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Years of mismanagement by unaccountable Democrats in Sacramento has made it practically impossible to build new homes in the state of California. And even with the minimum-wage hikes, affordable homes are still few and far between.

Over the years, we’ve closely followed the trend of frustrated Californians seeking greener (or at least cheaper) pastures in Nevada, Idaho, Texas and other states in the West, Midwest and the South, because it’s a great example of how high-tax states sacrifice economic growth for the ability to finance generous benefits to state workers, as well as other generous giveaways.

But not only is this trend ultimately a threat to the local economy, which, to be fair, is still roaring, even if fewer and fewer residents are reaping the spoils, but just as we highlighted a few weeks back, the net population decline might cost the Golden State a few seats in Congress once the 2020 census is completed.

While most tax-paying Americans saw their overall tax bill decline under President Trump’s tax-reform package – and American corporations pay substantially less as well – there’s no question that homeowners in blue states, a group that includes some of the most affluent people in the county, lost out. By capping how much of an individual’s property and income taxes can be written off their federal tax bill, as well as lowering the threshold for mortgages that qualify for interest deductions to $750,000 from $1 million (one reason why the luxury market in places like Greenwich has gotten whacked), Trump managed to exact his revenge on the blue-staters who supported his presidential rival back in 2016.

Now, Trump has said offhandedly that there’s been talk of reinstating the deductions and raising the mortgage cap. But for the most part, this seems like idle talk. The federal budget deficit has exploded, but Trump and his team are still talking up their tax-reform part 2 (though it’s likely this chatter mostly a ruse to pump the market). But suspect any tax cuts between now and November will be focused squarely on aiding the midwestern states who handed Trump the presidency.

Since the tax-reform package was passed, what was once a trickle of blue-staters fleeing places like California, New York, New Jersey, Connecticut and even Texas over the past two years has become a flood.

And after a smattering of stories detailing the gradual migration from high-cost blue states and cities like San Francisco and New York (we’ve paid close attention to the trend over the years), two WSJ banking reporters have published a deep dive on the trend, signaling its arrival as a major national issue.

Just like Carl Icahn and David Tepper left New York and New Jersey for Florida, millions of Americans are following suit, swapping Connecticut for Florida, Nevada or Arizona.

Two years after President Trump signed the tax law, its effects are rippling through local economies and housing markets, pushing some people to move from high-tax states where they have long lived. Parts of Florida, for example, are getting an influx of buyers from states such as New York, New Jersey and Illinois.

Though the exact figures have probably changed since the tax reform was passed, this map helps illustrate how capping SALT and lowering threshold for mortgages impacted each state.

While President Trump, Secretary Mnuchin and the rest of the administration have insisted that they capped the deductions to end what they described as an unfair subsidy for blue states. The average US property tax bill in 2018 was about $3,500, according to Attom Data Solutions, a real-estate data firm cited by WSJ. But in New York, New Jersey and Connecticut, hundreds of thousands of residents make annual property tax payments well above that level. In New York’s tony Westchester County, the average property tax bill is more than $17,000.

Most of the people interviewed by WSJ said they had long considered moving to a more tax-friendly state. But for many, Trump’s tax plan was the catalyst to actually act on these impulses.

“It was another bucket of straw on the back of the camel,” said John Lee, a wealth-management executive and longtime resident of the Sacramento, Calif., area. Mr. Lee and his wife, Tracy, moved their primary residence last winter to Incline Village, a resort community on the Nevada side of Lake Tahoe.

The Lees kept their California home, where one of their six adult children is living. That means they are still paying California property taxes. But Mr. Lee estimates the move to Nevada, which has no state income tax, whacked his state tax bill by 90%.

The impact on housing markets in the ten most heavily taxed states has been impossible to ignore. The Manhattan luxury housing market is showing signs of serious distress that’s provoking anxieties among the wealthy developers who were expecting a boom in demand. According to Fitch Ratings, home-price appreciation in these states declined almost immediately after the tax reform package was passed. By comparison, home-price appreciation was steady for the 10 states with the lowest property taxes and levels of mortgage interest.

Among Gen Xers and Boomers who have only recently achieved empty-nest status, plotting an escape from taxation hell has become a simple tenant of good retirement planning.

Rick Bechtel, head of U.S. residential lending at TD Bank, lives in the Chicago area and said he recently went to a party where it felt like everyone was planning their moves to Florida. “It’s unbelievable to me the number of conversations that I’m listening to that begin with ‘When are you leaving?’ and ‘Where are you going?'” he said.

