Month: September 2017

As if the just concluded German elections, and the upcoming referendums in Catalonia and Iraqi Kurdistan were not enough, here comes Japan.

Shortly following Sunday night reports that Japanese Prime Minister Shinzo Abe plans to launch a new economic stimulus package of around 2 trillion yen ($17.8 billion) by the end of this year, which sent the Yen sliding to session lows and the USDJPY rising as high as 112.50 before fading the entire move, on Monday the Japanese premier confirmed recent rumors when he said he would dissolve parliament’s lower house on Thursday for a snap election, as he seeks a fresh mandate to overcome “a national crisis”. Abe, in power for five years with the success of his famous Abenomics always just beyond reach, said he needed a mandate to shift some revenues from a planned future tax hike to social spending such as education, besides seeking support for a tough stance toward North Korea’s repeated missile and nuclear tests.

“I will dissolve the lower house on Sept. 28,” Abe told a nationally televised news conference on Monday according to Reuters. Earlier, the head of Abe’s junior coalition partner, Natsuo Yamaguchi, said he understood the election would be held on Oct. 22.

The decision is aimed to take advantage of Abe’s recently surge in favorable ratings following a crash in support for Abe as early as two months ago as a result of ongoing corruption scandals in his party, as well as ongoing opposition disarray. The main opposition Democratic Party is struggling with single-digit ratings and much depends on whether it can cooperate with liberal opposition groups.

Abe’s image as a strong leader has bolstered his ratings amid rising tension over North Korea’s nuclear arms and missile programs and overshadowed opposition criticism of the premier for suspected cronyism scandals that had eroded his support.

As the FT notes, “the general election will decide whether Japan continues with its stimulative economic policies and whether Mr Abe has the political strength to drive through a revision to Japan’s war-renouncing constitution.”

Abe, whose ratings have risen to around 50% from around 30% in July, is gambling his ruling bloc can keep its lower house majority even if it loses the two-thirds “super majority” needed to achieve his long-held goal of revising the post-war pacifist constitution to clarify the military’s role. According to Reuters, A weekend survey by the Nikkei business daily survey showed 44% of voters planned to vote for Abe’s Liberal Democratic Party (LDP) versus just 8% for the main opposition Democratic Party and another 8% for a new party launched by popular Tokyo Governor Yuriko Koike.

The Nikkei poll was far more positive for Abe’s prospects than a Kyodo news agency survey that showed his LDP garnering only 27.7% support, with 42.2% undecided.

Still, while Abe starts from a strong position, the early election has prompted a drastic realignment among Japan’s opposition, with Tokyo governor Yuriko Koike declaring, just hours before Abe’s election announcement, that she would lead a new conservative, reform-minded “Party of Hope”, to offer voters an alternative to the LDP.

“Our ideal is to proceed free of special interests,” Koike, a former LDP member, told a news conference.  “I am raising my flag for real,” declared Ms Koike at a press conference timed to upstage the prime minister. She said the party would run on her signature anti-establishment platform of reform and opposition to vested interests. “The thing Japan lacks is hope,” she said quoted by the FT.

Previously, Ms Koike had sponsored the launch of the new party but stayed behind the scenes. Now she has declared herself as its leader, indicating she will take a prominent role in the election campaign.

Confirming the ongoing power rotation, Mineyuki Fukuda, a deputy minister in the cabinet office, said he was quitting the ruling Liberal Democratic party to stand for the new Party of Hope. He joins a series of established politicians, most of them defectors from the opposition Democratic party, who will run under Ms Koike’s banner.

* * *

Abe’s election platform will see him promise to go ahead with a planned rise in the national sales tax to 10% from 8% in 2019 but increase the proportion of revenue spent on child care and education, delaying a target of putting the budget in the black in the fiscal year ending March 2021. As noted above, also on Monday, Abe asked his cabinet to compile a 2-trillion-yen ($17.8-billion) economic package by year-end to focus on child care, education and encouraging corporate investment, while maintaining fiscal discipline.  The Yomiuri newspaper said earlier the funding would cover the three years from April 2018 until sales tax revenue kicks in.

Abe also wants a minor revision to the constitution that would explicitly recognise the legality of Japan’s Self-Defence Forces. Ms Koike backs constitutional reform, increasing the odds that supporters of a change will secure the two-thirds parliamentary majority needed to pass a revision, and will subsequently take it to a national referendum for approval.

* * *

Meanwhile, critics of Abe’s decision says the prime minister risks risked creating a political vacuum at a time of rising geopolitical tension over North Korea.  And, given the unexpected results seen in other major developed countries, political analysts are not ruling out a “nasty surprise” for the Japanese leader.

“Abe’s big gamble could yield a big surprise,” veteran independent political analysts Minoru Morita said.

For a vivid example of just that, see the outcome from Sunday’s “nightmare victory” for Merkel, which virtually nobody had expected, yet which overnight set Germany’s right wing AfD party as the country’s third most powerful political entity.

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European stocks rose as the euro tumbled following Germany’s election result which was dubbed a “Nightmare Victory” for Merkel and could lead to potentially complicated coalition talks and perhaps even another early election. U.S. equity-index futures point to a lower open, while Asian equities slide after a plunge in Chinese property developer names over worries of new real estate curbs as well as tech stocks following more iPhone delivery concerns. S&P500 futures are steady, down slightly by just over -0.1%, after closing little changed on Friday.

For those who missed it, in the main political event over the weekend, the German election results showed Chancellor Merkel set for a 4th term after her CDU/CSU won the most votes, but performed weaker than expected and will need to undertake coalition discussions. In terms of the number of seats, CDU/CSU won 246 seats, SPD won 153 seats, AfD won 94 seats, FDP won 80 seats, Die Linke won 69 seats and Grune won 67 seats. Given the abysmal performance of the SPD (worst performance since WW2), the party have efused to enter into a Grand Coalition and instead will form the opposition (to avoid AfD becoming the opposition). As such, Merkel will now have to try and form a ‘Jamaica’ Coalition with the FDP and Green parties. However, the FDP initially distanced themselves from forming such an alliance. Furthermore, according the CSU are reportedly considering their historical alliance with the CDU following yesterday’s result. Further reports suggest that the CSU are set to vote on their alliance with Merkel’s CDU, However, according to a report on Germany’s n-tv, CSU leader Seehofer said his party would remain a partner with Merkel’s CDU, although Seehofer said he wants CSU leadership to vote on joint caucus.

“The question is obviously now what it means for policy going forward” in Germany, Mitul Kotecha, head of Asia FX and rates strategy at Barclays Bank Plc, said on Bloomberg Television in reference to the election. “Investors are going to be closely following announcements on policy, especially given that fact that the AfD is not just nationalist, but also anti-euro to some extent.” As Bloomberg adds, the process of building a new government could take weeks, so markets may well move on from the result quickly.

