Tag: finance

Authored by MN Gordon via EconomicPrism.com,

Bull Market RIP

And just like that – after a magnificent 11 year run – the bull market in U.S. stocks is dead.  From its peak close of 29,551 on February 12 through yesterday’s [Thursday] close of 21,200, the Dow Jones Industrial Average (DJIA) has dropped over 28 percent – in just 30 days!  RIP.

Death may mark the end.  The completion of the circle of life.  But it also marks the beginning of something new.

The death of the bull market, for example, marks the birth of a new bear market.  By our estimation, the DJIA must fall an additional 30 percent – approximately – before the bear market dies and a new bull market is born.

Between now and then, the central planners in command at the Federal Reserve and the U.S. Treasury will do anything and everything to jumpstart the old bull market back to life.  On Thursday, Fed Chair Powell grabbed Hank Paulson’s bazooka and fired off a cumulative $4 trillion repo bailout.  But, alas, Powell’s bazooka was loaded with blanks.

After a brief paring back of losses, the DJIA resumed its downward trajectory, closing the day down 2,353 – or nearly 10 percent.  The stock market, you see, knows something that Powell doesn’t know.  That is, the damage being done to businesses, in an effort to control the spread of coronavirus, is destroying the economy.

Layoffs.  Shuttered doors.  Empty ports.  Quiet railroads.  Suspended sports and entertainment venues.  No Disneyland.  Oil price collapse.  No March Madness.  More layoffs.  Tom Hanks.  Bankruptcies.  Empty shelves.  Panic.  Sovereign debt crisis.  And soon to be empty bellies…

The ultimate impact, in terms of GDP contraction, will tailspin the economy into a depression…perhaps, The Great Depression II.  The stock market, regardless of what Powell wants, is pricing this reality accordingly.

There’s no escaping it…

Can’t Run, Can’t Hide

You can’t run.  You can’t hide.  Remember, no one here gets out alive.  Though you aren’t totally helpless…

You can tempt fate.  You can rage against the forces of destiny.  By this, you can place bets that are at odds with the madness of crowds.  Of course, this must be done before the inflection point; before the herd runs off the cliff…not after.

For example, during periods of economic chaos, physical gold and silver and arable land are proven vehicles for wealth preservation.  No doubt, those with the means and fortitude to do so have already diversified some of their savings into these established crisis hedges.

Those who haven’t can only blame themselves.  There have been ample warning signs over the last year – or more – that financial markets were ripe for a crisis.  It didn’t take half a brain to clue in on this.

And it didn’t take much in the way of resources to place a bet or two that something ‘might could’ go wrong.  Even the lowly working stiff, with a small inkling of what was coming, could have taken a pass on shares of Apple and traded a small wad of paper bucks for a junk silver bag or two.

With a little luck, these proven wealth preservation vehicles will safely traverse the valley of the shadow of death to whatever economic order emerges when the crisis abates.  At that point, we suspect paper dollars will trade at par with fire kindling, whereas silver and gold will retain their stored value.

Indeed, gold and silver have gotten shellacked this week.  But, as night follows day, once this panic liquidation episode subsides, and the implications of fiscal and monetary currency debasement are realized, gold and silver will take off.  You can count on it.

In the interim, escaping to a country house or a mountain cabin is an appealing option to ride out the depression – assuming you have one to escape to.  If not, the months ahead may validate the wisdom of having freeze dried food storage and a productive vegetable garden.  Assuming you’re prepared with a little food storage and gold, you can calmly hunker down and avoid large crowds.

Other than that, the best thing to do is to try and stay out of the way as the traveling circus blows through town.  Hence, what follows are several proven, practical ideas, including a 12-Point Great Depression II Survival Guide, that anyone can follow to avoid taking this crisis square on the chin…

Your 12-Point Great Depression II Survival Guide

On November 21, 2008, when the sky was falling, and following many reader inquiries, we attempted to offer – from the heart – practical, discretionary advice on what to do to survive the economic crisis.  At the time, it served our readers well.

For your benefit today, and by reader request, we’ll revisit it…with some minor touch ups.  We recommend printing this out, and tacking it to your office corkboard, so you can refer to it during the darkest of days, which are headed our way.

Your 12-Point Great Depression II Survival Guide:

1. Always take what’s yours…plus a little bit more.  You’ll undoubtedly need it with Donald J. Trump running riot during an election year.

2. Never shake hands with your right hand, without first crossing the fingers of your left hand securely behind your back. You never know when you’ll need a do-over.

3. Always look out for No. 1, save stepping in No. 2.

4. Never give a beggar your pocket change, except when to do so is to buy them a drink.

5. Know the difference between honesty with yourself and honesty with others.  The former must be rigorous; the later must be flexible…especially when applying for insurance.

6. Never kick a man when he is down; so too, never hasten to help him up.

7. Never stiff your barber. He’ll be your last resort for relief via bloodletting and fire cupping, should things get bad enough.

8. Never con widows and orphans; all others are fair game.

9. Do not worry about money; what you don’t have should be of little concern.

10. Never forget that there’s a fool on every corner and a sucker born every minute.  Avoid being one of them when at all possible; for it is both demoralizing and expensive.

11. Do not take it personal when you lose your job. This economy’s circling the toilet bowl; before this is over a lot of other good people will lose their job too.

12. Remember, always, that this too shall pass; though never fast enough.  So keep your head up. For even during a depression the birds still sing, the flowers still bloom, and those of sound mind and body get through it a little wiser…if not a lot slimmer.

We had been reporting China’s February auto sales numbers on a week by week basis, so Zero Hedge readers knew they were going to be ugly for the month. They just didn’t know how ugly.