Even some states known for having relatively low taxes are being affected by this trend, as some residents opt for states with no income tax, like Florida or Nevada.

The dynamic is affecting even states typically thought to have low taxes. Mauricio Navarro and his family left Texas last year for Weston, Fla. Neither state collects its own income tax, but Mr. Navarro was paying more than $25,000 annually in property taxes in the Houston area, he said. Texas ranks among the states with the highest share of taxpayers who pay more than $10,000 in property taxes, according to the National Association of Home Builders.

Filling out his 2018 tax returns helped motivate him to move with his wife and two children, said Mr. Navarro, who owns a software-development business.

“It was not that we were struggling,” he said. “It’s that we did some analysis.”

Mr. Navarro is renting but plans to eventually buy a home in Florida. He expects his property tax bill will be lower than it was in Texas.

Another angle to this story that wasn’t really discussed in the WSJ piece is how this migration will impact state budgets. Particularly in California’s case, many of those leaving are homeowners and taxpayers, people who bear a disproportionate burden in financing the state budget. With pension funds in Illinois already dangerously underfunded thanks to the unsustainable benefits lavished on state employees.

A few days ago, the Chicago Tribune published an interesting editorial on the subject of pension reform that gets right to the heart of the problem:

You and your neighbor have a decade of familiarity and own similarly comfortable homes. You drive similarly fuel-efficient family SUVs.

You even cut your lawns in similar stripe patterns each Saturday, nodding to one another as you sweep the clippings and wrestle giant paper bags.

But when it comes to retirement, the similarities end. Your neighbor, who pulled in a similar salary, worked for the state. You didn’t.

The thought of retirement terrifies you as you prepare to live on a fixed 401(k) — one close to the American average of $195,000 for people close to retirement. Most of it comes from earnings that you’ve socked away over the years. Combined with a meager Social Security check, which maxes out at a little over $45,400 per year, it’ll have to last you for the rest of your life.

Your neighbor, meanwhile, is expected to receive more than $1.5 million in pension benefits during the course of his retirement. He personally contributed less than $60,000 to the pot. He gets to retire at 56. You? 70, if you’re lucky.

If a huge chunk of Illinois middle class decamps for Florida, what then?

But we digress. Another issue with this new great American migration is that sometimes the transplants clash with the locals – not only because of their ultra-liberal California values, but also because they’re inconveniently driving up home prices and rents for everybody else. As more Californians flood into Nevada, the locals have greeted them with a whiff of suspicion. “I just hope all the Californians going to Nevada don’t turn Nevada into a California,” said one recent transplant.

After watching how they bungled things in their former home state, that would indeed be a tragedy.

Authored by Derrick Broze via TheMindUnleashed.com,

Recent reports indicate that data gathered by automakers and tech companies could be the next front in the battle over digital privacy.

In early January, companies at the CES 2020 displayed their plans for making use of the surprising amounts of data gathered by newer model vehicles. Amazon, Intel, Qualcomm, and Blackberry were among the companies seeking partnerships with automakers who are also searching for methods to monetize the data gathered by their vehicles.

Bloomberg reports that “modern cars roll out of factories packed with cellular connections, powerful processors and growing suite of sensors, including cameras, radar and microphones. That’s turning them into the next information goldmine, rivaling the data-creating capabilities of smartphones.”

Bloomberg also notes that Intel announced a new stage of its Mobileye technology which allows for driver-assistance and Intel to gather data from cameras, chips, and sensors within the vehicle. Intel says this anonymous information is used to create detailed maps to enhance vehicle navigation systems. Intel has estimated that data gathered by vehicles will be worth as much as $3.5 billion by 2030. Bloomberg reports that consulting firm McKinsey & Co. estimates that “up to $750 billion of value would created from car-related data by 2030.”

As the financial incentive for automotive data increases more companies will seek to enter this emerging marketplace. However, there are already serious privacy concerns related to the data being gathered by the vehicles. In December 2019 the Washington Post investigated how much information is gathered by one single computer in a 2017 Chevy Volt. The Post writes:

“In the 2020 model year, most new cars sold in the United States will come with built-in Internet connections, including 100 percent of Fords, GMs and BMWs and all but one model Toyota and Volkswagen. (This independent cellular service is often included free or sold as an add-on.) Cars are becoming smartphones on wheels, sending and receiving data from apps, insurance firms and pretty much wherever their makers want. Some brands even reserve the right to use the data to track you down if you don’t pay your bills.”

