Tag: finance

Authored by Max Skibinsky via CoinTelegraph.com,

The coronavirus outbreak may become the catalyst that will reveal the benefits of libertarian solutions and technology, such as cryptocurrency.

image courtesy of CoinTelegraph

We, as a society, are now experiencing a crisis of trust. The three pillars that we’ve had faith in all our lives — institutions, government entities and the media — have all failed us. From trusting financial institutions to guard our assets to expecting politicians to enact smart policies to hoping the media informs us on issues truthfully, we’ve entrusted these institutions to have the public’s best interest in mind and to provide crucial guidance in times of crisis. Instead of witnessing any of that, we have seen politicians, government agencies and the media fail catastrophically in the critical, early stages of the COVID-19 pandemic, with the few reasonable voices offering practical advice coming from Silicon Valley — insiders sounding “five-alarm fires” from their personal social media accounts.

As they say, history has a way of repeating itself, and if we’ve learned anything from the financial crisis of 2008 — which bailed out the wealthy banks and left a large swath of the population struggling and jobless — it’s that the centralized institutions put their own interests in front of ours. 

The 2008 crisis destroyed the public’s trust in the banks and eventually led to the birth and proliferation of cryptocurrency. This genesis moment for cryptocurrency occurred, as it became evident that banks, and associated third parties, were unable to safeguard people’s assets. People wanted to permanently remove, on a structural level, any financial middlemen masquerading as “goodwill” actors and to control their own money and their own destiny.

There are similar patterns that we can identify between the fallout from the financial crisis of 2008 and the current crisis we’re living through — and how trust in all three pillars has all but disappeared nowadays.

During this pandemic, we’ve realized that:

1. Institutions have completely failed us. The Center for Disease Control and Prevention was not ready to react on any level. The World Health Organization was primarily concerned with China’s complacency rather than offering real help and guidance. The Food and Drug Administration’s policies were outright harmful to the American public, ranging from forbidding at-home testing to forcing local “COVID meetups” at hospitals.

2. The government and, in particular, politicians have failed. The federal government was clearly confused. At first, it tried to save pennies for airlines (keeping air travel to China open) that ended up costing trillions of dollars. It spread confusing and contradictory information; defunded agencies; and had no plans, no equipment, no strategy and no reliance on science or hard data. The completely non-partisan nature of this crisis made it especially damaging for politicians. The American public received a stark reminder that while politicians on both sides were busy with a ritualized Kabuki theater performance of mock political battles over the past few months, they paid absolutely no attention to the matters that became life and death factors for millions of people just a few weeks later.

3. The media has failed. Mainstream media completely missed the crisis and played it down in the first few months, fueling the storyline that the virus was “just the flu” and disseminating outright false and dangerous misinformation. The rapid and exponential growth of the pandemic offered a reality check far faster than the media is accustomed to, and authors of dangerously incompetent stories were faced with harsh accountability for the results of their “research” and “fact-checking” in a timeframe they never experienced in their professional careers. This resulted in the widespread mistrust of the media with its clear inability to inform the public, or even just having the discipline to research the correct answers in the first place.

Stemming back to its early days, the crypto industry has always had a hint of doomsday gloom around its narrative. After all, why would anyone need this marvel of a cryptographic peer-to-peer decentralized financial network if we can simply trust governments, media and institutions to just do their jobs well? As it turns out, our current reality is uncomfortably close to what cryptocurrency enthusiasts always feared they must prepare for in a dystopian future that is now our present day.

The need to replace legacy social systems based on blind trust with decentralized alternatives that are based on fundamental mathematics to empower the individual is now extremely clear. We can expect the natural reaction of the tech-savvy public to be similar to the last crisis: For every centralized institution that claims “we know what’s good for you so just trust us,” we’ll begin to see the emergence of a decentralized alternative that people will actually trust — not because they blindly delegate that trust, but because the “source code” of that distributed network and its rules of operations (oftentimes as the literal source code) will be visible to everyone in the network to review and improve upon. 

The intertwined roles of fundamental cryptography and decentralization will quickly grow in our society once we get out of the immediate needs of dealing with this current crisis. After the dust settles, the outcome will be a second genesis moment for fundamental cryptography to power up many verticals shifting to distributed and decentralized alternatives. What will be the most interesting industries to put on the watchlist?

• Education: The shift to online education and homeschooling will go from a light drizzle to a torrential downpour. As a side note, it will be an interesting moment in California politics when the teachers union’s interests for political self-preservation will come in direct confrontation with every parent’s desire for physical self-preservation. That will mean that teachers — who fully embrace the online-first experience and make internet classrooms work 10 times (if not a hundred times) better than their less tech-savvy peers — will need reputation and compensation rails to be built outside traditional educational structures. “Blockchains eat online education” might be the best answer for that challenge.

