“We’re At War, Make No Mistake” – White House Official Blasts China Over COVID-Contagion
Outspoken White House official Peter Navarro cranked up the anti-China rhetoric to ’11’ this morning, telling Fox News that the US is currently “at war” with China:
“We are at war, make no mistake about that. The Chinese unleashed a virus on the world,” the Trump adviser told Fox & Friends on Monday.
The outspoken China hawk went on to explain how mad he was about Disneyland…
“It crossed me that Disneyland in Shanghai is opening this morning, while my own Disneyland in my own homeland in Orange County, in Anaheim, where Disneyland was born, is still shut because of the Chinese Communist Party. That makes me mad.”
And reiterated that China will owe the US “some form of compensatory damage” following the pandemic.
Peter Navarro: “It crossed me that Disneyland in Shanghai is opening this morning, while my own Disneyland in my own homeland in Orange County, in Anaheim, where Disneyland was born, is still shut because of the Chinese Communist Party. That makes me mad.” pic.twitter.com/Z6Onr98wkn
The White House trade advisor’s stetement echoes that of hedge fund manager Kyle Bass who recently said “They [China] are the most lying, coercive, manipulative government in the world.”
I just think it’s important… for the world to think about what really happened in a timeline, and not some conspiracy theory because China won’t allow us in, and won’t allow our scientists to try to find patient zero and origin of the virus. And in fact, you’ve probably seen recent communiques between the Chinese Communist Party and their labs that their lab output has to be censored by the CCP, or that has anything to do with the Wuhan virus, [has to be approved] before it goes to the rest of the world. So, they are very sensitive on this topic—number one.
And number two, if you look back to the timeline, and you understand what happened, China has an enormous culpability. They actually have a legal liability, and one that’s a financial liability. I don’t know if you’ve seen various interviews in the last few days of U.S. legislators but there is a growing tide, of not only resentment, but a growing tide of people in the legislative branch of the U.S. and the UK governments, and now it’s bleeding into Australia and Canada, where they’re starting to say that we need to use the rule of law, the U.S. rule of law, the British Common Law, to start talking about reparations and getting the Chinese government to pay for their malign actions. And I think it’s important to note: on December 31, there were already 104 cases and 19 deaths in Wuhan. The Wuhan scientists, the heroes who first found this strange new pneumonia that was propagating itself so freely in Wuhan, not only were they arrested, and punished, and forced to retract statements that they had put on WeChat, but as you know, since then, one of the doctors who was 33 years old has died from the Wuhan virus.
Secondarily, that all happened in December. So by December 31, the government of Taiwan sent a white paper to the World Health Organization explaining that they had full evidence that there was human-to-human transmission, and that it was going to be a new global pandemic. And if you remember, on January 14, Tedros said to the world in a proclamation on a Tweet that this is not a global pandemic, and that he had just consulted with Xi Jinping and the Chinese, and that there is no evidence of human-to-human transmission—this is January 14. And then January 23, Xi Jinping closed down all air traffic from Wuhan to the rest of China. But he allowed Wuhan air traffic to travel to the rest of the world. Essentially, Xi Jinping knowingly infected the rest of the world. … “If he’s going to go down, the world is going to go down with him,” essentially what he was saying. That is not a responsible actor. That is not a government who’s ideologically aligned with the rest of the West. This is a government that basically covered up the truth. And we all know that they covered up the truth, but now, it’s actually after Neil Ferguson’s Boston Globe article, and now you see that the Chinese Foreign Ministry said on February 2 that it is xenophobic to close anyone’s borders to the Chinese, and that travel restriction shouldn’t be made. Xi Jinping himself shut down Wuhan, January 23; this is February 2, they’re telling the world this.
They are the most lying, coercive, manipulative government in the world, and you and I both know, they are committing the largest crimes against humanity prior to this outbreak of the sinister virus that God knows where it really came from—somewhere between the Wuhan wet market, the Chinese Center for Disease Control, which is right across the street, or maybe 20 miles north, at the Biosafety Level 4 lab in China. But the bottom line is, this disease has been unleashed on the rest of the world, and it was knowingly done so. And that’s why I’m so visibly upset about this.
And I think that you probably saw the Jackson Foundation in the UK, the Harvard professors in the U.S., are starting to set forth a legal framework for which international laws (that) China has broken, and the fact that there is a financial liability…
Navarro’s comments come after President Trump likened the virus “attack” to 9/11 and Pearly Harbor last week.
“This is worse than Pearl Harbor. This is worse than the World Trade Center,” Trump said at a White House event.
“It should have never happened,” Trump continued.
“It could have been stopped at the source. It could have been stopped in China. It should have been stopped right at the source, and it wasn’t.”
And follow Secretary of State Pompeo, who also criticized China:
“They knew. China could have prevented the deaths of hundreds of thousands of people worldwide. China could have spared the world descent into global economic malaise,” Pompeo told a State Department news conference.
“China is still refusing to share the information we need to keep people safe.”
The Trump administration has become increasingly critical of China as the death toll in the US has risen, blaming it for the deaths of hundreds of thousands of people and demanding the country be more transparent about its handling of the disease.
As Kyle Bass ominously conclude: “We will never out-lie, we will never out-cheat, will never out-steal, the Chinese Communist Party—they’re the “best” in the world. But what we can do is we can use the foundational bedrock of our countries, the rule of law, and we can exercise and enforce our laws on them for their malfeasance. And that is the play, that is how we level the playing field, against such a tyrannical lying actor.”
NIRP Panic Fades, But Here’s One Reason Why The Fed May Have No Other Choice
After last week’s negative rate scare, which hammered the dollar as fed fund futures traded above par as close as the November contract…
… suggesting markets were pricing in negative rates in just 6 months – prompting much confusion in markets given prior Fed assurances the Fed would not follow Europe and Japan into negative territory – on Monday the fed funds complex normalized with far-dated fed fund futures now implying just 1 basis point of easing over the next 12 months currently, after pricing in far more late last week, helping the dollar maintain broad gains after Federal Reserve officials downplayed the idea of negative rates would be used as a policy tool to combat the coronavirus.
The Bloomberg Dollar Index also benefited, rising 0.6%, the most since mid-April and 10Y Treasury yields were higher by 4bps to 0.72% after Chicago Fed President Charles Evans downplayed the idea negative rates would be used while Atlanta Fed President Raphael Bostic said the use of negative rates not a good option in a crisis.
Of course, the big question is what Fed Chair Jerome Powell will say when he appears Wednesday in webinar discussing “current economic issues.”
Some, such as UBS head of U.S. rates strategy, Michael Cloherty, wrote that bets on the path of Federal Reserve interest rates, “is an accounting-driven move” as banks are insuring against hedges on assets turning negative, to avoid shifting to a costly mark-to-market framework, by buying options on instruments such as Fed funds falling below 0%. This leaves the counterparty on the other side of the trade exposed to negative yields.