To determine just how much data was being collected, the Post worked with automotive technology expert Jim Mason to catch a glimpse of what vehicle manufacturers are capable of seeing. The Post and their expert learned that the vehicle was collecting a wide range of data including vehicle location and phone call records. Mason noted that any time you plug a smart phone into a vehicle the vehicle will likely copy personal data.

“Among the trove of data points were unique identifiers for my and Doug’s phones, and a detailed log of phone calls from the previous week. There was a long list of contacts, right down to people’s address, emails and even photos,” the Post reported.

The vehicle also collected information on “acceleration and braking style, beaming back reports to its maker General Motors over an always-on Internet connection,” the Post added.

“Coming next: face data, used to personalize the vehicle and track driver attention.”

Chevrolet does not currently have a policy of informing drivers about the data being recorded and the owner’s manual does not mention data collection. A spokesman for Chevrolet owner General Motors declined to offer specific details on data collection. However, the spokesman did note that data gathered by GM falls into three categories: vehicle location, vehicle performance, and driver behavior.

Unsurprisingly, the Post notes that with the coming 5G cellular network that promises to link cars to the internet, wireless connections will get cheaper, data more valuable, and “anything the car knows about you is fair game.”

Data collection by smart vehicles is only one of a myriad of privacy concerns related to the coming 5G Smart Grid where cities, vehicles, phones, streetlights, and clothes are fitted with sensors as part of the Internet of Things. It’s important to become educated about the threats posed by these emerging “smart devices.”

Only by actively fighting for and defending privacy can we hope to maintain any semblance of it.

Hypersonic weapons have been the big talk at the Pentagon of late. Early this week US defense officials unveiled that America’s classified hypersonics program will undergo a “very aggressive” expansion over the course of the next year. This is to include expanded testing, including at least “four initial flight tests of prototypes for glide bombs that can fly five times the speed of sound and maneuver en route,” according Bloomberg.

But after over the past two years both Russia and China have hyped their own advancing programs (Putin has touted that his Avangard hypersonic missile as “invincible”), which many analysts believe could be further along than the US program, the more pressing worry is how to defend against the nearly impossible to stop high-tech weapon. Hypersonic missiles, such as the kind Russia has lately tested, “are hard to stop, they can maneuver, they’re unpredictable” and “hard to detect” so “you don’t have a lot of time” to respond — Mike White, the Defense Department’s assistant director for hypersonics was quoted this week as saying.

Toward this end, the Pentagon is pursuing experimental interceptor technology designed to take out possible incoming hypersonics.

The military analysis site Defense One explains of the developing program, still in its infancy:

On Tuesday, the Defense Advanced Research Projects Agency announced that it had awarded $13 million to defense contractor Northrop Grumman for its Glide Breaker program, an experimental effort to develop interceptors to take out highly advanced and highly maneuverable hypersonic missiles.

Details of the nascent Glide Breaker program remain classified, and it’s as yet likely not far along, though we profiled the new program in 2018.

DARPA indicated that it “Intends to advance the United States’ (U.S.) means to counter hypersonic vehicles” by developing “enabling an advanced interceptor capable of engaging maneuvering hypersonic threats in the upper atmosphere.”

Illustrating the problem that enemy hypersonics poses for US homeland defense, former Vice Chief of Staff Paul Selva explained while addressing a Strategic Deterrent Coalition conference last year:

If you’re going Mach 13 at the very northern edge of Hudson Bay, you have enough residual velocity to hit all 48 of the continental United States and all of Alaska. You can choose [to] point it left or right, and hit Maine or Alaska, or you can hit San Diego or Key West. That’s a monstrous problem.

Among options listed for defending against the ultra-fast hypersonics includes “exploding warheads” as well as electronic warfare.

One missile defense analyst quoted in the Defense One report had this to say:

It’s important to remember that these things, traveling at high speeds under a lot of thermal pressure, are far from invincible. They have a lot of vulnerabilities. You might be able to bring together a mix of different approaches, including cyber or electronic warfare effects, to take one down. 

The Pentagon is clearly reacting to the advancing programs of China and Russia. Defense Secretary Mark Esper a week ago referenced a developing “great-power competition” with China.

A 2018 report from the Government Accountability Office (GAO) warned that the current ballistic missile defense system in the US is powerless against hypersonic missiles from China and Russia.

* * *

Authored by Gail Tverberg via Our Finite World blog,

Recently, a new coronavirus has been causing many illnesses and deaths. The virus first became active in Wuhan, China, but it has already spread to the rest of China. Scattered cases have been identified around the rest of the world as well.

