Tag: news

Authored by Charles Hugh Smith via OfTwoMinds blog,

Longtime correspondent Paul B. suggested I re-publish three essays that have renewed relevance. This is the first essay, from June 2008. Thank you, Paul, for the suggestion.

I’m not trying to be difficult, but I can’t help cutting against the grain on topics like surviving the coming bad times when my experience runs counter to the standard received wisdom.

A common thread within most discussions of surviving bad times–especially really bad times–runs more or less like this: stockpile a bunch of canned/dried food and other valuable accoutrements of civilized life (generators, tools, canned goods, firearms, etc.) in a remote area far from urban centers, and then wait out the bad times, all the while protecting your stash with an array of weaponry and technology (night vision binocs, etc.)

Now while I respect and admire the goal, I must respectfully disagree with just about every assumption behind this strategy.

Once again, this isn’t because I enjoy being ornery (please don’t check on that with my wife) but because everything in this strategy runs counter to my own experience in rural, remote settings.

You see, when I was a young teen my family lived in the mountains. To the urban sophisticates who came up as tourists, we were “hicks” (or worse), and to us they were “flatlanders” (derisive snort).

Now the first thing you have to realize is that we know the flatlanders, but they don’t know us.

They come up to their cabin, and since we live here year round, we soon recognize their vehicles and know about how often they come up, what they look like, if they own a boat, how many in their family, and just about everything else which can be learned by simple observation.

The second thing you have to consider is that after school and chores (remember there are lots of kids who are too young to have a legal job, and many older teens with no jobs, which are scarce), boys and girls have a lot of time on their hands.

We’re not taking piano lessons and all that urban busywork. And while there are plenty of pudgy kids spending all afternoon or summer in front of the TV or videogame console, not every kid is like that.

So we’re out riding around. On a scooter or motorcycle if we have one, (and if there’s gasoline, of course), but if not then on bicycles, or we’re hoofing it. Since we have time, and we’re wandering all over this valley or mountain or plain, one way or another, then somebody will spot that trail of dust rising behind your pickup when you go to your remote hideaway. Or we’ll run across the new road or driveway you cut, and wander up to see what’s going on. Not when you’re around, of course, but after you’ve gone back down to wherever you live. There’s plenty of time; since you picked a remote spot, nobody’s around.

Your hideaway isn’t remote to us; this is our valley, mountain, desert, etc., all 20 miles of it, or what have you. We’ve hiked around all the peaks, because there’s no reason not to and we have a lot of energy. Fences and gates are no big deal, (if you triple-padlock your gate, then we’ll just climb over it) and any dirt road, no matter how rough, is just an open invitation to see what’s up there. Remember, if you can drive to your hideaway, so can we. Even a small pickup truck can easily drive right through most gates (don’t ask how, but I can assure you this is true). If nobody’s around, we have all the time in the world to lift up or snip your barbed wire and sneak into your haven. Its remoteness makes it easy for us to poke around and explore without fear of being seen.

What flatlanders think of as remote, we think of as home. If you packed in everything on your back, and there was no road, then you’d have a very small hideaway–more a tent than a cabin. You’d think it was safely hidden, but we’d eventually find it anyway, because we wander all over this area, maybe hunting rabbits, or climbing rocks, or doing a little fishing if there are any creeks or lakes in the area. Or we’d spot the wisp of smoke rising from your fire one crisp morning, or hear your generator, and wonder who’s up there. We don’t need much of a reason to walk miles over rough country, or ride miles on our bikes.

When we were 13, my buddy J.E. and I tied sleeping bags and a few provisions on our bikes–mine was an old 3-speed, his a Schwinn 10-speed–and rode off into the next valley over bone-jarring dirt roads. We didn’t have fancy bikes with shocks, and we certainly didn’t have camp chairs, radios, big ice chests and all the other stuff people think is necessary to go camping; we had some matches, cans of beans and apple sauce and some smashed bread. (It didn’t start out smashed, but the roads were rough. Note: if you ever suffer from constipation, I recommend beans and apple sauce.)

We camped where others had camped before us, not in a campground but just off the road in a pretty little meadow with a ring of fire-blackened rocks and a flat spot among the pine needles. We didn’t have a tent, or air mattress, or any of those luxuries; but we had the smashed bread and the beans, and we made a little fire and ate and then went to sleep under the stars glittering in the dark sky.

There were a few bears in the area, but we weren’t afraid; we didn’t need a gun to feel safe. We weren’t dumb enough to sleep with our food; if some bear wandered by and wanted the smashed bread, he could take it without bothering us. The only animal which could bother us was the human kind, and since few people walk 10 or more miles over rough ground in the heat and dust, then we’d hear their truck or motorbike approaching long before they ever spotted us.

We explored old mines and anything else we spotted, and then we rode home, a long loop over rutted, dusty roads. In summer, we took countless hikes over the mountainous wilderness behind his family cabin.

All of which is to say that the locals will know where your hideaway is because they have lots of time to poke around. Any road, no matter how rough, might as well be lit with neon lights which read, “Come on up and check this out!” If a teen doesn’t spot your road, then somebody will: a county or utility employee out doing his/her job, a hunter, somebody. As I said, the only slim chance you have of being undetected is if you hump every item in your stash on your pack through trailess, roadless wilderness. But if you ever start a fire, or make much noise, then you’re sending a beacon somebody will eventually notice.