The Euro pushes lower through European trading as investors digested these political developments. German election fallout with smaller mandate for Merkel is coupled with latest Italian polls showing support for populist Five Star Movement. The resulting slide in the common currency, which saw the EURUSD slide below 1.189 this morning, sent European stocks modestly higher although the reaction was decided mixed among another session of near record low volumes as trader paralysis continues in a centrally-planned market.  The Stoxx Europe 600 Index fell less than 0.1%, as losses in banks and miners offset gains in travel-and-leisure and media shares. Tullow Oil jumped 6.8% after saying Ghana’s new maritime boundary as determined by a tribunal doesn’t affect the TEN fields, and it expects to resume drilling around the end of the year.

Also over the weekend, New Zealand held its general election on Saturday which resulted to a hung parliament, as no party gained the 61 seats needed for a majority. In terms of the projected results, the incumbent National Party won 58 seats, main opposition Labour Party won 45 seats, New Zealand First won 9 seats, Green Party won 7 seats, ACT won 1 seat and the Maori Party won 0 seats. The result has been broad-based weakness for the Kiwi with the AUDNZD rising over 100 pips from its Friday close of 1.0860.

Separately, North Korea’s Foreign Minister stated that President Trump’s labelling of Kim Jong Un as ‘Rocketman’ has made North Korean rockets’ visit to entire US mainland inevitable, while there were also separate reports that US Air Force B-1B Lancer Bombers flew over the waters east of North Korea on Saturday.  Elsewhere, on Monday Japan PM Abe confirmed recent rumors, and announced he would dissolve the lower house of parliament on September 28th, to call a snap election and further cement his power following the recent spike in popularity.

The yen pared a drop as Japan’s prime minister unveiled a fresh stimulus package and said he’ll dissolve the lower house of parliament ahead of a general election. Stocks in Europe edged higher helped by the weaker euro, but shares in developing nations headed for a third day retreating.

Asian equities fell, with the region’s benchmark set for a third day of declines from its highest level in almost a decade, as investors weighed the outlook for returns and political uncertainty prompted some to cash in some of the gains from this year’s rally. The MSCI Asia Pacific Index retreated 0.5% to 162.25 in Hong Kong as about three stocks declined for every two that gained. Japanese stocks advanced, with the Topix closing at a fresh two-year high, as the yen weakened against the dollar on speculation of fiscal stimulus by Abe. “Some investors have decided to take some of their gains from the table after the recent rally drove valuations up in many Asian markets,” said John Teja, a director at PT Ciptadana Sekuritas Asia in Jakarta. “The biggest risk for the region and global equities market in general remains the political risk on the Korean peninsula.” The Asian equities benchmark has surged about 20 percent so far this year, putting it on course for its best annual performance since 2009, underpinned by low interest rates and an improving outlook for earnings growth.

Of note, the Hang Seng Mainland Properties Index plunged more than 5% overnight, its biggest single day drop, after China introduced new curbs on real estate over the weekend. The move send the Hang Seng lower by 1.4%, its biggest drop in 6 weeks.

Also notable, China’s offshore Yuan tumbled to 6.6205 as China’s recent push to weaken the currency, including the weakest fixing since August 31, sent the CNH to the lowest level since August 28.

In rates, the yield on 10-year Treasuries fell one basis point to 2.24 percent, the lowest in a week. Germany’s 10-year yield declined four basis points to 0.41 percent. Britain’s 10-year yield fell one basis point to 1.341 percent, the largest drop in more than two weeks.

In commodities, gold fell 0.2 percent to $1,295.40 an ounce. West Texas Intermediate crude declined 0.1 percent to $50.63 a barrel, while Brent pushed to the highest level since February.

The week is full of Fed speakers, with Yellen set to discuss monetary policy on Tuesday, while the calendar sets off with Dudley, Evans and Kashkari taking the podium today. Investors will look for cues on monetary policy as Fed and ECB officials speak this week: “In the U.S., the mystery of the missing inflation will likely feature in a slate of Fed-speak, with core inflation stuck at 1.4%,” Societe Generale strategists including Stephen Gallagher wrote in note.

President Donald Trump and Republican leaders plan to release a tax framework this week that would dramatically cut taxes for corporations and the wealthy and includes a proposal to cut the corporate tax rate to 20 percent from 35 percent.  Scheduled earnings on Monday include Red Hat, Synnex.

Market Snapshot

• S&P 500 futures down 0.1% to 2,495.75
• VIX up 5% to 10.07
• STOXX Europe 600 up 0.1% to 383.59
• MSCI Asia down 0.5% to 162.23
• MSCI Asia ex Japan down 0.9% to 533.88
• Nikkei up 0.5% to 20,397.58
• Topix up 0.5% to 1,672.82
• Hang Seng Index down 1.4% to 27,500.34
• Shanghai Composite down 0.3% to 3,341.55
• Sensex down 1.3% to 31,494.47
• Australia S&P/ASX 200 up 0.03% to 5,683.73
• Kospi down 0.4% to 2,380.40
• German 10Y yield fell 1.6 bps to 0.431%
• Euro down 0.4% to $1.1907
• Italian 10Y yield fell 0.2 bps to 1.814%
• Spanish 10Y yield unchanged at 1.627%
• WTI Futures down 0.2% to $50.6/bbl;
• Brent crude up 0.6% to $57.18
• Gold spot down 0.4% to $1,292.12
• U.S. Dollar Index up 0.2% to 92.38

Top Overnight News

• Merkel’s Christian Democratic Union-led bloc is meeting in Berlin on Monday in the wake of the defeat of its Social Democratic Party challenger even while falling to the worst result since 1949
• Ifo Sept. german business confidence index unexpectedly dropped a second month to 115.2, vs est. 116.0
• New Zealand Prime Minister Bill English has claimed a mandate to form the next government after winning the biggest slice of the vote in Saturday’s election, even as opposition leader Jacinda Ardern refuses to concede defeat
• Japan’s Prime Minister Shinzo Abe said he will dissolve the lower house of parliament on Sept. 28; general election set for Oct. 22, according to three people with knowledge of his ruling coalition’s plans
• Japan’s Abe to order relevant officials to come up with 2t yen economic package at economic, fiscal panel meeting today, Yomiuri reports, without attribution
• Hellman & Friedman to Buy Payments Firm Nets for $5.3 Billion
• Switch Inc. Is Said to Aim for Year’s Third- Biggest Tech IPO
• ABB Bolsters U.S. Business With $2.6 Billion GE Unit Deal
• Unilever Buys Korean Makeup Firm for $2.7 Billion from Goldman
• Coty Is Said to Mull Selling Some Fragrance Brands: WWD
• Brazil Regulator Is Said to Back AT&T/Time Warner, Globo Says
• Blackstone Is Said to Buy UIOF for Rs800 Crore: Economic Times
• Amazon Unit Plans to Open Data Centers in Middle East by 2019
• IPhone Disappointment Hammers Suppliers, Fuels Taiwan Outflows
• European, U.S. Apple Suppliers May Move After DigiTimes Report
• Top BP Executive Warns OPEC Needs to Prolong Oil Output Curbs
• Iron Ore Succumbs to Bear Market and May Extend Slump Into $50s
• Equifax’s Massive Hack Has a Tiny Silver Lining
• Trump Tax Plan Said to Cut Taxes for Wealthy and Whack NY and NJ
• GOP Revises Obamacare Repeal With Bill Headed to Likely Defeat
• Lockheed Says Talks Ongoing With Japan on Supply of THAAD System