There are two important questions that are already being encountered:

• How much of an attempt should be made to limit the spread of the new virus? For example, should businesses close to prevent the spread of the virus?

• Should this disease be publicized as being far worse than flu viruses that circulate each year and cause many deaths among the elderly and people in poor health? The median age of those dying from the new coronavirus seems to be about 75.

Unfortunately, there aren’t easy answers. We can easily see the likely outcome of under reaction. More people might die of the disease. More people might find themselves out of work for a couple of weeks or more with the illness. We tend to be especially concerned about ourselves and our own relatives.

The thing that is harder to see is that reacting too vigorously can have a hugely detrimental impact on the world economy. The world economy depends on international trade and tourism. China plays a key role in the world economy. Quarantines of whole regions that last for weeks and months can have a very detrimental impact on the wages of people in the area and profits of local companies. Problems with debt can be expected to spike. The greater the reaction to the coronavirus, the more likely the world economy will be pushed toward recession and job loss.

The following are a few of my thoughts regarding possible overreaction:

[1] The Chinese coronavirus seems to be extremely contagious, even before a person who has been exposed shows any symptoms. The only way we can be certain to contain the virus seems to be through quarantines lasting up to 14 days.

China’s National Health Minister, Ma Xiaowei, has provided information that seems quite alarming. With the new virus, a person may become communicable shortly after he/she has been infected, but symptoms may not appear for up to 14 days. This allows the infected person to infect many others without realizing that he/she is a carrier for the disease.

Today, the United States and many other countries screen for the virus by checking passengers arriving on planes from affected areas for fevers. Given the information provided by China’s National Health Minister, this approach seems unlikely to be sufficient to catch all of the people who may eventually come down with the disease. If a country really wants to identify all the potential carriers of the disease, it appears that a 14-day quarantine for all travelers from infected areas may be needed.

Such a quarantine becomes administratively difficult to handle for the huge number of people who are likely to travel from China. Such a quarantine would make it impossible for pilots and other airline workers to make a living, for example. They would be spending too much of their time in quarantine to do the work needed to support themselves and their families.

A related concern is that person-to-person transmission is very easy with the Chinese coronavirus. We don’t know for certain how many people each infected individual infects, but one estimate is that each infected person transmits the disease to an average of 2.5 other people. With this transmission rate, the number of people having the disease can be expected to grow exponentially, perhaps for several months.

Based on these concerns, it seems to me that funds spent on trying to contain the coronavirus are likely to be largely wasted. The new Chinese virus will spread widely, regardless of attempts to contain it. At most, quarantines will slightly slow the transmission of the disease. At the same time, quarantines will be quite disruptive of commerce. They will tend to reduce both total wages and total output of goods and services of the area.

[2] Deaths from pathogens are part of the natural cycle. They help prune back the population of the old and weak.

We know that in ecosystems, one of the functions of naturally occurring fires is to clear out “deadwood,” to allow healthy new growth to occur. In fact, some types of seeds seem to require smoke for germination. When inadequate natural burning takes place, bushfires as seen in Australia and forest fires as seen in California become an increasing problem.

Deaths from pathogens seem to play a similar role in human economies. This is especially the case with pathogens that especially target the weak and old. Most flu viruses have this characteristic. Early reports of deaths from the coronavirus suggest that this same pattern of targeting the old and weak is occurring with this virus as well. As noted above, the median age of those dying from the new coronavirus seems to be about 75 years.

Since the 1940s, modern medicine has been able to develop antibiotics and vaccines to counteract the impact of many pathogens. This, of course, makes citizens happy, but it has the disadvantage of changing the population in a way that leaves the economy with a much higher percentage of elderly people and others in poor health. This higher level of elderly and medically needy people makes it easy for viruses and other pathogens to make their rounds, just as leaving deadwood on the forest floor makes it easier for fires to spread.

With this rising population of people who cannot support themselves, tax rates for the remaining citizens tend to become very high. Young workers may become discouraged because they do not have enough income remaining after paying taxes to raise their own families. In effect, they cannot support both their young families and the many old people.

Viewed from this unusual perspective, the operation of the Chinese coronavirus might even be considered a benefit to society as a whole. The world has overcome the impact of measles, typhoid, polio, and many other diseases. In some sense, it “needs” a new disease added to its portfolio, to replace the ones that have been mostly taken care of by modern medicine. In this way, pensions and other payments targeting the old and weak don’t become too great a burden on the young.

