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Authored by Alastair Crooke via The Strategic Culture Foundation,

Conflict is popping up everywhere: A major portion of the Turkish army stands ready to invade parts of Syria (though invasion may have been averted for now); PM Modi may just have ignited the next round of Kashmir wars with Pakistan with his Hindu ‘nationalist’ putsch to annex Muslim majority Jammu-Kashmir; Japan has started a mini trade war with South Korea; Turkey is bracing for a face-off with Greece and Cyprus over energy exploration in the East Mediterranean; the Yemen war is heating up with the war increasingly being fought inside southern Saudi Arabia; the US-Iran and the Syria conflicts simmer, and Hong Kong has boiled-over into violence.

What is going on? Is there some unifying thread connecting this sudden outbreak of widespread global tension? Of course all these conflicts have their separate background contexts. But why so many at the same time? Well, in a word, it’s all about change — about the recognition that we are at the cusp of major changes. The world is beginning to pre-position.

Take, for example, the about-turn by the UAE (heretofore, a major agitator for an Iran confrontation) reaching out to Iran. Much of this Gulf State fervour for confrontation with Iran arose on the rebound from the Obama move to normalise with Iran (through the JCPOA). The Gulf States feared losing the umbrella of the US protection which, it was believed, inoculated these monarchies as much from repression of their internal reformists, as from Iran. Then, with the arrival of President Trump, the opportunity seemed to present itself again to lock-in that US ‘guarantee’ by inciting the new President, already obsessed with his notion of Iranian ‘malignity’ into action.

But suddenly, the Gulf chimaera of Trump retarding a resurgent Iran through inflicting a couple of generations worth of missile damage on its infrastructure faded under the desert heat. When Iran took the initiative with its counter-pressures, the US finally did not react, either to Hormuz, or to the loss of its high-spec drone.

It’s not over yet: Iran remains a grave flash-point, but in the region it is understood that the US neither has the political will, nor the capacity, for protracted military action (as opposed to a quick ‘one and done’, to which Iran has promised substantial retaliation). This sense of a ‘shift’ has been reinforced by Trump’s repeat last month of his call for withdrawal from Syria, and by his almost indecent haste in trying to exit Afghanistan. The omens are plain: America is on its way out from the Middle East.

Gulf States need to re-position – and they are. They are repositioning into the security architecture being led by China and Russia. Ten days ago, via a document officially approved by the United Nations, the Russian Foreign Ministry advanced a new concept of collective security for the Persian Gulf. The Russian initiative should be interpreted as a sort of counterpart of, and mostly a complement to, the Shanghai Cooperation Organization, writes Pepe Escobar.

Add to this that China is toying with giving Chinese naval protection to its own vessels in the Gulf (from US or UK-style tanker hijacking); and that Russia and Iran have agreed to mount joint naval exercises in Hormuz (which will give Russia access to the Bandar-e-Bushehr and Chabahar naval facilities), to understand that the notion of a Russo-Chinese security architecture is assuming substance. It makes sense for Gulf States to seek out a new protector. And they are.

So, how does this link to these other effusions of conflict? One aspect concerns the evolution of Trump’s ‘maximum pressure’ thesis: Its lack of any major success to date has already been widely remarked. But the telling factor is that this ‘Art of the Deal’ approach lacks any means to metamorphose this US maximum ‘pressure’ into any meaningful political or strategic diplomatic path. It has attenuated down to ‘capitulate’, or we can make the pain worse. It is in short, the further radicalisation of US exceptionalism. John Bolton formulated it thus: “The greatest hope for freedom for mankind in history is the United States, and therefore protecting American national interest is the single best strategy for the world.” Or, in other words, your interests are irrelevant to me.

What may have initiated as an Art of the Deal strategy has evolved over time from ‘great-power rivalry’, into unabashed new ‘Cold War’. The consequence of this ‘to the devil with yourinterests’ approach, is that most likely now, neither China, nor Iran, nor Turkey actively want a ‘deal’ with US.

This has been particularly relevant in the case of Turkey. As a key NATO member, Turkey largely has been taken for granted in terms of the US pursuit of its own interests, but reciprocity has not recently been on offer: Turkey was simply assumed to have no interests that NATO or the United States felt duty bound to respect. NATO membership was in itself, accolade enough. And, with Turkey’s anger at the 2016 coup attempt, and with its dismay at Centcom’spursuit of its Kurdish autonomy project, NATO simply shifted to raising the NATO-positioning of (an all too willing) Greece – Turkey’s ancient nemesis. Thus, the single-minded pursuit of US interests (in Syria) has resulted in the setting-up of a new struggle between Turkey and Greece in the East Mediterranean, threatening too, to unstitch the precarious status of Greek-dominated Nicosia. Not surprisingly, Turkey is re-discovering its old role as a Eurasian power, with China and Russia according Turkey appropriate esteem. Like others, it seems to be embracing the Chinese-Russian architecture.

This is not to imply that America’s beggar-my-neighbour trade and geo-political approach, nor its shying from wars, can alone account for the present crop of troubles. The radical leverage of US interests to the point of zero-tolerance of others’ interests however does raise the question: why is there no ‘plan B’ if China, Iran, Russia and North Korea refuse to capitulate?

Is it then, that a pathway to a ‘deal’ was never what some in Washington wanted? Is it that the objective from the outset was to use tariffs to break Asian supply lines – and to force them, via tariffs, to be reconstructed in the US. Is it that a new ‘nuclear deal’ with Iran was never actively sought by certain DC constituencies: that it was always about regime change?

The other, wider factor, accounting for this sense of a world in metamorphose precisely is the western cultural implosion, or ‘Great Switch’ (as the founder of the Rousseau Institute terms it). So little time ago, the western liberal, cultural and economic vision was at its apogee. It seemed inevitable. It seemed irrefutable. It stood as the western centre of gravity. But as President Putin recently observed, (so few years later), liberalism and the European so-called Enlightenment is viewed as ‘obsolete’ by much of the world. This quite sudden Great Shift has left the Liberal camp – that was partying ‘on top of the World’ – distraught, angry and apprehensive. In the polarised US and the UK, the antagonisms are causing people to eat each other alive.

