The links above have been copied from Drudge Report, America’s leading news aggregator. Having begun with libertarian and conservative leanings, Drudge Report has gone to the other side and became in many ways the mouthpiece for the left-leaning media. This is especially true as far as Drudge’s coverage of Donald Trump and the coronavirus are concerned.

You may think that we are being unfair to America’s journalists. Perhaps they just did not have enough time to write their celebratory pieces the same day. Surely, one would think, the news must have been announced to fanfare in the next news cycle. Let us, then, look at the Drudge headlines from July 6, 2020:

• U.S. COVID DEATHS PASS 130,000…

• White House hopes Americans will grow numb to toll…

• Pandemic Expert Offers Grim Outlook: ‘We’ll Be Living With Masks For Years’…

• Hospitals Sound Alarm…

• Miami restaurants, gyms closing AGAIN…

• Do politicians who pushed for reopening have regrets?

• Atlanta Mayor infected…

• Governors stress ‘personal responsibility’…

• President’s Support Withering in Hotspots…

• Testing Employees More Trouble Than Worth…

• When illness robs sense of smell…

• Kids suffer mysterious brain damage… 

• GALLUP: TRUMP APPROVAL 38%

Once again, there is no mention of the great improvement on the COVID front. Looking at the headlines, one would, in fact, get the opposite feeling: the situation is as bad as ever, if not worse. The journalists writing these stories must have been well aware of the steadily improving state of affairs and the record low daily death tolls. There can be no question that this is a concerted and deliberate effort by media outlets to make their readers believe that things are diametrically different from the actual situation on the ground.

What we are looking at here is nothing other than a gross case of journalistic malfeasance whereby mainstream journalists simply refuse to report the truth about the situation. Whenever there is bad news they eagerly amplify and exaggerate while completely ignoring any positive news or developments. To be sure, the shrewd consumer of the news should always be prepared to make allowances for bias and misrepresentation, but the level of cynicism and conniving in this instance is truly remarkable.

There are several reasons for this. To begin with, for journalists every crisis is a boon. Crises make for more dramatic reporting and increased readership. When nothing dramatic is happening, the demand for news naturally drops. In other words, crises are good news and good business for those in the news business. Journalists, therefore, suffer from a natural inclination to increase drama and create the impression of a crisis whenever possible. And the more dire the crisis, the better.

But there is an added political reason why mainstream journalists are so invested in lying about this epidemic. The more people believe that we are in a life-and-death crisis, the easier it becomes to impose lockdowns and quarantines. These in turn wreak disorder and havoc in almost every aspect of our personal and societal life: the economy, commerce, education, finances, family life, interpersonal relationships, etc. The prolonged doom-mongering and shutdowns have also inflicted psychological damage as people suffer from the loss of employment, interruption of schooling and disruption of everyday activities, routines and interactions. Increased rates of anxiety, depression, addiction, relationship abuse and other ills are the inevitable consequence.

The journalists do not seem to mind, since the multiprong mayhem will they helped to unleash will inevitably damage the reelection prospects of Donald Trump for whom the Left harbors a virulent dislike. The antipathy is due to a host of reasons, one of which is Trump’s irritating propensity to occasionally tell the truth. This poses a serious problem for devoted leftists for whom the truth has always been a grave threat, whether they be the communist totalitarians of the past or the woke snowflakes of today. It is not difficult to see why. Even though leftist ideologies may vary in their emphasis and orientation from place to place and from one historical period to another, what they invariably share is their commitment to untruths and wrong assumptions.

Today, for example, the progressives claim with a straight face that someone who is obviously a man – someone who has XY chromosomes and male genitals – is actually a woman. Then they insist that we affirm this absurdity, which is rather difficult for anyone with a modicum of sanity or common sense. Pointing out the obvious pulls the rug from under their ideological enterprise, which is why committed leftists of all stripes are so set on suppressing the truth and destroying its bearers. The cancel culture is a present-day incarnation of this tendency. As someone who is occasionally willing to call them out on their balderdash, Trump is a thorn in their side and the prime target for destruction. True to form, leftwing journalists have shown themselves more than willing to wreck American society by spreading lies and untruths about the coronavirus (among other things) to achieve this goal.

But the good news is that there has been a considerable improvement in the corona situation. Here is a chart taken from worldometers tracing the decline in the daily death rate from the epidemic’s peak which occurred in the last third of April.

We have already pointed out the unreported 90 percent drop from April 21 to July 5.  You will also note that even in the current spike, the death toll for the last day for which data was available at the time of writing – 908 on July 25 – is 67 percent lower than it was at the peak.

A headline which would honestly summarize this state of affairs would run something like this:

“Despite a recent spike, the COVID daily death rate remains nearly 70 percent below the spring high.”

But this is not what we get. Instead Drudge offers the following:

• VIRUS USA: More than 1,000 deaths for fourth day in row…

• One every 8 mins!