Industry wide, sales fell 79% in February, marking the biggest ever monthly plunge on record, according to Reuters. 

And the industry is starting to panic. Automakers are now asking the government for relief after the industry’s collapse, which occurred in the midst of an already-in-progress global recession for automakers. Specifically, they are asking for cuts on the purchase tax for smaller vehicles and support for sales in rural markets, in addition to the easing of emission requirements. 

Sales for February fell to just 310,000 vehicles from a year earlier, marking the 20th straight month of declines. 

Chen Shihua, a senior CAAM official said: “China’s auto sales for February returned to levels not seen since 2005.”

And the once silver lining of EV sales is no longer. New energy vehicles contracted for an 8th month in a row as the CAAM pleaded the government for more subsidies on NEVs. 

Yale Zhang, head of Shanghai-based consultancy AutoForesight, said: “The government will consider these proposals but it is unlikely they will launch so many policies. Measures like cuts to the purchase tax, support for rural markets and easing purchase restrictions on new energy vehicles are reasonable and would have an immediate impact.”

Auto makers are also asking the CAAM for improved logistics and the support of a resumption of production in Hubei province, where the coronavirus outbreak began. In Hubei, production for China’s automakers had resumed to about 40% of normal output levels, according to a CAAM survey. 

The CAAM predicts sales numbers will “definitely” rebound in March. A CAAM official said last month that sales are likely to plunge 10% for the first half of 2020. Containing the coronavirus outbreak is going to be key in whether or not the industry rebounds, and by how much. 

And remember, as production comes back online in China, demand globally will likely be falling off a cliff as other major countries deal with their “Wuhan moments”.

Authored by Bradley Thomas via The Libertarian Institute,

As the coronavirus panic heightens, the price of items like hand sanitizer and medical face masks – to the extent they are still available – are skyrocketing.

CBS News reported last week that “Online, sales of virus protection products have skyrocketed, up 817% in the last two months. Two large bottles of Purell hand sanitizer were on sale for $299 on Amazon. That size normally sells for about $9 a bottle. Another listing, for four boxes of masks, is usually about $20 — it was being sold for more than $1,000.”

In response, some state governments have already vowed to punish “price gouging.”

“California’s attorney general told businesses that if they violated price gouging laws, ‘You’d better be prepared to pay the price for your lawbreaking.’ New York City is issuing $500 fines to any stores found price gouging, starting this week,” CBS reported.

Indeed, even the Department of Justice issued a warning that they “stand(s) ready to make sure that bad actors do not take advantage of emergency response efforts, healthcare providers, or the American people during this crucial time.”

The trade group The Consumer Brands Association praised the DOJ’s response, saying “We appreciate the Department of Justice’s swift response to Consumer Brands’ request to combat price gouging and ensure American consumers have access to critical products at affordable prices.”

But does preventing ‘price gouging’ during times of distress actually help ensure that critical products will remain available at affordable prices? Basic economics tells us no.

Price controls in times of emergency have negative consequences, just as they do during normal times. When prices aren’t allowed to move in response to changing economic conditions, those who most urgently need these critical items will likely find the shelves empty.

In the current situation, fear of the spread of the coronavirus has caused demand for virus protection items to skyrocket. But if the sellers of these items are not allowed to raise their prices out of fear of government punishment, the result will be that the first wave of customers will clear out all the available supplies.

During times of distress like this, people’s demand curves shift. They are now willing to buy more of a good (like hand sanitizer) at any given price. Without a higher price, the first buyers will stock up, leaving no supplies for others in need. There is no incentive to economize; in fact there is incentive for those first in line to buy up more than they actually need to potentially take advantage of shortages and make a profit by selling to those willing to pay a higher price in the black market. 

If prices are allowed to rise to reflect the greater urgency of demand, however, consumers will limit their purchases to just what they truly need. Those first in line will be far less likely to clean out the shelves, but rather buy the minimum amount needed to ride out the virus scare.

I’m w/ Prosecutor @JakeHudnut + JCPD issuing tickets for price gouging. We won’t accept people taking advantage of residents. Tissues, Clorox, cleaning items, all doubling +. Rubbing alcohol went from $2.99 to $6.99. People sometimes can be terrible in how they treat eachother.. pic.twitter.com/GarSAkAW35

— Steven Fulop (@StevenFulop) March 12, 2020

As a result, more people will be able to acquire at least some of the highly-valued products, and supplies are more likely to be available to those who most urgently need the product. As Robert Wenzel at EconomicPolicyJournal.com wrote:

“If someone wants to buy a mask to travel by subway to go to a movie and the mask is $200, the consumer might think twice and not buy the mask, thus leaving it for someone else. At the same time, a heart surgeon may want to buy a mask to travel the same subway to perform heart surgeries. He might be very willing to pay $200 for a mask.”

Moreover, freely adjusting prices send important signals to producers about the intensity of demand, providing incentive to suppliers to devote more resources to the production and distribution of the critical items in such high demand.

Manufacturers of masks and hand sanitizer will be willing to outbid manufactures of other products for the inputs they need to produce the finished product. They may also be willing to invest in more speedy delivery mechanisms to more quickly acquire their needed inputs so that they can increase supplies in a shorter time frame. 

Allowing for prices to freely adjust to market conditions sends vital signals both to consumers to economize and producers to marshal resources to increase supply. Shortages will be avoided and the most urgent needs will be met. 

Emotions are running high during the current panic. Part of the emotional response is directed at sellers of critical items like hand sanitizer and medical masks, who are seen as exploiting the desperation of the situation. But government price controls will create shortages, causing those who most urgently need such products, like medical personnel, to do without. 