The ‘civil war’ within the western paradigm allows other (non-western) states new space to find their own path. Sometimes this path can be potentially destructive — as in Modi’s Hindu-nationalist annexation of Jammu-Kashmir (during the Bush Administration Modi was denied a visa on grounds that he supported Hindu extremism during anti-Muslim riots in 2002). But the reality is that there is no longer any need to pay obeisance to the western moralising Shibboleths, when they are being violently challenged within the liberal citadels themselves. In short, if the West is fighting over its values, what price these values as the basis for the western-led Global Order?

We are indeed at a point of inflection. Some westerners may muse that the status quo ante is somehow recoverable (if only Trump is gone, and the ‘populists’ contained). That is delusional. The external world is transforming. China, Russia and Asia will replace US hegemony – not with another hegemony – but with a loose coalition of states espousing a different values and civilizational model. And with their values differing from the Protestant paradigm of the John Locke, John Hume and Adam Smith, they will arrive at other economic perspectives.

And the status quo ante will not be available even domestically in the West. For, the western party political system itself is in irreversible transformation, too. Western politicians of all spectra are trying to adjust to a public life in which the old world is still around, whilst the new one is only emerging.

The post-war party political system of family and community ties to either Centre-Left and Centre Right (with not a great difference between the two) is dying in western democracies.The Centre-Left is expiring because its original mission is no longer relevant to a large enough proportion of the electorate. What is the point of parties that existed to represent the interests of trade unions and the industrial proletariat when mass employment in heavy industry has come to an end? Post-industrial economies are a global phenomenon.

“The popular conscience today is not exercised by the plight of great numbers of workers being exploited by factory owners. It is more concerned, if anything, by the prospect of factory closures. The old Left-wing battles over working conditions and pay are largely over. The new problem is much more subtle, and less amenable to socialist solutions: how to maintain an industrial sector which offers large-scale employment particularly to those with low (or no) skills. Globalisation has a great deal to do with this, but the decline of the factory-based economy is at the very heart of it” (as in Trump’s appeal to the ‘deplorables’ from a stance on the Nationalist-Right, rather than the Left, strongly suggests), writes Janet Daley.

So here we are at the western dilemma: The moderate forces of Centre-Left and Centre Right are still hoping to represent the people they always have: middle class voters who want to display their decency by voting for a party that espouses some notion of ‘social concern’. But, as the preoccupations of the élite, metropolitan consciousness have turned to more specific ‘disadvantaged’ groups – ethnic minorities, women, and gender non-conformists – the less likely it is that they will give any regard or understanding to the everyday impact of failed mass immigration and multiculturism on the majority (the ‘Sixty-Percent’). And so the polarisation grows, with each group retreating into its enclave. And the Centre Parties wane, in line with a shrinking, economically-struggling Middle Class.

Three major political forces are gathering strength in this political environment where global warming (for the former Centrists), and immigration (for the sixty per centers) are the new defining issues.

• Nationalist right-wing parties, once marginal, are now a structural element of Europe’s political landscapes.

• The Centre is struggling everywhere,

• and the third force is becoming the Green movement. Its spectacular rise – as voters reject the traditional parties and press their leaders on the urgency to act against climate change – is mostly attributable to a mobilisation of the young.

It is this cloistered élite ‘blind spot’ of discounting the adverse effects of globalisation on the ‘Sixty-Percenters’, in favour of pursuing their ephemeral identity preoccupations, that has become toxic for what remains of the old working class. Daley suggests this blind spot “probably cost Hillary Clinton the presidency: women in the depressed rust belt states were not worried about “glass ceilings”, they were worried about putting food on the table and whether their men would ever work again. What happened next? They voted, as the angry and disenfranchised are inclined to do, for a demagogue who did not regard them with contempt, and who gave voice to their frustration”.

The status quo ante is no longer available – even domestically – in the West, let alone externally. The Great Switch is underway. Society has lost its cultural centre of gravity. The old way of life is fading, and is close to extinction.

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

One of the more jarring, if underreported shifts in the world of central bank finance over the past three years, was the dramatic decline in the BOJ’s annual purchases of JGBs, which has shrank drastically from its 2015 peak, and was back to levels first seen just after the start of Japan’s QQE.

And yet despite this obvious tapering in the BOJ’s QE, the yield on 10Y JGBs has not increased; on the contrary, courtesy of the paralyzed Japanese bond market, where barely anyone is left to trade with the BOJ now owning more than half of all government bonds, price formation has been made virtually impossible, and furthermore, as a result of the recent sharp drop in global yields, the benchmark 10Y JGB has seen its yield slide from 0% at the start of the year to -0.15% in recent months, and most recently take a sharp move lower as it plunged to the lowest on record at -0.25% as of today.

This plunge in JGB yields to a level below the JGB’s lower bound on its Yield Curve Control corridor which extends to -0.20%, prompted some to comically expect the BOJ to start selling bonds…

JAPAN 10-YEAR LEAD BOND FUTURES RISE TO RECORD HIGH OF 154.97

Is BOJ going to sell some to keep rate in corridor

— zerohedge (@zerohedge) August 15, 2019

… while other, more serious, traders expected the BOJ to announce a sharp cut in the amount of JGB bonds in the 5-10 year bucket it would repurchase at today’s rinban, or POMO, operation.

As Mitsubishi UFJ’s Katsutoshi Inadome noted, today marks the first buying operation in the 5-10 year zone since Japan’s benchmark 10-year yield fell below the bottom of the BOJ’s targeted range on Aug. 6, and with the yield since falling further and touching minus 0.25% on Thursday, if the BOJ didn’t announce or do anything when yields are looking set to decline further, it would be an issue – and a message – from the point of maintaining the yield curve control, namely that the BOJ no longer cares if yields go straight down.

The alternative was simple: reduce the amount of bonds the BOJ buys back, with some speculating that the BOJ could reduce purchases of 5-10 year zone by as much as 50BN yen – which would be the largest cut in this zone since the introduction of the yield curve control policy in September 2016 – while sending a very strong signal to the market against falling yields.

In the end the BOJ picked a middle option: it did indeed cut the amount of bonds in the 5-10 year bucket it would purchase, but the amount was less than the most aggressive expectations, dropping by 30BN yen, from 480BN yen to 450BN. This was the first cut in the core maturity zone since December 14.