[3] If the Chinese coronavirus were simply allowed to run its course, without publicity that it was in any way unusual, somewhat less than 1% of the world’s population might be expected to die. 

To see what would happen if the Chinese coronavirus were to run its course, we might look at what happened with the Spanish Flu, back in 1918. At that time, doctors did not have a way of treating the virus and authorities downplayed concern for the disease. The US Center for Disease Control reports that 500 million people, or one-third of the world’s population, became infected. At least 50 million people (about 10% of those infected) died.

We don’t yet know with accuracy how many of those infected will die from the current virus. A recent estimate is that about 2.3% of those who are infected will die of the disease (based on 107 dying out of 4,600 infected). If we assume that the percentage of the population that will ultimately catch the new virus is 30%, then the share of the world’s population that would be expected to die would be about [(1/3) x 2.3% = 0.76%].

The UN estimates that the world’s population can be expected to grow by about 1.05% in 2020. If this is the case, the effect of the Chinese virus would be to sharply dampen the population increase for the year. Instead of population rising by 1.05%, it would rise by only 0.29% (= 1.05% – 0.76%), assuming all of the deaths associated with the Chinese coronavirus take place within a year. While this would be a change, it would be a fairly small, temporary change.

All of these deaths would be tragic for the families involved but, in a way, they would be less of a problem than the deaths that took place back in 1918. At that time, mortality was high for healthy 20 to 40 year olds, making the flu particularly disruptive for families. The total percentage of the population that died was also much higher, about 3% instead of 0.76%.

[4] A major danger of the virus seems to be one of overreaction.

Today’s world economy is fragile. China, like other countries, has a large amount of debt. Debt defaults related to poor profits of companies closing their operations for a time and workers losing income could easily skyrocket.

Closing down transportation from China would risk pushing the world economy into a very bad recession. In fact, simply having a very large number of people out sick from work would be expected to have an adverse impact on the economy. Spending a large amount of money on hospitalizations and face masks cannot compensate for the loss of productivity of the rest of the economy. Thus, the tendency would be toward recession in China, even if no action toward cutting off travel were taken.

China is a huge supplier of goods to the rest of the world. In fact, in 2016, it used more energy in producing industrial output than the United States, India, Russia and Japan combined.

Figure 1. Chart by the International Energy Agency showing total fuel consumed (TFC) by industry, for the top five fuel consuming nations of the world.

China’s economy has been growing very rapidly since 1990. Figure 2 shows this one way, in GDP comparisons using inflation-adjusted US dollars.

Figure 2. GDP of China and the United States, computed as percentages of World GDP. All amounts in 2010 US dollars, as provided by the World Bank.

Figure 3 is similar to Figure 2, except the growth comparison is made in “2011 Purchasing Power Parity International Dollars.” This adjustment is made because typically the currencies of less developed nations float far below the dollar, in terms of what the local currency will buy. The inflation-adjusted PPP comparison compares output on a basis that is expected to be more consistent with what the local currency will really purchase.

Figure 3. Ratios of the GDP of China and the United States to the World GDP. All amounts in 2011 Purchasing Power Parity International Dollars, as provided by the World Bank.

On this PPP basis, China’s GDP surpassed the US’s GDP in 2014. Figure 3 also shows that the United States has slipped from about 20% of the world’s GDP to about 15% on this basis.

We cannot simply cut off trade with China, regardless of how bad the situation is. China is too big and too important now. The rest of the world desperately needs goods and services produced in China, in spite of what is going wrong from an illness perspective. China plays too key a role in supply chains of many kinds for the country to be left out.

Even cutting off tourism becomes a problem. The share of China’s revenue from tourism amounted to 11% in 2018. While not all of this would drop off, even a dip would lead to lower employment in this part of its economy. Jet fuel use would drop as well.

[5] A particular problem today is low prices for many commodities, including oil and other fossil fuels. These prices are likely to fall further, if China’s economy falters further. 

We used to hear that the world would “run out of” oil and that oil prices would rise very high. In fact, if the people who were concerned about the issue had studied history, they would have figured out that a far more likely outcome would be “collapse.” In such a situation, prices of many commodities might fall too low. Revelation 18:11-13 provides a list of a number of commodities, including humans sold as slaves, for which prices dropped very low at the time of the collapse of ancient Babylon.

The problem is a different squeeze than a high-price squeeze. It is more of a growing wage disparity problem, with fewer and fewer of the world’s workers being able to afford the goods and services made by the world economy. This problem feeds back to commodity prices that fall too low for producers of many types. The problem is an affordability issue, rather than one of running out. I have written about this issue many times.