“The magnitude of the accounting risk is likely to be very large,” said Cloherty. “If the dealer community has significant exposure to negative Fed funds, stop-outs can temporarily push futures into negative rates that seem highly unlikely.”
Not everyone was convinced, and others said that technical factors or simpler still, growing deflation fears, were behind the push: the scale of the move was reflected by the jump in outstanding positions on Thursday, which rose 62,000 contracts. January 2021 futures accounted for almost half the volume, rising 18%. Furthermore, despite Today’s reversal in fed funds, the probability of negative LIBOR rates by Dec 31, 2021 soared as high as 26% late last week.
This confirms trader speculation that despite the Fed’s stern refusal to consider negative rates, Powell is unlikely to rule out negative rates definitively as it makes strategic sense for the “prudent” Fed to keep all options on the table given that the
cost/benefit analysis of implementing negative rates may change in the future, especially if there is a second infection wave later in the year. Not to mention, the lack of an explicit denial grants the Fed another liquidity put in the form of ‘constructive ambiguity’ which keeps financial conditions easy without actually lowering rates below zero as some have observed. Of course, if Powell pushes it too far, then Eurodollars will again surge and push rates well below negative forcing the Fed to repeat the song and dance all over again.
In a lengthy comment on the risk of NIRP coming to America, Nordea’s FX strategists wrote that “if the Fed Funds pricing over summer 2021 actually depicts a bet on negative interest rates, it may just as well be that markets are betting on NIRP over the coming 3-4 months. There is essentially a 0% risk of a hike over the coming 12-18 months, why you could just as well bet on the cut in a Spring-2021 Fut instead of a Fall-2020 Fut. It basically yields the same result if the Fed cuts in September, but you keep the door open for a later than anticipated cut.”
Extending the commentary, Nordea adds that if the Fed was to go negative, it would be viewed “as a favour to the rest of the world and in particular emerging markets, as killing the USD spot level would be the main reason for going negative.”
On the other hand, “it would be a slap in the face for domestic USD savers and likely also for USD based banks”, although if there is one thing the Fed demonstrated amply over the past decade, is that it has zero qualms about punching savers in the face. Repeatedly.
“Negative interest rates hurt banks’ balance sheets, with the ‘wealth effect’ on banks overwhelming the small increase in incentives to lend.” as Stiglitz said. If you need empirical evidence, just take a look at banks vs. the broad equity market in the Euro zone – not looking pretty since the introduction of NIRP in the Euro area.
Yet with most strategists convinced that the move was largely technical – considering the Fed would only go NIRP in a catastrophic, for the economy, scenario – Nordea asks “what could force the Fed into pondering NIRP given how firmly Powell has neglected the possibility of going negative?”
Nordea’s answer: “Import prices are already about to put a big downside pressure on CPI core goods over the coming 12 months, and should USD strengthen from here it would of course only emphasize the downside pressure.”
And with headline inflation about to fall off a cliff, core inflation will likely follow suit during H2-2020, which is “why it could be argued that the last thing that the Fed needs right now is a further strengthening of the USD as it risks leading to a damaging disinflationary spiral.”
As the bank concludes, “everyone and their mother is currently incentivized to support measures that could weaken the USD, also even the Fed. This is exactly why it is not 100% out of the question that NIRP is coming to America.”
Which leads us to the next obvious question: will negative rates actually lead to a lower dollar? We will provide the surprising answer shortly in a follow up analysis.
And at the dead center of it all is Eric Schmidt. Well before Americans understood the threat of Covid-19, Schmidt had been on an aggressive lobbying and public relations campaign pushing precisely the “Black Mirror” vision of society that Cuomo has just empowered him to build. At the heart of this vision is seamless integration of government with a handful of Silicon Valley giants — with public schools, hospitals, doctor’s offices, police, and military all outsourcing (at a high cost) many of their core functions to private tech companies.
Each crisis in the 21st century has been aggressively and ruthlessly wielded into a massive wealth and power grab by the American oligarchy and national security state. The big power grab following 9/11 centered around whittling away constitutional rights via mass surveillance in the name of “keeping us safe”, while the money grab after last decade’s financial crisis concentrated wealth and assets into fewer hands while entrenching financial feudalism and making the Federal Reserve and mega banks even more powerful.
Despite the success of this diabolical and intentional concentration of money and power, there’s still too much privacy, freedom and independent wealth around for the imperial oligarchy to feel comfortable. As such, the current pandemic is being used to put the finishing touches on whatever little political and economic freedom remains in these United States.
How Brokerage-App “Game-ification” Enticed A Generation Of Lemmings To Day-Trade This Market
Millennial retail traders who have been piling into retail brokerage accounts over the past few months, desperate to capitalize on what many fear might be their last chance to buy stocks on the cheap.
Stock positioning at free brokerage app Robinhood has become increasingly stretched since the beginning of the year…
…as 3 million new customers (almost 10x the number of new customers at one of its traditional rivals) have signed up. More and more, social media activity, traffic on financial news websites and other indicators have shown more young people are experimenting with the time-honored practice of “buying the dip”. As one FT columnist claimed (somewhat incredulously, we might add) their 13-year-old child recently asked if they could open a Robin Hood account for the purposes of above-mentioned dip buying.
Millennials and their younger “Gen Z” peers are in some ways perfectly positioned for the age of remote work and simpler living. They are digital natives who live and breathe streaming, social media, ecommerce and such. They are well-positioned to sell themselves to employers and start businesses in the new and much more digital era. And they’ll need to, because they are more exposed to long-term decreases in earning power than any other group. Economic research shows that when you start your working career during a period of high unemployment and compressed wages, you never recoup the losses fully. Zoomers, as they may now be called, will be at increased risk for poverty and retirement insecurity. Which may be why some are frantically trying to play the stock market. I was slightly suspicious when my 13-year-old son asked me if he could open a brokerage account last week because “Mom, you want to buy the dip!” (um, no, not this one — see my latest column on that score).
Unfortunately, while people seem to always be talking about how young people need to learn a better grasp of basic financial management – from how to save, to what percentage of one’s income should be spent on housing, and what percentage should be saved etc.- this, as the author concedes, is hardly an example of sound financial planning.
Apps like TD Ameritrade and Charles Schwab have cut trading fees to zero. So why continue trading with Robinhood? Well, as the FT explained in another horrifying recent trend piece, Robinhood is leading the charge into the “gameification” of stock trading.
Essentially, Robinhood is taking the logic that resulted in the creation of CNBC – that is, tacitly encouraging (some might say ‘conning’) ‘normal people’ to play the market like casino – to its logical end point.
To wit, Zoomers might think they’re getting a bargain right now, but as the chart below shows, they’re not.
And as recent market action would suggest, now that the millennials are nearly exhausted, these “gameified” apps have supplied what is essentially an entire generation of lemmings lining up to get eaten by the sharks. Hence, the author’s reason for writing a column that was tantamount to a warning.
My fear – we are about to see Zoomers lose both their earnings potential in labour markets and, now, their shirts in the stock market. Yet more fodder for generational political wars over a shrinking pie.
