China Tests New Helicopter Drone Slated For Service In South China Sea

China, having claimed most of the South China Sea for itself, has published a new report that suggests helicopter drones could soon be deployed to its militarized islands.

The AV500W vertical take-off and landing unmanned helicopter manufactured by Aviation Industry Corporation of China (AVIC) has completed its first-night operation under challenging conditions, showing that the new helicopter drone is ready for serious production and future deployment.

Global Times said the AV500W test flight was conducted on June 14 in South China’s Hainan Province. The helicopter drone performed a night-time mission to identify a vessel with its electro-optical sensors.

During its flight, the AV500 overcame challenging environments including strong winds and high salinity and humidity, AVIC said in the statement, noting the operation proved the drone helicopter’s capability to operate at night.”

During a test several years ago in Northwest China’s Gansu Province, the helicopter climbed to an altitude of 16,400 feet, demonstrating its superior flight capabilities.

A military expert who requested anonymity told the Global Times on Thursday that the new helicopter drone is set to be offered to domestic and international clients.

The expert said the drone could carry out a patrol, reconnaissance, damage evaluation, and attack missions.

The drone successfully conducted a missile firing test in 2018, making it combat ready, and appealing to the People’s Liberation Army (PLA) controlling the militarized islands in the South China Sea, otherwise known as Spratly islands.

The AV500W can carry 385-pound payload and fly a little over 100 mph carrying laser-guided missiles or machine guns, AVIC said.

Since the PLA doesn’t have helicopter drone gunships patrolling the South China Sea, the US Navy who conducts freedom of navigation missions near the Spratly islands might one day be greeted by a helicopter drone from China.

via ZeroHedge News http://bit.ly/2YcHSG3 Tyler Durden

Cockburn: Trump May Be In Too Deep To Avoid War With Iran

Authored by Patrick Cockburn via The Unz Review,

President Trump’s last-minute change of mind over launching US airstrikes against Iran shows that a military conflict of some description in the Gulf is becoming highly probable. His hesitation was most likely less connected with an Iranian surface-to-air missile shooting down a US surveillance drone than with his instinct that militarising the crisis is not in America’s best interests.

If Trump had not pulled back and the strikes against Iranian radars and missile batteries had gone ahead, where exactly would that have got him? This sort of limited military operation is usually more effective as a threat than in actuality. The US is not going to launch an all-out war against Iran in pursuit of a decisive victory and anything less creates more problems than it resolves.

Iran would certainly retain post-strike the ability to launch pin-prick attacks up and down the Gulf and, especially, in and around the 35-mile wide Strait of Hormuz through which passes 30 per cent of the world’s oil trade. Anything affecting this choke point reverberates around the word: news of the shooting down of the drone immediately sent the price of benchmark Brent crude oil rocketing upwards by 4.75 per cent.

Note that the Iranian surface-to-air missile shot down a $130m (£100m) drone, in practice an unmanned aircraft stuffed with electronic equipment that was designed to be invulnerable to such an attack. The inference is that if US aircraft – as opposed to missiles – start operating over or close to Iranian airspace then they are likely to suffer losses.

But the dilemma for Trump is at a deeper level. His sanctions against Iran, reimposed after he withdrew the US from the Iran nuclear deal in 2018, are devastating the Iranian economy. The US Treasury is a more lethal international power than the Pentagon. The EU and other countries have stuck with the deal, but they have in practice come to tolerate the economic blockade of Iran.

Iran was left with no choice but to escalate the conflict. It wants to make sure that the US, the European and Asian powers, and US regional allies Saudi Arabia and United Arab Emirates, feel some pain. Tehran never expected much from the EU states, which are still signed up to the 2015 nuclear deal, and has found its low expectations are being fulfilled.

A fundamental misunderstanding of the US-Iran confrontation is shared by many commentators. It may seem self-evident that the US has an interest in using its vast military superiority over Iran to get what it wants. But after the failure of the US ground forces to win in Iraq and Afghanistan, not to mention Somalia, no US leader can start a land war in the Middle East without endangering their political survival at home.

Trump took this lesson to heart long before he became president. He is a genuine isolationist in the American tradition. The Democrats and much of the US media have portrayed Trump as a warmonger, though he has yet to start a war. His national security adviser John Bolton and secretary of state Mike Pompeo issue bloodcurdling threats against Iran, but Trump evidently views such bellicose rhetoric as simply one more way of ramping up the pressure on Iran.

But if a ground war is ruled out, then Iran is engaged in the sort of limited conflict in which it has long experience. A senior Iraqi official once said to me that the Iranians “have a PhD” in this type of part political, part military warfare. They are tactics that have worked well for Tehran in Lebanon, Iraq and Syria over the past 40 years. The Iranians have many pressure points against the US, and above all against its Saudi and Emirati allies in the Gulf.