However, while the Bank of Japan did as widely expected in response to the aggressive bull-flattening in JGBs, this move will hardly end the rally as the market tests Kuroda’s tolerance for yields underneath the target range, according to Bloomberg’s Tommi Utoslahti, who also writes that “today’s decision to trim 5-to-10 year bond purchases by 30b yen suggests BOJ’s yield-curve control settings remain unchanged — whereas leaving the operation sizes unchanged could have been seen as a de facto widening of the targeted range.”

Indeed, despite the shrinkage in stated BOJ purchases – amid what has already been a secular decline in BOJ bond purchases despite the ongoing QE – the market barely reacted, and the USDJPY is unchanged, while JGB futures remain close to 155.02 record high, and as Bloomberg notes, “will likely extend gains unless the BOJ provides more detailed insight into its thinking.”

Meanwhile, JGB bulls will have little incentive to not test the BOJ or cede control in their push to revisit the all time record low 10Y yield of -0.30%.

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

The Baltimore Teachers Union (BTU) has set up a donation page on their website to raise money and supply classrooms with fans this school year because of 60 Baltimore City School (BCS) buildings don’t have air conditioning.

“It’s no secret that Baltimore’s students have had to weather the spectrum of extreme temperatures in their classrooms. We’ve all seen the photos of kindergarteners sitting in their coats and mittens at their morning circle. The reverse is true when school is back in session at the end of summer, when schools’ internal temperatures have been measured at over 100 degrees. The Baltimore Teachers Union knows that educators’ working conditions are students’ learning conditions,” BTU said on the donation page under the title “Donate to the BTU Fan Drive.“

According to Education Week, even if 60 schools were supplied with hundreds of fans, the electrical systems in many of the school’s might not be able to support the extra load, could risk in fuse blowouts or even fire.

“Our biggest concern is the electrical load,” Chief Operations Officer Lynette Washington said. “We don’t have the infrastructure for a number of things to be plugged in.”

WBAL-TV Baltimore said BTU’s goal is to raise enough money for 500 fans. The drive started last week and should meet its goal before the school season begins on Sept. 03.

“All I can focus on is feeling that sweat just coming out and I look over at the kid and they’re sweating, and all we want to do is take a break and get some water and open the window,” Brittany Johnson, a BCS counselor, said.

BCS officials have been rather quiet on the fan drive; they said there are long-term plans to properly cool and heat classrooms that would cost $20,000 apiece.

“They’re self-contained units that provide heating and cooling as well as code required ventilation and they go into all the classrooms. All of the elementary schools and a lot of the classrooms in the high schools,” said Cynthian Smith, director of facilities, designs and construction BCS.

The BTU hopes the public and social media communities can help in support of the fan drive before school starts. They said having classrooms at the 85-100 degrees isn’t healthy for students nor teachers.

“Your biggest concern is the students and how they feel. It’s like if I am trying to teach right now, how do they feel trying to learn?” said Leilani Jones, a BCS teacher.

In early January 2018, we were one of the first to report how the collapsing school system left classrooms with no heat after a cold snap sent outdoor temperatures to 10 degrees and indoor classroom temperatures to about 40-45 degrees.

From rats in the streets to a failing school system to the widest wealth inequality in the country, Baltimore City certainly has an uphill battle in becoming great again.

The city could come under severe financial difficulties in the next recession like it almost went bankrupt after the 2008 crash.

via ZeroHedge News https://ift.tt/2Z8w47g Tyler Durden

Like the old saying goes, if you can’t beat them, bribe them.

After 10 weeks of violent unrest that has practically paralyzed the city, the Hong Kong government is starting to reckon with exactly how much all of this chaos has cost its economy. And to help soften the blow (and maybe help assuage the people’s anger, or at least stop it from getting worse), Hong Kong’s government announced a stimulus package worth more than $2 billion.

Hong Kong Financial Secretary Paul Chan said Thursday that he now expects HK GDP to grow between 0% and 1% this year, down from earlier forecasts of 2% to 3%.

Here’s more from SCMP:

“If growth does hit 0 to 1 per cent, this will be the worst situation we have faced since 2009,” he said, referring to the global financial crisis. Chan spelt out a total of seven measures to support enterprises and safeguard jobs, as well as seven other initiatives to relieve people’s burden.

Chan spelt out a total of seven measures to support enterprises and safeguard jobs, as well as seven other initiatives to relieve people’s burden.

“If Hong Kong’s economy grows in the third quarter at a similar pace to the second, the city will be technically in a recession,” Chan said.

These dour economic pronouncements come as Hong Kong enters its 11th week of unrest – unrest that was instigated by an extradition bill that city executive Carrie Lam had tried to fast track. The bill would have allowed the mainland to more easily arrest people in Hong Kong then extradite them to the mainland, but after just a few weeks of demonstrations, including one particularly tense episode, Lam suspended the bill, but has refused to let it expire.

Carrie Lam

Meanwhile, Hong Kongers have grown more furious by the police response to their demonstrations.

Now, with Lam’s popularity at an all time low, her government has announced a handful of measures. One personal income tax cut is estimated to cost HK$1.84 billion ($235 million) and benefit 1.4 million people, or roughly one-sixth of Hong Kongers.

In total, the new measures will cost HK$19.1 billion, Chan said.

Last week, Lam said her government was considering “bold measures” to support the island’s suddenly challenged economy. She compared the demonstrations to the headwinds facing Hong Kong during the SARS epidemic, or the financial crisis.

“The extra budget measures may help relieve pressures of small businesses and households but may not be enough to stimulate spending by much,” said Tommy Wu at Oxford Economics Ltd in Hong Kong. “The fiscal multiplier effect in Hong Kong is pretty small so the impact on the economy could be even smaller than what Paul Chan estimated.”

Lam’s government has a fiscal reserve of about HK$1.17 trillion, after scoring a budget surplus of HK$68 billion for the 2018-2019 fiscal year, according to government data.

Compared to the stimulus unleashed after the 2014 Umbrella movement protests, this stimulus is much larger, said one BBG economist.

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

Authored by Finian Cunningham via The Strategic Culture Foundation,

When Washington announced a few weeks ago the formation of a maritime “international coalition” to “protect shipping” in the Persian Gulf, many observers were skeptical. Now skepticism has rightly turned to alarm, as the proposed US-led “coalition” transpires to comprise a grand total of just three nations: the US, Britain and Israel.