• Media: The importance of independent media that can ring the alarm bell or shine a light on developing issues is now more apparent than ever. Unfortunately, such media exists only in our imaginations as fantasy heroes of the Pentagon papers style movies and books. The real media is a fading empire of failed corporations with a decaying business model that is trying to compete (and losing badly) with tech corporations for the same advertising dollars. Their employees are not heroes of the past but are, instead, an overworked and under-compensated workforce with a narrow short-term focus of content production for for-profit corporations. These legacy media organizations are allowing employees to produce a depth of coverage and attention span akin to that of a goldfish rather than prioritizing news in the public’s best interests. These organizations’ ability to be alerted, to research and to provide smart and timely science and data-based guidance is, frankly, zero at this moment.

We’re now entering a new era of self-reliance that incorporates finding our own trusted sources of information, compensating them outside of for-profit media models and bringing about a grassroots style of citizen-journalists that fully own their own broadcasting power. Instead of a few dozen major media outlets, we will follow thousands of experts who can provide deep and extremely specific coverage for any domain. Substack, Twitter lists and YouTube podcast stars are already filling that void. Adding cryptographic artifacts for reputation and compensation will only accelerate that trend.

• On-demand workforce: With COVID-19 likely becoming a seasonal malady alongside the regular cold and flu, remote work will become the default setting with a highly flexible workforce — not bound to any geographic locale — that will be instantly available for any specialized task. The “on-demand” workforce will become just the “workforce” in exactly the same way the “mobile phone” became just a “phone.” As always, distributed and decentralized trustless network corporations will want to see unforgeable proof of professional capabilities and past performances while professionals will want to receive guaranteed payment in undiluted assets (that might be radically different from colored paper printed by the host country). Both of these challenges flow natively into blockchain-based solutions. After a few years of adjusting to this new normal, we might see the modern workforce becoming similar to the vision laid out in classic cult hit Diamond Age by Neal Stephenson. Knowledge work will become simply something anyone can “log in” to from any place on the planet and at any time for as long as they are willing to contribute. This COVID-19 crisis might be just the forcing function that will make the sci-fi novel entirely real.

We have already started seeing the green shoots of progress that will define how society learns and evolves from this crisis. The biggest winner of all might be the philosophy of libertarianism that shuns large institutional solutions and prefers to bestow all the power on the technologically educated and empowered individual. This might be the catalyst we needed to shift public opinion toward libertarian solutions after seeing such an abject failure of legacy models.

This will usher in an age of reason based on science, research and, most of all, data and facts. Individuals joined in myriad reputational, professional and financial networks will be able to reach an online consensus and enact policies with speed and intellectual depth unseen by any previous generation. And that, perhaps, will be the most lasting positive change in the post-COVID-19 world.

*  *  *

Max Skibinsky is the co-founder and CEO of Vault12. Most recently, Max was an investment partner with Andreessen Horowitz where he focused on enterprise security and Bitcoin.

A scientific study which found COVID-19 may have been a “cell-culture” uniquely adapted for transmission to humans (more so than any other animal – including bats), is gaining steam.

The paper, currently under peer review, comes from Flinders University Professor Nikolai Petrovsky, who has spent over two decades developing vaccines against influenza, Ebola, and animal Sars. He says his findings allow for the possibility that COVID-19 leaked from a laboratory, according to Sky News.

“The two possibilities which I think are both still open is that it was a chance transmission of a virus from an as yet unidentified animal to human. The other possibility is that it was an accidental release of the virus from a laboratory,” said Petrovsky, adding “Certainly we can’t exclude the possibility that this came from a laboratory experiment rather than from an animal. They are both open possibilities.”

Professor Petrovsky, who is the Chairman and Research Director of Vaxine Pty Ltd, said COVID-19 has genetic elements similar to bat coronaviruses as well as other coronaviruses.

The way coronavirus enters human cells is by binding to a protein on the surface of lung-cells called ACE2. The study showed the virus bound more tightly to human-ACE2 than to any of the other animals they tested.

“It was like it was designed to infect humans,” he said.

“One of the possibilities is that an animal host was infected by two coronaviruses at the same time and COVID-19 is the progeny of that interaction between the two viruses. –Sky News

“The same process can happen in a petri-dish,” added Petrovsky. “If you have cells in culture and you have human cells in that culture which the viruses are infecting, then if there are two viruses in that dish, they can swap genetic information and you can accidentally or deliberately create a whole third new virus out of that system.”

“In other words COVID-19 could have been created from that recombination event in an animal host or it could have occurred in a cell-culture experiment.”

In January, Petrovsky began modeling the virus to try and create a vaccine candidate. According to the report, he then began to explore “what animal species might have been involved in the transmission to humans” in order to better understand the origins of the virus, when he discovered how well it infects humans over other species.