Any Zoomers reading this who thought the last few sessions might be a good time to buy: delete Robinhood or live to regret it.
“At some point, America’s short-term Crisis psychology will catch up to the long-term post-Unraveling fundamentals. This might result in a Great Devaluation, a severe drop in the market price of most financial and real assets. This devaluation could be a short but horrific panic, a free-falling price in a market with no buyers. Or it could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed.”
– Strauss & Howe – The Fourth Turning
I’ve been writing articles about the Fourth Turning for over a decade and nothing has happened since its tumultuous onset in 2008, with the global financial collapse, created by the Federal Reserve and their Wall Street co-conspirator owners, that has not followed along the path described by Strauss and Howe in their 1997 book – The Fourth Turning.
Like molten lava bursting forth from a long dormant (80 years) volcano, the core elements of this Fourth Turning continue to flow along channels of distress, long ago built by bad decisions, corrupt politicians and the greed of bankers. The molten ingredients of this Crisis have been the central drivers since 2008 and this second major eruption is flowing along the same route. The core elements are debt, civic decay, and global disorder, just as Strauss & Howe anticipated over two decades ago.
“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.”
– The Fourth Turning – Strauss & Howe
The initial spark for this Crisis was the massive mortgage fraud perpetrated on the nation by the Wall Street banks and enabled by their drug dealer at the Fed – Ben Bernanke. Once he took his Wall Street payoff, becoming a multi-millionaire after departing the Eccles building and reaping his rewards (aka bribes), Yellen stepped into the breach, shoveling billions into the deep pockets of the ruling elite. QE to infinity for the connected billionaire set and .25% interest on granny’s dwindling retirement nest egg.
Then another spineless academic dweeb took over the reins of money printing for the .1% in 2018. Jerome Powell had the gall to raise rates all the way back to 2.25% and wind the Fed’s balance sheet all the way down to $3.8 trillion from $4.5 trillion, before he was sternly told who he works for. And it’s not you and me. I wonder what threats were made to convince him to fall into line.
The financial engine driving the American economy blew a gasket in September 2019. Overnight repo rates soared to 10%, indicating a major malfunction under the hood, threatening the wealth and safety of our beloved Wall Street bankers and billionaire hedge fund managers, picking up nickels in front of steamrollers. Jerome jumped into action, to save his billionaire owners. The QT was turned off and QE spigot was back on. He ramped the Fed’s balance sheet by over $400 billion in three months, with three 25 basis point cuts going into 2020.
Those in the know understood there were major problems in the financial system, as excessive risk taking, non-existent banking oversight by the Fed, and more corporate, consumer and government debt that could never be serviced, pushing the Ponzi scheme engine to the brink. Then lo and behold the China flu arrived as cover for another plunder and pillage subversion perpetrated against the American people by the ruling oligarchs.
Powell, Mnuchin and their buddies at Goldman, Blackrock, JP Morgan and the rest of the banking cabal looked back at what Bernanke, Paulson, Blankfein, and their cohorts pulled off in 2008/2009 and said hold my beer. The chutzpah of what they have done in two months is breathtaking to behold, as the greatest wealth transfer from the former working class to the champagne and caviar class in the history of mankind has been executed with precision and flawlessness by high tech criminals and their propaganda spewing corporate media compatriots.
This global pandemic is the crisis they couldn’t let go to waste. There is a myriad of theories on where, how, and why this global pandemic began. The accidental release of the virus from a bio-weapons lab in Wuhan appears to be the most likely scenario, with the Chinese authorities covering up the nature and seriousness of the virus and allowing infected citizens to spread it throughout the world. This narrative will likely play into the bloody climax of this Fourth Turning.
What we do know for sure is Trump was convinced by government bureaucrat medical “experts”, using seriously flawed models, that more than 2 million Americans would die unless he quarantined the entire nation. Extrapolating the disastrous NYC results across the entire U.S. and shutting down the entire economy will prove to be one of the most disastrous decisions ever made by a U.S. president.
Instead of addressing a virus only marginally more lethal than the yearly flu in a rational fact-based manner, we allowed ourselves to be snowed by “experts” and authoritarian politicians who originally downplayed the threat, instructed everyone to not use face masks, and purposely put infected patients into nursing homes. Cuomo is hailed as a hero by his brother’s joke of a news network, when he should be scorned as an inept bungler who caused the deaths of thousands.
Democrat politicians declared racism when Trump tried to shut the borders. Instead of protecting the most vulnerable in nursing homes (40% to 50% of all fatalities), closing the borders, encouraging the vulnerable to self- quarantine, encouraging people to wear masks, and letting those under 50 years old continue to work and keep the economy from crashing, we used the Chinese tyrannical method of total lockdown.
We let the overbearing reach of government and the egomaniacal authoritarian governors, mayors and Karens lockdown an entire nation under the threat of incarceration. They had plenty of room in the prisons because they released pedophiles, rapists, and thieves for fear they might catch the virus. The government hammer saw everyone as a nail. And they have been hammering away for two months, with plans to keep hammering for many months to come.
The corporate fascists have utilized the government-imposed shutdown to implement their plan to increase and consolidate their power, control and wealth. The first order of business was the Fed using the shutdown as its excuse to buy the toxic assets, junk bonds, and junk government treasuries in order to bail out hedge fund managers, Wall Street CEOs and government politicians dishing out $4 trillion of payoffs to constituents with the best lobbyists.
The 32% drop in the stock market in March was unacceptable to Powell and his minions. They vowed to do whatever it took to restore the billions in wealth of the .1%. The bottom 99% be damned. Everyone knows you can’t catch coronavirus at Wal-Mart or Target among hundreds of shoppers, but can catch it alone on the beach or in your local hair salon with three people in the shop.
So, Jerome and Neel decided to slash interest rates by 150 basis points, back to virtually 0%. So much for senior citizens getting 2% in their money market fund; Wall Street needed free money again. They’ve increased their balance sheet by $2.7 trillion in seven weeks, a 65% increase. Shockingly, the stock market has skyrocketed along with the Fed balance sheet, as 33 million non-essential workers have lost their jobs and we enter a 2nd Great Depression.
The Fed pretends to care about wealth inequality even though they are solely responsible for the grand-canyon like divergence between the super-rich and the rest of us. Their vow to pump $6 trillion into the financial system will only benefit the Hamptons crowd. Lance Roberts describes what is happening:
“To no one’s real surprise, the driver of the market is simply “The Fed.” As the Fed engages in “QE,” it increases the “excess reserves” of banks. Since banks are NOT lending to consumers or businesses, that excess liquidity flows into the stock market.”
And there you have it. Bailing out Wall Street and screwing Main Street, again. Everything the Fed has done, or will do, does not benefit the 33 million who have lost their jobs and the millions of small businesses which are purposely being snuffed out by tyrannical government overlords, so the mega-corporations, with their patriotic “we’re in this together” bullshit Madison Avenue identical ad campaigns, will be left with 90% of the economic pie instead of the 75% they had before the plandemic.