As usual, when the government interferes in the market, they can only make a bad situation worse. 

While many post-mortems will be written on what, despite Friday’s torrid 9% rebound, has been a historic, unforgettable week which saw the US stock market plunge the most since the worst days of the global financial crisis, one of the more detailed and impactful was that of Nomura’s quant Masanari Takada who put the week’s events in simple, easy to understand context: “In little more than the blink of an eye, the situation has come to look like the 2008 Lehman Brothers crisis all over again.”

Below we repost some of the key points from his note as we brace for another historic week, especially since something tells us – perhaps the Fed’s failure to normalize the funding situation – that the events from next week will be even more memorable.

The plunge in US equities yesterday (12 March) pushed weekly returns down to 7.7 standard deviations below the norm. In statistical science, the odds of a greater-than seven-sigma event of this kind are astronomical to the point of being comical (about one such event every 160 billion years).

Setting aside legitimate quibbles over the statistical significance of this, we can say with confidence that we are witnessing a history-making market disaster in real-time.

Looking back at the performance of the DJIA since 1900, market shocks have exceeded the current rout in magnitude on only three occasions: in 1914 (when a growing financial crisis caused trading in US equities to be halted), in 1929 (the historic market crash that led to the Great Depression), and in 1987 (the Black Monday event).

US stock market sentiment has also seen a jarringly swift collapse, as equity sentiment has now gone beyond the low point marked during the 2015 renminbi shock. In little more than the blink of an eye, the situation has come to look like the 2008 Lehman Brothers crisis all over again.

The Fed has resumed its QE-in-all-but-name in response to the financial market meltdown. Many observers have questioned how effective the aid will actually be, given that there seems to be no way to put a conclusive stop to COVID-19. Expanded QE did help lift sentiment in 2015-2016, and therefore think that the Fed can at least help limit the risk of an extreme credit crunch. However, the paralysis in the international circulation of people and goods already being observed will almost inevitably undermine the market.

DM equities worldwide are in bear markets now. Going by our own data analysis, the pace of the present sell-off has broken all norms. When a downshift in the market is characterized by unusually steep declines, the usual driver is an outflow from longer-term investments.

The present market rout is unconventional in that major hedge funds (global macro hedge funds, CTAs) appear to be behind the curve in their selling [ZH: just as Goldman warned this week]. If anything, we see a risk that short-term players may mount an attack on the downside, ramping up their selling in an attempt to push the market down further.

For example, global macro hedge funds’ net exposure to DM equities (estimated from 30- day rolling beta) is still currently flat or even slightly long. It may be that these investors had been unable to fully imagine a pandemic-driven recession scenario, having no experience in that vein to draw upon. Global macro hedge funds may have taken this week’s abnormal market movements as their cue to simply offload their long positions in DM equities in their entirety.

There is a growing risk that global macro hedge funds, after liquidating their long positions, will proceed to aggressively build up short positions. Global macro hedge funds tend not to make spur-of-the-moment trades, but they do tend to stake out positions that are consistent with the macroeconomic outlook.

In that respect, the S&P 500 dividend yield appears to already reflect market expectations for a slowdown in the US economy. If the ISM Purchasing Managers Index (average of the readings for manufacturers and non-manufacturers) were to drop to the level recorded around July 2009—as the dividend yield seems to imply—there is a high likelihood that global macro hedge funds would then (with some confidence) start expanding their short positions in pursuit of the market downside.

Similarly, CTAs appear to have failed to fully keep up with the drop in share prices in major countries. CTAs have of course been selling futures to unwind their long positions during this downward move in share prices. But when share prices shift downward abruptly, the short-term surge in volatility can often hinder trend-followers’ ability to participate in short-selling. This is because systematic trend-following strategies tend to build positions that balance: (1) the strength or weakness of trends; and (2) the level of volatility. This means that CTAs often wind up following one step behind when trends shift suddenly.

CTAs have turned short on DJIA futures. Because of the rapid pace of the Dow’s drop, CTAs have been able to build sufficient short positions. As they had already preferred short positions with the DJIA below 28,000, CTAs look likely to build short positions rapidly at current share price levels.

It may be, then, that the market has only just begun staring into the abyss.

Authored by Steve Watson via Summit News,

House Democrats have introduced legislation that would undo President Trump’s travel bans from coronavirus stricken areas, despite the fact that the director of the National Institute of Allergy and Infectious Diseases (NIAID) has said that the impact of the crisis would be much worse had the travel bans on China and Iran not been in place.

Democrats want to strip the President of the authority to implement the bans, introducing a bill titled the “No Ban Act,” which would allow travellers from Wuhan and other infected areas to keep arriving in the US unimpeded.

“This bill imposes limitations on the President’s authority to suspend or restrict aliens from entering the United States and terminates certain presidential actions implementing such restrictions,” the bill  summary reads.

The legislation vaguely says that Trump should only be able to “issue a restriction when required to address a compelling government interest.”

The bill further declares that before any travel ban is imposed, the President would be mandated to “consult with Congress.”

Democratic Presidential contender Bernie Sanders also said this week that he would not impose any travel bans during the coronavirus crisis.

The action flies in the face of advice from Dr. Anthony Fauci, director of the NIAID, who told lawmakers during a House Oversight and Reform Committee hearing Wednesday that “I believe we would be in a worse position,” had such travel bans not been imposed by Trump.

Fauci’s comments come at the 1:00:39 mark

“Whenever you look at the history of outbreaks, what you see now in an uncontained way and although we are containing it in some respects, we keep getting people coming into the country that are travel-related, we’ve seen that in many of the states that are now involved.” Fauci said.