“We found that the COVID-19 virus was particularly well-adapted to bind to human cells and that was far superior to its ability to bind to the cells of any other animal species which is quite unusual because typically when a virus is well-adapted to an animal and then it by chance crosses to a human, typically, you would expect it to have lower-binding to human cells than to the original host animal. We found the opposite so that was a big surprise,” he said.

When asked why mainstream scientists are still clinging to the theory that the virus originated in a Wuhan wet market, he said that scientists “try not to be political” but that that scientists who support the lab escape theory risk negatively impacting their industry with tighter laboratory controls.

“For instance, if it was to turn out that this virus may have come about because of an accidental lab release that would have implications for how we do viral research in laboratories all around the world which could make doing research much harder,” he said, adding “So I think the inclination of virus researchers would be to presume that it came from an animal until proven otherwise because that would have less ramifications for how we are able to do research in the future. The alternative obviously has quite major implications for science and science on viruses, not just obviously political ramifications which we’re all well aware of.”

Petrovsky has called for immediate investigation now, and not when the pandemic is over – calling any delay in fact finding a “mistake.”

“I’m certainly very much in favour of a scientific investigation. It’s only objective should be to get to the bottom of how did this pandemic happen and how do we prevent a future pandemic…. not to have a witch-hunt.”

Authored by Lance Roberts via RealInvestmentAdvice.com,

In 2017, I wrote an article discussing the “Unavoidable Pension Crisis.”  At that time, most did not understand the risk. However, two years later, the “Unavoidable Pension Crisis” has arrived.

To understand we are today, we need a quick review.

“Currently, many pension funds, like the one in Houston, are scrambling to marginally lower return rates, issue debt, raise taxes, or increase contribution limits. The hope is to fill the gaping holes of underfunded liabilities in existing plans. Such measures, combined with an ongoing bull market, and increased participant contributions, will hopefully begin a healing process.

Such is not likely to be the case.

This problems are not something born of the last ‘financial crisis,’ but rather the culmination of 20-plus years of financial mismanagement.

An April 2016, Moody’s analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That’s the amount not covered by fund assets, future contributions, and investment returns ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields an average 2.6%.

With employee contribution requirements extremely low, the need to stretch for higher rates of return have put pensions in a precarious position. The underfunded status of pensions continues to increase.”

The Crisis Is Here

Since then, the situation has continued to worsen as noted by Aaron Brown in 2018:

“Today the hard stop is five to 10 years away, within the career plans of current officials. In the next decade, and probably within five years, some large will face insolvency,

We are already there. Here was the key sentence in Brown’s commentary:

“The next phase of public pension reform will likely be touched off by a stock market decline. Such creates the real possibility of at least one state fund running out of cash within a couple of years. The math says that tax increases and spending cuts cannot do much.”

Brown was right, and the COVID-19 pandemic has likely triggered a rolling pension collapse over the next couple of years. Via the NYT:

“Now the coronavirus pandemic have it ticking faster.

Already chronically underfunded, pension programs have taken huge hits to their investment portfolios over the past month as the markets collapsed. The outbreak has also triggered widespread job losses and business closures that threaten to wipe out state and local tax revenues.

That one-two punch has staggered these funds, most of which are required by law to keep sending checks every month to about 11 million Americans.”

Over Promise Under Deliver

Here is the real problem:

“Moody’s investor’s service estimated that state and local pension funds had lost $1 trillion in the market sell-off that began in February. The exact damage is hard to determine, though, because pension funds do not issue quarterly reports.”

At the end of the year, we will find out the true extent of the damage. However, this is not, and has not been, a real plan to fix the underfunded problem. “Hope” for higher rates of sustained returns continues to be the only palatable option. However, targeted returns have continuously fallen short of the projected goals.

To wit:

“Over the past decade, public pensions had ramped up stockholdings and other risky investments to meet aggressive return targets that average around 7%.

For the 20 years ended March 31, public pension-plan returns have fallen short of that target, however, returning a median 5.2% according to Wilshire TUCS.”

While State and Local governments all want to ignore the problem, it is isn’t going away. There is a simple reason why pensions are in such rough shape: The amount owed to retirees is accelerating faster than assets on hand to pay those future obligations. Liabilities of major U.S. public pensions are up 64% since 2007, while assets are up 30%, according to the most recent data from Boston College’s Center for Retirement Research.

More importantly, there is nothing that can, or will, change the two pre-existing problems which have plagued the economic shutdown is exacerbating pensions.

Problem #1: Demographics

With pension funds already wrestling with largely underfunded liabilities, demographics are another problem as baby boomers age. The number of pensioners has jumped due to longer lifespans and a wave of retirees over the past decade, while the number of active workers remained relatively stable.

The problem compounds as the labor-force participation for the prime-age working group of 25-54 years of age declines due to the economic shutdown.