The Taoists developed their philosophy during an extended era of turmoil known as the Warring States period of Chinese history. One of their main principles runs something like this: if you’re tall and stout and strong, then you’ll call attention to yourself. And because you’re rigid–that is, what looks like strength at first glance–then when the wind rises, it snaps you right in half.

If you’re thin and ordinary and flexible, like a willow reed, then you’ll bend in the wind, and nobody will notice you. You’ll survive while the “strong” will be broken, either by unwanted attention or by being brittle.

Another thing to ponder is that the human animal is a much better predator than it is an elusive prey. Goats and wild turkeys and other animals have very keen senses of smell and hearing, and it’s tough to get close without them smelling you or hearing you. They’re well camouflaged, and since human sight is selected to detect movement and color, if they stay quite still we have a hard time spotting them.

In comparison, the human is a clumsy prey. It can’t smell or hear very well, and it’s large and not well camouflaged. Plus it’s usually distracted and unaware of its surroundings. It doesn’t take much to kill a human, either; a single-shot rifle and a single round of .22-long is plenty enough.

If the chips are down, and push comes to shove, then what we’re discussing is a sort of war, isn’t it? And if we’re talking about war, then we should think about the principles laid down in The Art Of War by Sun Tzu quite some time ago.

The flatlander protecting his valuable depot is on the defensive, and anyone seeking to take it away (by negotiation, threat or force) is on the offensive. The defense can select the site for proximity to water, clear fields of fire, or what have you, but one or two defenders have numerous disadvantages. Perhaps most importantly, they need to sleep. Secondly, just about anyone who’s plinked cans with a rifle and who’s done a little hunting can sneak up and put away an unwary human. Unless you remain in an underground bunker 24/7, at some point you’ll be vulnerable. And that’s really not much of a life–especially when your food supplies finally run out, which they eventually will. Or you run out of water, or your sewage system overflows, or some other situation requires you to emerge.

So let’s line it all up. Isn’t a flatlander who piles up a high-value stash in a remote area with no neighbors within earshot or line of sight kind of like a big, tall brittle tree? All those chains and locks and barbed-wire fencing and bolted doors just shout out that the flatlander has something valuable inside that cabin/bunker/RV etc.

Now if he doesn’t know any better, then the flatlander reckons his stash is safe. But what he’s not realizing if that we know about his stash and his vehicle and whatever else can be observed. If some locals want that stash, then they’ll wait for the flatlander to leave and then they’ll tow the RV off or break into the cabin, or if it’s small enough, disassemble it and haul it clean off. There’s plenty of time, and nobody’s around. That’s pretty much the ideal setting for leisurely thieving: a high-value stash of goodies in a remote area accessible by road is just about perfect.

Let’s say things have gotten bad, and the flatlander is burrowed into his cabin. Eventually some locals will come up to visit; in a truck if there’s gas, on foot if there isn’t. We won’t be armed; we’re not interested in taking the flatlander’s life or goodies. We just want to know what kind of person he is. So maybe we’ll ask to borrow his generator for a town dance, or tell him about the church food drive, or maybe ask if he’s seen so-and-so around.

Now what’s the flatlander going to do when several unarmed men approach? Gun them down? Once he’s faced with regular unarmed guys, he can’t very well conclude they’re a threat and warn them off. But if he does, then we’ll know he’s just another selfish flatlander. He won’t get any help later when he needs it; or it will be minimal and grudging. He just counted himself out.

Suppose some bad guys hear about the flatlander’s hideaway and stash. All it takes to stalk any prey is patience and observation; and no matter how heavily armed the flatlander is, he’ll become vulnerable at some point to a long-range shot. (Even body armor can’t stop a headshot or a hit to the femoral artery in the thigh.) Maybe he stays indoors for 6 days, or even 60. But at some point the windmill breaks or the dog needs walking or what have you, and he emerges–and then he’s vulnerable. The more visible and stringent the security, the more he’s advertising the high value of his depot.

And of course guarding a high-value stash alone is problematic for the simple reason that humans need to sleep.

So creating a high-value horde in a remote setting is looking like just about the worst possible strategy in the sense that the flatlander has provided a huge incentive to theft/robbery and also provided a setting advantageous to the thief or hunter.

If someone were to ask this “hick” for a less risky survival strategy, I would suggest moving into town and start showing a little generosity rather than a lot of hoarding. If not in town, then on the edge of town, where you can be seen and heard.

I’d suggest attending church, if you’ve a mind to, even if your faith isn’t as strong as others. Or join the Lions Club, Kiwanis or Rotary International, if you can get an invitation. I’d volunteer to help with the pancake breakfast fundraiser, and buy a couple tickets to other fundraisers in town. I’d mow the old lady’s lawn next door for free, and pony up a dollar if the elderly gentleman in line ahead of me at the grocery store finds himself a dollar light on his purchase.

If I had a parcel outside town that was suitable for an orchard or other crop, I’d plant it, and spend plenty of time in the local hardware store and farm supply, asking questions and spreading a little money around the local merchants. I’d invite my neighbors into my little plain house so they could see I don’t own diddly-squat except some second-hand furniture and an old TV. And I’d leave my door open so anyone could see for themselves I’ve got very little worth taking.