The Iranians could overplay their hand: Trump is an isolationist, but he is also a populist national leader who claims in his first campaign rallies for the next presidential election to “have made America great again”. Such boasts make it difficult to not retaliate against Iran, a country he has demonised as the source of all the troubles in the Middle East.

One US military option looks superficially attractive but conceals many pitfalls. This is to try to carry out operations along the lines of the limited military conflict between the US and Iran called the “tanker war”. This was part of the Iran-Iraq war in the 1980s and the US came out the winner.

Saddam Hussein sought to throttle Iran’s oil exports and Iran tried to do the same to Iraq. The US and its allies weighed in openly on Saddam Hussein’s side – an episode swiftly forgotten by them after the Iraqi leader invaded Kuwait in 1990. From 1987 on, re-registered Kuwaiti tankers were being escorted through the Gulf by US warships. There were US airstrikes against Iranian ships and shore facilities, culminating in the accidental but very avoidable shooting down of an Iranian civil airliner with 290 passengers on board by the USS Vincennes in 1988. Iran was forced to sue for peace in its war with Iraq.

Some retired American generals speak about staging a repeat of the tanker war today but circumstances have changed. Iran’s main opponent in 1988 was Saddam Hussein’s Iraq and Iran was well on its way to losing the war, in which there was only one front.

Today Saddam is gone and Iraq is ruled by a Shia-dominated government. Baghdad is trying to stay neutral in the US-Iran crisis, but no Iraqi leader can afford to oppose Iran as the greatest Shia power. The political geography of this part of the Middle East has been transformed since the Iran-Iraq war, with change very much to the advantage of Iran. From the Afghan border to the Mediterranean – in Iran, Iraq, Syria, Lebanon – Shia communities are in control or are the most powerful forces in the state. The US and UK often refer to them as “Iranian proxies” but in practice Iran leads a sectarian coalition with a religious basis.

It is a coalition which has already won its main battles – with Shia parties in Iraq, Bashar al-Assad in Syria, Hezbollah in Lebanon – and this outcome is not going to change. The Houthis in Yemen, who belong to a different Shia variant, have survived a prolonged attempt by Saudi Arabia and UAE to defeat them.

Compared with 28 years ago in the Gulf when the US was last fighting a limited war with Iran, the US is in a weaker position. Israel, Saudi Arabia and UAE may have urged Trump to tear up the nuclear deal and confront Iran, but they show no enthusiasm to join any war that ensues. Supposing that this month’s pin-prick attacks on tankers were indeed carried out by Iran, which seems likely, then the purpose will have been to send message that, if Iran’s oil exports can be cut off, so too can those of the other Gulf producers. Trump thinks he can avoid the quagmire of another Middle East war, but he may already be in too deep.

via ZeroHedge News http://bit.ly/2X1GTqE Tyler Durden

Stunned Anderson Cooper Cuts CNN Interview After Trump Accuser Calls Rape “Sexy”

Less than 48 hours after columnist (and soon to be book author) E. Jean Carroll accused (in a New York Magazine article) Donald Trump of raping her in a dressing room in high-end department store, Bergdorf Goodman, in the 1990’s, CNN had gleefully invited the accuser on to discuss the details of this horrific act from her past.

Things did not go according to plan for CNN… and we suspect for Ms. Carroll’s book sales.

While President Trump has vehemently denied the rape took place, a sensitive Anderson Cooper welcomed the woman on to his CNN show… then things went ‘full awkward’.

Cooper asked Carroll, “you don’t feel like a victim?” after she suggested that was the case, and things went downhill fast.

The seemingly unstable Carroll replied, “I was not flung to the floor.”

Cooper retorted, “I think most people think of rape as a violent assault…”

To which Carrol replied, stunning the CNN anchor, “I think most people think of rape as being sexy…”

Cooper stuttered, stumbled, and quickly cut the interview straight to a commercial break, but not before Carroll could add “…think of the fantasies.”

Perhaps next time, CNN will vet the mental health of their Trump-bashing guests a little better? Are we still supposed to believe every accuser or did Carroll just crush the credibility of the last two years of #MeToo-ism accusations in one 30-second breakdown?

via ZeroHedge News http://bit.ly/2XamdlC Tyler Durden

Is This Nation The Next “Digital Nomad” Hotspot?

Authored by Simon Black via SovereignMan.com,

By the summer of 1936, Europe was in a state of perpetual crisis. Hitler’s rise to power, German invasion of the Rhineland, Spanish Civil War, Fascist Coup attempt in France, etc. World War was just a few years away.

