Month: October 2018

Authored by Nick Taber via The American Conservative,

Xi Jinping is ushering in an era of Chinese illiberalism, and with it a chilling clampdown on freedoms…

This summer, a UN panel received reports of a human rights crisis unfolding in China’s far western Xinjiang province. The information showed that as many as two million people had been subjected to an intense political indoctrination and reeducation program. The backlash has largely focused on the ethno-religious nature of this crisis. Pakistan, China’s closest and most economically dependent ally, has asked China to ease restrictions on Muslims, and Uighurs (the ethnic minority group targeted) living in America are beginning to condemn China’s human rights abuses.

But over-interpreting the religious aspect of the crackdown distracts from the true nature of repression in China. The crisis in Xinjiang should be interpreted more as an assault on basic freedoms and the expansion of a totalitarian tyranny than an expression of ethnic superiority. To be sure, this is nothing less than a cultural genocide. But as far as we know, the Chinese government is not Sinicizing this group simply because they are Muslim or ethnically Turkic. It is doing so because they are a perceived threat to the power of the Chinese Communist Party (CCP).

Intense repression has been rapidly growing throughout the country, cementing the power of the CCP in all corners of society. Indeed, the human rights abuses in Xinjiang are strikingly similar to what’s been happening elsewhere in China since Xi assumed office. Human rights reports of Xinjiang describe mass political indoctrination, the creation of a digital police state, arbitrary detention, and pervasive controls over daily life. Let’s look at each of those components individually.

Indoctrination: Mass political indoctrination is the central purpose of the reeducation camps established in Xinjiang. Elsewhere in the country, however, the Chinese government has instituted a wide variety of indoctrination programs, with the explicit goal of expanding the CCP’s control over people’s minds. This includes overhauling all of China’s major educational institutions, increasing the ideological content of all media, and controlling the spread of foreign ideas and influences within the country.

During a speech given at a Beijing kindergarten in 2015, President Xi Jinping outlined his vision of party control over education, saying, “Children should memorize the core socialist values by heart, have them melt in their hearts, and carve them into their brains.” The CCP plans to overhaul the nation’s university system to turn it into an ideological education machine. Students will undergo a hefty political indoctrination program all the way through university. Chinese professors will be forced to teach CCP propaganda. According to recent government plans, university faculty will be judged foremost by their “ideological and political performance.”

And while indoctrination and reeducation programs outside of Xinjiang do not have the same force and severity as those within the province, they are nonetheless very invasive, and are a core component of the country’s move towards totalitarianism.

Digital police state: Human rights groups have reported that there’s a digital police state at work in Xinjiang. A hyper-intelligent digital surveillance system is used to control citizens, tracking what they say, read, and do. Such a system, however, is hardly unique to Xinjiang. The government’s digital surveillance network is being implemented throughout the country. It has leveraged the ubiquitous smartphone as an ultra-powerful surveillance device, developing programs to organize phone data and providing granular, real-time intelligence on every citizen, which can be used to guide the actions of the populace and enhance the power of the state. China has also debuted a vast network of video cameras that use artificial intelligence to gather information on everyone’s actions.

Under the Chinese government, there has been a crackdown even on thought crime. Before Xi came into office, citizens had a moderate degree of freedom to have discussions privately about a variety of social and political topics, so long as they did not organize any movements or events. Those days are long gone. There are increasingly frequent reports of Chinese citizens writing seemingly innocuous messages to friends and family only to be promptly arrested.

Arbitrary detention: Reports of the Xinjiang crisis show that nearly all of China’s Uighurs are at risk of being forcibly and arbitrarily detained. Yet while more than one fifth of all arrests in China in 2017 occurred in Xinjiang (a region accounting for only 2 percent of the population), arbitrary detention is a major problem throughout China and appears to be on the rise. One of the reasons for this is the vague drafting of Chinese laws, giving authorities leeway to arrest anyone suspected of subversive behavior. Though they previously occupied a gray area where they enjoyed relative freedom, hundreds of journalists and human rights lawyers have been arrested, too.

Over the last year, there have been many accounts of arbitrary arrests for seemingly harmless behavior, raising concerns that the authorities seek to intimidate the population and encourage self-restraint. In 2017, a man referred to Xi as a coward over Wechat and was jailed for 22 months. Earlier this year, a retired professor from Shandong province was arrested while giving an interview for Voice of America.

Pervasive controls over daily life: Foreign media and Human Rights Watch allege that the Chinese government is instituting a range of controls over daily lifefor Xinjiang residents, including restrictions on religious practices. Outside of Xinjiang, a similar trend is taking place. Religion throughout the country is under assault: recently there was a crackdown on Christian churches. Christians in Henan province were reportedly forced to take down posters of Christ and replace them with portraits of Xi.

As another example, the government has increased the list of banned topics and words that can’t appear on internet content. Recently, the viewing or sharing of foreign news media was almost entirely banned. Homosexuals were once given a fair amount of room to quietly enjoy their lifestyle; now the government is becoming less tolerant in a push to reinforce “family values.” At a Dua Lipa concertin Shanghai, police dragged away audience members who held gay pride flags or even stood up to cheer.