Even the worst employment figures since the Great Depression (last Fourth Turning) were spun by the government drones at the BLS to appear far better than they really are. The reported 14.7% unemployment rate is complete and utter bullshit fake news. But the mouthpieces for the oligarchs, the propaganda media outlets, had their spokesmodels and talking head “experts” report the gibberish as if it were true.
Maybe these faux financial journalists should have examined the 42-page press release and found the BLS purposely fudged the number by 5%:
If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical April) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been almost 5 percentage points higher than reported (on a not seasonally adjusted basis).
So that means even the massaged and manipulated BLS number is 20%. One look at the data shows how ludicrously low they have manipulated the number. The BLS reported the labor force as 164.5 million in February and now says it is 156.5 million. Poof!!! – 8.3 million people willingly left the workforce because they felt like it – not because they were forced out of the workforce by the same government paying the BLS to spew this fake data.
These people did not leave the workforce, they are unemployed by government mandate. The number of employed people is now back to 1999 levels and headed lower. And as if you didn’t already know, the job losses have been borne mostly by blue collar, retail and restaurant workers (heavily skewed towards women and young people), self-employed, and small businesses.
Wal-Mart, Target, Amazon, Wall Street banks and the rest of the mega-corporations are doing just fine – even better since they don’t have those pesky small businesses eating into their profits. At least the Fed was able to propel the stock market 455 points, back towards all-time highs, as 33 million people wonder where their next meal will come from. Winning!!!!
The plain simple fact is there are 260 million working age Americans and 127 million, or 49% are not working. Of the 133 million who are working, 23 million are part-time workers and 19 million are government workers. In another shocking development, while the number of workers in private industries dropped by 18%, the number of government workers only dropped by 8%. It seems our authoritarian rulers know what is good for us, but don’t feel the need to share the pain equally.
But at least our beloved government heroes have time to stage daily parades with their fire engines and $70,000 police vehicles and do patriotic flyovers to keep the unemployed and mandatorily masked plebs entertained. Something has to make up for the lack of the normal bread and circuses of double bacon cheeseburgers and watching overpaid privileged athletes play games. I can’t wait to see more tik-tok dance videos from the hero nurses and doctors overwhelmed with coronavirus patients in their empty hospitals.
If you don’t feel the mood of the country turning towards confrontation and civil chaos, you are either a lackey for the establishment, a government paid drone, or propagandized to such an extent you have chosen to be willfully ignorant of your surroundings. This Fourth Turning seemed somewhat dormant since 2012, but government, corporate, and consumer debt continued to balloon; the divide between left and right grew as the Deep State conducted a coup against a duly elected president; and global disorder accelerated in the Middle East, Europe, Asia and South America.
The core elements of debt, civic decay, and global disorder are now coalescing into a perfect storm of consequences for a nation and world built upon a teetering edifice of unpayable debt, unfulfilled promises, the unbridled greed of a blood thirsty ruling class, and the unbelievable delusions of people who think a world built upon borrowing to consume is sustainable.
The dichotomy between what is happening in the real world and what is happening in the world of the financiers will lead to violent upheaval on a timeline not anticipated by the ruling class. There is a good reason gun stores were overwhelmed with business at the outset of this over-hyped flu pandemic. As Strauss and Howe pointed out twenty three years ago, trust in the government, central bankers, the corporate media, and “experts” is disintegrating rapidly. The anger and disillusionment grows by the day and pockets of resistance are propagating throughout the country.
The un-Constitutional destruction of rights and liberties by overbearing governors, mayors and Federal bureaucrats is pushing desperate citizens towards insurrection. The police who carry out the unlawful orders of their superiors for a paycheck should realize they live among those they are bullying and pushing around. There is blowback coming and they should act accordingly. When people have lost everything they had and any hope for the future, while witnessing the privileged continuing to reap the benefits of a rigged financial system, civil disobedience will increase and blood will begin to be shed. The bubble of abnormalcy will be popped.
It is weirdly fascinating to watch a Fourth Turning unfold, while in the midst of it, and knowing we are entering the phase where people have died in numbers that put this pandemic fatality count to shame during the previous two American Crisis periods. From 1861 to 1865 almost 5% of the male population of the country were killed. That would equate to about 8 million today. From 1939 to 1945 an estimated 65 million people were killed.
The 100,000 or so who will die in 2020 from this virus is just a prelude to the death and destruction to follow. The trigger for the climactic phase of this Fourth Turning is not a virus that will not kill 99.97% of the American population, but the economic consequences of the over-reaction and authoritarian response to the virus. I’ve lost respect for numerous bloggers who desperately try to paint Sweden’s response as disastrous in an effort to support their own narrative of doom.
Sweden’s decision to allow its people and businesses to use reasonable precautions and not lock down their country in the dictatorial Chinese way, has resulted in cases per million being in line with the rest of European countries and lower than the U.S. The louder these bloggers scream, the surer you can be they have been proven wrong.
It is mesmerizing to watch those on the left, along with the Republican “Never Trumpers”, flail about as the Obama/Clinton attempted coup against Trump unravels before their very eyes. The reaction of these people, along with their toadies at CNN, MSNBC and the other left wing media, reveals an unbridgeable chasm between those believing in the rule of law and people who are willing to do anything for power.
The pure hatred from those on the left for Trump and his followers can not be contained. They despise the deplorables in flyover country with such a passion, the spittle foaming on their lips as they describe them as gun toting, uneducated, white racists, is an indication of their fury and hate. What these entitled, suit wearing, botox injected, arrogant idiot yet idiot establishment whores fail to realize is we despise them equally and we’re armed and ready. While psychopaths in suits, worthless politicians, government errand boys and remote working white collar parasites of the establishment continue to get paid, they continue to prohibit the lowly wage earner from making a living. A price will be paid.
Trump is not a nice guy. Grey Champions (Lincoln, FDR) use their power in ways not conducive to making everyone happy. They are leading during a time of crisis and will use any means necessary to win. The coup attempt by Obama, Clinton, Comey, Clapper, Brennan, Mueller, and their minions has failed and now the tables will be turned. Trump, Barr, Grennell and Durham have the power to prosecute some of the most powerful left wing politicians and Deep State operatives on the planet.
How this plays out before November will ignite further civil strife and discontent. People have already begun taking to the streets and as this unnecessary shutdown further impoverishes the masses, things will turn nasty. Government attempting to have neighbors rat on neighbors for not obeying the Nanny State commands will backfire on the rats. Animosities and grudges will sway the actions of many, once the gloves come off.
The majority of rule following sheep believe what they are being told by their elected leaders, non-elected self proclaimed medical “experts” and the feckless shills on their boob tube. They do not see what is coming, just over the horizon. The divergence of opinion on how we should proceed from this point onward is immense, with biases, delusions, and inability to grasp the unintended consequences of the actions taken thus far, driving the narratives. Listening to Trump bloviate about the tremendous economic boom which will occur when we re-open the country is laughable. He sounds like a carnival barker.