25-year old Scotsman with a proper Scottish name – Fitzroy MacLean, who was in the His Majesty’s Foreign Service, was on his way from Paris to his new post in Moscow, where he would spend the next few years of his life traveling around the Soviet Union… and specifically Eurasia.

No Westerner had been to the region for decades.

He wrote his memoirs of the trip in a great book called Eastern Approaches. It’s a must read for any travel lover. To give you a flavor of the book, Maclean describes a night he spent in a dingy basement room at an inn where the floor above him was a restaurant:

At a point which must have been just above my bed a team of six solidly built Armenians were executing, with immense gusto, a Cossack dance, kicking out their legs to the front and sides and springing in the air, to the accompaniment of a full-sized band and of frenzied shouting and hand-clapping from all present. There was no hope of sleep. I ordered a bottle of vodka and decided to make a night of it.

Maclean writes very fondly of Almaty, then the capital city of the Soviet republic of Uzbekistan

Alma Ata must be one of the pleasantest provincial towns in the Soviet Union. . .

In Kazakh its new name means ‘Father of Apples’, an appellation which it fully merits, for the apples grown there are the finest in size and flavour that I have ever eaten. The central part of the town consists of wide avenues of poplars at right angles to one another.

In some respects, very little has changed. Almaty is still very much a provincial town– quiet, picturesque with tree-lined streets and bazaars.

It’s no longer the capital– that distinction is in a city formerly known as Akmolinsk, which became Akmola, and was then renamed Astana in the 1990s, and renamed again to Nursultan a few months ago.

Almaty is more quaint and traditional than Astana/Nursultan. It’s incredibly cheap.

Gasoline is about 40c per liter, less than $1.50 per gallon.

Kazakhstan’s economy is a one-trick pony. But it’s a great trick… one that has created a lot of wealth.

70% of exports are energy. #1 producer of uranium, with roughly 40% of the world’s supply. Top producer of coal, oil, and gas.

Limited population… smaller than metropolitan Paris, but larger than all of Western Europe combined.

So this has had a hugely beneficial impact that has actually trickled down and created a robust middle class.

You can see a lot of wealth. Nice houses, nice apartments, nice cars. Incredible infrastructure– highways better than what I’ve driven on in North America and Europe.

Despite that economic success and robust growth, this is definitely not a place for a casual entrepreneur. Large scale energy or agricultural project, sure.

What’s really compelling is for people who are location-independent… who can take their work with them and roam from place to place. Tens of millions of people, more and more every day.

Kazakhstan ticks the boxes… sufficient Internet speed (minor censoring that’s easy to get around with VPNs), incredibly cheap.

Good lifestyle– plenty of nightlife, plush shopping malls and restaurants.

Remote, but easy to get to. Air Astana flies to plenty of gateway cities like Bangkok, Hong Kong, Beijing, Dubai, Moscow, etc. plus other major airlines fly to/from Frankfurt, Istanbul.

But there are lots of cheap places with decent Internet.

What’s really exceptional about this place is the outdoors… it’s Disneyland for nature lovers.

20 minutes in one direction and you’re in the Tien Shan: Mountains of Heaven. Ski resorts, hiking, cable car rides, pristine alpine lakes.

20 minutes in the other direction and you’re in the vast open plains… the legendary steppe grasslands of central Eurasia that extend all the way to Mongolia.

I spent some time here en route to Uzbekistan for our Total Access trip. Wild horses across the infinite openness. Some of the most scenic vistas I’ve ever seen traveling across 120+ countries on all seven continents.

And no one else around. You feel like you’re on your own planet. No endless nuisance of rules and signs telling you what to do, where to go, etc. Just beauty and freedom.

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.

via ZeroHedge News http://bit.ly/2Ne9nOu Tyler Durden

iPhone X Sales Collapse Triggers Serious Breach Of Contract With Samsung 

In an exclusive, ChannelNews reveals Apple is facing hundreds of millions of dollars in penalty payments to Samsung because iPhone demand has fallen.

Apple “demanded” that Samsung construct one of the world’s biggest OLED manufacturing facilities exclusively for iPhone screens.

Overconfidence of Tim Cook, not adjusting forecasts for trade wars nor a structural decline in global growth, has crushed Apple iPhone demand across the world and breached the contract of 100M OLED iPhone screens per year with Samsung.

“Although Apple requested Samsung Display to extend its plant believing that it would use about 100 million OLED panels annually, actual market demand was far lower than Apple’ prediction.” said a Samsung media executive.

“Samsung Display took a huge blow as a result and requested a penalty from Apple in accordance with the contract.” they added.

While trade wars and lower global growth negatively weighed on iPhone demand, the price of the iPhone X also deterred consumers from upgrading.