At the same time, companies are forcing the over-65 participants into retirement. These individuals are immediately able to start taking pension distributions.

A Fertility Problem

One of the primary problems continues to be the decline in the ratio of workers per retiree as retirees are living longer (increasing the relative number of retirees), and lower birth rates (corresponding number of workers.) Such is due to two demographic factors:

1. An increased life expectancy coupled with a fixed retirement age; and,

2. A decrease in the fertility rate.

In 1950, there were 16-workers per social security retiree. By 2015, the support ratio dropped to 3:1, and by 2035 it is projected to just 2:1.

As discussed previously, the problem is that while the “baby boom” generation may be heading towards retirement years, there was little indication they were financially prepared to retire. To wit:

“As part of its 2019 Savings Survey, First National Bank of Omaha examined Americans’ habits, behaviors, and priorities when it comes to saving, monthly spending, and retirement planning. The findings showed that nearly 80% of Americans live paycheck to paycheck.

Many have now been “asked to retire,” which means they cannot collect unemployment benefits. They are also permanently removed from the labor force.

Such is particularly problematic for pension funds because this will lead to an immediate demand for payouts at a time when pension fund assets decline. Unfortunately, the ultimate burden will fall on those next in line.

Problem #2: Markets Don’t Compound

The biggest problem is the computations performed by actuaries. The assumptions regarding current and future demographics, life expectancy, investment returns, levels of contributions or taxation, and payouts to beneficiaries, among other variables, consistently turn out wrong.

Using faulty assumptions is the linchpin to the inability to meet future obligations. By over-estimating returns, it has artificially inflated future pension values. However, high expected returns are required to reduce the required contributions to the pension plans.

There is a significant difference between actual and compounded (7% average annual rate) returns. The market does NOT return an AVERAGE rate each year, and one negative return compounds the future shortfall. (Forward projections are a function of expected return values due to rising deficits, valuations, and demographics.)

With pensions still having annual investment return assumptions ranging between 6–7%, 2020 will likely be another year of underperformance.

As noted, pensions do not have much choice but to hope for high returns. If expected returns decline by 1–2 percentage points, the required contributions increase dramatically. For each point of reduction in the assumed return rate, pensions require a roughly 10% increase in contributions.

For many plan participants, particularly unionized workers, increases in contributions are difficult to obtain. Pension managers must maintain better-than-market return assumptions that requires them to take on more risk.

Guiding Down

But therein lies the problem.

The chart below is the S&P 500 TOTAL return from 1995 to present. Projected returns use variable rates of market returns with cycling bull and bear markets, out to 2060. I have also added projections of 8%, 7%, 6%, 5%, and 4% average rates of return from 1995 out to 2060. (I have made some estimates for slightly lower forward returns due to demographic issues.)

Given real-world return assumptions, pension funds SHOULD lower their return estimates to roughly 3-4% to potentially meet future obligations and maintain some solvency.

Again, pension funds won’t, and really can’t, make such reforms because “plan participants” won’t let them. Why? Because:

1. It would require a 30-40% increase in contributions by plan participants they simply can not afford.

2. Given many plan participants will retire LONG before 2060 there simply isn’t enough time to solve the issues, and;

3. The bear market is already further crippling plan’s abilities to meet future obligations without massive reforms immediately. 

Government Bailouts

Such is why municipalities across the country have been lobbying the Democratically controlled Congress to pass another funding bill to provide financial relief. The bill, passed by House Democrats,  specifically included the following:

“The cornerstone of the 1,800-page bill is $875 billion for state and local governments. “

Unfortunately, $875 billion is a drop in the bucket.

The real crisis comes when there is a ‘run on pensions.’ With a large number of pensioners already eligible for their pension, the next decline in the markets will likely spur the ‘fear’ that benefits will be lost entirely. 

The combined run on the system, which is grossly underfunded, at a time when asset prices are declining will cause a debacle of mass proportions. It will require a massive government bailout to resolve it.”

This is why the Fed is terrified of a market downturn. The pension crisis IS the “weapon of mass destruction” to the financial system, and it has started ticking.

Pension plans in the United States have a guarantee by a quasi-government agency called the Pension Benefit Guarantee Corporation (PBGC), the reality is the PBGC is nearly bust from taking over plans following the financial crisis. The PBGC will run out of money in 2025. Moreover, its balance sheet is trivial compared to the multi-trillion dollar pension problem.

We Are Out Of Time

Currently, 75.4 million Baby Boomers in America—about 26% of the U.S. population—have reached or will reach retirement age between 2011 and 2030. Many of them are public-sector employees. In a 2015 study of public-sector organizations, nearly 50% of the responding organizations stated they could lose 20% or more of their employees to retirement within the next five years.

Local governments are particularly vulnerable: a full 37% of local-government employees are at least 50-years of age in 2015.

It is now 5-years later, and the problems are worse than before.