Asia equity markets began the week subdued as FX took much of the focus amid post-election hangovers from New Zealand and Germany where the incumbents in both won most votes but failed to get majorities, which moves the process on to coalition negotiations. ASX 200 (+0.1%) and Nikkei 225 (+0.4%) were positive with the latter the outperformer on JPY weakness, while a 4- month high Japanese Nikkei Manufacturing PMI and reports that PM Abe is considering a JPY 2tln economic package added to upbeat tone. Chinese markets were subdued with Shanghai Comp. (-0.4%) and Hang Seng (-1.1%)  negative, as property names suffered from tighter restriction announcements, although the losses in the mainland were stemmed following a firm liquidity operation heading into next week’s National Day holidays. 10yr JGBs were relatively flat as pressure in the safe-haven from a positive risk sentiment in Japan, was counterbalanced by the BoJ’s presence in the market for a respectable amount just shy of JPY1trl in JGBs with 1yr-10yr maturities.

Top Asian News

• China Developers Plunge as Government Expands Tightening
• China Is Said to Plan Closer Oversight of State Company Funds
• Unilever in $2.7 Billion Deal for Korean Cosmetics Maker

A tepid start for European bourses with a sense of anxiety among investors following the result of the German election and a surprise rise in support for the far-right AFD party, subsequently, Chancellor Merkel has been left with a less stable position. Notable underperformers have been financial and commodity related names. However, the initial opening gap in European trade was filled through the session, aided by the performance in oil markets. A slight tick lower in German yields have supported bunds this morning with the yield modestly flatter. A soft start for peripherals as spreads widen against their German counterpart with Spain and Italy wider by 1.6bps and 1bps respectively. Further, Saudi Arabia plan to return to the global conventional bond market, as the Kingdom seeks to address the budget deficit and underpin economic reform efforts. Bunds saw a bid following the results of the German Ifo, with extensions of the move evident of political German uncertainty, as Twitter reports stated that the CSU are considering their historical alliance with the CDU following yesterday’s result.

Top European News

• BOE Seeks Brexit Deal to Protect Existing Derivative Contracts
• German Business Confidence Unexpectedly Drops for Second Month
• Turkish Stocks Decline As Kurdish Referendum Weighs on Sentiment
• Peripheral Euro Bonds Sell Off in Aftermath of German Election

In FX, the EUR suffered following the weekend results despite Chancellor Merkel being set for a fourth term. Merkel’s CDU/CSU performed weaker than expected and will now need to undertake coalition discussions, likely set to attempt to form a ‘Jamaica’ Coalition with the FDP and Green Parties, with FDP being an initial hurdle. EUR/USD rejected 1.20 on Friday, and struggled as Asian trade began, trading through 1.19, now consolidating just above these levels. EUR/GBP saw similar price action, finding support ahead of September’s lows. A break through the 0.8774 area could see trade once again in the start of 2017’s trading range. NZD was also heavy following their election results, and in line with Germany, despite a victory for the National Party, a majority was also not secured. This places the next government at the hands of New Zealand First Party’s leader and effective ‘kingmaker’ Winston Peters, who is all too familiar with this obligation having supported both the National Party and main opposition Labour in past governments. NZD/USD find some support following initial selling pressure, support at September 18th’s low held, with some buying evident around these levels. AUD/NZD held just through 1.0800, yet continuing to show a downward trend following the stacked offers seen around 1.1150 through September.

In commodities, prices were mostly range-bound which kept WTI subdued, while copper was unchanged amid a subdued risk tone. Elsewhere, gold (-0.3%) was pressured from early trade due to a firmer greenback, after the currency benefitted from political uncertainty weighing on a couple of its major counterparts post-elections.

On today’s calendar we have Germany’s IFO indicators on business climate, expectations and current assessment all of which missed expectations (Current Conditions 123.6 vs Exp. 124.8; Expectations 107.4, Exp. 107.9; Business Climate 115.2, exp. 116). Over in the US, there is the Chicago Fed National and Dallas Fed manufacturing activity index.

US Event Calendar

• 8:30am: Chicago Fed Nat Activity Index, est. -0.2, prior 0
• 8:30am: Fed’s Dudley Speaks on Workforce Development
• 10:30am: Dallas Fed Manf. Activity, est. 11.5, prior 17
• 12:40pm: Fed’s Evans Speaks on Economy and Monetary Policy
• 6:30pm: Fed’s Kashkari Speaks at Townhall in Grand Forks, North Dakota

DB’s Jim Reid concludes the overnight wrap

3 months today until Xmas. How time flies. Normally I’d associate Xmas with relaxing, lie-ins and having good family time. However Xmas will now be forever associated in my eyes with the utter chaos of my current life. I’ll let readers do their own arithmetic but 2 year old Maisie was due on September 23rd and the twins were technically due yesterday (they are nearly 4 weeks now!). So to avoid yet more chaos in 12 months’ time this Xmas you’ll be most likely to find me in a Tibetan monastery.

One wonders how whether Mrs Merkel would like her own private retreat to prepare herself for the difficult time ahead after a disappointing yet still overwhelming victory in yesterday’s German election. As we highlighted last week, the election was always going to be purely about the coalition arithmetic and deals. These are likely to be more difficult after the results. To recap Mrs Merkel’s CDU/SCU polled 33% (37% in final polls on Friday) against the SPD’s 20.5% (22% in final polls). Combined these two parties saw their lowest share of the vote since World War II (since 1949 for Merkel’s party). The AfD (Alternatives for Germany) came third with 12.6% of votes (11% expected on Friday) and will now be the first far right party in the Bundestag since the Nazi party. They beat the pro-business FDP (10.7% – Free democrats Party), Greens (8.9%) and the post-Communist Left (9.2%). Given that the SPD now want to be the main opposition rather than join in another grand coalition, the so called Jamaican coalition of the CDU/SCU, FDP and Greens is likely, but there will be some big idealogical differences to negotiate around. The FDP are known to be against further Euro integration which will be one of the key takeaways from the election. The FDP leader Christian Lindner has indicated a willingness to join in coalition talks, but said that “We want to organise a change of direction for our country” and also tweeted that “€60bn Eurozone budget flowing into France or Italy is inconceivable for us…a line in the sand”. Meanwhile, a leading Green politician told broadcaster ZDF that talks will be “very hard, we are far apart  on many issues”.