The term “coalition” has always been a weasel word used by Washington to give its military operations around the world a veneer of international consensus and moral authority. If the US goes ahead with deploying forces in the Persian Gulf the guise of “coalition” is threadbare. It will be seen for what it is: naked aggression.

Iran promptly warned that if the US, Britain and Israel move on their intention to deploy in the Persian Gulf, it will not hesitate to defend itself from a “clear threat”.

Britain has ordered this week another warship, HMS Kent, to the Gulf. The move, significantly, occurred as Trump’s hawkish national security advisor John Bolton was in London for two-day official meetings with PM Boris Johnson and other senior ministers. Bolton praised Britain’s decision to join the US-led Operation Sentinel mission, rather than an alternative proposed European naval mission. It’s not clear if HMS Kent is simply replacing another British warship in the Gulf, HMS Duncan, or if this is a further buildup in force. Either way, the line up of US, Britain and reportedly Israel is a foreboding potential offensive.

Israeli leaders have in the recent past repeatedly called for military attacks on Iran, claiming without evidence that the Islamic Republic is secretly building nuclear weapons, thus allegedly posing an existential threat to the Jewish state, despite the latter possessing an estimated 200-300 nuclear warheads.

Given the Trump administration’s manic hostility towards Tehran, which it labels a “terrorist regime”, and given the long history of US-British treachery against Iran, it is understandable the alarm being aroused if Washington, London and Tel Aviv proceed with their flotilla in the Gulf.

Major General Hossein Salami, commander-in-chief of Iran’s Islamic Revolutionary Guard Corps, slammed the proposed US-led trio of forces as a “coalition of demons”.

Iranian defense minister Brigadier General Amir Hatami warned that any such US deployment involving Israel in a waterway contiguous with Iran’s southern coast would have “disastrous consequences for the region”. Tehran would view it as an act of war.

Will Washington light the fuse? President Donald Trump and his psychotic war advisor John Bolton have certainly talked tough on several occasions over recent weeks about attacking Iran and “destroying” the Persian nation with overwhelming force. Combined with the depraved Israeli prime minster Benjamin Netanyahu and the lackey British premier Boris Johnson, the “axis of insanity” is perplexing.

However, Trump’s threats have often turned out to be empty. Washington has said before it would “defend” its interests when cargo ships were sabotaged in recent weeks. Iran was blamed by the US without evidence for the sabotage incidents, but Washington’s bellicose rhetoric didn’t materialize in military action. Even when Iran shot down a US $220-million spy drone over its territory on June 20, Trump balked at ordering “retaliatory” air strikes.

Another deterring factor is Iran’s formidable anti-ship missiles and air defenses which are augmented by the latest Russian technology, as documented by John Helmer.

There is thus a fair chance that the Trump administration will back off from its plans for a maritime incursion in the Persian Gulf. Even the intellectually challenged White House must know that any such move – especially involving a blatant axis of aggression of the US, Britain and Israel – will be tantamount to declaring war. The consequences for the war-torn region, the global economy and world peace would indeed be potentially calamitous. Surely, the unhinged American, British and Israeli leaders know this?

International consensus and world opinion may also be a vital check on the US-led folly of antagonizing Iran. The refusal by Germany, France and other European nations to participate in the US maritime force dealt a significant blow to Washington’s subterfuge of forming a coalition camouflage for its aggression against Iran.

The Americans were infuriated. US officials have reportedly lobbied the Berlin government to change its mind, to no avail. One American official was reported to have complained: “German officials keep telling us that they’re on our side, but they have to side with Iran on nuclear related issues because of the nuclear deal. Iran is attacking tankers which has nothing to do with the deal. So what’s Germany’s excuse for not siding with us this time?”

Richard Grenell, the pesky US ambassador in Berlin, displayed exasperation over Germany’s rebuff to the naval coalition plan, dubbed Operation Sentinel. Employing his best double-think, Grenell said: “German participation would help deescalate the situation. The Iranians would see a united West.”

This comes against a background of various rows between the Trump administration and Berlin, including on NATO spending, trade tariffs and the Nord Stream 2 gas pipeline project with Russia.

Washington is peeved by the Europeans and Germany in particular for not giving its purported naval coalition in the Gulf the desired appearance of international mandate.

As Iran’s Foreign Minister Mohammad Javad Zarif remarked, the US is “isolated”, apart from having the British and Israelis riding shotgun on its now-evident adventure of aggression. From political, legal and moral viewpoints, it will be difficult for the Trump administration to proceed with its plan to “protect shipping” in the Persian Gulf because it is abundantly clear that the plan is a flagrant war footing.

If the US and its allies were genuine about forming a protection arrangement for commercial shipping routes through the Strait of Hormuz in the Gulf – where 20-30 per cent of globally shipped oil passes each day – then they would do well to take on board the Russian proposal presented at the UN on August 8.

Dmitry Polyansky, Russia’s acting envoy to the UN, set forth a multilateral security concept. He emphasized that the partnership would be a genuine international coalition acting within the framework of the UN Security Council. The proposal, which China has backed, would include all stakeholders for the safety of shipping through the vital Persian Gulf, including Iran. This is surely the way to go towards de-escalating the dangerous tensions in the region. The key is that any such initiative must be formulated in keeping with UN principles and international law. It is not for one, two or three nations to assume the role of naval “policemen” in an area of international waterways. Even if we take Washington’s rhetoric about “protecting shipping” at face value, its deployment of force in the Gulf is an illegitimate assumption of power. It is outside UN principles and without Security Council mandate. In a word, illegal.

European and Asian nations would be advised to back the Russian initiative in order to maintain peace in the Gulf. By contrast, Washington’s plans are a reckless and reprehensible provocation for war.

via ZeroHedge News https://ift.tt/2MkCAG7 Tyler Durden

Global real estate consultancy firm Knight Frank LLP has warned that the global synchronized decline in growth coupled with an escalating trade war has heavily weighed on luxury home prices in London, New York, and Hong Kong.

According to Knight Frank’s quarterly index of luxury homes across 46 major cities, prices expanded at an anemic 1.4% in 2Q19 YoY, could see further stagnation through 2H19.