The Chinese government’s assault on basic freedom is not a regional issue but a nationwide phenomenon. Indeed, China has lately moved closer to totalitarianism than at any time since the Mao era.

The abuses in Xinjiang are a harrowing example of this pattern.

Repression in Xinjiang is more intense because the threat of regional instability is greatest there since its people have separatist sentiments, and have different ethnicities, religions, and identities. Eliminating these differences would, in their calculus, ensure greater stability. However, there is little reason to believe that if a province that was dominated by Han Chinese experienced a widespread separatist movement, it wouldn’t suffer a similar fate to Xinjiang. Sure, detainees wouldn’t be required to denounce a particular religion. But there would very likely be a system of reeducation camps set up just the same.

China, then, is not only eager to eclipse the U.S. in global influence; it is increasingly diverging from what Americans recognize as core values. America’s policymaking establishment has long assumed that, as China grows, it will become more like the West in the ways that matter most: respect for individual rights, rule of law, and, perhaps eventually, democracy. That fundamental assumption was wrong. Since 2012, China has in many ways become more like North Korea than America, creating a highly sophisticated system of neo-totalitarianism, with the crisis in Xinjiang a demonstration of that dystopia.

Congress is justified in seeking to impose sanctions on the officials responsible for the Xinjiang crisis, as it’s currently doing. However, over the long run, it needs more: it needs a strategy to counter the rapid development of Chinese illiberalism.

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Secretary of State Mike Pompeo is scheduled to meet with North Korean leader Kim Jong Un on Sunday in Pyongyang as part of his upcoming trip to Asia, the State Department announced on Tueasday. 

.@statedeptspox announces @SecPompeo’s upcoming trip to Asia, where he will travel to #Japan, #NorthKorea, #ROK, and #China from October 6-8. pic.twitter.com/hnB2xAIME7

— Department of State (@StateDept) October 2, 2018

The details of Pompeo and Kim’s discussions have not been revealed, however State Department spokeswoman Heather Nauert said that the meeting will focus on North Korea’s nuclear program. 

The two will also likely discuss a second summit between Kim and President Trump, which the White House said was being negotiated in a statement last month. 

Developing…

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Authored by Major Danny Sjursen via TomDispatch.com,

He was shot in the back, the ultimate act of treachery.

On September 3rd, a U.S Army sergeant major was killed by two Afghan police officers – the very people his unit, the new Security Force Assistance Brigade, was there to train. It was the second fatal “insider attack,” as such incidents are regularly called, this year and the 102nd since the start of the Afghan War 17 long years ago. Such attacks are sometimes termed “green-on-blue” incidents (in Army lingo, “green” forces are U.S. allies and “blue” forces Americans). For obvious reasons, they are highly destructive to the military mission of training and advising local military and security forces in Afghanistan. Such attacks, not surprisingly, sow distrust and fear, creating distance between Western troops and their supposed Afghan partners.

Reading about this latest tragic victim of Washington’s war in Afghanistan, the seventh American death this year and 2,416th since 2001, I got to thinking about those insider attacks and the bigger story that they embodied.

Considered a certain way, U.S. policy across the Greater Middle East has, in fact, produced one insider attack after another.

Short-term thinking, expedience, and a lack of strategic caution (or direction) has led Washington to train, fund, and support group after group that, soon enough, turned its guns on American soldiers and civilians. It’s a long, sordid tale that stretches back decades — and one that, unlike the individual instances of treachery that kill or maim American servicemen, receives next to no attention. It’s worth thinking about, though, because if U.S. policies had been radically different, such green-on-blue incidents might never have occurred. So let’s consider the last decades of American war-making in the context of insider attacks.

The Ground Zero of Insider Attacks: Afghanistan (1979-present)

In 1979, the Washington foreign policy elite saw everything through the prism of a possible existential Cold War clash between the U.S. and the Soviet Union. Such a focus tended to erase local context, nuance, and complexity, leading the U.S. to back a range of nefarious actors as long as they were allies in the struggle against communism.

So in December 1979, when the Soviet Union invaded neighboring Afghanistan, Washington knew just what to do. With the help of the Saudis and the Pakistanis, the CIA financed, trained, and armed — eventually with sophisticated anti-aircraft Stinger missiles, among other weapons — a range of anti-Soviet militias. And it worked! Eight years later, having suffered more than 10,000 combat deaths in its own version of Vietnam, the Red Army left Afghanistan in defeat (and, soon after, the Soviet Union itself imploded).

The problem was that many of those anti-Communist Afghans were also fiercely Islamist, often extreme in their views, and ultimately anti-Western as well as anti-Soviet — and among them, as you undoubtedly remember, was a youthful Saudi by the name of Osama bin Laden.

It was, then, an easy-to-overlook reality. After all, the Islamist mujahideen (as they were generally called) were astute enough to fight one enemy at a time and knew where their proverbial bread was being buttered. As long as the money and arms kept flowing in and the more immediate Soviet threat loomed, even the most extreme of them were willing to play nice with Americans. It was a marriage of convenience. Few in Washington bothered to ask what they would do with all those guns once the Soviets left town.

