John Williams Warns “The Fed Is Killing Off The Economy”

Via Greg Hunter’s USAWatchdog.com,

Economist John Williams says the recent rate hikes mean the “Fed is killing off the economy.”

Williams says, “I heard President Trump make some comments to that effect, and he’s right…”

“The Fed is trying to raise rates. The idea is if you get higher rates, the banks will be able to make more profits on their lending. It will also encourage bank lending. Unfortunately, on the consumer end, it raises the consumers’ cost of borrowing as interest rates go up. It makes mortgages more expensive. It makes borrowing more expensive. Mortgages go up, people don’t buy as many houses.

What you are seeing right now is effectively a recession in the housing market, in the construction area. Existing home sales have been down for six or seven months in a row, and it’s down year over year.”

Williams says, “The Fed is trying to get the system back to normal.”

In doing so, the Fed could kill the system. Williams says,

“Well, that’s what they are doing. In many ways, it would have been easier if the banking system would have collapsed and had a banking holiday, and restructured it and reopened it back in 2007 and 2008. That would have been a very difficult time for the people who owned the banks, and again, the Fed owns the banking system.”

So, they are trying to fix the banks, and to do that, they will simply screw the consumer? Williams says,

“Well, they have an escape clause. Former Fed Head Janet Yellen said that if the economy falls back into recession, ‘we will just go back into quantitative easing’ (QE/money printing). I think that could easily happen here. When the economy goes down, it increases the liquidity stresses on the banking system. There is default on debt, and companies tend to go out of business. That will stress the bank earnings. QE was aimed at propping up the banks in tough times.

The Fed is very open to QE, and from the Fed’s standpoint, I think we are going to end up in a perpetual state of quantitative easing, unless they let the banking system reorganize and get a new functioning system. It’s still not functioning.”

John Williams has long said that this money printing orgy by the Fed will end in a hyperinflationary event. Williams says,

“Unfortunately, it is unavoidable. It is only a matter of when. It can only be avoided if the U.S. can get its long term financial house in order.”

We all know that is not going to happen. Williams says,

“As they keep going here, there is going to be hyperinflation. The dollar will weaken. Gold and silver will rally, and that will be part of a self-feeding cycle, which will get you into very high inflation…

If the Fed can’t get this banking crisis worked out, I would not be surprised to see a complete overhaul of the system.”

Join Greg Hunter as he goes One-on-One with economist John Williams, founder of ShadowStats.com.

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John Williams posts some free information on ShadowStats.com.

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Hedge Fund CIO: “After A Decade Of 0% Rates, Payback Time Is Just Starting”

Submitted by Eric Peters, CIO of One River Asset Management

“President Trump’s leadership is working. China wants a different American President,” declared Mike Pence, firing up his base into the mid-terms home stretch.

“Chinese security agencies have masterminded the wholesale theft of American technology,” continued our VP. “Worst of all, China has initiated an unprecedented effort to influence American public opinion, the 2018 elections, and the environment leading into the 2020 presidential elections,” Pence explained.

“Beijing is also using its power like never before. China now spends as much on its military as the rest of Asia combined, and is prioritizing capabilities to erode US military advantages on land, at sea, in the air, and in space,” he warned, without mentioning that America’s annual military budget exceeds the combined spend of China, Russia, Saudi Arabia, India, France, Britain and Japan.

America’s 2018/2019 budget deficit is forecast at $985bln (22% of the $4.4trln federal budget). We’ll borrow those $985bln dollars, spend $610bln on our military, pay $390bln in interest on our $16trln debt, and still come up $15bln short.

A decade of 0% interest rates allowed America to borrow without consequence. Payback time is just starting. Next year’s interest expense will be a stunning 50% higher than 2017 thanks to rising interest rates and still-expanding budget deficits.

Interest payments on the US federal debt will overtake Medicaid expenditures in 2020 and our entire military budget in 2023. The CBO forecasts $915bln in annual interest expenses by 2028.

“Understanding the Chinese propaganda efforts is going to be key,” advised our vice president, spinning voter’s attention away from the threats within, to those from without.

And on cue, the story broke across countless media outlets, an outrage first discovered in 2015 but conveniently surfacing just now: “Chinese Spies Snuck Chips Into CIA, US Military, Commercial Servers, Leaving Them Open To Infiltration And Compromising America’s Technology Supply Chain.”

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Wife Of “Disappeared” Interpol Chief Reveals Chilling Final Text Message

The wife of missing Interpol president Meng Hongwei has revealed a grisly text message sent to her before his mysterious disappearance after Chinese authorities detained him “for questioning,” reports The Independent. 

Grace Meng says that her husband, 64, sent her an emoji of a knife shortly before his disappearance. 

Grace Meng said she believes that sending the image was her husband’s way of trying to tell her that he was in danger. 

She added that she has had no further contact with him since the message was sent on 25 September. 

Ms Meng also said that four minutes before Mr Meng shared the image, he sent a message saying “wait for my call”. –Indpendent

Meng, who is also a deputy minister for public safety in China though he had been living with his family in Lyon, France, where Interpol’s headquarters is based, was reported missing by his wife last week, prompting prosecutors in France to open an investigation. That investigation is continuing despite confirmation that Meng is being held by the Chinese government.

“Interpol has requested through official law enforcement channels clarification from China’s authorities on the status of Interpol President Meng Hongwei,” Juergen Stock, secretary general of the organization based in Lyon, France, said in a statement. “Interpol’s general secretariat looks forward to an official response from China’s authorities to address concerns over the president’s well-being.”

Meng is also China’s deputy minister of public security and has 40 years of experience in policing and public safety. His experience includes stints working on narcotics enforcement and counter-terrorism, according to Interpol’s website. While many at Interpol feared Meng would abuse his position to encourage foreign governments to extradite Chinese dissidents living abroad, instead, he appears to have taken an interest in cybercrime enforcement since his election in November 2016. His term is set to expire in 2020.

Senior SCMP reporter, Bobby Siu, tweeted on Sunday that the Central Commission for Discipline Inspection has now confirmed that Meng is under investgiation for a serious violation of an unspecified Chinese law. 

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Notice How Quickly Market Psychology Changed?

Authored by John Rubino via DollarCollapse.com,

“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.”

– Ernest Hemingway, The Sun Also Rises

On the surface, nothing much changed last week. The Fed, as expected, raised short-term interest rates very modestly, the US, Canada and Mexico cut a new NAFTA deal (kind of a pleasant surprise), unemployment fell again, Trump continued to tweet while Democrats and Republicans continued to express their mutual disdain via dirty tricks and contrived insults. Business as usual, in other words, in our dysfunctional new normal.