I’d have my tools, of course; but they’re scattered around and old and battered by use; they’re not shiny and new and expensive-looking, and they’re not stored all nice and clean in a box some thief could lift. They’re hung on old nails, or in the closet, and in the shed; a thief would have to spend a lot of time searching the entire place, and with my neighbors looking out for me, the thief is short of the most important advantage he has, which is time.

If somebody’s desperate enough or dumb enough to steal my old handsaw, I’ll buy another old one at a local swap meet. (Since I own three anyway, it’s unlikely anyone would steal all three because they’re not kept together.)

My valuable things, like the water filter, are kept hidden amidst all the low-value junk I keep around to send the message there’s nothing worth looking at. The safest things to own are those which are visibly low-value, surrounded by lots of other mostly worthless stuff.

I’d claim a spot in the community garden, or hire a neighbor to till up my back yard, and I’d plant chard and beans and whatever else my neighbors suggested grew well locally. I’d give away most of what I grew, or barter it, or maybe sell some at the farmer’s market. It wouldn’t matter how little I had to sell, or how much I sold; what mattered was meeting other like-minded souls and swapping tips and edibles.

If I didn’t have a practical skill, I’d devote myself to learning one. If anyone asked me, I’d suggest saw sharpening and beer-making. You’re legally entitled to make quite a bit of beer for yourself, and a decent homebrew is always welcome by those who drink beer. It’s tricky, and your first batches may blow up or go flat, but when you finally get a good batch you’ll be very popular and well-appreciated if you’re of the mind to share.

Saw-sharpening just takes patience and a simple jig; you don’t need to learn a lot, like a craftsman, but you’ll have a skill you can swap with craftsmen/women. As a carpenter, I need sharp saws, and while I can do it myself, I find it tedious and would rather rebuild your front porch handrail or a chicken coop in exchange for the saw-sharpening.

Pickles are always welcome in winter, or when rations get boring; the Germans and Japanese of old lived on black bread or brown rice and pickled vegetables, with an occasional piece of dried meat or fish. Learning how to pickle is a useful and easy-to-learn craft. There are many others. If you’re a techie, then volunteer to keep the network up at the local school; do it for free, and do a good job. Show you care.

Because the best protection isn’t owning 30 guns; it’s having 30 people who care about you. Since those 30 have other people who care about them, you actually have 300 people who are looking out for each other, including you. The second best protection isn’t a big stash of stuff others want to steal; it’s sharing what you have and owning little of value. That’s being flexible, and common, the very opposite of creating a big fat highly visible, high-value target and trying to defend it yourself in a remote setting.

I know this runs counter to just about everything that’s being recommended by others, but if you’re a “hick” like me, then you know it rings true. The flatlanders are scared because they’re alone and isolated; we’re not scared. We’ve endured bad times before, and we don’t need much to get by. We’re not saints, but we will reciprocate to those who extend their good spirit and generosity to the community in which they live and in which they produce something of value.

This essay was drawn from my book Survival+: Structuring Prosperity for Yourself and the Nation.

From The Way of Chuang Tzu by Thomas Merton:

For security against robbers who snatch purses, rifle luggage, and crack safes,
One must fasten all property with ropes, lock it up with locks, bolt it with bolts.
This (for property owners) is elementary good sense.
But when a strong thief comes along he picks up the whole lot,
Puts it on his back, and goes on his way with only one fear:
That ropes, locks, and bolts may give way.
Thus what the world calls good business is only a way
To gather up the loot, pack it, make it secure
In one convenient load for the more enterprising thieves.
Who is there, among those called smart,
Who does not spend his time amassing loot
For a bigger robber than himself?

*  *  *

My recent books:

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World ($13)

(Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

*  *  *

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The nutty ‘Bay of Pigs invasion Venezuela edition’ which appears to have been an utter failure and half-baked scheme nearly from the start just took a few more bizarre turns.

Two days after Venezuelan armed forces captured two US former special forces soldiers turned mercenaries along with others that made up a Venezuela ‘defector force’ allegedly trying to ‘invade’ the county to topple Nicolas Maduro, state TV has aired a “confession” video featuring 34-year old captured American Luke Denman. 

In the heavily edited and scripted “confession” Denman says the mission to orchestrate a coup in the socialist country went straight to the top – ordered by President Trump himself. There were also plans to “abduct” Maduro himself and fly him out of Venezuela and into US custody. 

As The Guardian describes of the video:

An American mercenary captured after a bungled attempt to topple Nicolás Maduro has claimed he was on a mission to seize control of Venezuela’s main airport in order to abduct its authoritarian leader – and he alleged that was acting under the command of Donald Trump.

…In a heavily edited video confession, broadcast on Wednesday by the state broadcaster, VTV, Denman said he had flown to Colombia in mid-January, where he was tasked with training Venezuelan combatants near Riohacha, a city 55 miles west from the Venezuelan border.

From there Denman – who said he had never previously set foot in either South American country – claimed the group planned to journey to Caracas to “secure” the city and the nearby Simón Bolívar international airport, before bringing down Maduro.