Recent scholarship and newly opened Russian archives suggest that the Soviet invasion of Afghanistan was driven as much by defensiveness and insecurity as by any notion of triumphal regional conquest. Despite the fears of officials in the administrations of presidents Jimmy Carter and Ronald Reagan, the Soviets never had the capacity or the intent to march through Afghanistan and seize the oil fields of the Persian Gulf. Like so much Cold War-era thinking, this was pure fantasy and the meddling that went with it anything but necessary.

After the Soviet exit, Afghanistan fell into a long period of chaos, as various mujahideen leaders became local warlords, fought with one another, and terrorized average Afghans. Frustrated by their venality, former mujahideen, aided by students radicalized in madrassas in Pakistani refugee camps (schools that had often been financed by America’s stalwart partner, Saudi Arabia), formed the Taliban movement. Many of its leaders and soldiers had once been funded and armed by the CIA. By 1996, it had swept to power in most of the country, implementing a reign of Islamist terror. Still, that movement was broadly popular in its early years for bringing order to chaos and misery.

And let’s not forget one other small but influential mujahideen group that the U.S. had backed: the “Afghan Arabs,” as they were called — fiercely Islamist foreigners who flocked to that country to fight the godless Soviets. The most notable among them was, of course, Osama bin Laden — and the rest, as they say, is history.

Bin Laden and other Afghan War veterans would form al-Qaeda, bomb American embassies in Kenya and Tanzania in 1998, blow up the USS Cole in Yemen in 2000, and take down the Twin Towers and part of the Pentagon on September 11, 2001. These, though, were only the most well known acts of those anti-Soviet war vets. Thousands of Afghan Arabs left that war zone and returned to their own countries with plenty of zeal and fight still in them. Those veterans would then form local terror organizations that would challenge or help destabilize secular governments in the Middle East and North Africa.

After 9/11, the question on many American minds was simple enough: “Why do they hate us?” Too few had the knowledge or the sense of history that might have led to far more relevant questions: How did the U.S. contribute to what happened and to what extent was it blowbackfrom previous American operations? Unfortunately, few such questions were raised as the Bush administration headed into what would become a 17-year, still-spreading regional war not on a nation or even a set of nations, but on a tactic, “terror.”

Still, it’s worth reflecting on America’s complicity in its own 9/11 devastation. In a strange fashion, given Washington’s history in Afghanistan, 9/11 could be seen as the most devastating insider attack of all.

The Many Iraq Wars (1980-present)

The 2003 invasion of Iraq — Operation Iraqi Freedom as it was optimistically named — may go down as one of the more foolish wars in American history — and many of the attacks on U.S. troops that followed from it over the years might be considered green-on-blue ones. After all, Washington would, in the end, train and back so many diffuse groups that a number of the members of various terror and insurgent outfits were once on the U.S. payroll.

It began, of course, with Saddam Hussein, the brutal Iraqi dictator whom the American people would be assured (in 1990 and again in 2003) was the “next Hitler.” In the 1980s, however, the U.S. government had backed him in his invasion of Iran (then as now considered a mortal enemy) and the eight-year stalemated war that followed. The U.S. even gave his forces crucial targeting intelligence for the use of his chemical weapons against Iranian troop formations, embittering the Iranians for years to come.

The Reagan administration also took Iraq off the State Department’s list of state sponsors of terror and even allowed the sale of components vital to Saddam’s production of those chemical weapons. Nearly a million people died in that grim war and then, just two years after it ended, the U.S. found that, for its efforts, Saddam would send his troops into neighboring Kuwait and threaten to roll over America’s key ally in the region (then as now), Saudi Arabia. That, of course, kicked off another major Iraqi conflagration, again involving Washington: the First Persian Gulf War.

At the end of that “victory,” President George H.W. Bush encouraged Iraq’s oppressed Shia and Kurdish populations to rise up and overthrow Saddam’s largely Sunni regime. And rebel they did until, bereft of the slightest meaningful support from Washington, they were defeated and massacred. More than a decade later, in 2003, when the U.S. again invaded Iraq — this time under the false pretense that Saddam had weapons of mass destruction — Americans were assured that most civilians (especially the embattled Shia majority) would cheer the arrival of Uncle Sam’s military machine.

In reality, it took less then a year for Shia militias to form and begin openly attacking U.S. troops (with a helping hand later from the Iranians, who had their own bitter American legacy to recall). You see, those Shia — unlike most Americans — still remembered how Washington had betrayed them in 1991 and so launched their own versions of insider attacks on U.S. soldiers.

However, from 2003 to 2007 (including the period when I served as part of the U.S. occupation force in Baghdad), the main threat came from Sunni insurgents. They were a diverse lot, including former Saddam loyalists and military officers (whom the U.S. had thrown out onto the street when it disbanded his army), Islamist jihadis, and Iraqi nationalists who simply opposed a foreign occupation of their country. As Iraq fell into chaos — I was there to see it happen — Washington turned to a savior general, David Petraeus, armed with a plan to “surge” U.S. troops into key Sunni regions and lower the violence there before Democrats in Congress lost patience and started calling for an end to the American role in that country.