Yet for some reason financial market psychology suddenly shifted from euphoria to terror. Long-term interest rates spiked…

…the dollar rose…

…and stocks tanked. The NASDAQ especially was slammed by the sudden reversal of its previously-bulletproof FAANGs:

What happened? Apparently the weight of accumulating problems finally became too great to ignore. Interest rates had been rising for a while as inflation bumped up against Fed targets, but traders only noticed when the 10-year Treasury yield pierced 3%. This cycle’s housing boom had been moderating since June, but lately the bottom seems to have dropped out, generating headlines like this:

Manhattan home sales tumble in market clogged with listings

Vancouver home sales mark steady decline

For-Sale home supply surges in hot West Coast markets

Bond-market bloodbath likely to hit mortgage rates soon

And the emerging market crisis – easily managed if the dollar just went back down – suddenly feels permanent as rising interest rates pull the dollar along for the ride. Here’s a recap of last week’s EM action, courtesy of Doug Noland’s Credit Bubble Bulletin:

The South African rand sank 4.3% this week, with the Chilean peso down 3.0% and the Colombian peso falling 2.0%. Asian currencies were under notable pressure, with the South Korean won down 1.9%, the Indonesian rupiah 1.8%, the Indian rupee 1.7%, and the Thai baht 1.6%. The Russian ruble declined 1.6%, the Polish zloty 1.3% and the Turkish lira 1.3%. As for major equities indices, stocks in both Turkey and India sank 5.1%. Equities fell 4.4% in Taiwan and 3.7% in South Korea. Argentine stocks sank 9.8%, with Mexico down 2.9%.

As much as currencies and stocks were under pressure, the more ominous EM moves were in bond markets. Ten-year (local) sovereign yields surged 33 bps in Indonesia, 26 bps in Russia, 21 bps in South Africa, and 14 bps in Hungary. And dollar-denominated EM debt provided no safe haven. Venezuela’s 10-year dollar yields surged 70 bps to 38.55%; Argentina’s 64 bps to 9.90%; and Turkey’s 52 bps to 7.86%. Ten-year dollar yields jumped 19 bps in Indonesia, 19 bps in Chile, 18 bps in Russia, 17 bps in Mexico and 14 bps in Colombia.

The lesson? When market psychology changes it frequently does so overnight from the point of view of people who weren’t paying attention. But for those who were watching things deteriorate under the surface, the change is actually long overdue.

So the real question isn’t “why is everything changing?”, but “why did it take so long?”

And of course: “If this is the start of another 2008-style Great Unraveling, how can we profit from it?”

Right now the obvious answer to the second question is to short everything in sight, joining the long-suffering short sellers who on Thursday and Friday made back a small bit of their past few years’ losses. Here, for instance, is last week’s action in the most shorted of all stocks, Tesla (full disclosure — DollarCollapse staff are happily short this one):

And last but definitely not least: “How far out of control will central banks allow the leveraged speculating community to spin before they reverse course and start cutting interest rates and ramping up next-gen QE programs — and how deeply negative will interest rates have to go to stop the bleeding?

If this sounds like paradise for precious metals, that’s because it is – in theory. Negative interest rates offset the carrying costs of gold and silver stored in vaults, making bullion obviously superior to dollars/euros/yen stored in bank accounts. An added attraction is the new generation of gold-backed debit cards and cryptocurrencies that add portability to these ancient forms of money.

History doesn’t repeat perfectly of course, but this set-up is close enough.

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Homeland Security Backs Apple, Amazon In Denial Of Chinese “Spy Chip” Infiltration

The Department of Homeland Security has sided with Apple, Amazon and Supermicro, which vehemently denied claims contained in a Thursday Bloomberg report alleging that China installed miniature “spy chips” the size of a grain of rice on motherboards built by Supermicro and used by around 30 companies. Bloomberg, citing 17 unidentified intelligence and company sources, claims that the chip can compromise data on the servers, giving China a backdoor into some of the world’s largest companies and organizations. 

The three tech giants have all published statements on their websites refuting the report, while Bloomberg is sticking by their story. 

The DHS statement reads in part: 

The Department of Homeland Security is aware of the media reports of a technology supply chain compromise. Like our partners in the UK, the National Cyber Security Centre, at this time we have no reason to doubt the statements from the companies named in the story. Information and communications technology supply chain security is core to DHS’s cybersecurity mission and we are committed to the security and integrity of the technology on which Americans and others around the world increasingly rely. 

On Thursday, Apple contested the Bloomberg report, saying that their own internal investigation had found no evidence of the spy chips, and that neither the company nor their law enforcement contacts were aware of any FBI investigation into the matter. 

Apple’s recently retired general counsel, Bruce Sewell, told Reuters he called the FBI’s then-general counsel, James Baker, last year after being told by Bloomberg of an open investigation of Super Micro Computer, a hardware maker whose products Bloomberg said were implanted with malicious Chinese chips.

“I got on the phone with him personally and said, ‘Do you know anything about this?,” Sewell said of his conversation with Baker. “He said, ‘I’ve never heard of this, but give me 24 hours to make sure.’ He called me back 24 hours later and said ‘Nobody here knows what this story is about.'” –CNBC

Multiple Apple sources, “three of them very senior executives,” told BuzzFeed News: “We tried to figure out if there was anything, anything, that transpired that’s even remotely close to this … We found nothing.” 

A senior security engineer directly involved in Apple’s internal investigation described it as “endoscopic,” noting they had never seen a chip like the one described in the story, let alone found one. “I don’t know if something like this even exists,” this person said, noting that Apple was not provided with a malicious chip or motherboard to examine. “We were given nothing. No hardware. No chips. No emails.”

Equally puzzling to Apple execs is the assertion that it was party to an FBI investigation — Bloomberg wrote that Apple “reported the incident to the FBI.” A senior Apple legal official told BuzzFeed News the company had not contacted the FBI, nor had it been contacted by the FBI, the CIA, the NSA, or any government agency in regards to the incidents described in the Bloomberg report. This person’s purview and responsibilities are of such a high level that it’s unlikely they would not have been aware of government outreach. –BuzzFeed

The Bloomberg report claims that there is an ongoing government investigation into China’s use of a “tiny microchip” that found its way into servers that were widely used throughout the US military and intelligence infrastructure, from Navy warships to DoD server farms. The probe began three years ago after the US intelligence agencies were tipped off by Amazon. And three years later, it remains ongoing.

Nested on the servers’ motherboards, the testers found a tiny microchip, not much bigger than a grain of rice, that wasn’t part of the boards’ original design. Amazon reported the discovery to U.S. authorities, sending a shudder through the intelligence community. Elemental’s servers could be found in Department of Defense data centers, the CIA’s drone operations, and the onboard networks of Navy warships. And Elemental was just one of hundreds of Supermicro customers.

During the ensuing top-secret probe, which remains open more than three years later, investigators determined that the chips allowed the attackers to create a stealth doorway into any network that included the altered machines. Multiple people familiar with the matter say investigators found that the chips had been inserted at factories run by manufacturing subcontractors in China.

***

As we previously reported:

The story begins with a Silicon Valley startup called Elemental. Founded in 2006 by three engineers who brilliantly anticipated that broadcasters would soon be searching for a way to adapt their programming for streaming over the Internet, and on mobile devices like smartphones, Elemental went about building a “dream team” of coders who designed software to adapt the super-fast graphics chips being designed for video gaming to stream video instead. The company then loaded this software on to special, custom-built servers emblazoned with its logo. These servers then sold for as much as $100,000 a pop – a markup of roughly 70%.  In 2009, the company received its first contract with US defense and intelligence contractors, and even received an investment from a CIA-backed venture fund.