I spoke to DB’s Mark Wall after the results and we discussed the impact on euro area integration. As Mark said, earlier this summer the “Macron Pivot” suggested a surprising counter thrust against anti-EU populism. Marcon turned to Merkel for support to strengthen the euro area with a new integration push. However her capacity to reciprocate may be a lot more limited now. Some might see Macron’s proposals — due to be fleshed out in a speech tomorrow — as unhelpful in the circumstances, in timing if not in substance. Mark thinks Germany will be less able to relax its traditional demand for strong conditionality on any new common funds and the speed of progress towards an agreement could now be slower and more fraught. If the result takes upward pressure off the euro it may help cement an ECB exit announcement on 26 October in line with baseline expectations (six month extension of QE at EUR40bn), but hopes for a significant policy rebalancing for the euro area, facilitated by easier fiscal  policy/support for economic convergence, are likely to get dialled back. It could also make it more difficult for Merkel to gather the support necessary for a Weidmann Presidency of the ECB, if that was the plan. So lots to chew over.

Elsewhere, France’s Macron suffered a small set back with his party losing 6 seats as the Senate renewed 170 out of its 348 seats. Notably, the practical impact is likely limited near term as the National assembly (where Macron has a clear majority) has the final say in legislations over the Senate. However it perhaps reflects that his honeymoon as leader has been pretty short.

This morning, the EURUSD is trading a touch weaker (-0.18%) as we type. Asian markets are mixed but little changed as we type, with the Kospi (-0.44%), Hang Seng (-0.83%) and Chinese bourses (-0.3%) all down modestly, while the Nikkei (+0.58%) and ASX 200 (+0.19%) are both up slightly. Japanese stocks have been helped by reports that Japan’s Abe will announce a fresh stimulus package alongside the expected snap election decision later this morning.

After the dust has settled in Germany, the most important event of this week is likely to be the latest on the tax reform agenda in the US. This weekend in between going to 2nd birthday parties, changing tens of nappies, trying to watch Liverpool play while bathing a toddler, hours of sterilising bottle feeding and milk expressing equipment, and being forced into action every couple of hours at night, I managed to read the very useful “A primer on tax reform and the upcoming budget debate” by DB’s Brett Ryan. In reading this you get a feel for how complicated things are and how possible it’ll be that nothing gets done. Regular legislation would take 60 votes in the Senate and bipartisan support and allow for proper tax reform. However this is seemingly impossible. The reality is that any changes will likely be made through the reconciliation process. However this first requires a budget being passed by Congress which hasn’t been achieved since the Democratic super-majority in 2009-10.

The only good news is that we think that any positive tax reform has been priced out of markets so there’s a limit to how much disappointment there can be to continued failure. This week we would expect a vague outline of what will be pursued from the so-called “Big 6” (including Treasury Sec Mnuchin, Gary Cohn, Ryan, Senate majority leader McConnell). Overnight, the Washington post reported Republicans were “targeting” a corporate tax rate of 20%, but plans remains fluid. Elsewhere, Trump said “we’ll see what happens, but I hope it’s going to be 15%”, while Treasury Secretary Mnuchin said the upcoming tax plan will be “getting rid of lots of deductions”.

So with German politics in a state of flux and US politics increasingly fraught, suddenly the UK looks a bit of a stable safe haven after Mrs May’s speech on Friday. Although it hasn’t unlocked doors, it’s been seen as a step in the right direction away from the likelihood of a hard Brexit. In the speech, PM May clarified: 1) UK would seek a transitional deal that would allow continue market access on current terms for c2 years post Brexit (under the framework of ‘the existing structure of EU rules and regulations), which in effect leaves UK as a rules taker in the EU until March 2021, 2) UK is committed to the current EU budgetary round to 2020 and meeting past financial commitments, but avoided explicit numbers on the divorce bill, but 3) in terms of a future trade agreement, there was little new in terms of content, although she ruled out both EEA and Canada style options. Overall, DB’s Oliver Harvey believes the tone of her speech was constructive and the initial reaction from EU negotiator Barnier has been cautiously positive. For more details. Later on, the Times reported Mrs May is willing to pay up to GBP40bln in return for a transition deal. Focus now turns to the EU-UK Brexit talks which resume today.

Quickly recapping the market’s performance on Friday. US (S&P +0.06%) and European equities (Stoxx 600 +0.09%) were little changed following North Korea’s threat of testing a hydrogen bomb over the Pacific Ocean. Gold rose 0.47% and core bond markets were slightly firmer (UST 10y yields -2.7bp; Bunds -0.7bp; Gilts -0.9bp), partly reflecting the bias for safe haven assets. The US dollar index dipped 0.10% while Sterling fell 0.56% not helped by Moody’s late downgrade. In commodities, WTI oil rose 0.22%, while Iron Ore continues to fall (-3.83%; -12% for the week) on growing concerns of reduced  demand from Chinese steel producers.

Away from the markets and onto central bankers’ commentaries. In the US, the Fed’s John Williams said “I do expect us to need to raise rates gradually….it’s not like we need to raise rates a lot over the  next couple of years”. He also noted a “new normal” for rates may be 2.5%. Elsewhere, the Fed’s Esther George reiterated “I support an approach that removes (financial) accommodation in small doses” and the Fed’s Robert Kaplan noted “there are number of reasons the US isn’t reaching its inflation target and a number of those are not transitory”. Over in Europe, ECB’s VP Vitor Constancio noted “the recent euro appreciation may have a more limited dampening effect on inflation than what would be implied by historical averages”.

Before we take a look at today’s calendar, we wrap up with other data releases from Friday. The MarkitSeptember flash PMIs for Germany and Eurozone was above market’s expectations. In Germany, the composite PMI rose 2ppts to 57.8 (vs. 55.7 expected), marking a 77 month high. The solid growth was driven by both the manufacturing sector (60.6 vs. 59 expected) and the services sector (55.6 vs. 53.7 expected). The Eurozone’s composite PMI also surprised on the upside, with the index up 1ppt to 56.7 (vs. 55.6 expected), just below this year’s cyclical highs. DB’s Peter Sidorov noted the rise was seen in both sectors, with manufacturing reaching new cyclical highs (led by Germany). In services, there were big rebounds in both Germany and France.

Over in the US, the composite PMI fell 0.7pts to 55.6 (vs. 55.3 previous), with a 0.2pt rise in the manufacturing PMI to 53.0 more than offset by a 0.9pt decline in the services PMI to 55.1 (vs. 55.7 expected). Elsewhere, the final readings for France’s 2Q GDP was broadly unchanged at 0.5% qoq and 1.8% yoy (vs. 1.7% expected).