Sources told ChannelNews the contract between both companies had significant “penalty clauses,” which Apple is currently trying to finagle itself out of. Another source told the Australian news outlet that Apple had already made one tranche of payments covering part of the fine.

Apple responded by announcing the supplied Samsung OLED were “faulty” which sources say is a stalling tactic as lawyers are negotiating the fines.

In a separate report, ETNews says the Samsung A3 plant, can deliver 105,000 6th generation flexible OLED panels per month, is working under 50% capacity.

ETNews says Apple will likely skip out on paying the complete fine to Samsung. Instead, the company will upgrade iPhone XR, iPads, and MacBooks with OLED panels to compensate for the loss of the iPhone X.

“Apple made some suggestions such as guaranteeing the supply of OLED panels for other Apple products. Samsung Display was also levied a small penalty due to faulty performance of few panels that were supplied to Apple and they are looking into many options as they both have to pay each other a penalty,” an industry source said.

The drop in units for Apple iPhone X with an OLED screen is occurring at the same time the smartphone bubble is deflating. Even Samsung Galaxy smartphones are experiencing declining sales.

ETNews said Apple has started to work with LG Display for OLED panels, but analysts believe the move will result in less production capacity and more expensive OLED panels than Samsung.

Apple has also invested in JDI (Japan Display) who will be manufacturing the company’s LED panels in the near future.

It’s hard to imagine how the largest corporation in the world [Apple] could make such a careless sales forecast of one of its most popular products that resulted in hefty fines. Nevertheless, what’s more, baffling is how Apple couldn’t see the cycle down of the global economy that started in 1Q18. 

via ZeroHedge News http://bit.ly/2KDg1vq Tyler Durden

EIA Warns “Limited Options To Bypass” Straits Of Hormuz

Via EIA.gov,

The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Strait of Hormuz is the world’s most important oil chokepoint because of the large volumes of oil that flow through the strait. In 2018, its daily oil flow averaged 21 million barrels per day (b/d), or the equivalent of about 21% of global petroleum liquids consumption.

Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security. The inability of oil to transit a major chokepoint, even temporarily, can lead to substantial supply delays and higher shipping costs, resulting in higher world energy prices. Although most chokepoints can be circumvented by using other routes that add significantly to transit time, some chokepoints have no practical alternatives.

Volumes of crude oil, condensate, and petroleum products transiting the Strait of Hormuz have been fairly stable since 2016, when international sanctions on Iran were lifted and Iran’s oil production and exports returned to pre-sanctions levels. Flows through the Strait of Hormuz in 2018 made up about one-third of total global seaborne traded oil. More than one-quarter of global liquefied natural gas trade also transited the Strait of Hormuz in 2018.

Source: U.S. Energy Information Administration, based on Short-Term Energy Outlook (June 2019), ClipperData, Saudi Aramco bond prospectus, Saudi Aramco annual reports, Saudi Ports Authority, International Group of Liquefied Natural Gas Importers, and U.N. Conference on Trade and Development
Note: LNG is liquefied natural gas; Tcf is trillion cubic feet

There are limited options to bypass the Strait of Hormuz.

Only Saudi Arabia and the United Arab Emirates have pipelines that can ship crude oil outside the Persian Gulf and have the additional pipeline capacity to circumvent the Strait of Hormuz. At the end of 2018, the total available crude oil pipeline capacity from the two countries combined was estimated at 6.5 million b/d. In that year, 2.7 million b/d of crude oil moved through the pipelines, leaving about 3.8 million b/d of unused capacity that could have bypassed the strait.

Source: U.S. Energy Information Administration, based on ClipperData, Saudi Aramco bond prospectus (April 2019)
Note: Unused capacity is defined as pipeline capacity that is not currently used but can be readily available.

Based on tanker tracking data published by ClipperData, Saudi Arabia moves the most crude oil and condensate through the Strait of Hormuz, most of which is exported to other countries (less than 0.5 million b/d transited the strait in 2018 from Saudi ports in the Persian Gulf to Saudi ports in the Red Sea).

EIA estimates that 76% of the crude oil and condensate that moved through the Strait of Hormuz went to Asian markets in 2018. China, India, Japan, South Korea, and Singapore were the largest destinations for crude oil moving through the Strait of Hormuz to Asia, accounting for 65% of all Hormuz crude oil and condensate flows in 2018.

Source: U.S. Energy Information Administration, based on tanker tracking data published by ClipperData, Inc.