Wealthy buyers pulled back on home buying in the quarter thanks to a global slowdown, trade war anxieties, higher taxes by governments, and restrictions on foreign purchases.

Mansion Global said Vancouver was the hottest real estate market on Knight Frank’s list when luxury home prices surged 30% in 2016, has since crashed to the bottom of the list amid increased taxes on foreign buyers. Vancouver luxury home prices plunged 13.6% in 2Q19 YoY.

Financial hubs like Manhattan and London fell last quarter to the bottom of the list as luxury home prices slid 3.7% and 4.9%, respectively.

Hong Kong recorded zero growth in the quarter thanks to a manufacturing slowdown in China, an escalating trade war, and protests across the city since late March.

However, European cities bucked the trend, recorded solid price growth in 2Q19 YoY, though the growth was muted when compared to 2017-18.

Berlin and Frankfurt were the only two cities out of the 46 to record double-digit price growth for luxury homes. Both cities benefited from a so-called catch-up trade because prices are lower compared to other European cities. Moscow is No. 3 on the list, saw luxury home prices jump 9.5% in 2Q19 YoY.

The downturn in luxury real estate worldwide comes as central banks are frantically dropping interest rates. The Federal Reserve cut rates 25bps for the first time since 2008 last month, along with Central banks in New Zealand, India and Thailand have all recently reduced rates.

The main takeaway from central banks easing points to a global downturn in growth, and resorting to sharp monetary policy action is the attempt to thwart a global recession that would ultimately correct luxury home prices.

“Sluggish economic growth explains the wave of interest rate cuts evident in the last three months as policymakers try to stimulate growth,” wrote Knight Frank in the report.

* * *

As for a composite of all global house prices, Refinitiv Datastream shows price trends started to weaken in 2018, and in some cases, completely reversed like in Australia.

House price growth for OECD countries shows the slowdown started in 2016, a similar move to the 2005 decline.

If it’s luxury real estate or less expensive homes, the trend in price has peaked and could reverse hard into the early 2020s.

Central banks are desperately lowering interest rates as the global economy turns down. Likely, the top is in, prepare for a bust cycle.

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Authored by Michael Pettis via Carengie’s China Financial Markets blog,

Taxing capital inflows is a far better way to balance trade than imposing tariffs. This would address the root causes of trade imbalances, improve the productive investment process, and shift most of the adjustment costs onto banks and speculators.

TACKLING TRADE IMBALANCES THROUGH INVESTMENT

On July 31, 2019, U.S. Senators Tammy Baldwin and Josh Hawley submitted a bill “to establish a national goal and mechanism to achieve a trade-balancing exchange rate for the United States dollar, to impose a market access charge on certain purchases of United States assets, and for other purposes.” According to an earlier memo that further explains the bill:

The Competitive Dollar for Jobs and Prosperity Act would task the Federal Reserve with achieving and maintaining a current account balancing price for the dollar within five years. It would create an exchange rate management tool in the form of a Market Access Charge (MAC)—a variable fee on incoming foreign capital flows used to purchase dollar assets. The Fed would set and adjust the MAC rate. The Treasury Department would collect the MAC revenue. The result would be a gradual move for the dollar toward a trade-balancing exchange rate. The legislation would also authorize the Federal Reserve to engage in countervailing currency intervention when other nations manipulate their currencies to gain an unfair trade advantage.

Whether or not this bill is passed, it marks the beginning of a necessary reappraisal of the forces driving international trade and U.S. trade imbalances. The heart of the bill would be a stipulation that the Federal Reserve levy a variable tax on overseas capital used to buy U.S. assets whenever foreign investors invest significantly more capital in the United States than U.S. investors send abroad, which has been the case for more than forty years. The purpose of the tax would be to reduce capital inflows until they are largely in balance with outflows. A country’s capital account and current account must always match up exactly, so a balanced U.S. capital account would mean a balanced current account, and with this the U.S. trade deficit would disappear.

PUTTING THE INVESTMENT CART BEFORE THE HORSE

Some might think that imposing tariffs on imported goods is a more effective way to reduce U.S. trade deficits than levying duties on imported capital, but that’s the wrong approach. The key is to understand what drives the trade imbalances. If the recent Senate bill had been proposed in the nineteenth century—when trade finance dominated international capital flows—the proposal to tax capital inflows wouldn’t have made much sense. But today, as I have explained before (including here and here), the global economy is overflowing with excess savings. The need to park these excess savings somewhere safe is what fuels global capital flows, in turn giving rise to trade imbalances. As I explained in a recent Bloomberg piece, “Capital has become the tail that wags the dog of trade.”

After all, even though interest rates are historically low and U.S. corporate balance sheets are amassing heaps of nonproductive cash, the U.S. economy is still absorbing massive sums of capital from overseas. Clearly, this isn’t happening because U.S. firms need foreign capital. The reason for these imbalanced capital flows is that foreign investors need a safe place to direct their excess savings. With the deepest, best-governed, and friendliest capital markets, the United States is the obvious destination.

Economists who contend that the U.S. economy needs foreign capital to compensate for low domestic savings rates are mostly confused about why U.S. savings rates are so low and how they respond to capital inflows. A fundamental requirement of the balance of payments is that net capital inflows must boost the gap between investment and savings, and if capital inflows do not cause domestic investment to rise, they must cause domestic savings to decline. There is no other possibility, and as I’ve explained elsewhere, capital inflows force the U.S. economy to adjust either by increasing unemployment or, more likely, by setting off conditions that cause fiscal or household debt to grow. Put another way, the United States doesn’t absorb foreign capital because the country has a low savings rate—the country’s savings rate is low because it has to absorb so much foreign capital.

This is why it is a mistake to think—as many do—that Americans need foreign capital to counter low domestic savings rates, or even that the U.S. current account deficit is driven in part by a burgeoning fiscal deficit. If one country saves more than it invests, another country must save less than it invests: that is how the global balance of payments works. Americans automatically tend to assume that it must be the United States that sets the savings schedule of the whole world, but this is unlikely. The high savings rates of countries like China, Germany, and Japan are too obviously a function of the distribution of domestic income (see here and here for why), making it far more likely that excess savings in those countries drive down savings elsewhere.