To the week ahead now. Today starts with Germany’s IFO indicators on business climate, expectations and current assessment. Over in the US, there is the Chicago Fed National and Dallas Fed manufacturing activity index. Onto Tuesday, Japan’s services producer price index will be out early in the morning. Then in France, there is manufacturing and business confidence indicators. In the UK,finance loans for housing are due. Over in the US, there is the CB consumer  confidence index, Richmond Fed manufacturing index, CoreLogic house price data for key cities as well as new home sales data. Turning to Wednesday, Italy’s July industrial orders along with confidence indicators on manufacturing, consumer and economic sentiment will be due. France’s consumer confidence and the Eurozone’s M3 money supply data are also due. Over in the US, there is durable and capital goods orders for August, pending home sales and MBA mortgage applications. For Thursday, Germany’s September CPI (with state based CPI data) and GfK consumer confidence readings will be due. For the Eurozone, there is a range of confidence indicators including: consumers, business climate, economy and industrial. Over in the US, there is the third reading of 2Q GDP, Core PCE and personal consumption. Elsewhere, the Kansas City Fed manufacturing activity index, August wholesale inventories and stats on continuing claims and initial jobless claims are also due. Finally on Friday, there will be numerous data out of Japan early in the morning, including: August national CPI, IP, jobless rate, retail sales and vehicle production. Further, China’s Caixin China PMI manufacturing index and UK’s GfK consumer confidence will also be out early. Then we have CPI for the Eurozone along with CPI & PPI for France and Italy. In Germany, there is unemployment change for September. In the UK, there is the final reading of 2Q GDP along with mortgage approvals and money supply M4 stats. Over in the US, there is PCE core for August, personal income and spending, the Chicago PMI along with the University of Michigan consumer sentiment index.

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Following yesterday’s German election, which despite Merkel’s 4th victory was a rout for the establishment “grand coalition” parties of CDU/CSU and SPD which saw its worst election performance since the 1940s offset by a surge in the ascendant right-wing AfD, there have been numerous analyst reactions to the “sudden reemergence” of populism in Europe, but one we find perhaps the most insightful and useful, comes from Bloomberg macro commentator Mark Cudmore, who writes this morning that for all the concerns, it’s not so much Germany as what is about to happen in European peer Spain, where Catalonia is set to hold an independence referendum on October 1, that should be on traders’ radars.

Below is his latest Macro View explaining why…

Euro Crisis Trading May Be Due for an Encore

 

The euro is once again set to suffer from an outsized political premium. Spain, rather than Germany, is the real problem. 

 

The AfD’s strong performance in the German election and the lack of a clear coalition are both concerns at the margin, but they wouldn’t provide a sustainable headwind for the euro in isolation.

Much more worrying is Catalonia’s planned independence referendum on Oct. 1. Investors have been ignoring this story, but this week will see it take center stage.

 

The heavy-handed response by the central government in Spain has significantly elevated the probability of civil unrest as well as potentially increasing support for independence for the region.

 

People opposed to breaking away probably won’t vote, so any poll that proceeds will return an unrepresentative and overwhelming result for independence. If Mariano Rajoy is able to snuff out the illegal referendum, it’ll only intensify the demands for another, more official independence vote. Failing to stop it means there’ll be a symbolic declaration of independence.

 

Either way, it’s probably going to lead to an increasing clamor for Catalan separation. The seriousness of the situation seems to have been overlooked by many investors, but it won’t be for much longer. The negatives are myriad.

 

Divisions within Europe are mounting again. Any success by Catalonia sets a dangerous precedent for other want-away regions, not just in Spain.

 

It emphasizes that many of the structural imbalances in the euro zone haven’t been fixed. Inequality is still growing.

 

On the back of AfD’s performance in Germany, it’s a reminder that large swathes of the population remain unhappy with the region’s policies. And once again, it’ll be an excuse for euro-bearish financial commentators to hype up the risk from Italian elections next year.

 

The beginning of the euro’s impressive rally coincided with Emmanuel Macron winning the French presidential election and thereby quashing political fears in the region. A correction in the euro is now likely to coincide with Spain and Germany bringing those risks back into the light.

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Authored by Mike Shedlock via MishTalk.com,

The ECB claims that Target2 does not represent capital flight. Evidence says the ECB is wrong, especially for Italy and Spain.

I have discussed this previously, but let’s recap Target2 before taking a look at new charts.

Project Syndicate writer, Hans-Werner Sinn, explains why the ECB’s asset purchases and Target2 imbalances constitute “Europe’s Secret Bailout”.

Under the ECB’s QE program, which started in March 2015, eurozone members’ central banks buy private market securities for €1.74 trillion ($1.84 trillion), with more than €1.4 trillion to be used to purchase their own countries’ government debt.

 

The QE program seems to be symmetrical because each central bank repurchases its own government debt in proportion to the size of the country. But it does not have a symmetrical effect, because government debt from southern European countries, where the debt binges and current-account deficits of the past occurred, are mostly repurchased abroad.

 

For example, the Banco de España repurchases Spanish government bonds from all over the world, thereby deleveraging the country vis-à-vis private creditors. To this end, it asks other eurozone members’ central banks, particularly the German Bundesbank and, in some cases, the Dutch central bank, to credit the payment orders to the German and Dutch bond sellers. Frequently, if the sellers of Spanish government bonds are outside the eurozone, it will ask the ECB to credit the payment orders.

 

In the latter case, this often results in triangular transactions, with the sellers transferring the money to Germany or the Netherlands to invest it in fixed-interest securities, companies, or company shares. Thus, the German Bundesbank and the Dutch central bank must credit not only the direct payment orders from Spain but also the indirect orders resulting from the Banca de España’s repurchases in third countries.

 

The payment order credits granted by the Bundesbank and the Dutch central bank are recorded as Target claims against the euro system.

 

For the GIPS countries [Greece, Italy, Portugal, and Spain], these transactions are a splendid deal. They can exchange interest-bearing government debt with fixed maturities held by private investors for the (currently) non-interest-bearing and never-payable Target book debt of their central banks – institutions that the Maastricht Treaty defines as limited liability companies because member states do not have to recapitalize them when they are over-indebted.

 

If a crash occurs and those countries leave the euro, their national central banks are likely to go bankrupt because much of their debt is denominated in euro, whereas their claims against the respective states and the banks will be converted to the new depreciating currency. The Target claims of the remaining euro system will then vanish into thin air, and the Bundesbank and the Dutch central bank will only be able to hope that other surviving central banks participate in their losses. At that time, German and Dutch asset sellers who now hold central bank money will notice that their stocks are claims against their central banks that are no longer covered.

Target2 Liabilities

A quick perusal of Target2 Balances for January shows capital flight has largely stabilized but the imbalance in Spain hit a new record.

ECB’s Story on Target2 Doesn’t Add Up

Financial Times Alphaville guest writer Marcello Minenna makes a case in pictures for what I have long stated.

It’s interesting to note that Minenna is the head of Quantitative Analysis and Financial Innovation at Consob, the Italian securities regulator.

Minenna says the ECB’s Story on Target2 Doesn’t Add Up

Mienna compares France with its stable Target2 balance to Italy and Spain.

France Target2 Over Time

The red line with dots represents the imbalance. As of July France had a Target2 liability of 12.2 billion. France shows no correlation to ECB asset purchases.

Germany Target2 Surplus

Italy Target2 Liability

Spain Target2 Liability

Mienna goes over what various colored bars represents and concludes “For Italy and Spain, the QE programme has facilitated capital outflows by domestic investors. Elsewhere, it has not.”