In the years that followed, the statistics seemed to vindicate the Petraeus “miracle.” Using divide-and-conquer tactics, he paid off the tribal leaders, who became known as the “Sunni Awakening” movement, to turn their guns on more Islamist-focused Sunni groups. Many of his new allies had only recently been insurgents with American blood on their hands.

Still, the gamble seemed to work — until it didn’t. In 2011, after the Obama administration withdrew most American troops from the country, the Shia-dominated (and U.S.-backed) government in Baghdad failed to continue to pay the “awakened” Sunnis or integrate them into the official security forces. I’m sure you can guess what happened next. Sunni grievances led to mass protests, which led to a Shia crackdown, which led to the explosion of a new insurgent terror group: the Islamic State, or ISIS, whose origins — talk about “insider” — can be traced back to the inspiration of al-Qaeda and to a group initially known as al-Qaeda in Iraq.

In fact, it was a dirty secret that many of the Awakening veterans either joined or tacitly supported ISIS in 2013 or thereafter, seeing that brutal group as the best bet for protecting Sunni power from Shia chauvinism and American deceit. Soon enough, the U.S. military was back in action (as it still is today) in response to ISIS conquests that included some of Iraq’s major cities. And if all of that doesn’t qualify as a tale of blowback, what does?

Yemen, Syria, and Beyond (2011-forever)

Syria is a humanitarian disaster area and no U.S. administration has demonstrated anything resembling a coherent or consistent strategy when it comes to that country. Torn between Iraq War fatigue and military overstretch, the Obama team waffled on what its policy there should even be and ultimately failed to achieve anything of substance — except to potentially sow the seeds for future insider attacks. Indeed, a paltry (yet startlingly expensive) CIA attempt to arm “moderate” rebels opposed to the regime of Syrian strongman Bashar al-Assad turned out to be wholly counterproductive. Some of those arms were ultimately reported to have made their way into the hands of extremist groups like the al-Nusra Front, an al-Qaeda franchise in Syria. In a situation where truth proved more farcical than fiction, the $500 million effort to train anti-ISIS rebels managed to train “four or five” of them, according to the top U.S. military commander overseeing the Syrian effort.

In Yemen, in a Saudi-led war in which the U.S. has been shamelessly complicit, a brutal bombing campaign waged largely against civilians and a blockade of rebel ports have undoubtedly sown the seeds for future insider attacks. Beyond the staggering humanitarian toll — a minimum of 10,000 civilian deaths, mass starvation, and the outbreak of the world’s worst cholera epidemic in modern memory — there is already strategic blowback that could harm future American security. As the U.S. military provides in-flight refueling of Saudi planes, smart bombs for them to drop, and vital intelligence, it is also undoubtedly helping its future enemies. The chaos, violence, and ungoverned spaces that war has created are, for instance, empowering the al-Qaeda franchise there, al-Qaeda in the Arabian Peninsula (AQAP), one of the most active and dangerous jihadist crews around. When, however, AQAP inevitably succeeds in some future strike aimed at Americans or their property, precious few pundits and policymakers will call it by its proper name: an insider attack.

So, as we lament the death of yet another soldier in a green-on-blue strike in Afghanistan, it’s worth thinking about the broader contours of U.S. policy across the Greater Middle East and Africa in these years. Is anything the U.S. doing, anyone it is empowering or arming, likely to make the Middle East or America any safer? If not, wouldn’t a different, less interventionist approach be the essence of sober strategy?

It may, of course, be too late. Washington’s military policies since 9/11 have alienated tens of millions of Muslims across the Greater Middle East and elsewhere. Grievances are gestating, plots unfolding, and new terror outfits gaining recruits due to the very presence of the U.S. military, its air power, and the CIA’s drone force in a “war” that is about to enter its 18th year. Seen in this light, it’s hard not to believe that more anti-U.S. “insider” attacks aren’t on the way.

The question is only where and when, not if.

*  *  *

[Note: The views expressed in this article are those of the author, expressed in an unofficial capacity, and do not reflect the official policy or position of the Department of the Army, Department of Defense, or the U.S. government.]

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After two days of brutal punishment by the markets which sent Italian bond yields to 4 years highs and slammed the euro, the Italian government appears to have folded to pressure from Brussels (and the one place in the world where the bond vigilantes still operate, just ask Sylvio Berlusconi), and according to Corriere della Sera, Italy’s draft budget plan will pledge to cut the deficit to 2% in 2021, after Rome reversed a proposal to maintain a 2.4% shortfall in the face of pressure from the EU. As a result, while the 2019 deficit will still rise to 2.4% of GDP in 2019, it will decline by 0.2% to 2.2% in 2020, and another 0.2% the year after.

In kneejerk reaction, futures lept to fresh session highs, Treasury yields jumped by 2bps to 3.07% and the EURUSD spiked 50 pips higher to 1.1590.

Italy is not out of the woods yet though: according to Mizuho, the sustainability of the euro’s rebound will depend on whether the EU sees Italy’s latest budget plan as appropriate. It could be that Italy has already made compromise with the EU, but hard to predict whether the euro’s rebound has more legs until we see a reaction from the EU: “It all boils down to the EU’s response”, and if the ongoing war of words is any indication, merely promising to trim the deficit in the next three years will hardly be smiled upon.