TAXING CAPITAL INFLOWS IS THE SMART PLAY

If it is excess savings in surplus countries that drive capital and trade imbalances globally, then taxing capital inflows is not just the most efficient way to rebalance the U.S. trade ledger—it may perhaps be the only way. And there are more reasons why the United States should consider restricting the capital account. If designed well, a tax on capital inflows could have at least five other advantages:

• Balancing trade flexibly: A well-designed system of taxing capital inflows would help broadly rebalance the U.S. current and capital accounts over several years. Having the Fed impose a variable tax on capital inflows at its discretion would give the United States a tool for managing trade imbalances that is far more flexible than WTO interventions, trade negotiations, tariffs, or subsidies. At the same time, this approach would allow for the temporary trade imbalances that are a normal feature of any well-functioning global trading system.

• Enhancing financial stability: Because it would be a one-off tax on transactions, this tax wouldn’t treat all investment equally. It would more heavily penalize short-term, speculative inflows while barely affecting returns on longer-term investment into factories and other production and logistics facilities, much like a Tobin tax. Among other things, such a tax would not require huge shifts in the value of the dollar because it focuses so effectively on the most damaging kinds of capital inflows. For example, if the tax were 50 basis points (or half of a percentage point), the annual yield on a three-month investment in the United States would drop by more than two percentage points, making short-term investment a losing proposition. A one-year investment would fare better, but annual yields would still drop by just more than half of a percentage point.

  A ten-year investment, on the other hand, would reduce expected yields by a mere five to seven basis points, hardly enough to matter to an investor interested in building a factory in the United States, while a twenty-year investment would see yields drop even lower, by three to four basis points. The impact of the tax, in other words, would be to skew foreign investment away from short-term, speculative inflows. Long-term investments in productive facilities, however, could even become more attractive to the extent that the measure would lower the value of the dollar. In effect, this would enhance the stability of the U.S. financial system.

• Treating economic actors more efficiently: Whereas tariffs subsidize some U.S. producers at the expense of others, taxing capital inflows would benefit most domestic producers with the costs borne primarily by banks and speculators. Major international banks would lose out on a tax on capital inflows because they profit from the intermediation of capital flows into and out of the country, and because they fund themselves with cheap, short-term money that they redirect to borrowers at higher rates. This is why the biggest opponents of a tax on capital inflows are likely to be major international banks. But to the extent that these banks, many of which are considered too big to fail, are too large and have an excessive role in the economy and in policymaking, forcing them to pay for the benefits accrued by U.S. producers might actually create a further benefit to the U.S. economy.

• Avoiding broader economic disruptions: Unlike issuing tariffs, levying a tax on capital inflows doesn’t disrupt value chains to anywhere near the same extent or distort relative prices on tradable goods. Tariffs favor some sectors of the productive economy over others, so they can be highly politicized as well as highly distorting to global value chains and the role of U.S. producers. Taxing capital flows works by forcing financial adjustments—by adjusting the value of the dollar, for example, or by reducing debt—so such a tax is likely to be both less politicized and less distortionary to the real economy. In fact, to the extent that trade imbalances are driven by distortions in global savings, taxes on capital inflows will even drive prices closer to their optimal level.

• Allocating capital more efficiently: Some observers might argue that, by reducing the capital available for U.S. investment, a tax on foreign capital inflows would distort productive investment and make the capital allocation process in the United States less efficient. This would be true if most international capital consisted of sophisticated investment capital seeking its most economically efficient use, but only academic economists believe this is the case. In fact, much of the flow of international capital is driven by temporary investment fads, capital fleeing from political or financial uncertainty, reserve accumulation strategies by foreign central banks, debt bubbles, and speculative plays on currency or emerging markets. For that reason, a variable tax on capital inflows would actually improve the capital allocation process by discriminating against nonproductive uses of capital and so preventing them from distorting the financial markets.

The biggest risk of a tax on capital inflows is that the U.S. economy might indeed experience periods when there are capital shortages and U.S. businesses are unable to access cheap capital.

At such times, of course, the Fed would simply set the tax to zero.

The trade shortfalls that plague the U.S. economy are chiefly a product of imbalanced capital flows, which are driven by distortions in global savings. Selectively restricting capital inflows is the best way to address these imbalances. Tariffs are a far less effective tool: they mostly just rearrange bilateral imbalances and distort the underlying economy without addressing structural issues. Whether it passes or not, the recent Senate bill is the right approach and an encouraging sign because it is the first time lawmakers have sought to address the persistent U.S. trade deficit by way of capital imbalances.

via ZeroHedge News https://ift.tt/2yZew2W Tyler Durden

An increasing number of companies are now demanding that their online advertisements do not appear next to articles containing ‘blacklisted’ keywords, according to the Wall Street Journal‘s Suzanne Vranica. 

For example, articles which contain the words “dead, shooting, murder, gun, rape, bomb and Trump” have been flagged as no-go, according to brand-safety firm Integral Ad Science. 

Like many advertisers, Fidelity Investments wants to avoid advertising online near controversial content. The Boston-based financial-services company has a lengthy blacklist of words it considers off-limits.

If one of those words is in an article’s headline, Fidelity won’t place an ad there. Its list earlier this year, reviewed by The Wall Street Journal, contained more than 400 words, including “bomb,” “immigration” and “racism.” Also off-limits: “Trump.” –Wall Street Journal

In recent years, corporations have been burned after their online advertisements appeared next to offensive content – including fake news, porn, and hateful or racist materials. This can happen due to the way ad serving agencies categorize audiences vs. content. As a result, advertisers are now stipulating that they don’t want their content featured on certain websites or articles with certain keywords.

“Political stories are, regardless of party affiliation, not relevant to our brand,” a Fidelity spokesman told the Journal in a statement, adding that the company also avoids several other topics which aren’t in alignment with their values. 

That said, blacklists are not new to the advertising industry – such as airlines avoiding articles dealing with airline crashes. They are, however, becoming far more complex, specific, and extensive according to ad executives. 

The ad-blacklisting threatens to hit publications’ revenue and is creating incentives to produce more lifestyle-oriented coverage that is less controversial than hard news. Some new organizations are investing in technologies meant to gauge the way news stories make readers feel in the hopes of persuading advertisers that there are options for ad placement other than blacklisting.