“We will see more cases and things will get worse than they are right now. How much worse they get will depend on our ability to do two things: To contain the influx of people who are infected coming from the outside and the ability to contain and mitigate within our own country. Bottom line, it’s going to get worse.” he added.

Fauci’s comments regarding travel restrictions have been echoed by The New England Journal of Medicine, which recently reported: “At least on a temporary basis, such restrictions may have helped slow the spread of the virus.”

Trump extended the travel ban Wednesday night to most of Europe (but not the UK) for at least 30 days.

pic.twitter.com/YioC9eARdP

— Donald J. Trump (@realDonaldTrump) March 12, 2020

“The European Union failed to take the same precautions and restrict travel from China and other hot spots,” the president said, adding “As a result, a large number of new clusters in the United States were seeded by travelers from Europe”.

Trump’s words, and the announcement of the travel restriction drew anger from some European officials, who reportedly described it as “unbelievable” and “very strange.”

Taking an emergency such as the #Coronavirus epidemic as another opportunity to wage his personal war against #China and the #EU … that says everything!

— Alessandro Motta (@MottaIT) March 12, 2020

Any attempt to contain the #CoronaOutbreak is welcome, but the decision of @realDonaldTrump to exclude the UK from a European travel ban is nothing short of irresponsible. Viruses do not recognise borders. Decisions should be based on facts, not politics.

— Alexander Stubb (@alexstubb) March 12, 2020

The European Commission and Council issued a joint statement declaring that “The European Union disapproves of the fact that the US decision to impose a travel ban was taken unilaterally and without consultation.”

“The Coronavirus is a global crisis, not limited to any continent and it requires cooperation rather than unilateral action.” the statement continued.

Trump was unwavering in his belief that his administration can mitigate the spread of the virus:

I am fully prepared to use the full power of the Federal Government to deal with our current challenge of the CoronaVirus!

— Donald J. Trump (@realDonaldTrump) March 11, 2020

….Together we are putting into policy a plan to prevent, detect, treat and create a vaccine against CoronaVirus to save lives in America and the world. America will get it done!

— Donald J. Trump (@realDonaldTrump) March 11, 2020

Someone needs to tell the Democrats in Congress that CoronaVirus doesn’t care what party you are in. We need to protect ALL Americans!

— Donald J. Trump (@realDonaldTrump) March 11, 2020

The Media should view this as a time of unity and strength. We have a common enemy, actually, an enemy of the World, the CoronaVirus. We must beat it as quickly and safely as possible. There is nothing more important to me than the life & safety of the United States!

— Donald J. Trump (@realDonaldTrump) March 11, 2020

As Covid-19 steamrolls across the world, widespread social, political, and economic disruptions have developed. Each country affected by the fast-spreading virus has followed a similar blueprint of implementing containment measures to control spreading. 

Here’s a summary of virus prevention measures on a country by country basis: 

• China – With 80,932 cases and 3,169 deaths, strict quarantines in the last several months could be working, that is if you trust government data. For anyone entering the country, 14-day quarantines are mandatory. The government has asked citizens to obey strict social distancing rules and ramped up mass surveillance to monitor the public. 

• South Korea – With 7,869 cases and 66 deaths, government officials have enforced social distancing rules, companies have allowed employees to work at home, and the military has been disinfecting public areas. 

• Japan – With 639 cases and nine deaths, the government has passed strict border control measures, halted all travel from China and South Korea, and has enforced mandatory quarantines for recent China and South Korean arrivals.

• Iran – With 10,075 cases and 429 deaths, public gatherings and prayer sessions have been canceled, education and school systems are closed, all forms of public transportation have been disinfectant, and 70,000 prisoners have been released. 

• Italy – With 12,462 cases and 827 deaths, all public gatherings and sporting events have been canceled. Schools and universities have been closed as strict travel restrictions within the country have been implemented to contain virus spreading. Closure of public services and curfews have been seen in some regions. 

• France – With 2,284 cases and 48 deaths, mass gatherings have been banned, sporting events canceled, and schools remain closed in some areas. 

• Spain – With 2,277 cases and 48 deaths, schools and universities are closed, flights to Italy restricted, sporting events postponed, and working hours have been reduced to limit the virus spread.

• United Kingdom – With 596 cases and 10 deaths, schools will remain open, events and social gatherings are still allowed, and the government has advised anyone who feels sick to stay home.

• Belgium – With 314 cases and 3 deaths, mass gatherings have been banned, school trips canceled, and social distancing measures are required to be followed by all citizens. 

• Ireland – With 43 cases and 1 death, mass gatherings have been canceled, schools and colleges closed, along with the expectation that public facilities will be shuttered in the near term. 

• United States – Mass gatherings restricted in California, National Guard deployed in New York, education systems in some states closed, CDC has asked citizens to follow social distancing rules, and travel from mainland Europe canceled. 

The US has been the slowest to implement virus prevention measures, likely missing the containment window by weeks if not a month for many large cities, as community spreading has been reported. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, was quoted by Reuters on Friday morning as saying, “the next few weeks, for most Americans, what you’re going to see is an acceleration of cases.” And with that being said, is America about to transform into Italy or South Korea? 

Authored by Jason Cataneda via The Asia Times,

President Rodrigo Duterte’s cancellation of key strategic pact with US has opened the way for Chinese infiltration

As President Rodrigo Duterte moves to boot US troops from Philippine soil through the cancellation of a key defense pact, China’s People’s Liberation Army (PLA) is quietly moving in to take their place.