Others were even more skeptical. According to bond fund manager Daintree Capital, “The euro’s definitely reacting to the headlines on Italian budget plans, and it will continue to do so for future headlines.” However, “anyone who believes a populist government is all of a sudden going to be particularly responsible in a fiscal sense, has a misguided view.”

As a result, Daintree’s Justin Tyler said that “I do see the euro as potentially being a bit of a weak point in G-10. There’s lots of political risks coming out of Italy.”

Finally, there is Bloomberg’s Mark Cudmore who writes that the “euro reaction is excessive and won’t sustain” because the proposed budget deficit target is still too late “and it’s two years too late anyways. There’s justification for some positivity in that the Italian government are trying to address market concerns. But that’s largely eroded by the fact that this is little more than a token gesture and insufficient to ease Italy’s debt burden. And that suggests that the government still don’t register the severity of the situation.”

Finally, even if the deficit were to shrink modestly, that only impacts one of the three triggers listed by Goldman earlier today why volatility in Italian bonds won’t sustain. The other two – the phasing out of the ECB’s QE and the collapse in Italian bond volatility – are here to stay, and merely await the next catalyst out of Italy’s populist government to send yields soaring even higher.

Finally, don’t be surprised if a member of government comes out in the next few hours and denies the whole thing.

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Authored by Mac Slavo via SHTFplan.com,

The best way to avoid the harm that killer robotics and artificial intelligence can cause is to just ignore it or focus on the good this technology could do for humans “socially,” says CEO Phil Libin.  He even suggests simply “ignoring” the job losses that result from AI.

Phil Libin, the CEO of All Turtles, a startup that focuses on turning AI-related ideas into commercial products and companies said that humans becoming obsolete should just be ignored and focus should be on the good killer robots can do for society.  In a recent conversation with Business Insider, Libin said this is the same advice he got while learning to ride a motorcycle.

His instructor taught him that if an accident happened in front of him while he was riding on the highway, such as a semi-truck flipping over, the worst thing to do would be to stare at the truck. Instead, his instructor said, he should focus on the point he needed to get to in order to avoid colliding with the truck.  That advice seems great if you’re on a motorcycle, but when one is discussing AI which will make human labor obsolete, it’s a little more of a tough global concern than that.

“If you look at what you’re trying to avoid, then you’re going to run into it,” said Libin, who previously founded Evernote. “You’ve got to look at where you want to be,” he said according to Business Insider.  But with singularity quickly approaching, is there time to ignore the obvious negative impacts of AI?

Jürgen Schmidhuber, who is the Co-Founder and Chief Scientist at AI company NNAISENSE, the Director of the Swiss AI lab IDSIA, and heralded by some as the “father of artificial intelligence” is confident that the singularity “is just 30 years away. If the trend doesn’t break, and there will be rather cheap computational devices that have as many connections as your brain but are much faster,” he said. “There is no doubt in my mind that AIs are going to become super smart,” Schmidhuber says.

When biological life emerged from chemical evolution, 3.5 billion years ago, a random combination of simple, lifeless elements kickstarted the explosion of species populating the planet today. Something of comparable magnitude may be about to happen. “Now the universe is making a similar step forward from lower complexity to higher complexity,” Schmidhuber beams. “And it’s going to be awesome.”

But will it really be awesome when human beings are made obsolete by their very creations? -SHTFPlan

A recent warning from the Institute for Public Policy Research (IPPR) declared that thousands of jobs are already being lost to robots and those with the lowest wages are likely to be hardest hit. As it becomes more expensive to hire people for work because of government interventions such as minimum wage hikes and overbearing regulations, more companies are shifting to robotics to save money on labor.

Ray Kurzweil, Google’s chief of engineering, has said that the work happening right now “will change the nature of humanity itself.” He said robots “will reach human intelligence by 2029 and life as we know it will end in 2045.”  There is a risk that technology will overtake humanity and make human society irrelevant at best and extinct at worst.

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When the first signs of stress in Manhattan’s luxury real-estate market started to appear roughly one year ago, we anticipated that the weakness in the high-end would soon spread to the broader market.

And as it turns out, we were right. To wit, the latest evidence that the NYC housing bubble is beginning to deflate comes courtesy of  Bloomberg, which reported on Tuesday that during the three months through September, the number of homes purchased in Manhattan declined for the fourth straight quarter, dropping 11% from a year earlier to 2,987, according to a report Tuesday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Meanwhile, the number of listings climbed 13% to 6,925 homes, the most since 2011.

While the pullback had previously been isolated to the luxury market, which was struggling with an abundance of new supply, even the smaller, cheaper apartments that have typically been favored by members of New York City’s professional class lingered on the market during the third quarter, with inventories rising by about 15% for studios and 21% year-on-year for one-bedroom apartments. Meanwhile, inventories rose 8% for two-bedrooms, and 5% for four-bedrooms.

Of course, brokers are hoping that this is just a gully and that sellers will ultimately prevail by sticking to their guns. Rising interest rates, as one broker pointed out, are giving sellers time to wait for a better offer, as chances are they are locked in at a lower rate. But the data suggest that this isn’t happening, as the number of sellers cutting prices has climbed to its highest level since 2009 as BAML warns that “existing home sales have peaked.”