Consumer-products company Colgate-Palmolive Co. , sandwich chain Subway and fast-food giant McDonald’s Corp. are among the many companies blocking digital ad placements in hard news to various degrees, according to people familiar with those companies’ strategies. –Wall Street Journal

Some of the blacklists are so restrictive that nearly all political or hard-news stories are off-limits. 

“It is a de facto news blocking,” said ad-buying executive Megan Pagliuca. 

The use of lengthy keyword lists “is going to force publishers to do lifestyle content and focus on that at the expense of investigative journalism or serious journalism,” said Nick Hewat, commercial director for the Guardian, a U.K. publisher. “That is a long-term consequence of this sort of buying behavior.” The Guardian has had some advertisers block words such as “Brexit,” he said. –Wall Street Journal

And according to ad measurement firm DoubleVerify, out of 177 advertisers they work with, there has been a 33% increase in blocked ads based on blacklists vs. one year ago, and more than double the number in 2017, according to the company. 

Meanwhile, advertising firm Integral Ad Science, which ensures that ads run on advertiser-safe content, said that “of the 2,637 advertisers running campaigns with it in June, 1,085 brands blocked the word “shooting,” 314 blocked “ISIS” and 207 blocked “Russia.” Almost 560 advertisers blocked “Trump,” while 83 blocked “Obama.””

Amid the American political divide, advertising has become a new crusade for weaponized activists. For example, the Twitter account Sleeping Giants called out hundreds of companies advertising on right-wing news site Breitbart News – resulting in a widespread blacklisting. 

Colgate-Palmolive is blocking online ad placements in news stories, according to people with knowledge of its ad strategy. “In general, our media buying goals are to advertise where people are most likely to be receptive to what we have to say,” a Colgate spokeswoman said in an email. The company said it looks for “opportunities more likely to fit with the brand’s positive, optimistic message.”

Subway said it has blacklisted 70,000 websites, including most hard-news outlets. The company wants to align with “positivity and the moments when our guests will be most likely to consider getting Subway,” said Melissa Sutton, Subway’s director of media services.

Used-car retailer CarMax Inc. blocks online ads it purchases through automated systems from appearing next to news content in categories such as “disasters,” “extreme violence” and “inflammatory politics” to ensure the integrity of its brand, the company said.

McDonald’s currently is blocking hard news from its automated ad purchases in the U.S., according to a person familiar with its ad buying. “The first time your brand is damaged, it’s not easily fixed,” said Bob Rupczynski, senior vice president of marketing technology at McDonald’s, during a recent ad conference in Cannes, France. –Wall Street Journal

That said, despite keyword blacklists, advertisers may not be able to avoid some embarrassment. In February, a spate of advertisers including AT&T and Nestle SA pulled ads from YouTube after their content was featured over a “soft-core pedophilia ring” which allowed pedophiles to identify videos of young girls engaging in sexually suggestive activities. 

Read the rest of the report here.

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

There’s no denying that earlier this spring, around the time that President Trump first signaled in an improvised weekend tweet that he would raise tariffs on Chinese goods because he had lost patience with Beijing, former White House Chief Strategist Steve Bannon started expounding his hawkish views on China during an extended media tour. He did interviews or published op-eds with the Washington Post, Fox, CNBC – even the South China Morning Post.

His argument was simple: the US and China are not engaging in trade war, but rather battling for world domination, an argument made first last year by none other than Bank of America’s CIO Michael Hartnett, who said last May that “the first stage of a new arms race between the US & China to reach national superiority in technology over the longer-term via Quantum Computing, Artificial  Intelligence, Hypersonic Warplanes, Electronic Vehicles, Robotics, and Cyber-Security.”

Of course, Beijing wants its ‘slave’ system of totalitarian communism to define a new world order, while Washington must do everything in its power to preserve good ol’ fashioned American democracy and the American-led world order.

Meanwhile, the China First strategy will be met head-on by an America First strategy.  Hence the “arms race” in tech spending which in both countries is intimately linked with defense spending. Note military spending by the US and China is forecast by the IMF to rise substantially in coming decades, but the stunner is that by 2050, China is set to overtake the US, spending $4tn on its military while the US is $1 trillion less, or $3tn.

This means that some time around 2038, roughly two decades from now, China will surpass the US in military spending, and become the world’s dominant superpower not only in population and economic growth – China is set to overtake the US economy by no later than 2032  – but in military strength and global influence as well.

As a result, China must be stopped well before it crosses that point.

Unfortunately, as Bannon would explain, the sides aren’t quite so black and white. The American financial and corporate sectors were largely to blame for helping transform China into an economic super power. Wall Street had gratefully accepted IPOs of Chinese companies and allowed Chinese companies to raise money in American markets. American companies like Apple built things on the mainland, often contracted via mainland subsidiaries.

But despite joining the WTO and promising to be more transparent and open, Bannon argued, Beijing continued to accept the generous trade terms offered but rarely reciprocated. It maintained a tight control over its financial markets and FDI. Meanwhile, it used ‘debt diplomacy’ to build out the Belt and Road Initiative, the world’s greatest ‘neocolonialist project’.

Well, Bannon hasn’t been quite as active lately, though it is clear that he’s thrilled the president ultimately decided to embrace his position on China. Which is why the Global Times, the Communist Party’s nationalist mouthpiece, has run an editorial attacking Bannon, something that he also probably finds exceedingly thrilling.

The op-ed begins with President Trump’s infamous tweet bashing Bannon, calling him “Sloppy Steve” and accusing him of being a “leaker.”

The Mercer Family recently dumped the leaker known as Sloppy Steve Bannon. Smart!

— Donald J. Trump (@realDonaldTrump) January 5, 2018

Then goes on to accuse Bannon of doubling down on his “hysterical right-wing opinions,” “vilifying” China to any journalist who would listen.

It is hard to believe that this “dumped dog” was one of Trump’s “best pupils” during his election campaign. Former White House chief strategist Steve Bannon, also Trump’s former campaign chief who spread Trump’s anti-immigrant and nationalist calls leading up to the US general election, has now made attacking China his new business after being dumped by Trump.

In 2019, Bannon intensified his assault on China with even more hysterical right-wing opinions.

Steve Bannon told the South China Morning Post, a Hong Kong-based newspaper, that the executive order signed by US President Donald Trump banning Huawei from the US market and cutting off vital components is “10 times more important than walking away from the trade deal.”