The group of a least a dozen men, who were trained by Florida-based private security firm Silvercorp, reportedly tried to sneak into Venezuela via fishing boats, but were caught soon after stepping foot on land. 

BREAKING: Venezuela’s government releases the confession of Silvercorp mercenary Luke Alexander Denman.

Live now on @teleSURenglish pic.twitter.com/PP8V7sTEt7

— Camila (@camilateleSUR) May 6, 2020

Denman further describes in the video his task was to “secure the airport” to pave the way for a broader US military invasion force: 

Denman said his mission had been to secure the airport, set up a perimeter, communicate with its tower and then “bring in planes” including “one to put Maduro on and take him back to the United States”.

“I thought I was helping Venezuelans take back control of their country,” Denman added.

There was no sign that any lawyers were present during Denman’s alleged confession or that he was not speaking under duress.

The Maduro government is hailing this as a major victory over Washington coup plotting, however on Tuesday President Trump formally denied that the US had anything to do with it. 

“It has nothing to do with our government,” Trump told reporters at the White House.

But Maduro and his top officials have alleged the mission came straight from both Trump and the Colombian president.

The Venezuelan president is further saying he’ll seek the extradition of the ex-Green Beret said to have overseen the mission, since back in the United States, Silvercorps founder Jordan Goudreau.

The fiasco prompted a formal denial of involvement or knowledge from US-backed Venezuelan opposition leader Juan Guaido.

The leader of this bungled assault, Jordan Goudreau, falsely claimed to his ragtag army that he had provided security to Trump. The closest he got was a brief relationship with Keith Schiller, who was Trump’s personal bodyguard. https://t.co/ItTktzYv3d

— Max Blumenthal (@MaxBlumenthal) May 4, 2020

As we previously reported, Goudreau orchestrated the plot alongside a high ranking Venezuelan military defector, who hooked up with the mercenary firm Silvercorps in Colombia last year.

In the wake of the botched ‘invasion’ and ‘overthrow’ attempt, which many on social media are hilariously mocking under the #BayofPiglets hashtag, Goudreau has positively admitted to being behind it.

Goudreau reportedly ran the secret training camps in neighboring Colombia, with the aim to infiltrate the group into Venezuela in order to fuel momentum for a broader ‘armed popular uprising’ à la covert CIA-style Syria regime change ops. 

Secretary of State Mike Pompeo on Wednesday backed Trump’s denial of US military or intelligence involvement: “If we had been involved, it would have gone differently,” Pompeo said. “As for who bankrolled it, we’re not prepared to share any more information about what we know took place. We’ll unpack that at an appropriate time. We’ll share that information that makes good sense.”

And concerning the captured Americans: “We will start the process of trying to figure a way – if in fact these are Americans that are there – that we can figure a path forward. We want to get every American back. If the Maduro regime decides to hold them, we’ll use every tool that we have available to try and get them back. It’s our responsibility to do so,” the Secretary of State said.

Authored by John Solomon via JustTheNews.com,

Allegations in August 2017 scoping memo instructing special prosecutor to investigate Carter Page came from dossier that had already been discredited…

Then-Deputy Attorney General Rod Rosenstein instructed Special Counsel Robert Mueller in August 2017 to investigate allegations against former Trump campaign adviser Carter Page that originated with the Steele dossier and had already been discredited by the FBI, a newly declassified memo showed Wednesday night.

The Justice Department’s release of the unredacted version of Rosenstein’s so-called investigative scoping memo provided the first declarative evidence that Mueller was asked to investigate widely suspect allegations from Christopher Steele’s opposition research conducted for the Clinton campaign and Democratic Party back in 2016.

Specifically, Rosenstein’s memo instucted Mueller to investigate “allegations that Carter Page committed a crime or crimes by colluding with Russian government officials with respect to the Russian government’s efforts to interfere with the 2016 election for President of the United States, in violation of United States law.”

By the time that instruction was given, the FBI had fired Steele as an informant for leaking, interviewed Steele’s sub-source who disputed information attributed to him and had ascertain that allegations Steele had given the FBI specifically about Page were inaccurate and likely came from Russian intelligence sources as disinformation, recently declassified evidence showed.

In addition, the CIA had informed the FBI repeatedly that Page was not a Russian stooge but rather a cooperating intelligence asset for the United States government.

Former House Intelligence Committee Chairman Devin Nunes, who long called for the release of the unredacted scoping memo, said Wednesday’s development confirmed his worst suspicions. He accused prior officials of the Justice Department of unnecessarily hiding the evidence from Congress and the American people before Attorney General William Barr intervened.

“This information was redacted until now for one single reason – to hide the fact that false allegations from the Steele dossier were included in Mueller’s scoping memo,” Nunes told Just the News.

“In other words, a bunch of lies paid for by the Democrats were used to engineer the appointment of a Special Counsel to drag the Trump administration through the mud for years. The Russia collusion hoax was a disgrace, and we can’t let anything like it ever be repeated.”

The degree to which the FBI had discredited Steele’s intelligence reporting on Page — including allegations he colluded with Russia — only recently came into focus with the release of DOJ Inspector General Michael Horowitz’s report on FBI abuses of the FISA surveillance that targeted Page. In addition, just-declassified evidence showed the FBI had learned by February 2017 that Steele’s information on Page was likely disinformation from Russian intelligence planted with Steele.