  • Elemental also started working with American spy agencies. In 2009 the company announced a development partnership with In-Q-Tel Inc., the CIA’s investment arm, a deal that paved the way for Elemental servers to be used in national security missions across the U.S. government. Public documents, including the company’s own promotional materials, show that the servers have been used inside Department of Defense data centers to process drone and surveillance-camera footage, on Navy warships to transmit feeds of airborne missions, and inside government buildings to enable secure videoconferencing. NASA, both houses of Congress, and the Department of Homeland Security have also been customers. This portfolio made Elemental a target for foreign adversaries.

Like many other companies, Elementals’ servers utilized motherboards built by Supermicro, which dominates the market for motherboards used in special-purpose computers. It was here, at Supermicro, where the government believes – according to Bloomberg’s sources – that the infiltration began. Before it came to dominate the global market for computer motherboards, Supermicro had humble beginnings. A Taiwanese engineer and his wife founded the company in 1993, at a time when Silicon Valley was embracing outsourcing. It attracted clients early on with the promise of infinite customization, employing a massive team of engineers to make sure it could accommodate its clients’ every need. Customers also appreciated that, while Supermicro’s motherboards were assembled in China or Taiwan, its engineers were based in Silicon Valley. But the company’s workforce featured one characteristic that made it uniquely attractive to China: A sizable portion of its engineers were native Mandarin speakers. One of Bloomberg’s sources said the government is still investigating whether spies were embedded within Supermicro or other US companies).

But however it was done, these tiny microchips somehow found their way into Supermicro’s products. Bloomberg provided a step-by-step guide detailing how it believes that happened.

  • A Chinese military unit designed and manufactured microchips as small as a sharpened pencil tip. Some of the chips were built to look like signal conditioning couplers, and they incorporated memory, networking capability, and sufficient processing power for an attack.
  • The microchips were inserted at Chinese factories that supplied Supermicro, one of the world’s biggest sellers of server motherboards.
  • The compromised motherboards were built into servers assembled by Supermicro.
  • The sabotaged servers made their way inside data centers operated by dozens of companies.
  • When a server was installed and switched on, the microchip altered the operating system’s core so it could accept modifications. The chip could also contact computers controlled by the attackers in search of further instructions and code.

In espionage circles, infiltrating computer hardware – especially to the degree that the Chinese did – is extremely difficult to pull off. And doing it at the nation-state level would be akin to “a unicorn jumping over a rainbow,” as one of BBG’s anonymous sources put it. But China’s dominance of the market for PCs and mobile phones allows it a massive advantage.

One country in particular has an advantage executing this kind of attack: China, which by some estimates makes 75 percent of the world’s mobile phones and 90 percent of its PCs. Still, to actually accomplish a seeding attack would mean developing a deep understanding of a product’s design, manipulating components at the factory, and ensuring that the doctored devices made it through the global logistics chain to the desired location – a feat akin to throwing a stick in the Yangtze River upstream from Shanghai and ensuring that it washes ashore in Seattle. “Having a well-done, nation-state-level hardware implant surface would be like witnessing a unicorn jumping over a rainbow,” says Joe Grand, a hardware hacker and the founder of Grand Idea Studio Inc. “Hardware is just so far off the radar, it’s almost treated like black magic.”

But that’s just what U.S. investigators found: The chips had been inserted during the manufacturing process, two officials say, by operatives from a unit of the People’s Liberation Army. In Supermicro, China’s spies appear to have found a perfect conduit for what U.S. officials now describe as the most significant supply chain attack known to have been carried out against American companies.

Some more details from the report are summarized below:

The government found that the infiltration extended to nearly 30 companies, including Amazon and Apple.

  • One official says investigators found that it eventually affected almost 30 companies, including a major bank, government contractors, and the world’s most valuable company, Apple Inc. Apple was an important Supermicro customer and had planned to order more than 30,000 of its servers in two years for a new global network of data centers. Three senior insiders at Apple say that in the summer of 2015, it, too, found malicious chips on Supermicro motherboards. Apple severed ties with Supermicro the following year, for what it described as unrelated reasons.

Both Amazon and Apple denied having knowledge of the infiltration (Amazon eventually acquired Elemental and integrated it into its Amazon Prime Video service). Meanwhile, the Chinese government issued a conspicuous non-denial denial.

  • In emailed statements, Amazon (which announced its acquisition of Elemental in September 2015), Apple, and Supermicro disputed summaries of Bloomberg Businessweek’s reporting. “It’s untrue that AWS knew about a supply chain compromise, an issue with malicious chips, or hardware modifications when acquiring Elemental,” Amazon wrote. “On this we can be very clear: Apple has never found malicious chips, ‘hardware manipulations’ or vulnerabilities purposely planted in any server,” Apple wrote. “We remain unaware of any such investigation,” wrote a spokesman for Supermicro, Perry Hayes. The Chinese government didn’t directly address questions about manipulation of Supermicro servers, issuing a statement that read, in part, “Supply chain safety in cyberspace is an issue of common concern, and China is also a victim.” The FBI and the Office of the Director of National Intelligence, representing the CIA and NSA, declined to comment.

Bloomberg based its story on interviews with 17 anonymous sources, including 6 former government intelligence officials. One official told BBG that China’s long-term goal was “long-term access” to sensitive government secrets.

  • In all, 17 people confirmed the manipulation of Supermicro’s hardware and other elements of the attacks. The sources were granted anonymity because of the sensitive, and in some cases classified, nature of the information.
  • The companies’ denials are countered by six current and former senior national security officials, who – in conversations that began during the Obama administration and continued under the Trump administration – detailed the discovery of the chips and the government’s investigation. One of those officials and two people inside AWS provided extensive information on how the attack played out at Elemental and Amazon; the official and one of the insiders also described Amazon’s cooperation with the government investigation. In addition to the three Apple insiders, four of the six U.S. officials confirmed that Apple was a victim. In all, 17 people confirmed the manipulation of Supermicro’s hardware and other elements of the attacks. The sources were granted anonymity because of the sensitive, and in some cases classified, nature of the information.

One government official says China’s goal was long-term access to high-value corporate secrets and sensitive government networks. No consumer data is known to have been stolen.

Notably, this revelation provides even more support to the Trump administration’s insistence that the trade war with China was based on national security concerns. The hope is that more US companies will shift production of sensitive components back to the US.

  • The ramifications of the attack continue to play out. The Trump administration has made computer and networking hardware, including motherboards, a focus of its latest round of trade sanctions against China, and White House officials have made it clear they think companies will begin shifting their supply chains to other countries as a result. Such a shift might assuage officials who have been warning for years about the security of the supply chain—even though they’ve never disclosed a major reason for their concerns.

As one government official reminds us, the extent of this attack cannot be understated.

  • With more than 900 customers in 100 countries by 2015, Supermicro offered inroads to a bountiful collection of sensitive targets. “Think of Supermicro as the Microsoft of the hardware world,” says a former U.S. intelligence official who’s studied Supermicro and its business model. “Attacking Supermicro motherboards is like attacking Windows. It’s like attacking the whole world.”