Duterte’s recent decision to abrogate the Visiting Forces Agreement (VFA), which allowed the US to rotate troops and position equipment in the country, is opening the way for China to solidify its competing strategic position in the country.

That’s at least according to early findings of investigations into China’s undercover and illicit activities, ranging reputedly from espionage to surveillance to money laundering, now being spearheaded by Philippine Senator Richard Gordon.

Those probes have included scrutiny of the hundreds of thousands of Chinese citizens now employed in the burgeoning online casino sector, known locally as Philippine Offshore Gaming Operations (POGOs), many of which are clustered close to key military camps and strategic bases in Manila, the national capital.

Gordon has claimed that the POGOS have been infiltrated by PLA soldiers for intelligence gathering and other activities. Those claims were validated when two card-carrying PLA members attached to a POGO were were arrested in a shooting incident in Manila late last month.

Anti-China protesters during a demonstration in front of the consular office of China, Manila, April 9, 2019. Photo: AFP/Ted Aljibe

The Senate investigations have revealed a tangled web of official corruption and conspiracy which has allowed countless Chinese citizens, including allegedly between 2,000-3,000 PLA soldiers, to illegally and secretly reside in the country.

Under the so-called “pastillas” scheme, exposed by whistleblower Allison “Alex” Chiong of the Philippine Bureau of Immigration (BI), Chinese nationals pay roughly 10,000 pesos (US$200) as a “service fee” for special treatment and ease of entry into the country.

While around $40 of that fee goes to immigration officers, the rest is allegedly spread among senior officials and other allies of the president who oversee the alleged syndicate run out of Manila’s Ninoy Aquino International Airport.

The money, according to the whistleblower, is rolled inside a sheet of bond paper, similar to how the Philippine milk candy delicacy “pastillas” is packed. That, the investigations claim, has paved the way for so-called Chinese “immersion missions” by PLA members.

Public anger against the POGOs has recently spiked, fueled by the Duterte government’s belated imposition of a travel ban on Chinese citizens amid the coronavirus outbreak that started its deadly global spread in late January.

Many believe that wayward officials who benefit from the POGOs and import of illegal Chinese workers played an outsized role in the decision to allow thousands of Chinese citizens, including from Wuhan, the outbreak’s epicenter, to enter the country even after Beijing quarantined all of Hubei province.

Senator Panfilo Lacson, chairman of the committee on national defense and security and a former police chief, said that he has recently received information from security agencies claiming that thousands of undercover PLA members are engaged in “immersion missions” in the country, with Chinese spies operating under the guise of POGO workers.

“The intelligence community should exert extra effort to gather information in this regard,” Lacson recently said.

Chinese-run gambling operations in the Philippines are under growing scrutiny as potential spy havens. Image: Facebook

Lacson, Gordon and Senate Minority Leader Franklin Drilon have all recently warned that China aims to take advantage of the new and growing security vacuum caused by Duterte’s recent abrogation of the VFA with the US, a move that has undermined the legal status of the two sides’ 1951 Mutual Defense Treaty (MDT).

The US and Philippines stage thousands of bilateral military activities and exercises each year, including war games that include mock invasions of islands that aim to send a strong signal to China in the South China Sea.

“That may confirm a yet unvalidated report that a good number of PLA members are on ‘immersion mission’ in several parts of the country, although the reason for it is still unclear,” Lascon said.

“The police as well as the intelligence community should lose no time in exerting serious efforts to authenticate the discovered PLA using sources independent of the Chinese government, for obvious reasons,” warned the senator.

Lascon has also claimed that 47 Chinese individuals recently smuggled US$446 million into the Philippines over a recent five month span, whereby the Chinese money launderers paid and made connections with bent Philippine officials.

Senator Gordon, long seen as a Duterte ally, has warned of large-scale money laundering going hand-in-hand with a potential “fifth column” infiltration of Chinese security forces.

“There is tolerance. I don’t know where it is coming from,” said Gordon, implying the Beijing-friendly president is partly responsible for the threat, according to media reports.

“The shenanigans of what we see here, all happened because of the policy decision to allow overseas gaming operations in our country,” said Drilon in directly blaming the Duterte administration.

“What is happening in our country is apparently rooted in the very presence of POGOs run by the Chinese. If there were no POGOs, all of these nefarious activities would have no purpose,” he added.

An aerial photo depicting the location of Chinese-run POGOs and the Philippine military’s headquarters. Source: Defense Forum

Fears of systematic Chinese espionage activities were sparked last year when netizens shared images showing the suspicious proximity of Chinese-run POGOs to security and law enforcement agencies in Manila.

Those include POGOs situated near the Philippine Air Force and Navy headquarters, Philippine National Police headquarters at Camp Crame, and Camp Aguinaldo which hosts the Philippine Army and National Defense Department offices.

“When you already see many people [at the POGOs], who are always there…it’s very easy for all these [Chinese] people to perhaps shift their activities to spying,” Philippine Defense Secretary Delfin Lorenzana said last year. “They are near [military facilities].”

Philippine National Security Adviser Hermogenes Esperon, meanwhile, raised alarms last year over the entry of thousands of undocumented Chinese as a potential security “threat”, including through possible PLA surveillance and espionage.

“You’d also start getting worried when a whole building, condominium, tower is occupied by only one nationality where you would not be able to guard all their activities,” the national security adviser said. “Some unwelcome activities could transpire there so we need to prevent those.”

It’s not clear yet that Duterte’s pro-China administration will undertake any concrete measures to address these concerns and reputed threats.