“Most relevant to the Carter Page FISA applications, the specific substantive allegations contained in Reports 80, 94, 95, and 102, which were relied upon in all four FISA applications, remained uncorroborated and, in several instances, were inconsistent with information gathered by the team,” Horowitz wrote back in December in debunking key allegations against Page.

More recently, declassified footnotes made clear Steele’s claim he had met with a senior Russian back in 2016 named Igor Sechin and had been offered a lucrative finders fee had been debunked by the FBI by February 2017, or months before Mueller was appointed. In fact Steele’s own source challenged the veracity of the information attributed to him inside the dossier.

“The Primary Sub-source told the FBI that one of his/her sub-sources furnished information for that part of Report 134 through a text message, but said that the sub-source never stated that Sechin had offered a brokerage interest to Page,” Horowitz reported.

“The Primary Sub-Source also told the FBI at these interviews that the sub-source who provided the information about the Carter Page-Sechin meeting had connections to Russian Intelligence Services (RIS),” he added.

You can read the full scoping memo below:

Well, it seems after China’s magical V-shaped recovery in PMIs amid the rest of the world crashing into recession, if not depression, as a result of coronavirus lockdowns, a new report via Bloomberg suggests Chinese leaders are contemplating “the option of not setting a numerical target for economic growth this year given the uncertainty caused by the global coronavirus pandemic.” 

After a dramatic rebound in PMIs for the second consecutive month after the February crash, artificially engineered, of course,  the fakery is not likely to hold, hence why to the prospects of not setting a growth target this year is reportedly being discussed by officials.

Real-time indicators tell an entirely different picture of the economy, still severely damage from lockdowns with no V-shaped recovery. 

Sources said the GDP target range would likely not be set at the upcoming National People’s Congress meeting slated for May 22 in Beijing. Last year, the range was set between 6% and 6.5%. The source added that a final decision on how to characterize the target had not been made. 

Under the leadership of the Communist Party of China (CPC) Central Committee President Xi Jinping, the party in the upcoming meeting is like to project how the country is attempting to normalize after virus shutdowns. 

Jinping’s party is facing one of the sharpest economic declines in the post-Mao era, the impact of the pandemic, and unable to completely restart manufacturing plants because Western demand has collapsed, has constrained the economy. 

However, there’s good news because CPC leadership can blame the virus for the prospectus of low growth in the quarters ahead. This would likely result in new rounds of stimulus as leadership attempts to revive the economy:  

“Such a move would free up policymakers from the obligation to issue significant stimulus to meet a certain growth level as long as employment remains stable. While China has announced credit easing policies, tax breaks and additional spending plans, the efforts are still targeted and more moderate compared with other major economies. The leadership’s caution is driven by fears of another debt blowout after total borrowing ballooned after the global financial crisis,” Bloomberg noted.

We showed last month how Chinese GDP shrank by 6.8% from a year ago (considerably worse than the 6.0% drop expected) and the worst drop on record (since 1992). 

China’s top leaders face unprecedented economic difficulty at the moment, and they must effectively blame everyone but themselves about lower growth while attempting to prop up the economy with stimulus. But for those expecting rounds of stimulus, like that seen in 2016, here’s Shang-Jin Wei, a China expert at Columbia Business School in New York and formerly chief economist of the Asian Development Bank, warns: “Prevention of a return or the ‘second wave’ of the virus outbreak is more important than getting a high growth rate for the remainder of the year.”

Earlier today we posted a chart of forward PE multiples which based on crashing global profits which have yet to find a bottom, showed that the disconnect between markets and reality has reached idiotic proportions.

And while Bloomberg apparently took offense and tried to justify current stock valuations writing the “The S&P’s Real Forward P/E Is What Matters, and It’s Unknowable”, Citi’s Matt King agreed, writing that “the gap between markets and data is the largest on record”, as did Bank of America.

In a report from BofA’s Jared Woodard titled “Too fast, too furious” in reference to the recent market move higher, the strategist who learned his craft under Michael Hartnett’s wing writes that equities “seem to have run too far ahead of fundamentals. From the March lows, stocks have gained $246,567 in market cap for each newly unemployed worker.” And while overshoots are always possible, he expects stumbles ahead for five main reasons:

1. Ignorance is bliss: 1 out of every 5 large companies has suspended earnings guidance
2. Credit not confirming: after crashes, HY tends to bounce faster than equity; not happening today on drag from “real economy” sectors e.g. energy/retail/industrials
3. Companies are saving: 1 out of every 5 large companies either suspended buybacks or cut dividends
4. Households are saving: private clients bought the dip but now sell rips & are net sellers since 2012
5. Stocks are expensive: the S&P 500 trades at 19.4x earnings, a 20-year high; valuation favors credit

Below we present BofA’s arguments why, as Nomura’s Charlie McElligott wrote earlier, it’s time to selling the rally, but first a look at how we got here, namely “the deepest shock and the greatest response”

• “There are decades where nothing happens and there are weeks when decades happen.” (Lenin)
• Macro uncertainty has never been this high (Chart 2) and the virus shutdown took only 3 weeks to destroy via  unemployment what the economy needed 352 weeks to build. The fastest bear market in history met with the fastest & largest fiscal response in US peacetime (Chart 3) and policy support has taken a retest of the lows off the table.
• But while overshoots are always possible, in our view there are good reasons to expect more stumbles in coming

months.