• Pentagon mulls mobile hospitals…

• Texas ‘death panel’ draws outrage…

• Sent home to die if deemed too sick…

• Birx warns 11 major cities including Indianapolis, Pittsburgh and Baltimore…

• DC orders two-week quarantine for travelers from hotspots…

• Massachusetts too…

• Mayors urge residents to wear masks — inside home?

• Virus Jumps 26 Feet…

• Dogs CAN sniff out infections…

• ‘Health anxiety’ Soars… 

Notice the death count at the top of the offering. The media have only resumed reporting this item in the last few weeks which saw an increase in this metric. In the weeks prior, when the death count was falling precipitously, they only kept reporting – to maintain the impression of an ever-worsening crisis – the rising case numbers which were largely due to expanded testing. Thus, the media corona template runs as follows: Report mounting death toll in the early stages, case numbers in the decline stage, and death toll again at the spikes. The net result of this selective reporting is that any good news on the ground never makes it to the stories.

Also revealing is the last headline “Health anxiety Soars.” This, of course, is not surprising given all the doom and gloom coverage of the last four months. Through their selective and dishonest reporting, the journalists have managed to con people into believing that the virus is far more dangerous than it really is. The fact remains, however, that the vast majority of those infected exhibit moderate or no symptoms and recover without any great difficulties.

We have recently conducted our own analysis of the data. The breakdown showed the death rates for various age brackets and the results were eye-opening. For individuals under the age of forty the risk is so minuscule as to be negligible. For healthy people aged 40 to 49 the chances of dying are 60 out of 100,000 which is less than one’s yearly chances of dying of an injury.

Even though I had suspected at the outset that the numbers would be low, I did not expect them to come out this low. After obtaining the initial results, I thought that a mistake must have crept into my calculations. I repeated the process several times and then had the figures checked by a math savvy person. The low numbers were, indeed, correct.

The relatively lows risk that the novel coronavirus poses to most people has been pointed out by Dr. John Ioannidis of Stanford University. Doctor Ioannidis is a widely-cited expert on evidence-based medicine, epidemiology, and clinical research. This is what he had to say last month in an interview with a Greek journalist: “For people younger than 45, the infection fatality rate is almost 0%.” The interview and the statement went largely unreported. Dr Ioannidis is not the only world class epidemiologist who has been censored from mainstream news for his data-based conclusions. Rather than consulting these serious scientists, the media’s favorite go to person for all questions corona has been the camera-hungry but otherwise hapless Dr. Fauci who has made a number of statements and predictions that have turned out to be spectacularly incorrect.

The failure of major media to report truthfully is inexcusable, since accurate information would enable our society to deal with this crisis in a more reasonable manner. But this is apparently not something the leftist journalists wish us to do. Instead they try their best to keep us ignorant and frightened in order to wreak havoc in America, hoping to sink Trump. And if American society should be ruined in the process, so be it.

It is difficult to recall any period in living memory in which manipulation of information by major news organizations reached such levels of cynicism. What we are witnessing these days is a most severe case of journalistic malpractice.

Three months ago, shortly after the March crash bottom, JPMorgan’s strategist Nikolas Panigirtzoglou predicted that stocks would rise, among other things, because there was a massive short overhang, one which would squeeze prices higher as the Fed injected liquidity, providing a secondary thrust to the market.

Then, one month ago, in the June 16th version of Flows and Liquidity, the JPM quant doubled down by asking if there is a regional bias to the shorting activcity, namely “how much higher is the short base outside US equities?”, arguing that the regional short base backdrop favored non-US equities, in particular European stocks, something which subsequent price action confirmed.

The argument at the time was that while the post-virus short base in individual US stocks had been largely covered, short covering had looked a lot less advanced outside US stocks. In particular, less than a third of the previous short base that had opened up on Euro area and UK stocks during Feb/Mar had been unwound by mid-June. Across EM stocks, around half of the previous short base had been unwound by mid-June.

However, in his latest observation on this topic, Panigirtzoglou writes in his latest weekly F&W report that “this previous advantage for non-US stocks appears to have been diminished as short covering advanced.”

Indeed, as the following four charts show, the bulk of the previous short base that had opened up during Feb/Mar across Euro area, UK and Japanese stocks has been largely normalized. It is only in EM stocks that there is some remaining short base, around 20% of that opening up during Feb/Mar, left to be covered.

To JPM, this raises the chance that the past two months outperformance of non-US vs. US equities is close to being exhausted “and that going forward US stocks are more likely to resume their outperformance trend.” Why the pro-US bias? Because as the JPM strategist noted before, there is a modest remaining short base to be covered in US stocks at an index level even as the previous short base at individual stock level has been more than fully covered. For example, the short base in important US equity ETFs such as the SPY ETF remains above previrus despite recent declines as shown in the chart on the left…

… while the right and final chart shows that the positions of asset managers and leveraged funds in US equity futures remain low and well below pre-virus levels.