He allowed himself to be bamboozled by medical “expert” hacks and their immensely flawed garbage in-garbage out models into destroying our economy, and he may end up paying the price in November as the economy is mired in a 2nd Great Depression. But the Dow should be at 50,000 by then, so he’s got that going for him. Trump thinks you can turn the economy on again and things will be as good as new. He evidently has never read Bastiat or Hazlitt. The broken window fallacy now can be called the broken country fallacy. The financial gurus crow about the fantastic job Powell and Mnuchin have done, based upon what they have seen (31% increase in S&P 500), while that which is unseen has yet to reveal itself.
“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
– Henry Hazlitt
The hacks who pass for economists and central bankers don’t practice the art of economics. They are enablers of plunder, as their actions benefit a small group of men who have created a legal system that allows and glorifies this as a way of life. Abnormal, morally ambiguous and in many cases illegal actions taken by those pulling the levers of power will have far reaching consequences unseen by these myopic arrogant waterboys for the oligarchy.
The destruction caused by this man-made depression is permanent. The millions of small businesses demolished are not coming back. The unemployment rate will never approach 3.5% again, unless the BLS says 30 million people just left the labor market because they got independently wealthy in the stock market.
The number of corporate and personal bankruptcies will exceed anything seen in history. The mortgage, credit card and auto loan defaults are going to make 2009 look like a cake walk. The fear and panic inflicted by the government upon the psyches of the masses has insured bars, restaurants, airlines, cruises, stadiums, movie theaters and anywhere crowds formerly gathered will draw a fraction of what they did three months ago. This will lead to more bankruptcies.
The remote working arrangements forced upon companies will result in a glut of office space, as companies save money by no longer renting overpriced offices. The coming commercial real estate collapse will be one for the record books. Malls, which were barely staying alive before Covid-19, are done, as major retailers declare bankruptcy on a daily basis. Closed stores no longer employ workers.
People whose jobs are gone, with their meager savings depleted, will not be spending on frivilous gadgets and baubles. They won’t be eating out three times per week. They will just be trying to sustain themselves. A society built upon 70% of its GDP coming from consumption is now doomed. The well oiled mechanism of lending money to people so they can buy shit they can’t afford and paying them just enough to make the minimum payments has malfunctioned.
The state and local governments dependent upon sales taxes, gasoline taxes, income taxes, tolls, and property taxes to pay for their bloated bureaucracies are going to be overwhelmed with massive deficits, as their revenue streams have evaporated. This will bring the government pension crisis to a head years earlier than expected. The normal government action would be to increase taxes on the plebs. The plebs are broke and will not stand for higher taxes. They’ll demand government layoff workers. This will just throw another log on the fire of discontent. The us versus them mindset will grow ever larger until violence breaks out.
The average American suffered economic hardship throughout the 1930s, just as average Americans continued to suffer economic hardship since 2008. But the real economic hardship has just begun. As Americans dealt with privation and poverty in the late 1930s the coming global conflict was brewing. Animosities, prejudices and resentments, exacerbated by economic turmoil, stirred militaristic ambitions of hubristic rulers in Europe and Asia. The parallels with the current international dynamic may not be the same, but they do rhyme. Three months ago, the truly chaotic perilous segment of this Fourth Turning seemed far off in the distance. Now it approaches with the speed of a ballistic missile.
The possibility of global catastrophe is not taken seriously by the vast majority of Americans. Their ignorance of history is appalling and a pathetic indictment of our educational system. It’s been seventy-five years since the last global conflict and most of the people who experienced the horror are dead. We’ve forgotten the past and are condemned to relive it, just as we do every eighty or so years.
The extreme volatility seen in financial markets over the last two months only happens during bear markets. The historical perspective and insight into market valuations of the 30 something Harvard and Wharton MBA traders doesn’t reach past last Tuesday. This bear market bounce, generated on nothing but Fed liquidity and belief in Powell’s infallibility, will give way once again to a waterfall like collapse in the equity markets. This will be the final nail in the coffin of trust in the Fed. If this crackup occurs as the election approaches, the consequences and actions taken will propel the global disorder into a new stratosphere. A storm is brewing.
Do you get the feeling the War on Covid-19 will work out just as well as the War on Drugs and War on Terrorism? Do you get the feeling the models being used to panic the world into obeying and submitting to our authoritarian surveillance state benefactors are as accurate as the climate models that said the ice caps would be gone by now? Do you get the feeling this is about control and power and wealth, and not about your health or well-being?
Do you get the feeling the left wingers and their media propagandists want to keep as much of the country locked down for as long as possible in order to defeat Trump in November? Do you get the feeling these people actually want a second wave to kill as many as possible, just to prove they were right? Do you get the feeling the destruction of our economy is being cheered by those waiting to enact their green new deal and using MMT to keep the plebs sedated and non-violent? I get the feeling this is not going to end well for those initiating this takedown of a nation. The existing social order is always swept away during a Fourth Turning.
I see a foggy outline of where this crisis is headed. The debt situation is untenable. The inflationists and deflationists both make strong arguments in favor of their disastrous outcome which will beset the nation. The only thing that matters is we will experience a disastrous outcome in the very near future from this reckless issuance of debt. The civic decay has entered the confrontational stage, with sides taken, weapons at the ready, awaiting the spark which will ignite the dynamite.
Fighting in the streets will be next. Which leaves us with global disorder. The attempted takedown of the US oil industry by Russia and Saudi Arabia has ramped up the potential for conflict in the Middle East. But, the proxy wars of the last two decades will give way to real conflict, where the losers really lose. Putin is a wily leader who never shows his cards. He probes at our weaknesses and takes advantage when our arrogant leaders make mistakes.
This leads us to Donald J. Trump and what he does and doesn’t do over the next five months and possibly next four years. He is a proud man with a huge ego, prone to impulsive actions, and war-like in his vengefulness against perceived enemies. And his enemies are many. He has every right to throw the full weight of the law against the high-level members of the attempted coup.
In an election year, a strategy of aggressiveness against his enemies, will play well with his base and possibly distract people from the economic depression. When faced with domestic trouble, politicians have always tried to distract the masses with a foreign threat. I believe Trump is angry he allowed Gates and his vaccine squad at the CDC and WHO to bamboozle him into a national quarantine that destroyed “the best economy evah”. He can’t blame himself, so he has turned his ire towards China.
It is the consensus belief this virus originated in Wuhan, China, either from a bio-lab and/or wet market. The narrative now being spun by the U.S. and German spy agencies is China knew they had a major issue in December and colluded with the WHO to cover-up the danger and transmit-ability of the virus, while allowing its citizens to travel the globe, spreading the virus far and wide for at least a month before admitting they had a problem.