In 2018, the United States imported about 1.4 million b/d of crude oil and condensate from Persian Gulf countries through the Strait of Hormuz, accounting for about 18% of total U.S. crude oil and condensate imports and 7% of total U.S. petroleum liquids consumption.

via ZeroHedge News http://bit.ly/2RByedB Tyler Durden

As We Face Armageddon, Paul Craig Roberts Warns The Western World Is Leaderless

Authored by Paul Craig Roberts,

According to news reports, the validity of which cannot be ascertained by the general public, a crazed US government came within 10 minutes of igniting a general conflagration in the Middle East, the consequences of which could have been catastrophic for all. 

The moronic warmongers in high office – Bolton, Pompeo, and Pence – and their Israel Lobby masters are determined, and they have not abandoned their campaign for war with Iran.  Of course, the liars say that Iran will just accept its punishment for defending its territory and there will be no war.  But this is not what Iran says.  I believe Iran.

Some of the tiny percentage of people in the Western World who are still capable of thought regret that Trump called off the insane plan.  They think the consequences would have been the destruction of the Saudi and Israeli governments—two of the most evil in history—and the cut-off of oil to the US and Europe, with the resulting depression causing the overthrow of the Western warmonger governments.  They believe that catastrophic American defeat is the only way peace can be restored to the world.  

In other words, it is not clear whether Trump calling off the attack saved us or doomed us.  The Israel Lobby and their neoconservative agents have not been taught a lesson.  Trump has not fired Bolton and Pompeo for almost igniting a conflagration, and he has not dressed down his moronic vice president.  So, it can all happen again.  

And likely will.  The lesson that Bolton and Israel have learned is that the fake news about an Iranian attack on a Japanese freighter, denied by the Japanese, was not sufficient to lock Trump into “saving face” by attacking Iran.  So be prepared for a larger orchestrated provocation. Bolton and Israel know that the Western presstitutes will lie for them.  Watch for a provocation that allows Trump no alternative to an attack.

Washington’s use of fake news and false flag attacks to launch military attacks goes back a long way.  In the 21st century we have had a concentrated dose—Saddam Hussein’s weapons of mass destruction, Assad’s use of chemical weapons, Iranian nukes, Russian invasions, Maduro starving his own people, the endless lies about Gaddafi.  Yes, I know there are more.  I am writing an article, not an encyclopedia.

Washington has grown accustomed to attacking countries on false pretenses and getting away with it.  Therefore, there is nothing to discourage the Israel Lobby and its Washington puppets from continuing to set-up Iran for an attack.  Success breeds incaution.  The attack on Iraq was stage-managed by a credible US Secretary of State before the UN.  The attack on Libya was stage-managed by a UN resolution that a deceived Russia and China failed to block.  In situations such as these, Washington arranged a green light for its war crimes.  However, Washington has failed to stage-manage a green light for an attack on Iran. Moreover, Iran is a more powerful military force than Iraq and Libya, and the extent of the depth of Russian and Chinese support for Iran is unknown to Washington.

If Israel succeeds in having its Washington puppet attack Iran, Israel and its neoconservative agents will not welcome failure of their objective.  They will fight against failure with more dangerous moves.  I can easily imagine the fanatics having Trump “save face” by destroying the world and issuing some kind of ultimatums to Russia and China or resorting to the use of nuclear weapons against Iran.  

The insouciant American – indeed, Western – people are kept unaware by design.  It is the function of the presstitutes to control the explanations given to the people.  The US Congress is bought and paid for by the Israel Lobby, as are most important politicians in the UK and Europe.  What I am telling you is that it is very easy for fanatics to produce Armageddon.

Stephen Cohen and I, and a few surviving others, lived through the 20th century Cold War. In recent years we both have reported on numerous occasions that the threat of nuclear war today is far higher than during the Cold War.  One reason is that during the Cold War US and Soviet leaders worked to defuse tensions and to build trust.  In contrast, since the Clinton regime the US has worked consistently to build tensions.  Both Cohen and I have listed on many occasions the tension-building activities pursued by all post-Reagan/George H.W. Bush administrations.

The Russians no longer trust Washington, and neither do the Chinese.  Washington has lied to, and about, Russia so often in the 21st century that Russian trust of Washington is exhausted.  No matter how earnestly the Russian government wants to trust Washington, it dare not do so.

Therefore, it takes very little miscalculation for the morons in Washington to cause a threat-ending response from Russia as Washington has convinced the Russian government that the US intends to destroy them.  

The orchestration of Russiagate by the Democratic Party, military/security complex, and their media whores has, as Stephen Cohen has emphasized, forced President Trump in an act of self-preservation to adopt the neoconservative attitude toward Russia and other “non-compliant” governments.  This attitude is dangerous enough in the best of times.  It is extremely dangerous after trust has been destroyed by years of lies and false accusations.  

Perhaps there is someone in the Trump administration who has the intelligence to understand the dangerous situation and who has Trump’s confidence.  But I do not know who that person is.

We have to face the fact that as we face Armageddon the Western World is leaderless.