But perhaps the most galling aspect of this whole scandal is that the Obama Administration should have seen it coming.

  • Well before evidence of the attack surfaced inside the networks of U.S. companies, American intelligence sources were reporting that China’s spies had plans to introduce malicious microchips into the supply chain. The sources weren’t specific, according to a person familiar with the information they provided, and millions of motherboards are shipped into the U.S. annually. But in the first half of 2014, a different person briefed on high-level discussions says, intelligence officials went to the White House with something more concrete: China’s military was preparing to insert the chips into Supermicro motherboards bound for U.S. companies.

And thanks to Obama having dropped the ball, China managed to pull off the most expansive infiltration of the global supply chain ever discovered by US intelligence.

  • But that’s just what U.S. investigators found: The chips had been inserted during the manufacturing process, two officials say, by operatives from a unit of the People’s Liberation Army. In Supermicro, China’s spies appear to have found a perfect conduit for what U.S. officials now describe as the most significant supply chain attack known to have been carried out against American companies.

The inconspicuous-looking chips were disguised to look like regular components but they helped China open doors that “other hackers could go through” meaning China could potentially manipulate the systems being infiltrated (as a reminder, these chips were found in servers used in the US drone program).

  • The chips on Elemental servers were designed to be as inconspicuous as possible, according to one person who saw a detailed report prepared for Amazon by its third-party security contractor, as well as a second person who saw digital photos and X-ray images of the chips incorporated into a later report prepared by Amazon’s security team. Gray or off-white in color, they looked more like signal conditioning couplers, another common motherboard component, than microchips, and so they were unlikely to be detectable without specialized equipment. Depending on the board model, the chips varied slightly in size, suggesting that the attackers had supplied different factories with different batches.
  • Officials familiar with the investigation say the primary role of implants such as these is to open doors that other attackers can go through. “Hardware attacks are about access,” as one former senior official puts it. In simplified terms, the implants on Supermicro hardware manipulated the core operating instructions that tell the server what to do as data move across a motherboard, two people familiar with the chips’ operation say. This happened at a crucial moment, as small bits of the operating system were being stored in the board’s temporary memory en route to the server’s central processor, the CPU. The implant was placed on the board in a way that allowed it to effectively edit this information queue, injecting its own code or altering the order of the instructions the CPU was meant to follow. Deviously small changes could create disastrous effects.
  • Since the implants were small, the amount of code they contained was small as well. But they were capable of doing two very important things: telling the device to communicate with one of several anonymous computers elsewhere on the internet that were loaded with more complex code; and preparing the device’s operating system to accept this new code. The illicit chips could do all this because they were connected to the baseboard management controller, a kind of superchip that administrators use to remotely log in to problematic servers, giving them access to the most sensitive code even on machines that have crashed or are turned off.
  • This system could let the attackers alter how the device functioned, line by line, however they wanted, leaving no one the wiser. To understand the power that would give them, take this hypothetical example: Somewhere in the Linux operating system, which runs in many servers, is code that authorizes a user by verifying a typed password against a stored encrypted one. An implanted chip can alter part of that code so the server won’t check for a password—and presto! A secure machine is open to any and all users.

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Government Tracking Of Crypto Is Growing, But There Are Ways To Avoid It

Authored by Simon Chandler via CoinTelegraph.com,

Much noise has been made about the untraceable qualities of Bitcoin and other cryptocurrencies. Bitcoin “can be used to buy merchandise anonymously” said early primers on crypto, it offers users the kind of financial privacy that was previously available only from a “Swiss bank account,” say more recent commentators. And given its ability to provide people with a layer of anonymity and privacy, it has been smeared by politicians, experts and mainstream journalists alike as a hiding place for almost any hacker, drug dealer, gang member, terrorist or despot you could possibly name (even if cash is still the preferred financial medium of such personae non gratae).

image courtesy of CoinTelegraph

It’s therefore no wonder that, for several years, governments have been feverishly trying to trace Bitcoin’s circulation, as well as that of other digital currencies. And despite the popular reputation of most cryptocurrencies as anonymous, they’ve been aided in this pursuit by the fact that most cryptos are not anonymous, but rather pseudonymous. In other words, by linking transactions to fixed wallet addresses, and by keeping a public record of every single transaction ever made on their chains, most popular cryptocurrencies provide national governments with an almost perfect means of keeping tabs on our financial activity.

However, while many governments have begun capitalizing on this very convenient affordance by building systems that compile transaction data and scraped private info into a single database, most have only just begun moving in this direction. And more importantly, there are a number of privacy coins – Monero being the most prominent  – that don’t offer a public record linking transactions to wallets, while there are also mixing tools for making the transactions of non-privacy coins private. As such, there are still ways to remain anonymous in crypto for those who want to keep a low profile, despite the best efforts of governments in the US, Russia, Japan, and elsewhere.

Japan and Russia

As the most recent example of government crypto monitoring, the Japanese National Police Agency (NPA) announced plans to implement a system that can reportedly “track” cryptocurrency transactions within Japan. While specific technical details are scarce, the software is being developed by an unnamed private company and will cost the NPA around $315,000 next year to run. In particular, its main function will be to trace transactions reported to it as ‘suspicious’, linking them together into a visualization that will, in theory, enable it to pinpoint the sources and destinations of illicit money.

For the most part, it will receive its reports of suspicious activity from Japanese crypto-exchanges, which ever since the May introduction (by the Financial Services Agency) of anti-money laundering(AML) legislation have been sending it intelligence on potentially illegal transactions and the accounts associated with them. Indeed, this reporting is precisely what makes a ‘transaction-tracking system’ possible, rather than the invention of some novel cryptographic technology capable of breaking through the pseudonymity/anonymity of most cryptocurrencies. Simply, exchanges are being legally required to follow strict know-your-customer (KYC) policies, which enable them to link real-world identities to addresses and to transactions recorded on public blockchains. And given that they’re supplying this info to the NPA, all the NPA will really be doing with their system is feeding such info into a database and creating visualizations of the flow of crypto.

What this means is that such a system isn’t likely to have much direct application to anyone who circumvents (regulated) exchanges when receiving and sending crypto. That said, even if certain users stay away from Japanese exchanges they could still be linked to illicit crypto if said crypto has passed through an exchange and already raised suspicions. Either way, another area to which the system isn’t likely to have much direct application are privacy-enabling coins such as Monero, Zcash and Dash, since rather than attempting to track such coins the Japanese authorities have merely decided to ban exchanges from carrying them.

A similar story is currently emerging in Russia, where the Federal Financial Monitoring Service (Rosfinmonitoring) has contracted for a system that will collate various sources of information regarding suspects in finance-related crimes. As reported by the BBC Russia service, the system will be used to create profiles for suspects, to which the authorities then add whatever relevant info they can gleam about him or her: phone numbers, bank card details, physical addresses, and crypto wallet addresses. Once again, the system hasn’t been designed specifically to compromise the cryptography of Bitcoin or any other crypto, but rather seeks to simply add wallet information – where available – to any other data Rosfinmonitoring has on a suspect.