The Chinese brutally locked down Wuhan and have supposedly stopped the virus dead in its tracks. The American MSM has bought this bullshit, just like they believe their economic data. Trump has now openly accused China of causing the economic damage to our country, demanding reparations. This war of words is likely to lead to more economic sanctions and retaliatory actions designed to hurt each other’s already dire economic situation.
Just as economic sanctions against Japan in the 1930s and early 1940s backed them into a corner and convinced their leadership to attack the U.S., pushing China and/or Russia into a corner through the use of economic sanctions designed to hurt them, will provoke a reaction that will lead to war. Impossible says the linear thinkers who can’t conceive of such foolish actions. History teaches otherwise.
Egomaniacal leaders, with terrible domestic issues, overestimating their abilities to comprehend the actions of their foes, and miscalculating the odds of war, will stumble into conflict, resulting in the deaths of millions. Global war in this technologically advanced age will not resemble the wars of eighty or one-hundred and sixty years ago. Civilians will likely bear the brunt of the casualties as attacks on electrical grids, water supplies, and computer systems would paralyze our economy, causing death on a grand scale. Maybe a really deadly virus could be released by our enemies.
As Strauss & Howe warned, history offers no guarantees. Many empires before ours have fallen and counting on Providence to protect us is wishful thinking. Any war could go horribly wrong, with all potential enemies capable of launching a nuclear exchange, ending life as we know it. We have gotten our first taste of tragedy with this pandemic, and the early returns on leadership, courage, fortitude, and common sense have been found wanting.
This does not bode well for the trials and tribulations we will face over the next decade. A failure to meet the challenges ahead with bravery, grit, good judgement, adherence to our Constitutional principles, and a fair amount of luck, could lead to a defeat from which we will never recover. No one knows how and when the climax of this Crisis will play out, but the acceleration towards our rendezvous with destiny is in motion. Strauss & Howe laid out four potential outcomes to this Crisis. It’s time to steel yourself to the possibilities.
This Fourth Turning could mark the end of man. It could be an omnicidal Armageddon, destroying everything, leaving nothing. If mankind ever extinguishes itself, this will probably happen when its dominant civilization triggers a Fourth Turning that ends horribly. For this Fourth Turning to put an end to all this would require an extremely unlikely blend of social disaster, human malevolence, technological perfection and bad luck.
The Fourth Turning could mark the end of modernity. The Western saecular rhythm – which began in the mid-fifteenth century with the Renaissance – could come to an abrupt terminus. The seventh modern saeculum would be the last. This too could come from total war, terrible but not final. There could be a complete collapse of science, culture, politics, and society. Such a dire result would probably happen only when a dominant nation (like today’s America) lets a Fourth Turning ekpyrosis engulf the planet. But this outcome is well within the reach of foreseeable technology and malevolence.
The Fourth Turning could spare modernity but mark the end of our nation. It could close the book on the political constitution, popular culture, and moral standing that the word America has come to signify. The nation has endured for three saecula; Rome lasted twelve, the Soviet Union only one. Fourth Turnings are critical thresholds for national survival. Each of the last three American Crises produced moments of extreme danger: In the Revolution, the very birth of the republic hung by a thread in more than one battle. In the Civil War, the union barely survived a four-year slaughter that in its own time was regarded as the most lethal war in history. In World War II, the nation destroyed an enemy of democracy that for a time was winning; had the enemy won, America might have itself been destroyed. In all likelihood, the next Crisis will present the nation with a threat and a consequence on a similar scale.
Or the Fourth Turning could simply mark the end of the Millennial Saeculum. Mankind, modernity, and America would all persevere. Afterward, there would be a new mood, a new High, and a new saeculum. America would be reborn. But, reborn, it would not be the same.
White House Orders All Staff To Wear Face Masks ‘At All Times’
President Trump and Chief of Staff Mark Meadows have issued a memo to all who work in the West Wing that masks must be worn at all times inside the building except when at one’s desk, WSJ reports.
The decision is notable since the White House actually seems to be reacting to criticism and improving its policy on masks after President Trump and VP Pence were both called out for not wearing masks in public.
Two White House staffers tested positive for COVID-19 last week, and VP Pence has said he will be working in quarantine after being exposed to an aide who tested positive. Pence in particular has endured criticism for neglecting to wear a mask during a visit to the Mayo Clinic.
President Trump reportedly “erupted” at his aides for purportedly failing to prioritize his safety.
Notably, the press has painted Trump as someone who has recklessly refused to wear masks, setting an example that critics say has confused the public (though we’d argue the conflicting research about the efficacy of masks and initial recommendations that they only be worn by the sick are probably caused more confusion).
And for those who are tempted to argue that the “science” has changed, keep in mind. Aside from maybe one or two additional non-peer-reviewed studies, not much has changed in terms of the available research. It’s just that the West, for whatever reason, didn’t accept the precautionary mask culture, until its leaders decided it might help the public take things a little more seriously.
Of course, President Trump probably doesn’t really need to wear a mask since nobody every really gets within six feet of him, except for his closest aides, foreign leaders and other politicians.
Trump has said he doesn’t believe wearing a mask is “appropriate” for public duties: “I think wearing a face mask as I greet presidents, prime ministers, dictators, kings, queens, I don’t know. Somehow, I don’t see it for myself. I just don’t.”
Several aides told WSJ they don’t expect Trump to start wearing a mask.
Banks Battered, Absymal Breadth But The Big-Tech Buying-Bonanza Continues
The Nasdaq is now up over 40% off the March lows…
As Nasdaq earnings continue to collapse…
Source: Bloomberg
Valuations are soaring back near record highs…
Source: Bloomberg
As world stocks ride the ‘white pony’ of central bank narcotics…
Source: Bloomberg
Because The Fed went full “Rick Astley”…
You’re welcome!
Everything opened lower… then the bid for big tech stepped in – buybacks and robinhood’rs… but a weak closing hour left Dow and Small Caps red (very ugly last few seconds)…
As Nasdaq soared, the median US stock was notably lower today…
Source: Bloomberg
Breadth was abysmal…
Source: Bloomberg
Another epic short-squeeze continues (6 days in a row higher)…
Source: Bloomberg
FANG stocks surged to new record highs today (up 43% off the March lows)…
Source: Bloomberg
This is the 6th day higher in a row (and 8th day of the last 9)
Source: Bloomberg
All thanks to The SNB…
And Retail bagholdering…
Source: Robintrack
Biotech stocks soared to a new record high…
Source: Bloomberg
But Banks were battered lower today…
Source: Bloomberg
And in case you are wondering why banks are getting battered (on such a glorious day of panic-buying), here’s why! Market expectations of negative rates are soaring…
Treasury yields were higher across the curve with the long-end steepening…
Source: Bloomberg
10Y back above 70bps…
Source: Bloomberg
The dollar surged today (bets day in over 4 weeks) after a couple of days of weakness…The last two days moves look a lot like last week’s…
Source: Bloomberg
Just hours ahead of Bitcoin’s once-every-four-years ‘Halving’, the cryptocurrency chopped around after its big loss yesterday
Source: Bloomberg
The rest of the crypto space is hurting too since Friday…
Source: Bloomberg
Oil chopped around today on Saudi production headlines but all the major commodities ended lower…
Source: Bloomberg
June WTI outperformed with yet another panic-bid into the settlement…
Finally, Spot The Odd One Out… What do stocks “know” that bonds and commodities don’t about the re-opening of the world’s economy?