*  *  *

Please contribute to the success of the June quarterly appeal by donating to Paul’s website.

via ZeroHedge News http://bit.ly/2ZM95Qh Tyler Durden

A McLaughlin Group for cybersecurity

Our interview guests this week are Dick Clarke and Rob Knake, who have just finished their second joint book on cybersecurity, The Fifth Domain. We talk about what has changed and what they got right and wrong in their original book. Clarke and Knake offer surprising flashes of optimism from about the state of cybersecurity today, and the book itself is an up-to-date survey of the policy environment. Best of all, they have the courage to propose actual policy solutions to problems that others just admire. I disagree with about half of their proposals, so much light and some heat are shed in the interview, which I end by bringing back the McLaughlin Group tradition of rapid-fire questions and an opinionated “You’re wrong” whenever the moderator disagrees. C’mon, you know the arguments are really why you listen, so enjoy this one!

In the News Roundup, Gus Hurwitz covers the Supreme Court’s ruling on when a forum is subject to First Amendment limits. Short takeaway: There is not a single Justice who thinks Silicon Valley’s platforms are public fora subject to the First Amendment. Sen. Hawley (R-MO) comes in for some mockery as a result, which prompts me to invite him to defend himself on a future episode (not so much because the First Amendment applies to this podcast but because it would be fun).

Matthew Heiman spells out the strategy behind Facebook’s proposed cryptocurrency. He thinks it’s all about the data; I think it’s all about WeChat. Whatever the motive, every regulatory body in Europe and the US has descended on the company to extract concessions – or perhaps to kill the currency outright, as our own Nick Weaver has proposed.

Maury Shenk reports on the US government’s threat to limit Indian H-1B visas if India persists in its extreme data localization policies. I suggest that the fight may be as much about terrorism finance as protectionism.

This Week behind the Silicon Curtain: Apple is considering moving 15-30% of its production capacity out of China. Matthew and I agree that that’s easier said than done, but the move is inevitable.

Gus lays out the difficulties that YouTube has had meeting the child protection requirements of COPPA and the FTC’s growing interest in changing YouTube’s approach to videos aimed at kids.

Is China’s social credit rating system a Potemkin village? Bloomberg seems to think so, but Maury has his doubts. So, if you thought you could stop fearing the system and start laughing at it, better think again.

Finally, This Week in Karma: The medical billing firm whose cybersecurity failings resulted in multiple medical data breaches has filed for bankruptcy, evidently the result of liabilities arising from the breach.

Download the 269th Episode (mp3).

You can subscribe to The Cyberlaw Podcast using iTunes, Google Play, Spotify, Pocket Casts, or our RSS feed!

As always, The Cyberlaw Podcast is open to feedback. Be sure to engage with @stewartbaker on Twitter. Send your questions, comments, and suggestions for topics or interviewees to CyberlawPodcast@steptoe.com. Remember: If your suggested guest appears on the show, we will send you a highly coveted Cyberlaw Podcast mug!

The views expressed in this podcast are those of the speakers and do not reflect the opinions of the firm.

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As Its Investors Panic, Natixis’ Imploding Fund Unveils Clever Trick To Halt Redemptions

While it may not yet be the sequel to the GAM Absolute Return Fund or the more recent Neil Woodford investment fiasco, which saw the “investing legend” gate his clients from redeeming money following a serious of terrible investments, the grotesquely named Natixis H20 funds, which we profiled last week as the latest example of how quickly investor panic can escalate once it is discovered how illiquid most fixed income fund investments truly are.

To be sure, the H20 Asset Management fund – yes, the fact that it is named for liquidity when the reason it is about to collapse it that there is none is not lost on us, or anyone else for that matter – refuses to go away quietly and in recent days its parent, troubled French bank Natixis went into crisis-fighting mode to stem a wave of outflows by selling €300 million euros of its unrated private bonds. It then unveiled an ingenious way to halt redemptions without actually imposing gates: according to Bloomberg, it marked down the balance of its holdings “to remove incentives for investors to pull even more.”

You see, when times are great and when funds are happy to demonstrate their performance and portfolios to the world, they tend to “accidentally” mismark their portfolios rather high to appear even more skilled at generating alpha (than they are). However, should the scene flip 180 and the fund finds itself in mortal danger of a redemption avalanche, the first thing the fund’s creative managers do is suddenly reprice all the holdings in the fund sharply lower, forcing those investors who demand their money back to take huge losses.

Truly odd how mark-to-“market” works, when the market for illiquid securities in question does not exist. Perhaps one day regulators will actually look into that.

For now however, we will observe just how successful the anti-H20 fund is in curbing investor enthusiasm to recoup their money, even if they know full well that the longer they wait, the less they will recover.