With economic growth accelerating and US stocks at record highs, real estate brokers can’t figure out what’s behind the recent softness, with one calling it “perplexing.”

“It is somewhat perplexing,” said Garrett Derderian, director of data and reporting for brokerage Stribling & Associates, which also released a report on Manhattan home sales Tuesday. “The financial markets are quite strong. Mortgage rates, while rising, are still at historic lows. But the perception has become that the market is overheating in terms of pricing. No one obviously wants to come in at the top where they’re paying the highest prices as things are going down.”

But any of our regular readers will know that this pullback in housing prices isn’t “perplexing” in the least: Rather, it’s the result of a confluence of factors, most notably the staggering jump in home price to average earnings ratios accompanied by a drop in foreign capital from China and the former Soviet Union. 

Danske Bank’s massive money laundering scandal has triggered calls to tighten European banking regulations, threatening to cut off the flow of “dirty money” from the former Soviet Union. At the same time,  China has cracked down on capital outflows, making it more difficult for wealthy Chinese buyers to stash their money in hot property markets. The influx of foreign money over the past 10 years has led to bubble-like valuations, leaving homeownership in markets like NYC (and Vancouver, and London, and Hong Kong…) out of reach for locals.

One real-estate broker touched on this trend by warning that sellers must now “bring prices closer to where they need to be” in an interview with Bloomberg.

“For the last eight years, the market has been going up, up, up,” said Bess Freedman, co-president of brokerage Brown Harris Stevens. “But now, it’s really time for sellers to adjust prices to where the market needs to be. I think slowly they’ll do that more and more.”

We couldn’t have said it better ourselves. And according to brokerage Brown Harris Stevens, previously owned Manhattan homes spent an average of 104 days on the market in the third quarter, compared with 94 days a year earlier. Manhattan co-ops, typically a primary residence of the buyer, have endured falling prices across the board, with three-bedrooms seeing the biggest decline at 17% to $3.13 million. Going forward, not only will real-estate brokers in the city be responsible for matching buyers and sellers, they will also need to better manage sellers’ expectations, or risk a repeat of what’s happening in Vancouver.

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Authored by José Niño via The Mises Institute,

From endorsing Brazil’s military regime to fashioning himself as the Brazilian Donald Trump, Brazilian presidential candidate Jair Bolsonaro has a flair for generating controversy. According to a report from Reuters, Bolsonaro is considering the relaxation of Brazil’s strict gun laws. For a country besieged by street violence, Bolsonaro’s proposal is a breath of fresh air.

Brazil Has a Violence Problem

Brazil features some of the most violent cities on the planet. According to a recent ranking from the Citizen’s Council for Public Security and Criminal Justice (CCSPJP), 19 of these cities are located in Brazil. With a rate of 30.8 homicides per 100,000 people in 2017, Brazil is one of the most violent countries in Latin America.

Organized crime and feuds between rival gangs have contributed to the alarming levels of violence throughout the country. But criminal elements are not alone in this violence equation. Heavy-handed security measures have also played a role in Brazil’s ever-rising homicide rates.

Traditionally a function of individual states, Brazilian armed forces recently took control of public security in Rio de Janeiro. Current president Michel Temer rationalized this extreme measure arguing that “circumstances demand it.”

In Brazil, the use of military force to battle crime is nothing new

The country already enjoys notoriety for its infamous favelas (slums) that are rife with gang violence. As a result, military and well-armed security forces have been deployed on numerous occasions to quell violence. So far, the war-like struggle between gangs and security forces has produced a significant body count.

According to figures from Gunpolicy.org, Brazil had approximately 45,000 firearms homicides in 2014 alone. Even with a tough government response, there appears to be no end in sight to Brazil’s crime problems.

Is More Policing the Silver Bullet?

International concern about Brazil’s levels of violence is warranted. However, experts tend to provide conventional solutions to Brazil’s ongoing crime problems such as more “efficient” policing and anti-corruption task forces. These “common sense” proposals, while reasonable, involve more government intrusion in peoples’ lives and do not strike at the root of Brazil’s problems.

It’s no secret Brazil has a lousy law enforcement infrastructure that fails to protect its people. Jair Bolsonaro himself was the victim of a highly publicized stabbing attack on the campaign trail. But such incidents aren’t just limited to the political class. Millions of Brazilians living in urban areas throughout the country must cope with the daily threat of violent crimes.

In an interview with the Council on Foreign Relations, gun researcher John Lott revealed how the average police response time is more than an hour in the poorest areas of Brazil; an unreliable response time for a country that so desperately needs public order. This takes the adage of “when seconds count, the police are just minutes way” to another level.

Gun Control: The 800 Pound Elephant in the Room

Questionable policing is only the tip of the iceberg. Brazil’s gun control laws are problematic for a country suffering a widespread crime epidemic. In the same interview with CFR, Lott adds another overlooked fact about Brazil’s gun control experience: “Between 1992 and 2002, it passed a total of eighteen gun-control regulations and laws. I think this is just a continuation of the trend.”