This is what I concluded long ago. For discussion, please see Target2 and Secret Bailouts: Will Germany be Forced Into a Fiscal Union with Rest of Eurozone?

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The majority – 52 percent – of asylum applications received by EU countries, Norway and Switzerland in 2015 and 2016 are still awaiting a decision.

You will find more statistics at Statista

As Statista's Martin Armstrong notes, due to the historic influx of people over this period, that share accounts for roughly 1.1 million people, according to new analysis of Eurostat data by Pew Research Center.

Aside from those still in limbo over their future, 880,000 have had their applications accepted – the majority of such applicants came from Syria (about 520,000).

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Authored by Andrew Korybko via Oriental Review,

The EU’s policy of “replacement migration” is an economic failure and threatens to undermine China’s New Silk Road strategy for Europe by diminishing the continent’s much-needed consumer market potential, which should thereby serve as an impetus for Beijing to consider investing in social programs there as a means of encouraging replacement fertility for the EU’s citizens.

The Roots Of “Replacement Migration”

The EU’s liberal-progressive ruling elite aided and abetted the Migrant Crisis as a means of encouraging “replacement migration” to compensate for their falling populations, naively believing in the dogma of their bloc’s de-facto “Cultural Marxist” ideology that civilizationally dissimilar migrants will seamlessly adapt to their new host societies and quickly become productive citizens. They expected that the relatively impoverished and in many cases largely uneducated “New Europeans” from Africa, the Mideast, and South Asia who have uncontrollably flooded into Europe would have no problem climbing the ladder of socio-economic success in one day replacing their dying European counterparts in all professional spheres.

It should also be reminded in this vein that these “New Europeans” didn’t just appear out of nowhere, but are the product of the unipolar wars that created them in the first place and the NGO-assisted human trafficking networks that then imported these “Weapons of Mass Migration” to Europe, both activities of which the EU elite have been complicit in. As could have been anticipated by any objective observer not under the influence of “Cultural Marxism”, this irresponsible multi-layered policy has totally failed in its presumed economic intentions, though it’s cynically succeeded in planting the seeds for a massive socio-cultural reengineering of some leading European countries’ demographics.

China’s Strategic Stake In The EU

While one might be led to immediately think that the consequences of this epic disaster would be limited solely to the bloc’s borders, few people realize that it will also affect China’s grand strategy by eventually depriving Beijing of the robust consumer-driven marketplace that it needs from the EU in order to make its large-scale infrastructure investments there worthwhile. China’s One Belt One Road global vision of New Silk Road connectivity is driven by Beijing’s desire to develop and secure new consumer markets to which it could offload its overproduction, as the failure to do so would with time lead to socio-economic consequences in the People’s Republic as state-sponsored firms are forced to lay off countless workers if they dramatically downscale production or can’t make ends meet anymore.

The New Eurasia Land Bridge Economic Corridor

The Eurasian Land Bridge, the Silk Road connectivity project through Kazakhstan and Russia, as well as the Balkan Silk Road through Greece all the way up to Central Europe, are intended to connect China’s East Asian producers with Western European consumers, but if Europe is no longer the consumption powerhouse that it once was after a decade of “replacement migration”, then the whole strategy is nullified with potentially disastrous consequences for Beijing. Although it’s “politically incorrect” to admit as much in the West, the “New Europeans” from the Global South consume more in government subsidies than they do in actual products, and when – or in many cases, if – they enter the labor force, it’s usually in low-end and low-paying sectors which aren’t in any way capable of replacing the ever-aging consumers that are steadily dying out.

In addition, many of the “New Europeans” self-segregate themselves by refusing to assimilate and integrate into their host countries, which in and of itself increases domestic tensions even without considering the crime wave that some of them have helped contribute to. When the newly imported “replacement population” does acquire a little bit of extra money to spend on the economy, they’re more prone to patronize local neighborhood stores run by their fellow ethnic or religious compatriots (usually migrants themselves) inside of their anchor communities. Altogether, these socio-economic habits undermine the whole Silk Road spirit of inclusivity and are extremely problematic for China because of the country’s future dependency on EU consumption trends remaining as traditionally strong as they used to be.

Looming Problems

Left unchecked, “replacement migration” in the EU will inevitably lead to a decrease in the bloc’s economic prowess, which in turn will jeopardize China’s grand strategy of using its New Silk Roads – and especially the EU-Chinese vectors of the Eurasian Land Bridge and Balkan Silk Road – as a vehicle for realigning global trade patterns and therefore building the sustainable framework for the emerging Multipolar World Order. In what could be seen as both a blessing and a curse, however, the rise of populist sentiment in the EU could divert the bloc’s present globalist trajectory towards a more “nationalist” course in both of its interlinked socio-cultural and economic manifestations. On the one hand, the masses might succeed in pressuring the elite to downscale or outright suspend their “replacement migration” policies, but on the other, they might also naturally advocate for semi-protectionist trade measures such as the “investment screening framework” that European Commission President Jean-Claude Junker recently proposed.

This initiative aims to give EU governments the power to selectively prevent the sale of strategic economic assets to foreign state-controlled or state-funded companies and is generally thought to be directed against China. Although grounded in plausible national security concerns and already implemented to varying extents in some EU and non-EU countries, the timing and nature of Junker’s proposal suggests that he’s more interested in capturing European markets for the bloc’s leading German, French, and Italian companies by crafting legislation which could deny their Chinese competitors equal access to them. Even though it’s being spearheaded by one of the EU’s most reviled bureaucrats and outspoken enemies of populism, this motion is expected to enjoy a surprising level of grassroots support because of its superficial channeling of populist energy, particularly as it relates to the perception of non-European foreigners taking over the continent.

China is therefore presented with a dilemma because it arguably stands to lose in the long-term if the “Cultural Marxist” policy of “replacement migration” is allowed to mature and begin systematically degrading the EU’s consumer market capabilities, but it also gains from the associated globalist policy of allowing unregulated investment from Chinese state-affiliated companies into strategic EU industries. From the reverse perspective in respect to populism, China’s Silk Road strategy would be safeguarded if “replacement migration” was done away with and replaced with populist initiatives encouraging the increased fertility of a nation’s population, though Beijing needs to be wary of the “economic nationalism” manifestation of populism which could see severe restrictions placed on its plans to invest in more of the EU’s strategic industries and maintain access to their national markets.

A Populist Solution For The Silk Road

The best approach that China could follow in encouraging higher birthrates in its top Silk Road target market while simultaneously pioneering creative ways for its state-linked companies to ingratiate themselves with their host states is to replicate the West’s new economic model in the “Third World” but apply it to European “First World” conditions. What’s meant by this is that China should “sweeten its deals” with the promise of investing in, or dispersing grant money to, soft infrastructure projects such as schools, healthcare facilities, and job-training programs in order to improve the quality of life of its partner state’s citizens. Western companies rarely implement this strategy like they’re supposed to because they’re more concerned about using it as a public relations ploy for boosting their attractiveness in other markets, and the host governments generally don’t hold them accountable because the ruling party/elite are often bribed through this plausibly deniable money-transferring channel to keep quiet about it.