As Bloomberg explains, the move cut the aggregate market value of the bonds, which were issued by companies linked to German scandal-ridden financier Lars Windhorst, to less than 2% of assets under management, H2O said in a statement on Monday.

So in an attempt to crush investor enthusiasm to pull money, H2O’s funds, whose assets doubled since 2017 to $37.6 billion before last week’s tumult, will be priced at a discount between 3% and 7% – with the thinking here being that anyone who liquidates will be forced to take a major hit – and the company will remove all entry fees across its funds, it said.

Will this plan work? That’s the question as fund managers hope to reverse outflows from a group of H2O funds that saw their assets drop by 1.1 billion euros on Thursday as analysts questioned their holdings.

By moving swiftly and having fund investors take valuation losses now, H2O is seeking to avoid the fate of famed U.K. stock picker Neil Woodford and Swiss asset manager GAM Holding AG, which both froze funds over the past year amid concerns about whether they’d circumvented investment restrictions. Of course, by admitting just how overvalued its “assets” were until now, it risks accelerating the redemptions as investors in other funds seek to recovery as close to par as possible before they too are steamrolled.

As reported last week, Morningstar questioned the “liquidity and appropriateness” of some of H2O’s corporate-bond holdings as well as potential conflicts of interest, and suspended its recommendation on Wednesday, while research firm Autonomous said the notes are akin to loans, which aren’t permitted.

Meanwhile, in an attempt to halt its tumbling stop price, Natixis brought forward a periodic audit of the unit to start June 21. Its shares rose slightly on Monday, halting the two-day slump that followed Morningstar’s move. The bank lost almost 12% last week, falling to the lowest level in nearly three years on Friday.

Additionally, H2O sold about 300 million euros worth of private placements on Friday, according to a letter seen by Bloomberg. The money manager also said it planned to appoint an independent auditor to reassure investors about its investment process and valuation policy regarding non-rated private bonds in their funds, according to the note.

So how did the fund justify the valuation cuts of its illiquid holdings?

According to Bloomberg, the fund said it depreciates all portfolio assets in line with market prices and that it started marking down net asset values as of Wednesday. This is why “our funds have overall posted daily negative performances, despite the good showing of our main investment strategies,” H2O said in the letter. In other words: anything you want to sell will be priced sharply lower.

Separately, a fund spokesman said the aggregated value of the non-corporate bond holdings across H2O’s range of funds was 500 million euros as of Monday, although these numbers tend to magically increase over time.

“The long-term performance drivers of H2O funds, which have been proven over numerous years to the benefit of our clients, remain unaffected as they are not related to this type of investment,” Natixis said in statement on Monday.

“The liquidity of the securities is ensured and will allow it to face potential additional withdrawals” it concluded, although by that point nobody believed it because as has emerged in recent years, starting with Third Avenue and the UK property funds following the Brexit vote, and continuing through GAM, Woodford and now, Natixis, all it takes is for one seller to emerge before everyone else realizes just how illiquid the investments truly are, creating a self-fulfilling prophecy of selling which in turn results in more selling, until the fund itself is forced to liquidate at massive losses.

That this is happening in broad daylight and before the eyes of regulators is stunning because this is also a blueprint of how the next crash will play out, not only for bonds but stocks as well, once the overall market goes bidless.

For now, the only questions that have emerged is whether Natixis and other fund managers, most notably Woodford have faced questions over whether they’ve circumvented liquidity restrictions by re-packaging assets. The question now, as we asked last week, is whether the illiquid investments that have caused trouble for H20, GAM and Woodford represent a wider trend in the fund-management industry. Jacob Schmidt, CEO of Schmidt Research Partners, a global investment firm, argues that they are, drumroll, “isolated incidents.” And yes, we are not the only ones to find that an investment firm would argue that all investment firms aren’t liquidity Ponzi schemes.

 

via ZeroHedge News http://bit.ly/2LeDbrF Tyler Durden

Iran – Message Sent, Message Delivered

Authored by Tom Luongo,

It is clear that Iran is sending the U.S. a stern message. And that message is we can hurt you asymmetrically as much as you hurt us.

Over the weekend Iran’s leadership made it clear there was no mistake in their actions last week. They purposefully shot down one of our most advanced drones to send the U.S. a very clear warning.

‘Our capabilities far exceed your tolerance for withstanding them.’

The more we learn about this incident the more the initial story concocted by the U.S. looks specious. Drone in international airspace? Most likely not.

Trump said someone made a mistake? No, completely deliberate.

The drone that was shot down, an RQ-4A Global Hawk, was the cream of our surveillance drones. It was flying in tandem with an anti-submarine Poseidon P-8 spy plane, which, according to Elijah Magnier was carrying far more than its normal crew of 9.