Watch Live: Trump Holds Briefing After Pledging Just $11 Billion To States
President Trump and the White House task force will deliver a press conference Monday – what could be the first real team briefing since the task force ended their regular briefings two weeks ago – to talk about aid to help the states ramp up testing efforts.
ABC News reports that Trump is “expected to push his view that there is enough testing for states to reopen, even as the White House is instituting increased testing and considering other new precautions over fears that the novel coronavirus has invaded the cramped offices of the White House West Wing.”
It’s not that hard to forecast a populist revolt against the parasitic class that’s grown obscenely wealthy as a direct result of Fed policies.
Under the tender care of the Federal Reserve, America’s wealth inequality has skyrocketed to new heights of obscenity as America’s billionaires feasted off the Fed’s recent stock market rally. By some accounts, billionaire Jeff Bezos added $24 billion to his personal wealth in the past week or two as the Fed’s master game plan–push stocks higher, no matter what–has further enriched the few who own most of America’s wealth.
To get a handle on the wealth of the stock market’s billionaires, please scroll through this site:Wealth, shown to scale (via Maoxian). You’ll find that America’s private tech fortunes dwarf entire nations’ GDP (gross domestic product).
The driver of this fantastic concentration of private wealth is the stock market, the vast majority of which is owned by the top 10% (85%).
Within this top 10%, the ownership of stocks, junk bonds, business equity and rental real estate is highly concentrated: the top 5% own roughly two-third’s of America’s private-sector wealth, the top 1% own 40% and the top 0.1% own 20%. (see chart below)
According to the financial media, the Federal Reserve’s super-power–pushing stocks higher no matter what–is the key to the Universe. I beg to differ. The story we’re told–“don’t fight the Fed”– is that the Fed’s power to push stocks higher is all that’s needed to keep the world in a good place–meaning in the hands of the parasitic few who own most of the stocks. (Hiya doin’, Warren, Jeff, Bill, Mark…)
The Fed’s policies have created a world in which the top 10% skim an ever-increasing share of the wealth and income and the bottom 90% get more debt. This is a world that is terribly out of balance, as it depends totally and completely on the bottom 90% who own little more than the leftover crumbs of America’s wealth borrowing more every year to buy more iPhones, etc., even as their incomes continue stagnating year after year.
The Fed’s fix is to lower the interest rate that banks and corporations pay to borrow money from the Fed while interest rates paid by the bottom 90% remain much higher. The Fed’s plan is for the bottom 90% to pay a few bucks less for the mortgage so they can pay more interest on other debt.
The dirty little secret is that America’s economy implodes once debt stops expanding. The entire machine is completely and totally dependent on debt expanding, even as the incomes of the bottom 90% stagnate. If households and enterprises even reduce their borrowing, i.e. the rate of expansion declines, consumption and bank income crater, and then the defaults explode higher as the declines in consumption trigger lay-offs, business failures and defaults on the ever-rising mountain of debt.
The Fed’s sole power turns out to be further enriching the few at the expense of the many. It can’t force creditworthy households and enterprises to borrow money they don’t need, nor can it generate creditworthy borrowers out of thin air, the way it creates dollars out of thin air.
It can’t force banks to loan money to households and enterprises that are not creditworthy, i.e. are very likely to default.
It can’t stop the implosion of the U.S. economy once debt expansion reverses, lay-off accelerate and insolvency triggers an avalanche of defaults.
The Fed can’t magically make zombie companies solvent, nor can it magically make unprofitable companies profitable.
All the Fed can do is fuel a revolt of the bottom 90% against their parasitic masters, the Fed, and the class the Fed has enriched with their free money for financiers and stock buybacks.
It’s not that hard to forecast a populist revolt against the parasitic class that’s grown obscenely wealthy as a direct result of Fed policies while millions lose their jobs and what little financial security they once held. The common-sense demand would be: No more bailouts of Wall Street, which includes the big banks, the financiers, the corporations buying back $5 trillion of their own stocks to enrich the few at the top, and the corporations kept afloat with junk bonds and other financial trickery funded by the Fed.
Yet bailing out Wall Street is the Fed’s only plan and only super-power. It’s the only reason the Fed exists: the parasitic class would wither away without the Fed’s constant distortions of what was once known as “the free market.” Now the only thing that’s free is the Fed’s handouts to the parasites at the top.
Let’s be clear about one thing: the Fed can fuel the revolt but it can’t stop it or control it. Its super-power is limited to 1) enriching the parasitic class and 2) via that distortion, undermining democracy. (I describe this dynamic in greater detail in my book Resistance, Revolution, Liberation: A Model for Positive Change)
China Quietly Drops Vow “Not To Flood Economy With Liquidity” As It Injects An April Record ¥3.1 Trillion In Credit
In response to a world that has unleashed a record liquidity flood in the past two months, over the weekend China’s PBoC said in its quarterly monetary policy report that it will resort to “more powerful” policies to counter the hit to growth due to the coronavirus pandemic.
Commenting – in his traditionally sarcastic style – on the PBOC’s announcement, Rabobank’s Michael Every said that the Chinese central bank has “recognized that after having ‘beaten the virus’ the Chinese economy is still so weak it requires “more powerful” monetary policies: its latest quarterly monetary policy report dropped the vow to “avoid excess liquidity flooding the economy.” That, as Every concluded, “is as bearish for CNY, and hence for EM FX and inflation prospects, as it is positive for some local assets.”
Here are some more details, sans the sarcasm, on the PBOC’s report from Goldman, which concludes that the PBOC’s dovish stance in monetary policy since February “would continue in the coming months given the need to put more emphasis on economic growth and employment.”
The report reiterated that the “prudent” monetary policy stance should be more flexible, which has been used since February, and mentioned the need to strike a dynamic balance among multiple goals and put more emphasis on economic growth and employment. From a broad perspective, the PBOC guided down the interbank interest rate significantly, with DR007 down by around 80bp from January to 1.5% on average in April, and R007 down by around 100bp to 1.6%. The PBOC also cut the OMO and MLF rates by 30bp and accordingly, guided LPR lower by 30bp, and cut the interest rate for excess reserves from 0.72% to 0.35% (for the first time since 2008). We expect another 20bp cuts in OMO/MLF rates and another 100bp of cuts in the RRR. Given the significant decline in repo rates since April, the need to boost growth in coming months and moderation in CPI inflation (see below for more discussion), we lower our forecast for DR007 to 1.5% on average for the rest of this year (from 1.9% on average previously).