Prices of fossil fuels have been low for a very long time–essentially since late 2014. OPEC has cut back its oil production because of low oil prices. Several US natural gas producers have taken big write offs on natural gas investments. China’s coal production has remained below its 2013 level, because of low prices.

Figure 4. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

If China finds it necessary to cut back on production of goods and services for any reason (excessive sickness within China, visitors aren’t traveling to China, tariffs, customers around the world aren’t buying cars), this reduction in output would be likely to further lower the prices of commodities. More producers would go bankrupt. Countries exporting products as diverse as oil, iron ore, copper and lithium might have economic difficulties.

Lower fossil fuel prices may lead to a cutback in their output, but it is doubtful that this cutback would be offset by an increase in the production of renewables. Falling fossil fuel prices would make the price comparison of renewables to fossil fuels look even worse than it does today. China has cut back on its subsidies for solar panels, and this has led to decreasing Chinese solar installations in both 2018 and 2019.

[6] The best approach might just be to let the Chinese coronavirus run its course. Authorities might also discourage stories about how awful the illness is.

Today, we seem to think that we can fix all problems. Unfortunately, this medical problem doesn’t seem to be fixable in the near-term. We should probably do as governments through the ages have done, which is not very much. We should not publicize the disease as being a whole lot worse than flu viruses in general, for example.

We should certainly look for inexpensive treatments for the disease. For example, there seems to be an effort to examine the possibility of using existing antiviral drugs as a treatment. It seems like an effort could be made to look into ways of treating the disease at home, perhaps using supplemental oxygen for a period. In time, perhaps a vaccine can be developed.

Individuals around the world should be encouraged to get themselves in as good health as possible, so that their own immune systems can fight off pathogens of all types, not just this particular virus. Common sense should be used in washing hands and in avoiding being with sick people. I doubt that it makes sense to encourage the use of masks, goggles and other protective devices.

We, as individuals, cannot live forever on this earth. We also cannot spend an unlimited percentage of GDP on health care: It becomes too high-cost for most citizens. At some point, we need to call a halt to the expectation that we can fix all problems. We live in a world with limited resources. We need to start lowering our expectations, if we don’t want to make our problems worse.

Over most of January, the situation in China has gone from bad to worse to worst-nightmare with factories and stores shuttered for weeks, citizens in every province under martial-law lockdowns, and coronovirus cases (and deaths) soaring at faster-than-prior-pandemic rates.

So it should be no surprise then that China’s Service Economy expanded at an accelerating rate in January according to the latest government-provided PMI data.

Yes, you heard that right, against expectations of a slowdown (as would be expected with most of the nation hunkering down in terror), the National Bureau of Statistics reports that the non-manufacturing gauge improved to 54.1, compared with 53.5 the previous month (and better than the 53.0 expected).

Reportedly, due to the Lunar New Year holiday, the surveys were conducted between Jan. 15 and Jan. 20, rather than between the 20th and 25th of each month as normal.

And you know how badly manipulated this survey is when the China’s National Bureau of Statistics issues an additional statement admitting that “the impact of coronavirus is not fully reflected in January’s PMI survey,” suggesting that “future trends need to be observed.”

However, if that is the case then what is more problematic is the fact the first official indicator of the Chinese manufacturing economy in 2020 signaled the nation’s factories were struggling even before the country shut down for the Lunar New Year and the coronavirus outbreak worsened.

We suspect, judging by the record collapse in (Dr.) Copper, that the manipulated-ly perfect 50.0 – neither expanding or contracting – will need to be adjusted for some sense of reality soon…

However, while the overall manufacturing survey dipped, the Steel industry PMI index surged to 47.1 from 43.1 in December.

So to sum up – China’s worst ever epidemic, killing hundreds and putting 10s of thousands in hospital, shutting down factories, stores, and all transportation across the entire nation at one of its busiest most consumption-heavy times of year prompted a tiny drop in Manufacturing, a rise in the Services industry, and a surge in the Steel Industry!!!!

As a reminder, Nomura economists led by Lu Ting wrote in a recent report to clients that:

…the economic hit to China could exceed that seen during the SARS outbreak of 2003.

Gross domestic product growth could “materially drop” this quarter from the 6% pace at the end of 2019, maybe even more than the 2 percentage point deceleration seen in the second quarter of 2003.

Just don’t tell the survey respondents!!