Ultimately, the GT accused Bannon of masterminding what it called “China threat theory”, and has used his influence within the West Wing, which lingers on through his loyalists and even his continuing relationship with President Trump, to vilify Beijing and encourage Washington to take a hard tack in the trade war.

On May 6, he published an article in the Washington Post vilifying and inciting his country to confront China.

“Steve Bannon has now added a new project to his portfolio – one designed, like all Bannon projects, to harness the worst in a situation to make it even worse. Lately, he has been focusing on an adversary that troubles those on both the left and right: China. But Bannon’s aim is hardly to reduce tensions between the US and China; he means to ratchet up the trade war,” according to the American Prospect, an American political and public policy magazine.

The “China threat theory” has fermented rapidly in the Trump era, and this can be partly attributed to the profound influence Steve Bannon had on the US president. Although Bannon left the White House in 2017, there are no fundamental differences between Bannon and Trump in terms of governance philosophy and China policy, and he still has access to the White House to influence its China policy decisions, said Chinese experts.

The GT also accused Bannon of ‘malicious smears’ by asserting that Beijing has been waging “economic war” against all Western democracies.

Bannon maliciously smeared China by saying that it is a “rapidly militarizing totalitarian state imprisoning millions in work camps,” and “the world is a house divided, half slave, half free.” Washington and Beijing are “facing off to tip the scales in one direction or the other,” he wrote.

Bannon focused his fire just at a time when pressure is growing on China-US relations. But how can Bannon stir up a new wave of anti-China rhetoric in Washington after being kicked out of the White House? It could be because his personnel deployment strategy in the White House is still working.

Finally, the op-ed accused Bannon of organizing the debate between Liu Xin of China Global Television Network and Trish Regan of the Fox Business Network, and leveraging his many media contacts to give critical interviews on China, most of which involving encouraging the American people to support Trump in his trade war with China, no matter the personal stakes.

It also accused him of creating an “anti-China” clique.

In addition to keeping a close eye on China issues in Fox News, Bannon is personally close to a number of hosts, regularly meeting with them, relentlessly promoting the “China threat” and using the media megaphone to get his voice heard.

Bannon has also worked with other hawks to create an Anti-China clique. The latest example came in March, when Bannon colluded with other Washington policy advisers to establish the Committee on the Present Danger, which targets China.

It aims to facilitate “public education and advocacy against the full array of conventional and non-conventional dangers” posed by China, according to an announcement the group released. The committee is widely believed to be fueling bilateral tensions between the two countries.

But with the Trump Administration already backpedaling by delaying tariffs that would send inflation soaring, the question is why is Beijing picking now to go after Bannon? Perhaps it intended to communicate that while Bannon’s not a priority deserving of a swift rebuttal (like, say, Mike Pompeo or John Bolton), Beijing doesn’t forget an unkind word. That, or it realizes that despite Bannon has been cast away from the close circle of Trump advisors – at least for public consumption – Bannon is still the main puppetmaster in the White House.

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

Joe Biden’s allies have suggested altering the former Vice President’s schedule in order to reduce his seemingly constant blunders during campaign stops. 

“Biden has a tendency to make the blunders late in the day,” according to The Hill‘s sources – a hallmark behavior of a senior citizen ‘sundowning’ – in which their confusion and agitation may worsen in the late afternoon and evening. 

The 76-year-old Biden has, in recent days and weeks: 

• Said he was Vice President during the 2018 mass shooting in Parkland, FL. 
• Said that “poor kids are just as bright and just as talented as white kids.”
• Said that he chooses “truth over facts” while speaking to an audience in the key state of Iowa.
• Referred to Theresa May as Margaret Thatcher
• Spoke of using biofuels to power “steamships.” 

Joe Biden just said, “We believe in facts, not truth.” Does anybody really believe he is mentally fit to be president? We are “playing” in a very big and complicated world. Joe doesn’t have a clue!

— Donald J. Trump (@realDonaldTrump) August 10, 2019

Moreover, Biden peddled an ongoing falsehood about President Trump’s remarks in the wake of the Charlottesville attack – suggesting that Trump was praising white supremacists, when in fact he specifically condemned them. When confronted about it, the former VP lashed out at a Breitbart journalist before storming off.

Earlier in his campaign, Biden told spoke warmly of his days in the Senate working alongside segregationist Democrats. 

No wonder his allies are worried

“He needs to be a strong force on the campaign trail, but he also has to pace himself,” one ally told The Hill, who noted that it was unclear if the Biden campaign would implement changes to his schedule in the wake of criticism for not appearing as much as his Democratic rivals. 

“I think you’ll see the same schedule and maybe even more Joe Biden,” said another ally. “Everyone wants to see Joe Biden be Joe Biden. If he’s held back in any way, that’s almost the antithesis of who he is.”

Biden, who will be 77 in November and would be 78 upon taking office should he win the 2020 election, has come under fire for his fitness to run the country. 

“A lot of people are nervous that he’s lost some of his mojo,” one major Democratic donor told The Hill. They’re getting nervous about him going toe to toe with Trump. But the problem is, there doesn’t seem to be an alternative.“

For now, Biden’s biggest opponent appears to be Sen. Elizabeth Warren (D-Mass.). A New Economist–YouGov weekly tracking poll published on Tuesday showed Biden at 21 percent, leading Warren by just 1 point. She has been narrowing the gap in other polls, too.

“In light of ascending candidates like Warren and [New Jersey Sen. Cory] Booker who seem to be getting a stronger voice, the gaffes give credence to voters on the fence about him even as Trump has normalized worse language in public discourse,” said Democratic strategist Basil Smikle, former executive director of the New York state Democratic Party.

At the same time, Biden retains a solid, double-digit lead over Warren in South Carolina, according to a survey from the Post and Courier newspaper in Charleston and Change Research.

And aides say he doesn’t intend to change his approach. –The Hill

No word on whether an afternoon nap has been floated. 

Trump, meanwhile, is jumping all over Biden’s senior moments…

Trump on Biden’s “poor kids” comment: “Joe Biden is not playing with a full deck. This is not somebody you can have as your president.” https://t.co/idScOroOzN pic.twitter.com/0n8TbU2wSi

— CBS News (@CBSNews) August 9, 2019

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