“He [Duterte] told me…We really need the funds from those [POGO] operations,” presidential spokesperson Salvador Panelo said amid an escalating call for their closures. “Because the money we get from whatever [Chinese] sources is for the government, so the government can use that in any undertaking.”

On the first day of this week, which would soon mutate into the worst week for capital markets since the 2008 financial crisis, we warned that markets are about to go full tilt for the simple reason that “there is no liquidity“, something we first highlighted at the start of the month when we pointed out “Two More Problems For The Bulls: Market Liquidity And Short Interest Are At All Time Lows.“

Why our constant focus on liquidity? Because as Goldman explained on Thursday, “liquidity and volatility are interconnected, creating a self-reinforcing loop, and as a result liquidity conditions have been an important contributor to the velocity of recent S&P 500 moves.” Yet while liquidity had dipped in the past on numerous stressed occasions, what we saw in recent days has been borderline biblical as top-of-book depth for SPX E-mini futures, typically the conventional metric of liquidity representing the dollar-amount of SPX E-mini futures available to trade electronically on the typically 25-cent wide market, has – as Goldman put it – “started to lose meaning as fewer and fewer market participants are quoting one-tick-wide markets for the futures at all.”

As Goldman further explained, as volatility spiked, electronic futures liquidity has fallen to the point where there has been a median of just 10 contracts, representing $1.5mm notional, on the bid and ask of E-mini futures screens over the past week (compared with a median of 120 contracts, representing $18mm notional, in 2019).

The implication of this small number of contracts quoted was that very few market makers are quoting 25 cent wide markets at all. At the same time the frequency of E-mini futures showing wider-than-one tick markets has risen sharply; and according to Goldman’s estimates, during Monday’s severe sell-off, E-mini futures had 50 cent wide markets more than 25% of the time, more than double the frequency seen on 24-Dec-2018. The key takeaway of diminished liquidity, however measured, is that individual trades can move markets more than they otherwise would have, leading to higher volatility.

A key reason for the latest drop in liquidity has, curiously, been the concurrent drop in trading volumes: SPX future and option volumes were materially lower over the past week than they had been in the initial days of this market downturn (although they were still high relative to normal periods).

One surprising contributor to lighter-than-expected volumes over the past week has been slowing trading needs from the SPX option market, for two reasons:

1. Option volumes have slowed, particularly soon-to-expire options. As shown below, SPX option activity has been slower over the past week than it was earlier in the drawdown, resulting in less delta-hedging flow.

Activity in soon-to-expire SPX options with less than 24 hours to expiration has also trended downward over the past few days despite high volatility. Stated simply, Goldman sees the extreme level of option prices as a barrier to entry for many market participants.

2. Most 20-Mar options have strikes much higher than current spot. Goldman goes on to note that many of its clients have mentioned the large activity in 20-Mar expiration SPX options, dating back to August, as a reason for concern about gamma impact. While the 20-Mar expiration is currently one of the largest-ever, by open interest, rivaling the always-large December expirations, most of its $1.7 trillion of open interest is at strikes well higher than the current SPX level, and was created in the last three months.

As a result, this expiration no longer has any relevant gamma profile at the current spot range.

Yet while this may explain much of the collapsing equity market liquidity, an even more ominous development is the cratering liquidity across all asset classes, as we discussed on Monday, and which we attributed to the ongoing systemic shock that is rapidly draining dollar funding from the system and which the Fed, as of late Friday afternoon, has been unable to resolve despite trillions in repo and QE backstops announced over the past 48 hours.

And so, after we first lamented the collapse in bond market liquidity at the start of the week, Bloomberg is there at the end of it, to confirm that not only has the situation not gotten better, it has in fact gotten worse, to wit: “The deepest bond market in the world is struggling with a lack of liquidity to a degree that veteran asset managers say they’ve never seen before.”

The $17 trillion U.S. Treasury market is creaking as it feels the full force of trader panic over the coronavirus and its effect on the global economy. Thirty-year yields jumped as much as 35 basis points Friday before paring most of that increase. The Treasury’s longest maturity has moved in a double-digit range every day this week. Trading in off-the-run Treasuries, which are the older cousins of benchmark issues, has been particularly difficult.

And so, one day after we first reported that according to BofA the US Treasury market, the world’s largest and most liquid, is no longer functioning properly. 

Indeed, the staggering moves in the bond market itself have been the best indicator of just how illiquid it has become: on Monday, 30-year yields posted the biggest intraday decline since at least October 1998, followed by a bizarre last hour crash even as stocks continued to sell. And while a massive injection of cash from the Federal Reserve, President Donald Trump’s plan to declare a national emergency and hopes for fiscal support lifted stocks Friday, analysts and investors say the U.S. government-debt market is still not functioning properly.

“Liquidity is still atrocious,” said Mark Holman, chief executive officer at TwentyFour Asset Management. Mark here laments something we said earlier: while some traders may have found trades in the insane rollercoaster market we observed in the past few days, they were unable to take put the trades on as there simply was not enough – or any – liquidity:

“We were just trying on Monday to trim a long position in the 30-year Treasury because it had moved so far in our favor, and were unable to get bids from several major dealers. We’ve never seen that before.“

“I understand that dealers don’t have the risk appetite and budget they normally have,” said Holman, who unlike most active “traders” today has in fact seen a bear market in his career which stretches back to 1989. “But I’ve never seen that before, the inability to trade a U.S. Treasury.”

Meanwhile, confirming our Friday observations that liquidity is not only cataclysmic but getting worse, Goldman points out that a pair of block trades in Treasury futures printed well below market levels on Friday in a sign that conditions remain volatile. Traders also reported a shortage of prices on screens, while futures on U.S. ultra bonds hit circuit breakers repeatedly during Friday morning trading in Europe.