Despite numerous gun control regulations already on the books, crime has continued to rise. For a law-abiding Brazilian, getting a gun is no walk in the park. They must comply with the following requirements:

1. Be 25 years of age

2. Hold a license

3. Pay registration fees

4. Go through extensive background checks

Thanks to these regulatory hoops, only 3.5% of the Brazilian population legally owned firearms prior to 2004. In sum, Brazil’s current gun control status quo treats gun ownership more like a regulated privilege rather than a right that the masses are free to exercise.

Brazil is Waking Up

Thankfully, Bolsonaro has not been alone in his advocacy for reforming guns laws. Organizations like the Viva Brazil Movement have taken up the mantle of expanding gun rights in the crime-ridden country. The Viva Brazil Movement came to the spotlight in 2005 when they played an integral role in defeating a referendum that would have banned firearms in Brazil.

Since their victory, the Viva Brazil Movement has continued its push to expand gun rights in Brazil. And now they might get a major political break.

Tense as ever, Brazil’s political climate has taken a sharp turn for the worse since it hosted the World Cup in 2014. Since news of several corruption scandals taking place during the World Cup surfaced, serve political dominoes have fallen.

First, President Dilma Rouseff was impeached for corruption charges. Then, ex-president Lula da Silva, wasjailed for corruption and money laundering.

If passed, gun reform would bring much needed sanity to Brazil’s political scene. Brazilian citizens would then have a tool of empowerment in times where corruption and violence are the order of the day.

Win or lose, Bolsonaro has at least opened up the conversation on a historically taboo topic in Latin American politics. If Brazil is able to move in a pro-gun direction, it will serve as a beacon of hope for a Latin American region that is wedded to gun control.

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Senate Judiciary Committee Chairman Chuck Grassley (R-IA) fired off an intriguing letter to Christine Blaseyt Ford’s attorneys on Tuesday, requesting several pieces of evidence related to her testimony – including all materials from the polygraph test she took, after her ex-boyfriend of six years refuted statements she made under oath last week. 

Grassley writes: “The full details of Dr. Ford’s polygraph are particularly important because the Senate Judiciary Committee has received a sworn statement from a longtime boyfriend of Dr. Ford’s, stating that he personally witnessed Dr. Ford coaching a friend on polygraph examinations. When asked under oath in the hearing whether she’d ever given any tips or advice to someone who was planning on taking a polygraph, Dr. Ford replied, “Never.” This statement raises specific concerns about the reliability of her polygraph examination results.” 

Ford’s ex-boyfriend also claims that she never told him about any type of sexual assault in almost a decade of knowing her (of which they were romantically involved for six years). 

“During our time dating, Dr. Ford never brought up anything regarding her experience as a victim of sexual assault, harassment, or misconduct. Dr. Ford never mentioned Brett Kavanaugh,” the ex writes, adding “While visiting Ford in Hawaii, we traveled around the Hawaiian islands including one time on a propeller plane. Dr. Ford never indicated a fear of flying. 

Ford’s ex goes on to note “Dr. Ford never expressed a fear of closed quarters, tight spaces, or places with only one exit,” further refuting her testimony. “She ended up living in a very small 500 sq. ft. house with one door.” 

BREAKING: Fox’s @johnrobertsFox obtains letter from Ford ex-boyfriend alleging: dated for 6 yrs, never told of sex assault, Ford coached friend on taking polygraph, flew frequently w/o expressing any fear of flying/tight spaces/limited exits. Doesn’t want to b/c “involved”. pic.twitter.com/jVeW0qaJD0

— Shannon Bream (@ShannonBream) October 3, 2018

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Authored by Jan Kot via Mingtiandi.com,

Hong Kong’s private home prices marked their first decline in 29 months only days after Hong Kong banks announced hikes in raising their benchmark lending rates for the first time in more than a decade. The city’s notoriously high home prices are expected to soften further as the Chinese yuan faces the risk of further depreciation amid an escalating Sino-US trade war.

Hong Kong’s towering home prices took their first dip in nearly two and a half years

Property price indices published by Hong Kong’s Rating and Valuation Department for August 2018 indicated that the prices of used homes dropped by 0.076 percent to 393.9 last month, from 394.2 a month earlier. Homes smaller than 430 square feet (40 square metres) on Hong Kong Island fell most steeply – dropping 2.5 percent to HK$17,232 (US$2,201) per square foot from HK$17,671 per square foot on average.

While the declines were slight, they signaled the end of a 29-month property bull run which has endured since March 2016, in what UBS Global Wealth Management in a recent report called “the world’s most overvalued housing market.”

Government Data Confirm UBS’ Call

UBS cautioned in its latest Global Real Estate Bubble Index last week that Hong Kong would likely enter into an era where prices swings are the new normal as it named the city the most likely location globally to suffer from a property bubble.

“Price volatility has to be taken into account: in such a speculative market environment macroeconomic uncertainty, eg. on Sino-US trade or on the yuan can weigh on sentiment at any time. Moreover, further regulatory tightening is a threat to the overheated market,” it noted.

UBS’ Matthias Holzhey says Hong Kong is the world’s most bubble-ready city in 2018

Brokers Watch Deals Disappear

Real estate industry organisation the Royal Institute of Chartered Surveyors (RICS) also reported the first dip in buyer demand in two years as Sino-US trade tensions and rising interest rates put the brakes on Hong Kong’s spiraling property prices.