With that in mind, let’s go down BofA’s list why even banks whose “house view” is bullish can no longer hide their disgust at the “market” farce that central planning has created:

1. Ignorance is bliss

• Buy the re-opening rumor, sell the factual horror: rally-inducing news of stimulus & vaccine efforts will likely give way in coming weeks to disappointing realities of prolonged distancing, supply frictions, and confused calls for budget austerity. For example, a group of prominent restaurant owners just asked the UK government not to end the lockdown; if doors reopen, fiscal support ends, and demand has not rebounded, businesses will fail.
• Flying blind: 98 S&P 500 companies have suspended guidance (Chart 4) and fundamentals have rarely been cloudier. US retail specialists report that $2tn of orders were cancelled in just the first half of March. Even for doomed firms, it is hard to hold liquidation sales when no one can come.
• Dangerous savings: in March the personal savings rate spiked to 40-year highs of 13% (Chart 5). The paradox of thrift: if every sector saves at once (lower corporate capex & payouts, reticent households, fickle government), we all lose. Even if workers are quickly rehired, we don’t know yet how quickly they will be willing & able to spend.

2. Credit not confirming the rally

• After the last three crashes, HY bonds made new highs within 10 months on average…equities needed 2+ years. But in recent weeks, HY has lagged rather than led (Chart 6, far right panel).
• This is due to the higher weighting of resources (energy/materials) at 24% of US HY vs. just 5% for S&P 500.
• Note the daisy chain of consequences from resources decimation. Secular trends, OPEC war & the rise of ESG = resources must defend dividends at all costs and thus cut capex. No capex = pain for industrials (e.g. CAT) & broader manufacturing. Manufacturing (8%) + retail (10%) + leisure & hospitality (11%) = 30% of US payrolls. The Great Depression peaked at 25% unemployment.

3. Buybacks and dividends are falling

• Owning equities made sense even in an era of economic stagnation because shareholders were well-paid. Since the GFC, companies bought $4.3tn of their own stock (vs. just $0.2tn of buying from other sources – Chart 7).
• But US equity market capitalization rose $7.4tn in recent weeks vs. unemployment up 30 million…equities have gained $246,567 in market cap for each newly unemployed worker. Every tick higher in equities = heavier political pressure to limit payouts.
• 70 S&P 500 companies have already cut their buybacks, and 30 have cut their dividends; consensus expectations for 2.2% dividend yields have diverged wildly with market-implied yields at just 1.5% (Chart 8).
• Tech, which briefly had positive returns again for 2020, also remains the king of buybacks. In Q1 Apple repurchased $18.5bn (& authorized another $50bn), Google $8.5bn, Microsoft $6.0bn.

4. Households now sell into strength

• Smart money: since 2016, BofA wealth management clients have been “strong hands” during market selloffs. In 2020 private clients were small net buyers as equities tumbled (Chart 9).
• Skeptical money: they are also skeptical sellers of rallies, with net outflows from equities since 2012. Across US investor accounts, margin debt plunged in 2019-2020, failing to confirm the rally from late 2018 (Chart 10).

5. Stocks are expensive

• Stock prices are already back at 20-year highs relative to expected earnings (19.4x – Chart 11).
• While there has never been less competition from Treasury bonds, this is hardly the time to price equities for a perfect recovery.
• In relative value terms, most fixed income sectors offer better yield (relative to volatility) than any equity region or sector (Chart 12).

If it’s time to sell stocks, what does BofA like?

Three reasons to own gold

“Fed Can’t Print Gold”: Gold is more attractive today. Our gold price target was just raised from $2000 to $3000/oz. Three reasons to buy:

• Low rates: central banks will keep interest rates well below inflation for the foreseeable future. When the opportunity cost of shunning Treasuries is essentially zero, investors buy gold instead (Chart 13); that’s why real rates alone can explain 80% of the variation in gold prices.
• Weaker dollar: central bank balance sheet expansion implies a sharply weaker dollar…e.g. DXY below 2018 lows of 88 (Chart 14).
• Positioning is light: gold is just 10% from record highs yet institutional positions are only 0.6sd above the 20-year average (CFTC); and household allocations are even smaller…just 0.2% of private client holdings.

What happens next? While attention in the past few weeks has been diverted away from the biggest clash of civilizations in centuries, the reality is that tensions between the US and China will not go away on their own… or peacefully. Which means that absent an all out war, there are three conflicts to watch: i) the trade war; ii) the tech war, and iii) the capital war.

The Trade War

• A costly decoupling of US-China economic ties may increasingly be accepted by elites as the necessary alternative to a full-blown cold war.
• The US has become increasingly reliant on Chinese and other foreign manufacturers for many key resources including pharmaceuticals (Chart 22), rare earths, machine tools, advanced materials, military components, casting, electrical steel, fasteners, aluminum, circuit boards, batteries, medical equipment, and much more (per US DoD).
• Just as importantly, the US has fallen behind China in research & development for the first time in history (Chart 23). R&D is one of the most important drivers of productivity and economic growth.
• The administration’s approach so far has been very popular. One poll found 83% of Americans favor a continuation or even tougher position on China (91% Republicans, 74% Democrats).