For some clarity on what is really going on – economically – here is none other than Michael Pettis, a professor of finance at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets, unleashing some truth in a 9 tweet thread:

1. There’s a lot of fear everywhere, and Beijing streets and shops are almost empty. People still buy things online – for example my students and musician friends are overdosing on games and streaming, and…

2. …one well-known musician told me last night that he did an online DJ set that attracted tens of thousands – but they buy very little that requires being near other people. What is worse, because factories will be closed, a lot of small business owners and workers, especially…

3. ..at the bottom, will have sharply reduced income for the year, which of course means less consumption. It is hard to imagine that all of this won’t have a significant impact on consumption growth in the first and perhaps second quarters (depending on when it starts to…

4. …subside). Some consumption might just be postponed, but some of it will be permanently lost, including much of what should have been spent during this very important holiday season (for example, this is the main time to release blockbuster movies, but all the theaters are…

5. …closed). Also if workers are unable to earn wages for a few weeks longer than expected, that’s also permanently lost consumption. The more interesting question to me is whether all this will have much impact ultimately on the 2020 growth target of “around 6%”, which will…

6. …be formally announced in early March. I suspect it won’t, at most driving it closer to 5.6% than 6.0%. If that’s the case, the economic impact of the coronavirus will be to increase debt even more than expected, as Beijing accelerates later in the year to make up for the…

7. …decline in the first and second quarters. It had already decided in Q4 2019 to push forward any and every infrastructure project it could think of, but now it will simply have to find more projects. The point is that while the coronavirus will certainly have an adverse…

8. …impact on “real” economic growth, it will probably have very little impact on aggregate economic activity for the year, which is just one more reason to reject an input measure as measuring anything useful. The main place to see evidence of the coronavirus impact is in the…

9. …lower consumption share of GDP and the higher credit growth. Finally there are also likely to be interesting political implications, but obviously that’s not easy to write about.

Authored by James Rickards via The Daily Reckoning,

There’s no need to rehash the sordid politics of the U.S.-Russia relationship since 2014. That relationship became collateral damage to gross corruption in Ukraine.

The U.S. and its allies, especially the UK under globalists like David Cameron, wanted to peel off Ukraine from the Russian orbit and make it part of the EU and eventually NATO.

From Russia’s perspective, this was unacceptable. It may be true that most Americans cannot find Ukraine on a map, but a simple glance at a map reveals that much of Ukraine lies East of Moscow.

Putting Ukraine in a Western alliance such as NATO would create a crescent stretching from Luhansk in the South through Poland in the West and back around to Estonia in the North. There are almost no natural obstacles between that arc and Moscow; it’s mostly open steppe.

Completion of this “NATO Crescent” would leave Moscow open to invasion in ways that Napoleon and Hitler could only dream. Of course, this situation was and is unacceptable to Moscow.

Ukraine itself is culturally divided along geographic lines. The Eastern and Southern provinces (Luhansk, Donetsk, Crimea and Dnipro) are ethnically Russian, follow the Orthodox Church and the Patriarch of Moscow, and welcome commercial relations with Russia.

The Western provinces (Kiev, Lviv) are Slavic, adhere to the Catholic Church and the Pope in Rome, and look to the EU and U.S. for investment and aid.

Prior to 2014, an uneasy truce existed between Washington and Moscow that allowed a pro-Russian President while at the same time permitting increasing contact with the EU. Then the U.S. and UK overreached by allowing the CIA and MI6 to foment a “color revolution” in Kiev called the “Euromaidan Revolution.”

Ukrainian President Viktor Yanukovych resigned and fled to Moscow. Pro-EU protestors took over the government and signed an EU Association Agreement.

In response, Putin annexed Crimea and declared it part of Russia. He also infiltrated Donetsk and Luhansk and helped establish de facto pro-Russian regional governments. The U.S. and EU responded with harsh economic sanctions on Russia.

Ukraine has been in turmoil (with increasing corruption) ever since. U.S.-Russia relations have been ice-cold, exactly as the globalists intended.

The U.S- induced fiasco in Ukraine not only upset U.S.-Russia relations, it derailed a cozy money laundering operation involving Ukrainian oligarchs and Democratic politicians. The Obama administration flooded Ukraine with non-lethal financial assistance.

This aid was amplified by a four-year, $17.5 billion loan program to Ukraine from the IMF, approved in March 2015. Interestingly, this loan program was pushed by Obama at a time when Ukraine did not meet the IMF’s usual borrowing criteria.

Some of this money was used for intended purposes, some was skimmed by the oligarchs, and the rest was recycled to Democratic politicians in the form of consulting contracts, advisory fees, director’s fees, contributions to foundations and NGOs and other channels.