It is no surprise that public pension funds are completely overwhelmed, but they still do not realize that markets do not compound at an annual return of 7% annually. Such has led to the continued degradation of funding levels as liabilities continue to pile up

If the numbers above are right, the unfunded obligations of approximately $5-$6 trillion, depending on the estimates, would have to be set aside today such that the principal and interest would cover the program’s shortfall between tax revenues and payouts over the next 75 years.

That isn’t going to happen.

The “unavoidable pension crisis” has arrived, and the consequences will devastate many Americans, depending on their retirement pensions.

“Demography, however, is destiny for entitlements, so arithmetic will do the meddling.” – George Will

Whatever amount you are saving for retirement is probably not enough.

The fourth stanza of Laurence Binyon’s poem “For the Fallen” published in The Times newspaper on 21st September 1914, was written to honor the young Englishmen who had fallen in the war that had begun seven weeks earlier.

The horror would continue for another 1812 days.

They shall grow not old, as we that are left grow old:

Age shall not weary them, nor the years condemn.

At the going down of the sun and in the morning,

We will remember them.

This stanza is read at the Menin Gate as the “Ode of Remembrance” every evening at 8 p.m. to honor the 90,000 dead in and around Ypres who have no known grave.

It is now used as a tribute to all casualties of war, irrespective of nationality.

The above copy was handwritten by Mr. Binyon while he was on duty as a medical orderly in France in 1915 or 1916 and auctioned at Bonham’s as Lot 50, April 10, 2013

h/t Climateer Investing

Authored by Raul Diego via MintPressNews.com,

In what is turning out to be something of a latter-day dot com bust, many small to medium-sized tech startups are teetering on the edge of oblivion as the deliberate economic shutdown eats away at their capitalization and opens the door for the biggest fish in the tech space and others to pick the ripest fruit from the tech start up tree.

As opposed to the original, this start up bust is accompanied by a very precise view of market opportunities for interested buyers and investors, brought on by an equally deliberate reshaping of workplace conditions and societal interactions which are driving companies like Microsoft to “aggregate capabilities” in “cloud computing, collaboration, access management, and other business continuity tools that saw a surge in demand during regional lockdowns.”

The ride-share behemoth, Uber, for example, is reportedly in talks to acquire Grubhub and expand its food-delivery operations, while Microsoft just completed its purchase of robotic automation company, Softomotive. One global research and advisory firm that focuses on IT and finance has even put out a guide “on how tech startups can best prepare for being acquired by a larger company,” revealing that just 13 companies accounted for a full 60 percent of the $150 billion raised by tech startups between March and April.

Signs that yet another massive wave of consolidation in the technology sector is on the horizon and is already raising concerns throughout the industry, but the fact that it is occurring in tandem with a larger push by outfits like Twitter, Facebook and other huge tech players to stifle freedom of online expression and association should make us pay closer attention to the dynamics at play.

Censorship creep

Under the guise of facilitating conversation, Twitter unveiled changes to the reply feature that ostensibly gives users more control, but in reality, it broadens the ability to censor content. The new format, still in testing mode, will allow users to select who can and cannot reply to their tweets. This, of course, presents a serious problem from the vantage point of free flowing interaction and gives even more power to the most popular accounts to stifle undesirable feedback, leaving their viewpoints publicly unchallenged.

Another seemingly innocuous development in the last few days was the announcement made by popular podcaster Joe Rogan on his move to Spotify. The comedian and UFC commentator’s immensely popular podcast has been freely available on YouTube and other platforms since its inception, but his multi-million-dollar exclusive licensing deal with the music platform will further cloister content behind a single outfit and likely diminish its reach and propagation.

Perhaps the most concerning, however, are the changes taking place at one of the most important research tools on the Internet and, up to now, a venerable tool for online transparency: The Wayback Machine.

Misplaced century

In the campy 1970s futuristic movie “Rollerball,” starring a young James Caan as a superstar athlete at the twilight of his celebrated career, there is a curious scene in which his character, Jonathan E, visits an archive where the entire knowledge base of humanity is stored. The man in charge of the quantum computer-like machine mentions, in passing, that due to some unknown glitch, the records containing the whole of the thirteenth century have been lost.

Such a predicament is, no doubt, much closer to becoming a real possibility as more and more of humanity’s knowledge is accumulated in massive digital repositories. The danger is not only in the outright loss of stored data as a result of technical malfunctions but also in the greater ability to execute historical revisionism and misrepresenting facts to future generations. Wikipedia – a widely consulted online encyclopedia – is already guilty of this. But, now the Wayback Internet archive is trending down this slippery slope with its recently implemented labeling of snapshot results as potential disinformation.