By doing this, the Russian authorities clearly hope to prevent suspects from laundering any illicitly gained money via crypto, while they also assert that they intend to stop crypto being used directly for illegal purposes. “Because of their anonymity and the inability to trace them,” German Klimenko – an ex-advisor to Vladimir Putin on internet development (and head of the cryptocurrency group at the Russian Chamber of Commerce and Industry) – told the BBC. “Cryptocurrency is used in grey areas, in the dark web, for buying weapons, drugs, or violent videos. Lawmakers of many countries are wary of this phenomenon: this was confirmed by the analysis that we conducted under orders from the president [Putin].”

While Russia hasn’t introduced regulations requiring exchanges to uphold strict AML and KYC policies, the State Duma is in the process of negotiating a digital assets bill that would do just that. And once this bill has passed, Russian authorities will – like their Japanese counterparts – have access to info on the identities of wallet holders. As a result, the Rosfinmonitoring service will be able to enter this information in the soon-to-be-launched system (coming at the end of 2018), which will enable it to link transactions, wallets, and identities together.

But because this system will be tapping into crypto-exchange records rather than novel ‘crypto-hacking’ technology, it’s likely that it won’t apply to all cryptocurrencies and all cryptocurrency users. Some experts even believe that it will have a largely counterproductive effect, forcing many cryptocurrencies and their users to become more untraceable.

“If you look at the entire volume of laundered funds, the share that is laundered through cryptocurrency is very small,” Anton Merkurov – an advisor with US-based the Free Russia Foundation – said. “Let’s say the turnover of the local exchange is about one billion rubles [around $14.7 million] a week. This, in fact, is not very much. Instead of catching the proverbial Colonel Zakharchenko [a former anti-corruption officer who was caught with around $140 million in bribe money in 2016], authorities are trying to find a microbe under a microscope in a drop of water. This should not be a priority. And most importantly, start pressing there and opposition will begin, you will think up real tools for laundering.”

The United States

While the systems being rolled out by Japan and Russia largely depend on cooperation from crypto-exchanges and on piecing together disparate sources of information, there are indications that some governments at least have taken a more direct approach to identifying crypto users.

The US, to take the most notable – and disconcerting – example, has developed a covert piece of technology that can actually extract raw internet data from fiber-optic cables in order to identify the IP addresses and IDs of those sending and receiving Bitcoin. According to documents obtained by whistleblower Edward Snowden in 2013 and published by the Intercept in March 2018, the technology in question is a program developed by the National Security Agency (NSA) and known as OAKSTAR. Masquerading as a piece of virtual private network (VPN) and downloaded by some 16,000 users in such nations as China and Iran, the program instead siphons data from an “unspecified ‘foreign’ fiber cable site,” according to the Intercept.

Using this data, the NSA can then extract such information from Bitcoin users as their password information, their internet browsing activity, and their MAC address, while certain whistle-blown docs also discuss extracting users’ internet addresses, timestamps, and network ports. Effectively, OAKSTAR can be used to gather much more than the information necessary to identify someone and link them to specific Bitcoin addresses and transactions, and it can do so without having to rely on crypto-exchanges.

This is a big blow for Bitcoin privacy. As Cornell University professor Emin Gün Sirer told the Intercept:

“People who are privacy conscious will switch to privacy-oriented coins […] when the adversary model involves the NSA, the pseudonymity disappears. You should really lower your expectations of privacy on this network.”

Similarly, Matthew Green – an assistant prof. at Johns Hopkins University Information Security Institute (and a key Zcash developer) – explained to the Intercept that the NSA’s exploits are “bad news for privacy, because it means that in addition to the really hard problem of making [crypto] transactions private […] you also have to make sure all the network connections [are private].”

As alarming as OAKSTAR and the activity surrounding it are, no new information has emerged recently to indicate that the NSA has extended its Bitcoin-tracking endeavors to other cryptocurrencies. There’s also the fact that its ability to link certain people with Bitcoin wallets is predicated on these people unwittingly downloading a piece of software that secretly extracts their internet data (while purporting to provide some other service). As a result, if users stick to VPN packages (and other pieces of software) they know and trust, it’s likely they will avoid the NSA’s long claws.

This reassurance aside, there is still the predictable reality that the United States government has been seeking user data from cryptocurrency exchanges, and has been doing so for longer than either the Japanese or Russian governments. In November 2016, for instance, it filed a legal summons that required Coinbase to provide the Inland Revenue Service (IRS) with the identities of an unspecified number of individuals associated with a number of cryptocurrency wallets. As Cointelegraph reported at the time, this summons was significant not so much in itself, but because it indicated that the IRS had been able to track certain wallets to an extent sufficient to determine that they’d been involved in the violation of tax legislation. Similarly, it also indicated that the IRS had been able to determine that the wallets were attached to Coinbase.

While the IRS unsurprisingly hasn’t divulged how it was able to track these wallets, a 2015 document leaked to the Daily Beast in 2017 revealed that it awarded a contract to Chainalysis, a Switzerland-based “blockchain intelligence” provider that monitors cryptocurrencies such as Bitcoin for compliance reasons. As Cointelegraph reported at the time, Chainalysis uses “data scraped from public forums, leaked data sources including dark web, exchange deposits and withdrawals to tag and identify transactions.” It attempts to combine what’s made publicly available on blockchains with personal info unthinkingly/carelessly left by crypto users on the web. It runs, therefore, another system that is less about cryptographically penetrating blockchains and more about simply putting together all the disparate threads of info strewn across the Internet.

And even though the IRS hasn’t explicitly acknowledged its employment of Chainalysis or any other service, it’s also interesting to note that past instances where an agency of the federal US government has succeeded in tracking crypto users have potentially involved input from the NSA. In October 2013, Ross Ulbricht was arrested by FBI agents in San Francisco and then charged (almost a year later) with conspiracy to traffic narcotics, money laundering, and computer hacking. During his trial, he claimed his prosecution violated the fourth amendment (i.e. right to protection against unwarranted searches), since the only way the FBI could have identified him was through the illegal help of the NSA and its data-gathering trickery. Needless to say, this defense didn’t exactly work, yet the Intercept noted that the NSA’s OAKSTAR project got under way six months before Ulbricht was arrested. More interestingly, the website also published classified documents in November 2017 revealing that the NSA had secretly helped the FBI secure other convictions in the past.

Whatever the truth behind Ulbricht’s conviction, it’s clear that the NSA has had the ability to covertly identify Bitcoin users for over five years, while it’s also true that other US agencies have been tracking crypto transactions (using undisclosed means). As such, it’s a safe bet to say that American crypto users should probably think carefully before engaging in anything Uncle Sam wouldn’t condone.

China, India and beyond

It would appear that few nations can match the US in the reach and power of their crypto-tracking activities. However, this isn’t stopping many from trying. In China, reports emerged in March that the Public Information Network Security Supervision (PINSS) agency has been monitoring foreign crypto-exchanges that serve Chinese customers. Even though the government has banneddomestic exchanges and trading on foreign alternatives, this hasn’t stopped every Chinese trader from seeking out crypto abroad. Because of this, PINSS has been ‘monitoring’ foreign exchanges so as to “prevent illegal money laundering, pyramid schemes [and] fraud,” according to Chinese news outlet Yicai.