Try 38.

That was not reported at first either in the initial flush for war. Iran then revealed just how loose with the truth the U.S. turned out to be and that forced a complete rethink of the situation.

There was no mistake involved. No IRGC officer panicked. Iran deliberately targeted the Global Hawk after it failed to respond to hails to leave Iranian airspace and turned off its GPS, lights and digital systems.

It was acting as a hostile and Iran treated it as such. After sparing the Poseidon P-8 and its crew and passengers Iran shot down the drone.

That said Iran made this decision only after getting confirmation that the U.S. ruled out going to war with them. So, they stood down from shooting the Poseidon, which was the initial target, according to Magnier’s sources within the IRGC.

“Iran was about to hit and destroy the US Navy P-8 Poseidon spy and anti-submarine Boeing that was flying in the area when we received confirmation that the US had decided not to go to war and not to bomb any control and command or missile batteries positions, cleared or non-cleared, along the Straits of Hormuz. Had Trump decided otherwise, we had orders to hit several US and US allies’ targets and the Middle East would have been the theatre of a very destructive war with huge losses on all sides”, said an Iranian IRGC General.

But even after that confirmation came down Iran still chose to shoot down the drone. This was a clear message that actions speak far louder than words.

The Iranian leadership decided it was time to test Donald Trump’s mettle. They didn’t have to shoot down the drone. But if they didn’t it would give the U.S. carte blanche to violate Iranian airspace without fear of reprisal solely because back-channel communications say, for now, the U.S. has stayed its hand.

This is likely why Trump was so angry at the presser the other day with Justin Trudeau when asked about the incident. He made what he thought was a gesture of good faith to Iran and, to him, Iran spit in his eye.

And this is where Trump’s fundamental character flaws come to the fore. He’s simply not able to see things outside of his own personal costs. A classic narcissist. And this is why he wanted desperately to bomb Iranian targets in response.

Because of his fundamental flaws he had to be talked off the ledge by, reportedly, Tucker Carlson. Good on Tucker if this is even remotely true, but should it have come to this?

If this is what passes for the decision-making flowchart of the Trump administration then we should all be really worried.

In the end, this was just a drone and one that was 1) somewhere it shouldn’t have been and 2) acting in a very suspicious manner, if the Iranian side of the story is to be believed.

And given the potential costs for Iran if they were wrong, the onus of proof, in my mind, lies with the U.S., which it will not provide. That’s a clear signal that we don’t have the evidence to back up our story.,

Then Trump floats this nonsense about killing 150 Iranians wouldn’t be “proportionate.” So people who starve or are denied a better life because of sanctions and threats aren’t casualties, Don? Only those killed by bombs?

Again, this is the position of a sick and dangerous narcissist. And don’t think I would only say this about Trump. No, this goes for all of this country’s leaders going back decades.

Sanctions are acts of war. Embargoes are immoral. Just because you can’t tie deaths to it directly doesn’t mean the effects of them aren’t real.

So Trump sends out two signals today.

First, he tells everyone in the region they are on their own to protect their regional assets, i.e. oil tankers. This is a clear message that he’s done escalating this stand-off with Iran and is looking for ways out of this.

Because if he were truly serious about taking all of Iran’s oil off the market he would be pledging 5th fleet escorts today rather than complaining that China should pay for securing their oil shipments.

Trump started this fight now he doesn’t know how to get out of it. I expect Putin and Xi will sit him down at the G-20 and work through his options. These men always allow Trump to save face. Iran can’t. The only way they win here is to beat him thoroughly such that everyone knows it.

But as I said over the weekend, Iran isn’t interested in allowing Trump to save face here without him giving up something yuge. He started this fight and it’s up to him to put something tangible on the table. And saying, “I won’t bomb you back to the stone age over a drone” is not an olive branch.

The second thing he did today, confirming his impotence, was putting ineffectual and idiotic sanctions on Iran’s political leadership.

I’m sure they are shaking in their turbins now!

The war-gaming after this incident was clear, however. Any retaliation by the U.S. would be catastrophic for the world economy. It would unleash a regional conflict on multiple fronts which would not be any kind of controlled theater. I’m sure even the biggest hawks on the Joint Chiefs of Staff would have been uncomfortable with fighting those battles.

In the end, it looks like Iran’s message was sent and delivered. Trump found out that no amount of external direct pressure will get the Iranian government to fold.

That for all the might of the U.S. military and financial empire, its weaknesses are deep enough that even a relatively weak military and economy like Iran’s can stop it all dead cold because of basic things like geography, logistics and simple human resolve.

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via ZeroHedge News http://bit.ly/2WWN1R7 Tyler Durden