As a former editor, Elliot Leavy, warns in an article addressing the changes at the Wayback Machine site, “if we continue to censor the past, attaching intent to some but not to others, we will be unable to evaluate anything at all.” Indeed, the new measures instituted at the behest of MIT’s Technology Review over worries of COVID-19 hoaxes do not bode well for the survival of historical accuracy and a discerning populace.

The promise of the internet as an “information superhighway” modeled around democratized access to information is quickly eroding before our very eyes, as the measures are taken to curb the COVID-19 pandemic are being used to restrict unfettered knowledge. Together with the swift consolidation of tech companies that own the means to distribute and create the platforms we are obliged to use, we might soon find ourselves feeling like Jonathan E did when he realized that his once greatest supporters and benefactors were only looking to push him out the door and find a more pliable and less curious superstar.

Still on his public appearance ‘return’ tour after last month’s ‘where’s Kim?’ false alarm, North Korean leader Kim Jong Un hosted a meeting of top generals on the country’s nuclear policy Sunday — the first appearance since his May 1st tour of a factory quashed persistent rumors about his health.

State media asserted Pyongyang would continue to bolster its nuclear capabilities undeterred, amid stalled nuclear talks with the White House, at the meeting of the Workers’ Party of Korea Central Military Commission (CMC).

KCNA reported the meeting was aimed at efforts to “reliably contain the persistent big or small military threats from the hostile forces,” according to Reuters. The report emphasized the country would increase its “nuclear war deterrence”. 

“Set forth at the meeting were new policies for further increasing the nuclear war deterrence of the country and putting the strategic armed forces on a high alert operation,” the state media outlet continued.

The state-run outlet noted that officials also took “crucial measures for considerably increasing the firepower strike ability of the artillery pieces.”

Kim is said to have signed seven related orders: 

The orders concerned “enhancing” the responsibility and roles of major military educational institutions, reorganizing the military command system “to meet the mission and duty of the security institutions” and promoting the military ranks of commanding officers, KCNA said.

Since denuclearization talks with Washington stalled last fall, the regime has ramped up its short and medium range missile tests, with no less than six launches from the end of February through late March. 

The last provocative test included a projectile fired into the sea off the coast of Japan, and was seen as a direct challenge to Washington and its regional allies. 

Submitted by Michael Every of Rabobank

Arrogant And Offensive

“Arrogant and offensive”. Not today’s Daily. Well not deliberately and/or any more than usual.

Rather those three words, followed by “Can you imagine having to work with these truth twisters?” were tweeted out by the British civil service on its official account yesterday before being deleted.

This was in reference to the UK government lining up to bend over backwards to support PM Johnson’s advisor Dominic Cummings, who stands accused of having broken the virus lockdown rules that he helped draw up. Listen to UK radio and read the press: the sense of public anger is palpable when just weeks ago people were genuinely concerned for BoJo’s health. The lockdown was already fraying: now it may be undermined by a perceived “one rule for them and another for us”. Which we have a whole lot of globally on many fronts.

What an era we are living in when a tweet like that can go out in he UK: and yet I must confess I wasn’t sure exactly which government this was referring to when a screenshot of it was first shared with me.

“Arrogant and offensive” and “truth twisters” is certainly what the US and China are loudly claiming of each other. The White House recently released a 16-page strategy document laying out how it plans to push back against Chinese practices it sees as undermining it, albeit prefacing that “Competition need not lead to confrontation or conflict….We do not seek to contain China’s development, nor do we wish to disengage from the Chinese.”). More bluntly, US Secretary of State Pompeo is touring the world directly attacking the Chinese Communist Party. Moreover, Reuters reports if Beijing introduces a national security law in Hong Kong the US will stop recognizing its separate legal status, and economic sanctions will be introduced (as the UK Daily Express reports “Britain Ready to Welcome Hong Kong Refugees” – is this BoJo distraction or principle?).

On the other hand the Chinese Ministry for Foreign Affairs yesterday issued a huge number of tweets, including: “One has to have a sense of right and wrong. Without it, a person cannot be trusted, and a country cannot hold its own in the family of nations”; and “We Chinese value peace, harmony, sincerity and integrity. We never pick a fight or bully others, but we have principles.“ That as the Foreign Minster publicly warned the US should give up “wishful thinking” that it can change China, and that its actions (to counter China, in US eyes) were pushing the two countries towards a new Cold War that is “dangerous and will endanger global peace.” (Regular readers will recall we have been saying this is the reality for years.)

In short, both sides are saying they are the victims and the good guys: in fact Xi Jinping yesterday referred to China as “the broadest, most genuine, and most effective democracy to safeguard the fundamental interests of the people.”

Such a backdrop can indeed endanger global peace if we are not careful. More obviously it endangers the view that markets always trump politics – or rather trump Trump’s politics. Yet markets still don’t fully get this. Yes, HKD 12M forward points exploded higher on Friday and Hong Kong stocks were -5.6% at the close. But forwards were flat today and the Hang Seng was only down a further 1% at time of writing despite the clear warning of what is about to happen from the US, which was only guessed on Friday.