While Yicai could confirm via sources at PINSS that such monitoring had been underways since September 2017, it couldn’t explain just what kind of monitoring was being pursued, or whether the Chinese government was actively trying to identify individuals trading in crypto. Still, whatever the extent of the surveillance involved, the knowledge that other nations are tracking crypto would indicate that Chinese traders should also add themselves to the growing list of ‘people who ought to be careful.’

So too should Indian traders, who in January may or may not have learned that their government was keeping tabs on them for tax purposes. Actually, chances are they would have learned about this, since the Indian tax department sent notices to “tens of thousands” of investors (according to Reuters), after having conducted national surveys and having obtained user data from nine Indian exchanges. This provided a clear signal that the government was indeed tracking cryptocurrency transactions, something which it had begun contemplating in July 2017, when India’s Supreme Court demanded information from it and the Reserve Bank of India on the steps being taken to ensure that crypto isn’t being used for illicit purposes.

As reported in July by Indian news website LiveMint, the system the government was considering, would involve cooperation between the central bank, the Securities and Exchange Board of India (SEBI), and India’s intelligence agencies. However, as the involvement of India’s crypto-exchanges in January’s tax notices reveals, it’s once again likely that the system currently rests on input from these exchanges, rather than on technology comparable to the NSA’s, for instance.

Other than the prominent examples of Japan, Russian, the US, China and India, there are few other cases of national governments going public with (or being known for) crypto-tracking systems. Nonetheless, even if there’s currently no public record of other governments investigating the potential for tracking systems, it’s highly probable that those governments with a significant interest in crypto have contemplated a tracking system in one form or another.

UK and EU

For example, the UK and EU governments jointly announced in December 2017 that they’re planning a “crackdown” on crypto-enabled money laundering and tax evasion. UK economic secretary to the Treasury Stephen Barclay said in last October:

“The UK government is currently negotiating amendments to the anti-money-laundering directive that will bring virtual currency exchange platforms and custodian wallet providers into anti-money laundering and counter-terrorist financing regulation, which will result in these firms’ activities being overseen by national competent authorities for these areas.”

While this doesn’t confirm tracking, it would at least imply it, since the ability to enforce AML legislation entails that governmental bodies and departments should have some means of not only detecting when someone is earning crypto that needs to be taxed, but also determining just who that person is. Hence, UK and EU authorities need to have some kind of tracking system in place, otherwise their threats of ‘cracking down’ on money laundering and the like will equate to only so much hot air.

And in the future, it may become increasingly possible for them or any other government, regardless of technological development, to carry through with such threats. In April, a corporate giant none other than Amazon, received a patent for a “streaming data marketplace” that would permit the combining of multiple data sources, thereby enabling the real-time tracking of cryptocurrency transactions and the users involved. As the text of the patent makes clear, this technology could potentially be offered to governments, who would be able to link crypto addresses to official IDs:

“The electronic retailers may combine the shipping address with the bitcoin transaction data to create correlated data and republish the combined data as a combined data stream. A group of telecommunications providers may subscribe downstream to the combined data stream and be able to correlate the IP (Internet Protocol) addresses of the transactions to countries of origin. Government agencies may be able to subscribe downstream and correlate tax transaction data to help identify transaction participants.”

Given the arrival of such technology (and the current existence of such firms as Chainalysis), it’s only a matter of time before transactions involving Bitcoin, Ethereum or any other non-privacy cryptocurrency will be systematically de-anonymized. It will take some time, particularly given that Amazon’s patent requires its users (e.g. retailers and telecoms providers) to combine separate pieces of data in order to create correlations. Still, it’s becoming increasingly apparent that things are moving in only one direction when it comes to the privacy and anonymity of crypto.

Privacy coins

And in light of this direction, anyone wanting to keep their chances of being identified as low as possible is advised to migrate to one of the so-called privacy coins. Monero is the most well-known of these, having entered into 10 most valuable cryptocurrencies by market cap since its initial launch in April 2014. More than anything else, what distinguishes it from the likes of Bitcoin is its CryptoNight proof-of-work algorithm, which uses a mix of ring signatures and stealth addresses to not only bury the sender’s wallet address in those of multiple other users, but also to hide the precise amount being transferred.

It’s because of this that the cryptocurrency has proven popular with those who’ve needed to evade government power (for whatever reason), and such is Monero’s apparent ability in preserving anonymity that its price increased by around 2,883% between Jan. 1 and Dec. 31, 2017 (from $12.3 to $358). By contrast, Bitcoin’s 2017 growth rate was a slightly less impressive 1,357%.

2,883% may be impressive, but it pales in comparison to the 9,000% growth enjoyed in 2017 by Dash, another altcoin with certain privacy-enhancing qualities. The 13th most valuable cryptocurrency by total market cap, its PrivateSend feature mixes addresses so as to obscure the origins and destinations of transactions, in the process making it noticeably harder for any interested authority to put the pieces together.

This may be a part of the reason why the currency has took off so spectacularly in Venezuela, where the government cracked down on such cryptocurrencies, such as Bitcoin, in a big way last year (before showing favoritism towards its own oil-backed Petro coin). Venezuelans also turned increasingly to Zcash during this period, which has become the 21st biggest cryptocurrency since launching in October 2016. Building upon Bitcoin Core’s architecture and using zero-knowledge proofs, it keeps the sender and receiver’s pseudonyms private, while also doing the same for the quantity being transacted.

Therefore, a choice of privacy coins is available for anyone worried about the growing ability of governments to track crypto transactions. And even if a concerned crypto user holds no Monero, Dash, or Zcash, they can still take advantage of the various mixing services available for non-privacy coins. For example,there are anonymization protocols available that, much like the features available via Monero and Zcash, enables senders and receivers of Bitcoin to mix their transactions with those of other senders and receivers, making it very difficult to disentangle the multiple threads involved. Such protocols include the likes of CoinJoin, Dark Wallet, bestmixer.io, SharedCoin, and CoinSwap, all of which also provide holders of Bitcoin and other cryptos with the ability to anonymize their transactions.

So even though cryptocurrency tracking is increasing, crypto investors and holders needn’t be overly fearful of government surveillance. For one, most of the tracking systems in use or which are being developed rely on input from crypto-exchanges, while others (such as those provided by Chainalysis) depend on scavenging data that users may have left carelessly throughout the web. Meanwhile, more direct and intrusive methods being honed by the NSA also rely on crypto users unknowingly compromising their internet connections, something which couldn’t be counted on for monitoring all cryptocurrency transactions en masse. This is why, in addition to such privacy coins as Monero and Zcash, privacy-conscious crypto holders shouldn’t be too concerned, since there are ways of remaining anonymous for those who want it bad enough.

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“Waiting For The World To End” – Bond Rout Bodes Badly For Exuberant Equity Investors

It was a tough week for stock market investors but the primary driver of the chaotic crumble in small caps and tech stocks was not one of the usual suspects and even for those who consider themselves ‘hedged’ or balanced it was the worst week in 7 months.