““We heard there were some issues in off-the-run Treasuries,” Treasury Secretary Steven Mnuchin said on CNBC Friday morning. “We are working on that”… but apparently not enough, and the result was the biggest VaR shock of all time as risk parity funds launched a crushing deleveraging which has crippled conventional correlations, and left traders speechless at the bid or offerless Treasury markets.

And as risk parity funds were caught in a liquidation cascade, both the equity and Treasury markets became unstable to the point of being untradeable. After starting the week off below 1%, 30-year yields soared to 1.79% amid the margin call liquidation rout, with bid-offer spreads surging to the highest level in years.

It wasn’t just the US: German Bunds also saw yields surge after Germany finally caved and said the country would spend billions to cushion the economy.

The forced selling by certain funds meant that dealers were flying blind, and as a result many refused to make orderly markets, only adding to the market paralysis. “Very few dealers are willing to commit to firm prices on screens, said Zoeb Sachee, head of European government-bond trading at Citigroup Inc.

“There has been an abrupt deterioration in liquidity in the last week or so and it seems to get worse by the day.”

Just as we warned two weeks ago.

Finally, adding insult to injury, volatility – both for stocks and bonds – continues to surge. The Bank of America Merrill Lynch MOVE Index, which measures price swings in Treasuries, and the VIX both jumped to the highest levels since the financial crisis.

“We have seen such aggressive moves in the market that everyone is having to rebalance, address losses, or de-risk,” Richard Kelly, head of global strategy at TD Bank, although he was clearly ignoring the shorts for whom the current market shock has been the gift they had all been waiting for for the past decade.

“We are at the stage where central banks need to provide exceptional liquidity into the market to make sure that basic markets can function.”

But the real question is whether central banks can even do that: after a catastrophic ECB press conference which led to the biggest European market crash in history, and two days of unprecedented Fed interventions, stocks barely noticed, and it wasn’t until Trump made some vague promises on Friday afternoon that risk finally found a bid. This backdrop means that Fed policy makers when they meet next week have to not only cut rates but take additional action to shore up liquidity in the financial system, said Alex Li, head of U.S. rates strategy at Credit Agricole. That could include a special liquidity program, such as efforts undertaken during the financial crisis, he said, echoing Credit Suisse’s Zoltan Pozsar who now expects the Fed effectively launch every liquidity bailout operation  possible, save for purchasing stocks outrght.

“The Fed just cutting rates again at this stage is really not the right medicine,” Li said.”‘The Treasury market is broken — with it being very illiquid. There’s very wide spreads between on- and off-the-run spreads,” and other signs of dislocation.

Let’s just hope Jerome Powell, who first diagnosed the real problem with the US capital markets back in 2012, knows how to fix them.

Authored by John Solomon via JustTheNews.com,

The piecemeal release of FBI files in the Russia collusion investigation has masked an essential fact: James Comey’s G-men had substantially debunked the theory that Donald Trump’s campaign conspired with Moscow by the time the 45th president was settling into the Oval Office, according to declassified memos, court filings and interviews.

And that means a nascent presidency and an entire nation were put through two more years of lacerating debate over an issue that was mostly resolved in January 2017 inside the bureau’s own evidence files.

The proof is now sitting in plain view.

In rapid fire sequence in January 2017, U.S. officials:

• received multiple warnings about the credibility of informant Christopher Steele and his dossier;

• affirmed key targets of the FBI counterintelligence investigation made exculpatory statements denying collusion to undercover sources;

• concluded retired Lt. Gen. Mike Flynn, Trump’s first national security adviser, was not engaged in collusion with the Russians.

The latter revelation has mostly escaped much notice, contained in a single sentence in a once-sealed court motion filed by Flynn defense attorney Sidney Powell that requested what is known as Brady material, or evidence of innocence.

That motion dated Sept. 11, 2019 requested access to “an internal DOJ document dated January 30, 2017, in which the FBI exonerated Mr. Flynn of being ‘an agent of Russia.’”

Flynn’s motion is confirmed by a 2018 letter obtained by Just the News between Special Counsel Robert Mueller’s office and defense lawyers. It shows the DOJ exoneration memo was written after Flynn had been interviewed by FBI agents in January 2017 and after the government learned the former Defense Intelligence Agency chief had kept his old agency briefed on his contacts with Russia, something that weighed heavily against the notion he was aiding Moscow.

“According to an internal DOJ memo dated January 30, 2017, after the Jan. 24 interview, the FBI advised that based on the interview the FBI did not believe Flynn was acting as an agent of Russia,” Mueller’s team wrote in the letter.

U.S. District Judge Emmett Sullivan so far has concluded that the exoneration of Flynn on the Russia collusion charge wasn’t relevant to his conviction since he pled guilty to a different crime, making a false statement to the FBI.

But for the American public, such a revelation is momentous. 

Less than two weeks into Trump’s presidency the FBI had concluded his national security adviser had not been working as an agent of Russia. While that was the view of federal law enforcement, the false storyline of Flynn as a Russian stooge was broadcasted across the nation, with leaks of his conversations with a Russian ambassador and other tales, for many more months.

In an interview with Just the News and its John Solomon Reports podcast, Powell confirmed she was provided by letter three sentences from the DOJ memo but has been unable to get the full document. 

“It’s just horrible,” Powell said. “They gave us a little three lines summary of it and the letter and told us it existed but have refused to give us the actual document, which I know means there’s a lot of other information in it that would be helpful to us.”