Why? Perhaps as within serious HK money circles there is absolute certainty that the US is now an EU-style paper tiger and has no stomach for a real fight, and that Trump is so beholden to Wall Street that he won’t dare act. I would wager that while this captures the self-confidence in Beijing it utterly fails to capture the bipartisan anger in DC, or the fact that both sides are using Beijing as a stick to beat each other with in the 2020 presidential election, or that the US has financial weapons as fearsome as its military. Or that the Fed is there to prop up the stock market anyway.

Let’s see how USD/CNY and USD/CNH continue to unfold ahead. Today saw CNY fixing set at 7.1209, the lowest since 2008, yet there has not been any follow-through selling in either CNY or CNH on the back of New Cold War calls, or the threat of looming sanctions on Hong Kong.

Quite the market–politics disconnect…for now at least. But we may be just days or weeks away from the levee breaking, with Hong Kong the most likely trigger. However India-China, where the PLA are reportedly 2-3km inside Indian territory and setting up camp, is also another flashpoint to watch.

Meanwhile “arrogant and offensive” is also what the different sides in Europe appear to think of each other: the East vs the West on liberalism vs. illiberalism, and north vs. south on stimulus v. surplus; and with a whole lot of truth twisters on all sides of all those arguments. Will we see any further breakthrough on that front this week? Markets will move accordingly. 

Shares in Bayer AG surged on Monday morning following a report the German life science company reached a verbal agreement to resolve most of its lawsuits related to its glyphosate-based Roundup weedkiller, sources told Bloomberg.

Bayer shares jumped 8.4% to EUR 62.50 on Bloomberg’s report of significant headway has been made in settling lawsuits. 

The report said the deal would cover an estimated 50,000 to 85,000 lawsuits, which would end the expensive legal battle and force the company to shell out upwards of $10 billion. 

“We’ve made progress in the Roundup mediation discussions under the auspices of Ken Feinberg, but in keeping with the confidentiality of this process, the company will not speculate about settlement outcomes or timing,” a Bayer spokesman said.

Bayer is expected to formally announce the settlements in June once it receives approval from the supervisory board. The settlement deal has yet to be signed, but plaintiffs’ lawyers are expected to do so on the day of the official announcement. 

Bayer has been locked in a heated battle with an estimated 125,000 lawsuits claiming its Roundup Brand Products causes cancer. In April, the company said it was served with 52,500 US lawsuits, up from 46,600 in February. 

The Bayer spokesman said the rise in lawsuits, along with the expectation of more suits, comes as lawyers have heavily advertised across the country on television. Here are some examples of the advertisement: 

Ad: Roundup Exposure Linked To Cancer

Ad: Roundup Cancer Lawyer

Roundup was originally acquired by Bayer in a $63 billion acquisition of chemical company Monsanto in 2018. The surge of lawsuits, along with three US court losses, resulted in a 42% decline in market capitalization of Bayer since the start of 2018. 

Under the deal,  Roundup will continue to be sold in the US without a health warning, and plaintiffs’ attorneys will drop any new cases and halt television advertising for new clients. 

Via AdventuresInCapitalism.com,

I have now run a few companies. Over time, I have experienced a repeated epiphany; which is that you never realize which employees are useless until they go on a vacation and nothing bad happens. Now, this isn’t a dig at good employees; good ones find ways to delegate their responsibilities and still check their emails – great ones work harder while on vacation. However, the bad ones often vacation themselves out of a job – oddly, those are usually the ones who keep reminding me about how valuable they are. Ironic right?

I bring this up because most employees just went on a 3-month forced vacation. As I speak with my friends, they’re all saying the same things;

1. –For 80% of employees, work from home went better than expected and my friends are now wondering why they need an office building and the associated expenses.

2. For 20% of employees, it has been chaos and it seems silly to retain office space just to micro-manage these weaker employees.

3. If they are going to run the business through Zoom meetings, why do they need expensive Americans when there’s some guy in Poland who will work harder for 10% of the price?

Me: Wait…, what???

Him: Yeah. We can save a fortune by outsourcing. We have considered it in the past, but we thought we needed the communication and team-building of all being in the same place. Now, we’re re-thinking this.

Me: Have you ever managed people overseas?

Him: Yeah, we outsource a few projects today. Some work better than others, but we’re getting the hang of it. We intend to dramatically increase the percentage that is outsourced because we basically outsourced everything during COVID-19. Sure, it isn’t going to be perfect, but the savings more than justify it. We can then retain a few Americans who fix the mistakes. All we really need is for senior management to be American with a few guys in Admin to support management. More than half of our staff can be offshored.