Hunter Biden and the Clinton Foundations were major recipients of this corrupt recycling. Other beneficiaries included George Soros-backed “open society” organizations, which further directed the money to progressive left-wing groups in the U.S.

This cozy wheel-of-fortune was threatened when Donald Trump became president. Trump genuinely desired improved relations with Russia and was not on the receiving end of laundered aid to Ukraine.

Hillary Clinton was supposed to continue the Obama policies, but she failed in the general election. Trump was a threat to everything the globalists, Democrats and pro-NATO elites had constructed in the 2010s.

The globalists wanted China and the U.S. to team up against Russia. Trump understood correctly that China was the main enemy and therefore a closer union between the U.S. and Russia was essential.

The elites’ efforts to derail Trump gave rise to the “Russia collusion” hoax. While no one disputes that Russia sought to sow confusion in the U.S. election in 2016, that’s something the Russians and their Soviet predecessors had been doing since 1917. By itself, little harm was done.

Yet, the elites seized on this to concoct a story of collusion between Russia and the Trump campaign. The real collusion was among Democrats, Ukrainians and Russians to discredit Trump.

It took the Robert Mueller investigation two years finally to conclude there was no collusion between Trump and the Russians. By then, the damage was done. It was politically toxic for Trump to reach out to the Russians. That would be spun by the media as more evidence of “collusion.”

Russian President Vladimir Putin (l.) has recently named a new Prime Minister, Mikhail Mishustin (r.). This is part of a complex government reorganization designed to extend Putin’s rule beyond existing term limits. This is a setback for democracy, but may be a plus for the economy because it adds stability and continuity to Putin’s programs.

This whirl of false charges, cover-ups, and deep state sabotage finally led to Trump’s impeachment on December 18, 2019.

Fortunately, the Senate impeachment trial may soon be behind us with Trump’s exoneration in hand (although new impeachment charges and false accusations cannot be ruled out).

Is the stage finally set for improved U.S.-Russia relations, relief from U.S. sanctions, and a significant increase in U.S. direct foreign investment in Russia?

Right now, my models are telling us that Russia is one of the most attractive targets for foreign investment in the world. Just because U.S. policymakers missed the boat does not mean that investors must do the same.

Russia is often denigrated by Wall Street analysts and mainstream economists who know little about the country. Russia is the world’s largest country by area and has the largest arsenal of nuclear weapons of any country in the world.

It has the world’s 11th largest economy at over $1.6 trillion in annual GDP, ahead of South Korea, Spain and Australia and not far behind Canada, Brazil and Italy.

It also is the world’s third largest producer of oil and related liquids, with output of 11.4 million barrels per day, about 11% of the world’s total. The U.S. (17.8 million b/d), Saudi Arabia (12.4 million b/d) and Russia combine to provide 41% of the world’s liquid fuels. The latter two countries effectively control the world’s oil price by agreeing on output quotas.

Russia has almost no external dollar-denominated debt and has a debt-to-GDP ratio of only 13.50% (the comparable ratio for the United States is 106%).

In short, Russia is too big and too powerful to ignore despite the derogatory and uninformed claims of globalists. Importantly, Russia is emerging from the oil price shock of 2014-2016 and is in a solid recovery.

The stage is now set for significant economic expansion as illustrated in the chart below from Moody’s Analytics:

This graphic analysis from Moody’s Analytics divides major economies into categories of Recovery, Expansion, Slowdown and Recession. Economies revolve clockwise through these four phases. The U.S. is in a Slowdown phase with some risk of Recession. Russia is in the Recovery phase heading toward Expansion. The Russian situation is the most attractive for investors because it offers cheap entry points with high returns as the Expansion phase begins.

Russia has also gone to great lengths to insulate itself from U.S. economic sanctions. Their reserves have recovered to the $500 billion level that existed before the 2014 oil price collapse with one important difference. The dollar component of reserves has shrunk substantially while the gold component has increased to over 20%.

With the recent surge in gold prices, Russia’s reserves get a significant boost (when expressed in dollars) because of the higher dollar value of the gold reserves. Gold cannot be hacked, frozen or seized, as is the case with digital dollar assets.

Russia’s fortunes have been improving not only because of low debt and higher gold prices but also because of higher oil prices. The country is poised for a strong expansion, even if U.S. hostility caused by the Democrats continues.

If Trump regains his footing after impeachment and wins a second term (which I expect), investors can expect warmer relations with Russia and an even more powerful Russian economic expansion than the one already underway.