The blame for this blight on Americans’ wealth was placed squarely on the shoulders of the bond market and its violent and high velocity lurch higher in yields.

Yields rose across the curve on the back of strong US economic data and hawkish comments from Federal Reserve Chairman Powell, forcing equity investors to reevaluate the higher rate environment.

To be sure, the absence of uncertainty has been bewildering given the fact that the US government’s budget deficit has swelled, contributing to the country’s debt load, now at $21.5 trillion. Meanwhile, corporate America has gone on a borrowing spree to take advantage of near-record low rates. In fact, according to Bloomberg, excluding financials, S&P 500 companies have more than doubled their borrowings to $5 trillion over the past decade.

“There are a lot of people waiting for the world to end because of this bond market,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, which oversees $156 billion.

“Low rates will keep going forever — a lot of justification for high valuations is based on the assumption. That assumption is largely broken.”

And, as Bloomberg  notes, prophesies of doom are everywhere.

There’s billionaire investor Stan Druckenmiller, who says our “massive debt problem” will ignite a crisis.

Oaktree Capital’s Howard Marks warns that public and private debt will be “ground zero when things next go wrong.”

And Citadel’s Ken Griffin sees a credit binge ending badly.

And they are right to worry, because if interest rates rise and growth slows, companies are bound to see to their financial soundness deteriorate. More than $1 trillion of investment grade corporate bonds could be cut in the next downgrade cycle, according to analysis this week by Morgan Stanley.

“Leverage is near all-time highs, and companies used tax reform proceeds for buybacks instead of paying down debt,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors, which manages $40 billion.

“More than triple the debt that came due in 2018 will be due each year from ’19-’21. If yields go up, there’s real concern about companies’ ability to reissue and keep their leverage.”

And that concern is starting to be priced into markets with the bond market’s ‘VIX’ – The Merrill Lynch MOVE Index tracking Treasury volatility – rose almost 20 percent this week, the biggest jump since 2015.

We await the contagion.

And if The Fed keeps up its pace of balance sheet normalization, things are about to even uglier, even faster…

Strangely, the clever talking-heads on business TV proclaim that rates are going up for the “right” reason, so have no fear average-joe-investor… we wait with bated breath for one of them to drop the ‘c’ word when this really starts falling apart – “Contained.”

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Did Democrats Just Kill The “Blue Wave”?

Authored by Heather Higgins, op-ed via The Hill,

Democrats were cheered by the renewed FBI investigation of Judge Brett Kavanaugh and counted it as a win. Most Republicans were dismayed that the full Senate’s vote on Judge Brett Kavanaugh’s appointment to the Supreme Court was delayed and saw this as a political misstep.

They should change places.

First, while the politically attuned understand this is just a delay game by the left, who are on record as willing to do anything to derail this nominee and force the appointment to be made after the November election, swing voters and many women do not.

For them, there is no reason to not look further. The “why rush? It’s for a lifetime” argument resonates as do their own experiences. This past week countless of men have learned from many women just how prevalent the alleged behavior and how much worse it is. This includes those in my own family who hadn’t known I was a victim of sexual assault in high school and just after college when I was the victim of rape. 

Independents, Millennials and many women want to know: Why hasn’t Mark Judge answered more questions? What do other classmates say? Is the GOP going to be fair to what they saw as sincere testimony by Dr. Ford?

President Trump is astute and understood ahead of any polling, that for these people, rushing a vote without more FBI vetting would leave Kavanaugh’s legitimacy perpetually undermined on the court.

He knows that many had real concerns that need to be addressed. The GOP should welcome this  — these non-base voters thinking the GOP handled the process fairly will be important to the GOP’s November success and thus all future policy wins.

Moreover, had Trump insisted on proceeding with a vote, that would have made him the story and given the Democrats more anti-Trump/anti-GOP ammunition among groups that still so dislike Trump personally that it makes it hard for them to focus on his policies, which they do like.

This extra time and caution also helps Republicans make clear that they do take accusations of sexual assault, abuse and misconduct very seriously.

Sen. Jeff Flake‘s (R-Ariz.) epic failure in the elevator — in which he was confronted by tearful victims of sexual violence who argued that he was betraying them, while he froze — exemplifies this problem. That situation should have been handled with great sympathy, but also certitude.

Republicans should focus on how manipulated this process has been by Sen. Dianne Feinstein (D- Calif.) and the handpicked lawyers who did not have either the process or Dr. Ford’s best interests at heart and encourage as well greater examination of the facts provided by Dr. Ford.

For example, the FBI ought to be able to get more definitive answers about how many people were present at the party, whose house this was (surely the home must have been one of the party goers? Presumably it was not their habit to go into homes with no adults present to gather and have a party in an unoccupied home?) and how she left the party.

The FBI ought to be able to get access to the therapist’s full notes, not least because we already know there are significant discrepancies between the details contained in those (late teens, mid 80’s, 4 boys), Dr. Ford’s testimony (15, ’82, 2 boys) and the deliberately ambiguous polygraph statement regarding the date.

We do know Democrats are already doing a little pre-suasion, trying to discredit the investigation before it concludes and shift the narrative from sexual abuse to alcohol abuse and perjury — indicators that they don’t think the witnesses will contradict their prior testimony. But because they don’t want a strict constitutionalist on the court, they will persist in any and every attack — and that has another consequence.

Democrats underestimate how completely terrifying this spectacle appears to ordinary people. Here is a man who volunteers in a homeless shelter and coaches girl’s basketball and has more female clerks than any other federal judge; and he is being destroyed on accusation alone. How could an ordinary person, without powerful friends, survive such an onslaught?

The same public watched #MeToo start with pretty clear cases against guys who were creeps. Now, some of the cases are much muddier. This new Kavanaugh standard the left wants to impose would mean any one could be named, his reputation and future destroyed and subjected to intense ridicule when he defends himself.

It means what you did in high school, like drinking too much or yearbook references can be a reputation and career destroyer. This terrifies people. Both men and women who have men in their lives.

This controversy could end up working in Republicans favor. The recent drama with Kavanaugh will motivate many to come out — not just the conservative base, but fair-minded Independents who recognize that Democrats have waged an ugly, opportunistic political war to personally destroy a man with a stellar reputation as a public servant and politicized and harmed the reputation of the approval process and the Supreme Court itself, all in hopes of gaining power.  

This is not how they think the Senate should behave, it is not the America they want, nor the sort of public drama they want to have to explain to their children.

The Left hopes that they have further sullied Republicans in this episode, but they have shown to many that the Republicans is the party of fairness and themselves extremists.

Democrats just killed the blue wave.

* * *

Heather R. Higgins is CEO of Independent Women’s Voice.

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Kabib: Putin Called “To Tell Me He’s Proud” After Victory Over McGregor

There have been reports that Dagestani fighter Kabib Nurmagomedov has already agreed to a rematch with Conor McGregor after handing the Irish fighter his second UFC defeat with a fourth-round submission early Sunday morning. But while the fight will go down in infamy for the epic brawl that immediately followed, Kabib took a few moments to bask in his victory while speaking with reporters after the fight, even revealing that Russian President Vladimir Putin had already called to congratulate him and say that he was “proud of me.” 