The tech war

The schematic below summarizes the tech security policy toward China

The capital war

• The trade/tech war may become a capital war in which the US more power to determine the outcome. The first battle will be over delisting Chinese equities from US exchanges. US investors own nearly 10% of the 100 largest Chinese companies, with $5.4tn in market cap. (Table 2).
• In April, SEC Chairman Jay Clayton became vocal about the risks of investing in Chinese companies, which do not adhere to Sarbanes-Oxley accounting standards or give the Public Company Oversight Board audited statements. Investors burned by Sino-Forest and Luckin Coffee already understand.
• Chinese ADRs are often Cayman Islands-based “Variable Interest Entity” (VIE) legal structures, which do not provide ownership of the underlying company and do not confer voting rights. Chinese state authorities could revoke permission of these companies to distribute profits to foreign VIE shareholders.
• Capital markets are also ripe for other forms of intervention. Whether by halting IPOs, taxing foreign capital inflows, or cutting access to USD swap lines and Fed repo operations, policymakers have a range of very powerful unexercised options

The energy war

• In 2020 WTI crude oil traded at negative prices for the first time in history.
• In 2020 China will have 626k megawatt hours of lithium ion battery cell manufacturing capacity, far surpassing capacity in the US & Europe, with the gap expected to widen sharply. (Chart 26).

Since the coronavirus outbreak forced doctors and hospitals around the world to delay most other medical care to focus 100% on combating the outbreak, lapses in vaccination routines have led to the reemergence of diseases like polio and measles. Alarmed by this trend, one ER doctor and coronavirus survivor in the Bronx warned that the US might as well end its coronavirus lockdowns now due to the impending wave of ancillary health issues.

And now, the Guardian, a far-left publication that has pushed for extended lockdowns, is even reporting that tuberculosis cases around the world are expected to surge.

Up to 6.3 million more people are predicted to develop TB between now and 2025 and 1.4 million more people are expected to die as cases go undiagnosed and untreated during lockdown. This will set back global efforts to end TB by five to eight years.

“The fact that we’ve rolled back to 2013 figures and we have so many people dying, this for me is sickening,” said Lucica Ditiu, executive director of the Stop TB Partnership. “I am outraged that just by not being able to control what we do…and forgetting about programmes that exist we lose so much, starting with the loss of the lives of people.”

There is no TB vaccine for adults, only for children. Some TB specialists have taken umbrage at the reality that there are so many vaccine candidates in the works for COVID-19, while desperately needed adult TB vaccines can’t get funding because they just wouldn’t be a money-maker.

“I have to say we look from the TB community in a sort of puzzled way because TB has been around for thousands of years,” Ditiu said. “For 100 years we have had a vaccine and we have two or three potential vaccines in the pipeline. We need around half a billion [people] to get the vaccine by 2027 and we look in amazement on a disease that … is 120 days old and it has 100 vaccine candidates in the pipeline. So I think this world, sorry for my French, is really fucked up,” she said.

“The fear we have in the community is that researchers are heading towards just developing a vaccine for Covid. That’s on the agenda of everyone now and very few remain focused on the others [diseases]. We don’t have a vaccine for TB, we don’t have a vaccine for HIV, we don’t have a vaccine for malaria and out of all this, TB is the oldest. So why this reaction? I think because we are a world of idiots. What can I say?”

The data were published on Wednesday; they are based on a three-month lockdown and a 10-month period of restoring services after lockdown is lifted.The research was commissioned by the Stop TB Partnership, working with Imperial College London, Avenir Health and – get this – Johns Hopkins University (which is helping track the global outbreak and conduct research).

TB kills 1.5 million people a year, more than any other infectious disease.

Authored by Mike Shedlock via MishTalk,

Let’s investigate the Fed’s effort to prevent price deflation.

Here’s a Tweet that caught my eye.

“We’re about to have deflation and the market hasn’t figure it out yet… when it does, the Fed is going to shit itself.” @hendry_hugh @raoulGMI
https://t.co/aa7m6eTwgC pic.twitter.com/sqGMdUvTDZ

— Real Vision (@RealVision) May 1, 2020

“Problem with deflation is- Why buy anything if you know it will be cheaper in the future.,” responded one person. 

Let’s investigate that question starting with a look at the CPI basket.

CPI Percentage Weights

Why Buy Anything Questionnaire

Q: If consumers think the price of food will drop, will they stop eating?

Q: If consumers think the price of natural gas will drop, will they stop heating their homes? 

Q: If consumers think the price of gasoline will drop, will they stop driving?

Q: If consumers think the price of rent will drop, will they hold off renting until that happens?

Q: If consumers think the price of rent will rise, will they rent two apartments to take advantage?

Q: If consumers think the price of taxis will rise, will they take multiple taxi rides on advance?

Q: If people need an operation, will they hold off if they think prices might drop next month?

Q: If people need an operation, will they have two operations if they expect the price will go up?