China, however, doesn’t have to fall into this short-term trap and could order its state-linked companies to adhere to this model like it was originally intended in improving the living conditions of the recipient state and “winning hearts and minds” because of it. In the context of contemporary populism and with an eye on Beijing’s long-term New Silk Road interests in protecting the EU’s future consumer market potential, China could even subsidize (whether openly or discretely) the financial incentives that populist governments hand out to their citizens in encouraging higher fertility. After all, China knows that replacement birthrates produce better consumers than “replacement migration” does, and Beijing’s Silk Road strategy hinges on the EU retaining its impressive consumer market potential. Likewise, populists are against “replacement migration” and in favor of improving their citizens’ fertility, so this theoretically represents a win-win solution for both sides.

Concluding Thoughts

To reiterate the main point being expressed in this proposal, China needs to find a way to confront the dual challenges of the expected drop in the EU’s consumer market potential following the “successful” implementation of its “replacement migration” policy and also devise a creative strategy for preventing its state-affiliated companies from being denied access to the bloc’s strategic industries due to superficially populist initiatives such as Juncker’s “investment screening framework”. This necessitates that China craft a comprehensive policy which highlights its value-added differentiators in appealing to the rising populist zeitgeist in Europe, one which has already seen the Central European countries of Poland and Hungary promote higher birthrates through state subsidies and could probably become the continental standard in the next decade if the failed policy of “replacement migration” is eventually replaced. That said, this could only happen if the EU countries experience a surge in births across the coming decades, but many of them might not be able to afford the social costs that that this entails and would therefore have to look abroad for financial support if want to have any chance at sustainably implementing this proposal.

Therefore, the ideal win-win solution that China and the populists (whether in each individual EU country or the bloc as a whole) could forge with one another would be if Beijing agrees to an arrangement to bankroll an ambitious fertility-increasing policy and its attendant social requirements (schools, healthcare facilities, job-training programs, etc.) in exchange for continued and preferential access to their strategic industries and markets. Considering how far behind the EU’s population replacement rate is, then China and its partners should set the bar high by aiming for a three-child policy that the People’s Republic would help pay for by channeling its “communist spirit” to redistribute some of its state-supported companies’ wealth to the host country’s citizenry so as to ensure Beijing’s long-term interests with respect to the Silk Road. So long as China can succeed in preserving the EU’s consumer market strength and even enhancing its capacity, then Beijing won’t have much to worry about regarding its long-term strategy for Western Eurasia, but if the “Cultural Marxists” win by having “replacement migration” ruin all of this, then China will face a major threat which could jeopardize its future global leadership plans.

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What would happen if you flipped a switch, and suddenly every new car that came off assembly lines was electric?

It’s obviously a thought experiment, since right now EVs have close to just 1% market share worldwide. We’re still years away from EVs even hitting double-digit demand on a global basis, and the entire supply chain is built around the internal combustion engine, anyways.

At the same time, however, as Visual Capitalist's Jeff Desjardins notes, the scenario is interesting to consider. One recent projection, for example, put EVs at a 16% penetration by 2030 and then 51% by 2040. This could be conservative depending on the changing regulatory environment for manufacturers – after all, big markets like China, France, and the U.K. have recently announced that they plan on banning gas-powered vehicles in the near future.

THE THOUGHT EXPERIMENT

We discovered this “100% EV world” thought experiment in a UBS report that everyone should read. As a part of their UBS Evidence Lab initiative, they tore down a Chevy Bolt to see exactly what is inside, and then had 39 of the bank’s analysts weigh in on the results.

After breaking down the metals and other materials used in the vehicle, they noticed a considerable amount of variance from what gets used in a standard gas-powered car. It wasn’t just the battery pack that made a difference – it was also the body and the permanent-magnet synchronous motor that had big implications.

As a part of their analysis, they extrapolated the data for a potential scenario where 100% of the world’s auto demand came from Chevy Bolts, instead of the current auto mix.

THE IMPLICATIONS

If global demand suddenly flipped in this fashion, here’s what would happen:

Some caveats we think are worth noting:

The Bolt is not a Tesla

The Bolt uses an NMC cathode formulation (nickel, manganese, and cobalt in a 1:1:1 ratio), versus Tesla vehicles which use NCA cathodes (nickel, cobalt, and aluminum, in an estimated 16:3:1 ratio). Further, the Bolt uses an permanent-magnet synchronous motor, which is different from Tesla’s AC induction motor – the key difference there being rare earth usage.

Big Markets, small markets:

Lithium, cobalt, and graphite have tiny markets, and they will explode in size with any notable increase in EV demand. The nickel market, which is more than $20 billion per year, will also more than double in this scenario. It’s also worth noting that the Bolt uses low amounts of nickel in comparison to Tesla cathodes, which are 80% nickel.

Meanwhile, the 100% EV scenario barely impacts the steel market, which is monstrous to begin with. The same can be said for silicon, even though the Bolt uses 6-10x more semiconductors than a regular car. The market for PGMs like platinum and palladium, however, gets decimated in this hypothetical scenario – that’s because their use as catalysts in combustion engines are a primary source of demand.

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Authored by Eric Zuesse via The Strategic Culture Foundation,

The more people there are who ignore facts that contradict their beliefs, the likelier a dictatorship will emerge within a given country.

Here is how aristocracies, throughout the Ages, have controlled the masses, by taking advantage of this widespread tendency people have, to ignore contrary facts:

What social scientists call “confirmation bias” and have repeatedly found to be rampant, is causing the public to be easily manipulated, and has thus destroyed democracy by replacing news-reporting, by propaganda – ‘news' that’s false – in a culture where lies which pump the agendas of the powerful (including lies pumped by the billionaire owners of top ‘news’media and of the media they own) are almost never punished (and are often not even denied to be true). Thus, lies by those powerful liars almost always succeed at enslaving the minds of the millions, to believe what the top economic-and-power class want those millions of people to believe — no matter how false it might happen actually to be. 

Recently, a particularly stark example of this came to my attention. On 15 September 2017, an article that I wrote for the Strategic Culture Foundation, and which was titled by a true statement that I had only recently discovered to be true, was republished at a news-site that I consider one of the best around, “Signs of the Times” or “SOTT” for short, and a reader-comment there, simply rejected that title-statement and the entire article, because it contradicted what the person believes. This commenter entirely ignored the evidence that I had provided in the article, which proved the statement to be true. 

No matter how irrefutable the evidence is, most people reject anything which contradicts their deeply entrenched false beliefs, and this reader-comment crystallized for me, this phenomenon of “confirmation bias” — the phenomenon of ignoring evidence that contradicts what one believes.