I have had this conversation a dozen times now in the past month. Rewinding a few decades; America outsourced its blue-collar manufacturing workforce and hobbled the middle class. The white-collar guys have sort of ignored this as everything at Costco got cheaper. However, there were big consequences along the way. Now I wonder if we are about to outsource a lot of the white-collar jobs too. That would be crippling for the economy.

Thinking of my expenses, I have always wondered why I spend a few hundred dollars an hour for a lawyer to review a document or regurgitate the securities laws. I have to think there’s someone overseas who can do this for a fraction of the cost. You don’t need a fancy degree to proofread a contract for me. I just need to know that you have all the facts and won’t make expensive mistakes. Fear of the unknown is all that held me back from finding a cheaper alternative. Many of my friends have said something similar. “How will we know if our bookkeeping is done right if it is done in India?” “Well, what’s the difference between India and having it done 20 miles from your office with a weekly Zoom meeting?”

Now, many of these offshoring experiments will fail. It takes a unique skill to manage people remotely and after a period of chaos, many of these jobs will stay in America, but many won’t. Much like the multi-decade process of outsourcing manufacturing, we’re about to have a similar process when it comes to office work and COVID-19 just dramatically accelerated it by removing the fear of remote work. Except, whereas manufacturing took decades to offshore, I wonder if office work is pushed offshore over only a few quarters.

COVID-19 was a bad cold that global governments overreacted to. The ramifications of this error will be ricocheting around for long after we all take our masks off and go on with life. As I sit on the beach during my vacation and piece it all together, I realize that many people are focused on the first-order effects like restaurant seating capacity, while ignoring the much larger impacts. The world will never be the same after COVID-19. History says that a crisis accelerates changes that are already in motion. Look around you and think through the permutations.

Our world will change dramatically as things open up. Is your portfolio prepared?

The plunge in the Mexican peso in March and April was, in theory, supposed to boost Mexican exports. That did not happen and instead this morning the National Statistics Institute of Mexico reported that April exports crashed 41% Y/Y, the most on record to $23.38BN, while imports slumped $26.5 billion, as the Mexican economy followed the rest of the world into a state of self-induced shutdown.

The result was an April trade deficit of $3.09 billion, significantly worse than consensus expectations for +US$2.0bn surplus and the +US$1.51bn print a year ago.

It was also a mirror image of the March $3.4BN surplus and far below the $2.0BN surplus consensus estimate. In fact, the reported deficit was below the worst forecast among all economists. The April deficit was the worst going back to the financial crisis if one excludes the seasonally poor January when the Mexican economy has posted a substantial deficit every year.

The deterioration in the trade balance from a year ago was driven exclusively by the non-oil balance (-US$1.8bn vs. +US$3.6bn a year ago) since the oil balance improved (-US$1.3bn from -US$2.1bn a year ago). The -39.4% yoy (-37.5% mom sa) variation in non-oil exports exceeded the also poor performance of non-oil imports (-27.6% yoy; -20.4% mom sa).

Crude oil export revenue declined 73.6% yoy in April, driven by a combination of lower export prices (-77.1%) but higher volumes (+15.2% yoy). The price of Mexican crude oil averaged $14.18 last month, down from $61.86 in April of 2019. Crude exports by volume increased to 1.18 million barrels per day from 1.02 million barrels per day a year before. The drop in oil prices also contributed to a 53% decrease in petroleum imports to $2.04 billion.

More ominously, non-oil exports declined by a large 39.4% yoy in April, with manufacturing exports down 41.9% yoy (auto exports -79.1% yoy and non-auto manufacturing exports -20.9% yoy). Non-oil imports declined 27.6% yoy in April: imports of non-oil intermediate goods declined 26.3% yoy and of non-oil consumer goods 37.9% yoy. Finally, as Goldman points out, imports of capital goods declined by 26.7% yoy in April (-17.4% yoy during Jan-Apr 2020). Finally, imports of capital goods declined by a large 7.4% mom sa in April (fifth consecutive monthly decline averaging -5.1% mom sa). The weakness of non-oil imports and of capital goods in particular do not bode well for near-term activity.

Of note, shipments of vehicles and auto parts were down 79% and other manufactured goods down 21%. Mexico’s auto industry, considered nonessential, was shut down for all of April, and production of cars and light trucks fell 99% from a year before.

Going forward Goldman expects to see “weak exports and imports driven by the sharp contraction of both global and domestic demand, lower commodity prices, and some supply chain disruptions due to extensive lockdown protocols”, even though the Mexican auto industry was changed to essential as of May 18, and plants were allowed to start reopening once they have new health and safety protocols in place.

What is concerning is that if the Mexican economy posted a record drop in exports when the peso tumbled to record lows, what happens now that the Peso has stormed higher from recent levels in anticipation of a V-shaped global economy recovery even as the central bank has been aggressively cutting rates and is expected to cut by a further 125bps in the coming 12 months?