All of the above questions represent inelastic items. Those constitute over 80% of the CPI.  Let’s hone in on the elastic portion with additional Q&A.

Questions for the Fed – Elastic Items

Q: If people think the price of coats will rise will they buy a second coat they do not need?

Q: If people think the price of clothes will drop, will they stop getting dressed?

Q. The prices of TVs and electronics drop consistently. Better deals are always around the corner. Does that stop people from buying TVs and electronics?

Q. If people thought the price of TVs was about to jump, would they buy multiple TVs to take advantage?

Q. If someone needs a refrigerator, toaster, stove or a toilet because it broke, will they wait if for some reason they think prices will decline?

Q. If someone does not need a refrigerator, toaster, stove or a toilet will they buy one anyway if they think prices will jump?

For sure, some people will wait for year-end clearances to buy cars, but most don’t. And if a car breaks down, consumers will fix it immediately, they will not wait for specials.

Stupidity Well Anchored

The above questionnaires thoroughly debunk the Fed’s ridiculous spotlight on “inflation expectations”. 

Yet, how many times have you heard “inflation expectations are well anchored“? 

In reality, Fed stupidity is well anchored. 

The one and only time inflation expectations matter is in a state of hyperinflation when it pays to buy nearly anything and barter it.

No Economic Benefit to Inflation

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no economic benefit to inflation but there are winners and losers. The winners are those with first access to money, namely the banks and the already wealthy.

The Fed complains about income and wealth inequality but they are the primary source. 

BIS Deflation Study

The BIS did a historical study and found routine price deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations

Asset Bubble Deflation

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive build up of unproductive debt and asset bubbles that eventually collapse.

In a must-read piece detailing the evolution of the US-China relationship from productive partnership to bitter rivalry, WSJ reported that back in January, President Trump resisted pressing China to be more transparent about the emerging virus, and the risks it might pose to the global community.

Since President Trump revoked funding for the WHO last month and a British newspaper appeared to confirm that western intelligence agencies (including US intelligence) were investigating the possibility that the virus might have leaked from a biolab in Wuhan, hostilities between Beijing and Washington have taken off, with China’s Foreign Ministry on Wednesday prodding Secretary of State Mike Pompeo to show ‘proof’ that the virus came from the Wuhan lab.

Before critics jump on this tidbit, and try to portray the administration’s recent rhetoric against China as cynically political, it’s worth remembering that the WHO was praising China’s response as exemplary, helping to prop up Beijing’s lies. The US was led to believe China was much more on top of things than it turned out to be. That Trump wanted to try and curry some favor after the bitterness of the trade talks isn’t all that surprising. Besides, we doubt any pressure from Trump would have averted China’s dissembling.

Even as he has presided over a China policy many see as the toughest in 40 years of relations, Mr. Trump has frequently praised President Xi and talked of their friendship—a tactic administration officials say is meant to give Chinese leaders an opening to meet U.S. demands for change.

Early this year, several of Mr. Trump’s political advisers inside and outside the campaign urged him to take on China more directly, which they argued would have bipartisan appeal. One idea they suggested was a special commission to investigate the origins of the virus and whether Beijing responded sufficiently to control the outbreak.

Mr. Trump twice declined suggestions from his team in January to press Mr. Xi for more transparency about the virus’s causes and symptoms, in one case saying that the criticism could cause Beijing to be less helpful, said White House officials.

Domestic pressures in both the U.S. and China are likely to aggravate the already strained relations. Supporters of Mr. Biden also have produced attack ads focused on China.

Mr. Xi, too, has faced criticism at home over the coronavirus, and his administration has sought to project a sense of strength in dealing with the U.S. as he tries to revitalize an economy stalled by the pandemic, manage high unemployment and quash persistent antigovernment unrest in Hong Kong.

After Barack Obama’s turn at appeasment, which saw China ramp up its efforts to steal US innovations and technology, President Trump swept into office with a promise to crack down on Beijing. Since then, the distrust has only deepened, with two-thirds of Americans saying they no longer trust China. Meanwhile, the federal government is upping the pressure on China like never before.

The Trump administration has moved to involve much of the U.S. government in a campaign that includes investigations, prosecutions and export restrictions. Nearly every cabinet and cabinet-level official either has adopted adversarial positions or jettisoned past cooperative programs with Beijing, an analysis of their policies showed.

Chinese officials, for their part, are following through on President Xi Jinping’s call last fall to resist anything they perceive as standing in the way of China’s rise. They have stepped up military activities in the contested South China Sea and intimidation of Taiwan, a U.S. ally, and state media has issued extraordinary public denunciations of Secretary of State Mike Pompeo.

The coronavirus pandemic has deepened the rancor, bringing relations between the two to a modern-day nadir. Both governments are forgoing cooperation and trying to outmaneuver each other to shape events in the post-pandemic world order.

President Trump, who has sharply criticized China for its handling of the outbreak, has said he is considering using tariffs and other ways to collect compensation for it from Beijing, though senior officials signaled this week that the administration is holding off on punishing China economically.

Once the virus has finally been subdued – however long that takes – the biggest takeaway here is that there has been a dramatic paradigm shift in US-China relations. We expect tensions will only worsen from here.