Kabib

Here’s the Daily Beast with more:

Dagestani fighter Khabib Nurmagomedov says Russian leader Vladimir Putin personally called him after his victory over Conor McGregor on Saturday to tell him how proud he was. Nurmagomedov, who jumped out of the octagon after the match and sparked mass brawls that led to arrests, was mostly unapologetic for the chaos he caused. “They call [McGregor] two-weight world champion, but today he tapped,” he told reporters after the fight in Las Vegas, saying the Irish fighter had disrespected the sport with his “trash talking” about Nurmagomedov’s religion and family ahead of the fight. “Of course, this is not what my father taught me, but it was a matter of honor,” he wrote on Instagram. He also said that while “all the press” was busy talking about McGregor’s photo with Putin at the FIFA World Cup over the summer, “the president just called me. He congratulated me and said he’s proud of me.” The Kremlin has yet to officially comment on Nurmagomedov’s win.

Putin had famously taken a photo with McGregor at this summer’s World Cup, something that incited a degree of controversy.

Putin

Putin wasn’t the only Russian leader to relish in Kabib’s victory. Chechen leader Ramzan Kadyrov praised him, saying that McGregor learned the hard way that Nurmagomedov is “a genius artist, capable of turning his face into a painting drawn in red oil paint.”

Aside from his victory over McGregor, Saturday night’s fight will go down in infamy after Kabib climbed out of the Octagon and brawled with members of McGregor’s entourage.

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Support For Brazil’s “Donald Trump” Surges As General Election Voting Begins

Brazil’s 147 million eligible voters have begun casting ballots in Sunday’s federal election, which will help decide who will replace the wildly unpopular centrist Michel Temer as the president of South America’s largest country and economy (it will also determine the composition of the next Congress, country’s governorships, vice-governorships and state government positions).

While no candidate is expected to win an outright majority – which means the top two finishers will face off in a second-round vote on Oct. 28 – federal congressman Jair Bolsanaro, a far right candidate who has divided the country with his sympathetic comments about Brazil’s 20-year military dictatorship, has pulled ahead in recent polls, with some placing his support as high as 44%.

Meaning that after years of leftist rule, followed by a brief period of tepid centrism, a man who has embraced the label “the Brazilian Donald Trump” is poised to win a presidential election, bringing the global populist anti-establishment movement to South America.

Bolsanaro

One poll taken on Oct. 3 showed that Bolsonaro was polling at 32%, compared with 22% a month earlier, after a deranged socialist gravely wounded Bolsonaro, a former paratrooper in the Brazilian military, by stabbing him in the gut during a rally. Though Bolsonaro lost a massive quantity of blood, ironically, the attack helped galvanize his supporters. Despite being absent from a presidential vote this week, Bolsonaro still dominated.

 

Brazil

Of course, the electorate’s embrace of a far-right populist candidate amid a surge of nostalgia for the military dictatorship that ruled Brazil between 1964 and 1985 is no accident. The social ills facing Brazil’s 210 million people – who only a few years ago were enjoying a period of relative prosperity – are myriad and diffuse: The unemployment rate has skyrocketed to 12%, a gaping budget shortfall, economic mismanagement and endemic public corruption have shaken the faith of international investors who have left the Brazilian real to plummet. Crime is rampant, with more than 63,000 murders last year, making people yearn for the social stability that was once a hallmark of life in the country. Schools, hospitals and roads are run down and underfunded. Because these and other factors (including his becoming ensnared in a corruption scandal just like his predecessor, Dilma Roussef) Brazilian President Michel Temer is universally despised, with an approval rating of 2%.

Brazil

While the left-wing Workers’ Party presided over the most recent economic boom, it is also responsible for leading the country into an economic death spiral. And the massive “carwash” probe into corruption at state-run energy giant Petrobras, a scandal that led to the ouster of former President Dilma Roussef, has sown widespread resentment directed at the Brazilian left. Former President Lula da Silva, by some measures the most popular politician in the country, was preventing from running under the WP banner due to being imprisoned on corruption charges. Fernando Haddad, who trails Bolsanaro in the polls and will likely face him in the runoff vote, is running in Lula’s stead after a court ruled that Lula was ineligible due to a law that he himself signed during his presidency.

Bolsanaro is widely viewed as the pro-markets candidate and signs of his advancement in the polls have bolstered the Brazilian real as well as domestic assets. And despite his history of misogynistic and homophobic remarks, Bolsanaro maintains widespread support among Brazilian women, like one businesswoman from Sao Paolo who shared her views with the WSJ.

“The [Workers’ Party] has devastated the country,” said Solange Correia, a 58-year old businesswoman in São Paulo who enthusiastically supports Mr. Bolsonaro, one of the few top Brazilian politicians not tainted by graft scandals despite his 27 years in Congress.

Bolsanaro has also decried Brazil’s electoral process, which relies on electronic voting machines, as deeply suspect and has said, in a comment that echoed one made by President Trump during the 2016 campaign, that he would reject any outcome where he isn’t the winner. To ensure fairness, the Brazilian army is deploying 28,000 troops to protect the polls, while the Organization of American States is sending teams of independent observers.

Though the Economist singled-out Bolsanaro in an article warning about a return to Brazil’s military dictatorship, he’s not the only candidate who has expressed sympathy and support for authoritarian leaders. The Worker’s Party has expressed support for leftist strongmen in Cuba and Venezuela, per WSJ.

Many Brazilians fear for a return to authoritarian rule from either candidate, given Mr. Bolsonaro’s sympathy for the 1964-1985 military rule and the support for strongman regimes in Venezuela and Cuba shown by Mr. Haddad’s party. Such concerns led Chief Justice Dias Toffoli to publicly call for restraint earlier in the week, on the anniversary of the country’s 1988 Constitution. “Dictatorship, never again,” he said during a televised Supreme Court session.

Some academics have claimed that Brazil’s current obsession with strongmen leaders has reached “the point of madness.”

“We’ve reached a point of madness,” said Boris Fausto, a Brazilian historian who at age 87 witnessed two long dictatorships in Brazil come and go. “Extremism has taken the upper hand, particularly the rise of an extreme right that has no commitment to democracy.”

This may be true, but then again, the anger that Brazilians are feeling appears to be justified. Brazilian election laws mandate voting for all citizens between the ages of 18 and 70. Those who don’t vote risk receiving a small fine and other administrative penalties. For Brazilians aged 16  and 17, or 70 and over, voting is optional.

Brazil

Since Brazil is divided into three time zones, the polls in the western state of Acre won’t close until 7 pm in Brasilia (6 pm in New York). Once voting has ended, Bloomberg expects the results to quickly flood in. Meanwhile, Bloomberg reported earlier this week that investors were loading up on Ibovespa puts to hedge against a weaker-than-expected showing by Bolsonaro in Sunday’s vote. If he surpasses expectations, expect domestic stocks to rally amid a flurry of short-covering.

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