At the same time, the report also noted the PBOC’s intention to maintain a “normal” monetary policy, which only a few major economies currently have. This is consistent with what Governor Yi Gang mentioned in an article published in December last year that questioned the effectiveness of unconventional monetary policy (e.g., zero interest rates and quantitative easing) in major DMs, stating that China would not implement zero interest rates or quantitative easing. So we think the bar for large further rate cuts, particularly in short-end rates, is high in China.
Elevated CPI inflation in recent months has been an unfavorable factor for monetary policy, even though it has largely been due to virus shock impacts (primarily the supply shock to food) and the decline of sow stock in early last year. Consistent with our forecasts, the report also noted that CPI inflation has started to go downward, and inflation expectations are currently stable. The report also mentioned that the virus may continue to affect inflation from both supply and demand sides in the coming months. As we have previously analyzed, the virus outbreak could put upward pressure on food prices (supply shocks outweigh demand shocks), but put downward pressure on service prices (where demand shocks dominate). In China, we found the net impact on CPI inflation was positive, reflecting larger impacts on food inflation (in DMs the food weight is much smaller so there is typically a negative impact). But with slowing infections (and less disturbance to the food supply) and a slow recovery in service demand, the net impact from the virus could turn negative. Thus, overall inflation could be less of a constraint for monetary easing in the coming months.
From a credit supply perspective, the report mentioned that M2 and TSF growth would “roughly match and be modestly higher” than nominal GDP growth, which of course is laughable for a nation where M2 has traditionally average about double GDP growth. That said, the PBOC has emphasized in recent years that TSF growth should be roughly in line with nominal GDP growth, leading to a much smaller deviation in TSF growth from nominal GDP growth (the ratio between TSF growth and nominal GDP growth was down from around 2 in 2016 to 1.1 in 2018, but up to 1.4 in 2019) and accordingly, less pressure on macro leverage.
While this approach could put an upper bound (range) on TSF growth, with downward pressure on growth intensifying, as we are seeing this year, the report suggests the bound should be higher to reflect the counter-cyclical requirements.
* * *
And sure enough, just hours after the PBOC statement, the central banks released its latest total social financing (TSF) and M2 data which were both well above market expectations, driven by continued growth in loans and corporate bonds, which according to Goldman “demonstrated the government has been quietly loosening policy.”
Here are the key numbers:
New CNY loans: CNY1700bn in April (loans to the real economy: CNY1620bn) vs. consensus exp. CNY1300bn. Outstanding CNY loan growth was 13.1% yoy in April, or roughly double China’s pre-covid GDP growth, and higher than March at 12.7% yoy. New CNY loans in April were lower than March mainly due to a sharp decline in short-term corporate loans.
Total social financing: CNY3090bn in April, vs. consensus expectation RMB 2775bn. While below the record March TSF total of CNY5.149 trillion, this was the highest April total for the series on record.
TSF stock growth (after adding all government bonds) was 12.1% yoy in April, higher than 11.6% in March. On the other hand, the implied month-on-month growth of TSF stock moderated to 15.3% (seasonally adjusted annual rate) from 17.7% in March. If we exclude central government bonds and general local government bonds from the TSF flows, the TSF stock growth accelerated to 12.4% yoy in April from 11.8% in March.
Total social financing surprised the market to the upside, driven by robust growth in loans and corporate bonds. Government bond net issuance moderated in April and shadow bank products remained muted. A breakdown of key TSF components is shown below:
Goldman expects the government to maintain the level of sequential TSF growth, especially given expected slowdown in exports growth, falling concerns about inflation, and less dramatic recovery in activity growth.
For the second month in a row, China’s shadow banking resulted in an injection in credit, suggesting that the PBOC is hardly that concerned about the current state of the shadow debt bubble. That said, the lower shadow banking activity was partially because financial institutions have concerns about regulatory repercussions. There is also less need to issue these since it is easy to extend standard RMB loans and issue bonds. Much of the shadow bank products were popular when there were tight controls on loans and bonds.
M2: 11.1% Y/Y in April (17.7% annualized) vs. Bloomberg exp. of 10.3% yoy, and above the March 10.1% yoy print.
M2’s 11.1% growth was the fastest since December 2016, above expectations, although well below the recent explosion in the US M2 (whose impact on risk assets we discussed previously).
As Goldman summarizes the April data, it demonstrated that “the government has been quietly loosening policy, more than what it may appear by looking at the magnitude of interest rates and RRR cuts.” Furthermore, there is still a clear preference to use these relatively low profile methods of loosening than tools such as RRR cuts which are often described as “heavy weapons”. Then again, how “low profile” is a CNY10 trillion credit injection in 3 months is anyone’s guess.
On the other hand, there are some concerns that there are more arbitrage activities than usual, which won’t help the real economy:
Some firms might have borrowed at a low interest rate and then deposited the money at commercial banks.
Other firms would then lend it to non-bank institutions instead of depositing the money at commercial banks, but this is significantly riskier since the safe borrowers such as large SOEs generally don’t need to borrow money this way.
The relatively low level of M1 is one sign indicating these arbitrary activities. If companies borrowed at a low interest rate and then deposited the money, they cannot deposit it in demand deposit accounts to enjoy the rate differential because the deposit rate is too low. The existence of some arbitrary activity almost always occurs when policy is being loosened and the interest rate is low.
So the fact that these activities exist does not mean monetary loosening is not helping the real economy – mounting evidence of stronger domestic demand growth especially in areas related to infrastructure FAI has demonstrated its usefulness. On the other hand, these concerns could add pressures on the central bank to lower the benchmark deposit rate, which hasn’t been adjusted for years, although the latest PBOC quarterly monetary policy report appeared to suggest some reluctance to cut.
However, inflation will need to drop before a wholesale rate cut. The high level of CPI inflation recently was cited by the PBOC deputy governor as a reason why they hadn’t cut the benchmark deposit rate. But there is a growing consensus that April and May CPI and PPI will likely fall further from March level. Goldman believes May CPI can be below 3.0% and PPI close to -5%. If so there will not only be a lower level of concerns about inflation, there will likely be rising concerns about deflation.
There are also more renewed concerns about the spread of virus in some areas following a mini outbreak in Jilin province. This has led to a lockdown in a low tier city—though this doesn’t have a significant economic impact, it does tend to make policy makers in other parts of the country more cautious when they need to decide on whether to relax virus control policies. It also can directly affect consumer behavior as they become more concerned.
In paring, Goldman states that its current forecast for TSF growth implies the ratio between TSF growth and nominal GDP growth will rise to around 3 this year, consistent with the view that “the demand stimulus the government needs to implement could be larger than in 2016, but smaller than the GFC.” This reflects the need to accommodate the ramping-up of infrastructure investment while mitigating the potential crowding-out of credit availability for private firms. The acceleration in local government bond issuance, along with a significant pickup in Rmb loans and corporate bond issuance…
… has driven a material pickup in TSF growth, with the TSF flow to GDP ratio up 14% in Q1. On the other hand, the report continued to emphasize consistency in housing policy and reiterated that policymakers should avoid using property as a short-term stimulus.