Powell also confirmed that Mueller was fully aware of a letter sent in early January 2017 to Flynn from Britain’s national security adviser raising concerns about Steele’s credibility.

The British government “hand-delivered” a letter to Flynn’s team that “totally disavowed any credibility of Christopher Steele, and would have completely destroyed the Russia collusion narrative,” Powell said.

Flynn himself has no memory of receiving the communique, but people around him at the time do and confirmed the existence of the document, Powell explained. Flynn was questioned about it during his debriefings by Mueller’s team, she added.

“I was told that a copy of the document would have been given to [then-National Security Adviser] Susan Rice as well,” she added. “So the Obama administration knew full well that the entire Russia collusion mess was a farce.”

Instead of responding to the British government’s warning by abandoning the Russia collusion narrative and sparing her client the years-long ordeal of being targeted for investigation, top U.S. intelligence officials hid the communication, Powell said.

Her account confirms information that Rep. Mark Meadows (R-N.C.) provided for a May 2019 article for The Hill.

Other significant red flags also emerged in January 2017 that the Russia collusion theory used by the FBI to open a Trump campaign-focused probe in July 2016 was simply wrong. So too was the evidence the FBI submitted to secure an October 2016 FISA warrant targeting Trump campaign adviser Carter Page.

According to information made public by Justice Department Inspector General Michael Horowitz and the Foreign Intelligence Surveillance Court, the FBI interviewed Steele’s primary sub-source around Jan. 7, 2017. That source disavowed much of the Russia collusion evidence attributed to him in the dossier, a fact the bureau hid from the court.

A recent order by FISC Chief Judge James Boasberg lays bare how devastating the revelation from Steele’s source was to the entire Russia collusion theory.

“Steele obtained this information from a primary sub-source, who had, in tum, obtained the information from his/her own source network,” the judge wrote.

“The FBI did not, however, advise DOJ or the Court of inconsistencies between sections of Steele’s reporting that had been used in the applications and statements Steele’s primary sub-source had made to the FBI about the accuracy of information attributed to ‘Person 1,’ who the FBI assessed had been the source of the information in Reports 95 and 102. The government also did not disclose that Steele himself had undercut the reliability of Person 1, telling the FBI that Person 1 was a ‘boaster’ and an ‘egoist’ and ‘may engage in some embellishment.'”

An FBI spreadsheet similarly found that nearly all of Steele’s information in the dossier was either false, could not be proved, or amounted to Internet-based rumor, making it mostly worthless as actionable intelligence.

Further eroding by January 2017 the FBI’s “mosaic” (former FBI Director James Comey’s term) of evidence cited for suspicions of collusion, the bureau had collected exculpatory statements in fall 2016 in which two central targets of the investigation — former Trump advisers Carter Page and George Papadopoulos — told undercover informants they were not colluding with Russia.

Boasberg’s ruling also slammed the FBI for hiding these statements from his court, saying they substantially undercut the FBI’s predicate for the investigation, including the now-disproven allegation that Page had altered the RNC platform at the 2016 nominating convention to help Putin.

“The government also omitted Page’s statements to a confidential human source that he intentionally had ‘stayed clear’ of efforts to change the Republican platform, as well as evidence tending to show that two other Trump campaign officials were responsible for the change,” the judge wrote. “Both pieces of information were inconsistent with the government’s suggestion that, at the behest of the Russian government, Page may have facilitated a change to the Republican platform regarding Russia ‘s annexation of part of Ukraine.”

The Horowitz report confirms the court’s finding in much greater detail.

Flynn was cleared of being a Russian agent in January 2017. That same month Steele’s dossier was both discredited by the British government and repudiated by his own confidential sources. And the FBI had evidence its two main Trump targets were innocent. All as President Trump was starting his first two weeks in office.

Congressional investigators are now looking at whether Comey’s approach to Trump at a Feb. 14, 2017 dinner at the White House may have been part of an effort to pivot away from the bogus Russia collusion investigation and lay a predicate for a new investigation focused on possible obstruction of justice. Those same investigators also are inquiring as to why Mueller’s final report did not more clearly spell out how the FBI’s collusion case fell apart in January 2017.

Wherever that congressional inquiry lands, there is now clear and convincing evidence that the country, the president and the courts were kept in the dark about an historic turnaround in the evidence in January 2017, even as defendants were being pressured to plead guilty to crimes unrelated to the collusion allegation. Time will tell whether those who kept this secret for two more years will be held to account.

The Pentagon’s most secretive military research department is developing a therapeutic “shield” that could provide a new way to boost American’s immunity to Covid-19, reported DefenseOne. 

The Defense Advanced Research Projects Agency’s (DARPA) Pandemic Prevention Platform (PPP) is not in search of a vaccine against the fast-spreading virus that is now considered a pandemic, but rather is developing an advanced therapy that seeks to boost the immune system of people until an actual vaccine is developed. The result could prevent hospitals from being overwhelmed by sick people. 

DARPA scientists working on PPP have been sequencing the B cells of a Covid-19 patient who has recovered. B cells, also known as B lymphocytes, are a type of white blood cell that produces antibodies that aid the immune system in its fight to fend off an invading microorganism.

“We are able to take a patient that has recovered from this pathogen [Covid-19], for example, and we are able to sequence many of their B cells. So those cells that make those antibodies that help protect you against those pathogens? We are now able to sequence all of those because of next-generation sequencing approaches,” Dr. Amy Jenkins, manager of PPP, told DefenseOne. 

If scientists can successfully sequence the B cells, they could create a new therapy with a “manufacturing timeline” in a little over three months, Jenkins said. It would buy some time, considering a proven vaccine is 12-18 months away.