Members of the professional group reponding to its monthly survey registered a “considerable” slowdown in property inflation in August. The data showed that buyer enquiries from both investors and owner occupiers fell throughout the calendar month. The institute highlighted that home prices are expected to fall a nominal 0.2 percent over the next 12 months across all of Hong Kong, although this figure disguises some regional variations.

Ultra low interest rates, limited housing supply and large flows of capital from mainland Chinese buyers helped push Hong Kong’s housing prices up 165 percent over a decade, but deteriorating affordability has angered many Hong Kong residents. A 60 square meter (646 square foot) flat on Hong Kong Island cost an average of HK$10.8 million by last month, according to official data.

Credit Clampdown Slows Real Estate Market

But, as HSBC, Standard Chartered, Hang Seng Bank and other lenders increased their lending and local currency savings rates last Friday for the first time in 12 years, in lockstep with a move by the US Federal Reserve, abundant liquidity that has been a key factor driving up property prices in Hong Kong is seen as likely to soon recede.

Already anticipating higher prime lending rates, more than 10 local homeowners last week reduced their asking price by least HK$1 million (US$127,951), according to a South China Morning Post report. One 735 square foot flat at the Metro City development in Tseung Kwan O sold for HK$10.48 million last week, down 16 percent or HK$2 million from the asking price of HK$12.5 million.

“Following the government’s plan for a vacancy tax in June this year, developers are even more keen to clear any completed inventory,” said S&P Global Ratings analyst Cindy Huang to the Hong Kong-based newspaper. “Rising supply combined with weaker buyer sentiment due to rising rates and economic uncertainty from trade wars will likely further dampen property prices.”

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Two-thirds of business economists in the US expect a recession to start in the second half of 2020 according to the National Association for Business Economics (NABE), while a majority of respondents say President Trump’s trade war is the greatest threat to the most extended bull market ever. About 10% believe the next economic downturn could begin in 2019, 56% say 2020, and 33% said 2021 or later, according to the August 28-September 17 poll of 51 economists issued by the NABE, as per Bloomberg.

41% of economists said the most significant downside risk was trade policy, followed by 18% of respondents indicating the Federal Reserve’s interest rate hikes, and the same amount saying it could be a stock market repricing event or volatility shock.

“Trade issues are clearly influencing panelists’ views,” David Altig, Federal Reserve Bank of Atlanta research director and NABE’s survey chair, said in a statement with the report.

Bloomberg said the economic expansion became the second-longest in May (and will become the longest on record next summer) with no significant warning signs yet and Fed officials upgrading growth forecasts for this year and next — what could go wrong?

If the expansion continues into mid-2019, it could become the nation’s longest ever, based on data from National Bureau of Economic Research figures that date back to the mid-1850s.

Despite data already showing Trump’s trade aggressive tariff policies slowing global growth momentum, disrupting global supply chains, and repricing markets in some developed world but most emerging markets, economists have maintained their rosy forecasts for the US economy, as nothing in their models indicate danger.

Meanwhile, 33% of respondents said the most significant potential driver of stronger economic performance is Trump’s tax cuts (increased financialization: stock buybacks, M&A, dividends, etc…), 27% cited wage increases and 10% said stronger global growth.

Overall, the economists were more pessimistic than optimistic about their assessment of potential risks to expansion, as the cycle has been overextended thanks to quantitative easing programs via the Federal Reserve and now fiscal stimulus via Trump’s tax cuts.

Fed policy makers said “risks to the economic outlook appear roughly balanced” in their statement last week while raising their 2018 growth estimate to 3.1% from 2.8% in prior forecasts and 2019 to 2.5% from 2.4%. Fed officials also raised the main interest rate by +25bps to a target range of 2% to 2.25%, this year’s third hike.

“Respondents in NABE’s survey indicated they expect the Fed to raise interest rates once more this year and three times in 2019, consistent with projections from central bankers. The poll’s median estimate for the target range midpoint at year-end rose to 2.375%, equivalent to one more 25bps hike this year, from 2.21% seen in the earlier survey,” said NABE.

As the storm clouds gather with the threat of a recession, the US economic expansion is becoming increasingly mature, as capacity utilization increases, above-potential growth becomes more difficult to achieve. Moreover, as the cycle matures, and monetary accommodation removed, lessening the tailwinds for the US economy. NABE’s polling data shows that economists overwhelmingly understand that the next recession is approaching, and investors should now pay up for safety.

Meanwhile, all signs confirm – Goldman’s protests notwithstanding- that the economy is in a “late cycle” stage, with BofA showing that the US equities versus Global equities’ gap is extremely wide. The US is being priced for perfection by economists drinking the Fed’s Kool-Aid.

A flattening yield curve typically reflects decreasing growth expectations and the threat of risk aversion, which tend to have an amplifying effect on volatility.

Record multiple for US stocks

Record leverage for small caps:

Market Breadth deteriorating as S&P500 races to ATHs:

What comes next?

Societe Generale thinks the peak in the US economy was in 2Q, and it will be all downhill from here, with GDP set for a sharp drop one year from now.

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