The article was titled “Liberalism doesn’t respect a nation’s sovereignty.” I never knew that fact until I researched it, but I found, after looking through (and my article quoting key documents from) the history of the matter, that it’s actually the case: that liberalism (as it’s understood and defined by the scholars of the subject, and as it’s based upon the key formative documents of the historical tradition, “liberalism”) rejects a nation’s sovereignty. This fact shocked me to discover; so, I wrote an article documenting it, and SCF accepted it, and it then became republished at a few other sites, including SOTT.

The reader-comment at SOTT which for me personified confirmation-bias, was (in its entirety): “This is a rather new twist blaming liberals for invading countries. I've always associated liberalism with the left wing and democratic, progressive politics. I've always associated conservatism with the right wing, big business, militarism and invading other countries. Trying to move the goal posts, are we?”

That person never clicked onto my article’s links documenting the case, nor even read the quotations given in the article itself from John Locke and from Adam Smith, who were key founders of “liberalism” as that tradition has come down to us. He instead ignored all of that evidence, and stated — entirely without evidence of any sort — that I (and SOTT, and SCF, for publishing it) were “Trying to move the goal posts.”

I (a Bernie Sanders voter, and a lifelong progressive and opponent of conservatism) am “Trying to move the goal posts” — how? By pointing out the manufactured phoniness of ‘liberalism’? By pointing out a key way in which liberalism was designed by its aristocratic sponsors (in this case by the aristocrats who sponsored Locke and Smith), to be an ideology that would encourage conquest, empire, and discourage democracy (which is based upon the sanctity of national sovereignty — based upon the lack of imposition of government by or on behalf of anyone who isn’t a resident on the land). Liberalism, I show there, was designed for Empire, not for democracy. That reader simply refused to consider the evidence.

People who insist upon deceiving themselves disgust me. Anyone who blocks out the key relevant facts and persists in believing the lies they were raised with, or became fooled into believing, doesn’t harm only themselves by the lies they believe; they vote on the basis of the lies they believe, and thus these people who refuse to be open-minded destroy democracy, and invite control of the nation by the aristocracy (who sponsor the proponents of those lies). People who refuse to question their own beliefs, become increasingly putrid pools of their own false beliefs, which have been created and nurtured and sustained and become larger and larger pools of lies, by constant repetition from the media and lobbyists of the rich and powerful, so as to enable the exploiters to enslave the masses, via those constantly repeated and embellished lies. 

Such self-‘justifying’ fools, who refuse to clean-up their conceptual pool that’s been increasingly polluted by lies, are enemies of democracy, no matter how much they may consider themselves to be ‘liberals’. They don’t even know the reality of what liberalism is. One thing that it definitely is not (as my article documented) is progressivism (which is utterly opposed to foreign conquest and to the entire imperial project of imposed rule, regardless whether by outright invasions or else by coups).

Thus, we have two dominant ideologies against progressivism: One is conservatism, which everyone recognizes to be against progressivism and for Empire and constant conquest, profitable war for the arms-merchants and for the ‘news’media owners who also benefit from stirring up invasion-fever, not only like William Randolph Hearst did but today like they all do. The other is liberalism, which hides that it’s actually conservative — hides this, by being ever-so-sweet toward certain ethnicities or other groups that are being oppressed domestically, and by vociferously condemning conservatives for what is actually nothing more than the blatancy of conservatism’s favoritism toward the aristocracy.

An authentic democracy cannot be based upon a “demos” (a public) that is overwhelmingly composed of suckers – manipulated fools. Only by means of the tiny aristocracy plus the huge mass of their suckers, does a democracy degenerate into a fascism. (For example, something like this can be supported overwhelmingly by the political Party that dominates the U.S. Senate, the U.S. House, state capitals, state legislatures, and runs the U.S. White House, in this ‘democratic’ nation — ‘democratic’ according to the propaganda; but if this were really a democracy, then none of those politicians would be able to win public office.)

*  *  *

A well-established central finding of psychological research, concerning “confirmation bias” or “motivated reasoning” (which are two phrases referring to people’s tendency to believe whatever they want to believe, regardless of any contrary facts), is that individuals evaluate whatever they read or hear according to their pre-existing ideas about the given subject. Specifically, psychologists have found that people tend to pay attention to whatever confirms their existing ideas, and tend to ignore whatever contradicts those pre-established beliefs.

For examples, the following studies are available online:

“Motivated Skepticism in the Evaluation of Political Beliefs,” in the July 2006 American Journal of Political Science, reported: “We find a confirmation bias – the seeking out of confirmatory evidence – when [people] are free to self-select the source of arguments they read. Both the confirmation and disconfirmation biases lead to attitude polarization … especially among those with the strongest priors [prior beliefs] and highest level of political sophistication [the highest degree of exposure to, and involvement in, the given subject-matter that the study was dealing with].” Prejudices were stronger among supposed experts than among non-“experts”: The more indoctrinated a person was, the more prejudiced. “People actively denigrate the information with which they disagree, while accepting compatible information almost at face value.” Moreover, “Those with weak and uninformed attitudes show less bias” (and this is actually one reason why the best jurors at trials are generally people who are not personally or professionally involved in any aspect of the given case – they are “non-experts”).

 

Sharon Begley’s article in the 25 August 2009 Newsweek titled “Lies of Mass Destruction: The same skewed thinking that supports a Saddam-9/11 link explains the power of health-care myths [such as that Obama’s health plan had ‘death panels’]” summarized the study in the May 2009 Sociological Inquiry, “‘There Must Be a Reason’: Osama, Saddam, and Inferred Justification,” which had surveyed, during October 2004, 49 conservative Republicans who admitted they believed that Saddam Hussein had caused the 9/11 attacks. This study found that 48 of these 49 extreme conservatives were utterly impervious to the overwhelming factual evidence which was provided to them by the presenters that contradicted this false belief they held.

 

A study concerning not political conservatism but merely resistance to new technologies is James N. Druckman’s “Framing, Motivated Reasoning, and Opinions about Emergent Technologies,” which was presented at a technological conference in 2009. He reported that, “factual information … is perceived in biased ways … (e.g., there is motivated reasoning).” “Facts have limited impact on initial opinions.” Moreover, “Individuals do not privilege the facts. … Individuals process new factual information in a biased manner. … Specifically, they view information consistent with their prior opinions as relatively stronger, and they view neutral facts as consistent with their existing” views.

 

“Motivated Reasoning With Stereotypes,” in the January 1999 Psychological Inquiry, found that, “When an applicable stereotype supports their desired impression of an individual, motivation can lead people to activate this stereotype, if they have not already activated it. … People pick and choose among the many stereotypes applicable to an individual, activating those that support their desired impression of this individual and inhibiting those that interfere with it.” Similarly, another research report, “The Undeserving Rich: ‘Moral Values’ and the White Working Class,” in the June 2009 Sociological Forum, found that John Kerry had probably lost the 2004 U.S. Presidential election to George W. Bush at least partly because white working class voters overwhelmingly believed that Bush was like themselves because he behaved like themselves, and that Kerry was not like themselves because his manner seemed “snooty.”

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