Month: February 2021

A potential breakthrough regarding Russia’s Sputnik V vaccine and its ability to provide immunity in response to the worrisome new mutations of coronavirus popping up around the globe is being reported in international press on Saturday, which is in stark contrast to the prior typically negative coverage of Russia’s vaccine rollout. 

“A Russian trial testing the effectiveness of revaccination with the Sputnik V shot to protect against new mutations of the coronavirus is producing strong results, researchers said on Saturday,” Reuters reports.

Putin last month ordered a review due by mid-March of the Russian-made vaccine’s ability to protect against the new mutations, found lately in various countries across Western Europe and as far away as South Africa, as well as New York and California. 

“(A) recent study carried out by the Gamaleya Centre in Russia showed that revaccination with Sputnik V vaccine is working very well against new coronavirus mutations, including the UK and South African strains of coronavirus,” announced Denis Logunov, a deputy director of the center that developed the Russian vaccine. 

“We believe that vector-based vaccines are actually better for future revaccinations than vaccines based on other platforms,” Logunov added.

While research and trial results of the new review have not been made available yet, these latest headlines on the ‘hopefulness’ of Sputnik V’s effectiveness regarding the new strains stand in stark contrast to the highly negative commentary from Western officials which marked much of the end of last year.

For example just last week…

Some EU states are being enticed by the Russian and Chinese #vaccines, but EU health commissioner @SKyriakidesEU says they still have to first undergo an #EuropeanMedicinesAgency scientific assessment.#EUWeekInReviewhttps://t.co/E7TXavxr8V

— EUobserver (@euobs) February 21, 2021

Meanwhile in the United States…

Pfizer and BioNTech Studying Third Covid-19 Vaccine Dose to Fight New Strains – WSJ https://t.co/5IKRaqo224

— FxMacro (@fxmacro) February 27, 2021

The prime US vaccines appear to be far behind where Russian researchers are claiming to be.

According to The Wall Street Journal, “Both the Pfizer-BioNTech and Moderna Covid-19 vaccines appeared to generate a weaker immune response to the strain identified in South Africa, as did other shots in the advanced stages of development.

“The companies said Thursday they have started the small study to see whether a third dose of their authorized Covid-19 vaccine would increase its effectiveness against new variants, such as the strain first identified in South Africa,” the report adds.

Authored by Dave DeCamp via AntiWar.com,

President Biden released a statement on Friday marking the seventh anniversary of Russia’s annexation of Crimea where he said the US will “never” accept Russian sovereignty over the peninsula.

“The United States continues to stand with Ukraine and its allies and partners today, as it has from the beginning of this conflict,” Biden said. “The United States does not and will never recognize Russia’s purported annexation of the peninsula, and we will stand with Ukraine against Russia’s aggressive acts.”

Biden’s statement also laid sole blame for bloodshed in Kiev during the crisis on Russians: “We will also continue to honor the courage and hope of the Revolution of Dignity, in which the Ukrainian people faced down sniper fire and enforcers in riot gear on the Maidan and demanded a new beginning for their country,” the statement added.

Left out of Biden’s statement was the reason for the Russian annexation. In 2014, the US-orchestrated a coup in Ukraine.

The largely ethnic Russian population of Crimea rejected the new nationalist anti-Russian government in Kyiv that even had neo-nazis in its midst. Polls after the annexation show the majority of Crimeans were in favor of joining Russia.

The Biden family benefited greatly from the coup. Shortly after the change in government, President Biden’s son Hunter landed a high-paying job on the board of Burisma, a Ukrainian natural gas company.

President Biden tapped an architect of the Ukraine coup for a high-level position in the State Department. Victoria Nuland, the wife of neoconservative Robert Kagan, is the nominee to be the under secretary of state for political affairs.

A recording of a phone call between Nuland and then-US Ambassador to Ukraine Geoffrey Pyatt was leaked and released on YouTube on February 4th, 2014. In the call, Nuland and Pyatt discussed who should replace the government of former Ukrainian Prime Minister Viktor Yanukovych, who was forced to step down on February 22nd, 2014.

For all the newly hatched virtue-signaling “climate change warriors”, starting with Greta Thunberg of course, we have just one message: please take your complaints to Beijing (if you dare).

As Goldman’s Chinese economists write, to date, over 120 countries have announced targets to cut greenhouse gas (GHG) emissions and China’s recent commitment “may be one of the most ambitious”, if not most ridiculous. At the United Nations General Assembly last September, President Xi Jingping pledged that China is targeting peak CO2 emissions by 2030 and carbon neutrality by 2060. At the Fifth Plenum of the 19th Party Congress last October, discussions around the 14th Five-Year Plan and China’s long-term goals outlined stabilizing and falling carbon emissions by 2035. Last December, the government issued a white paper titled “China’s energy development in the new era”, and in February 2021, the State Council released the guidance for building a green low-carbon economic system.

While it is clear that China has – at least in theory – begun to lay the ground for achieving net zero emissions over the next four decades, the question is how much of this is just a virtuous smokescreen to shut up critics. In response, Goldman analysts have done extensive work on this topic, modeling the technological paths to net zero sector by sector, from renewable power to electric mobility, and from hydrogen to carbon capture, to we provide a macro perspective and look at the economics of China de-carbonization given the unique challenges it faces and the advantages it has.

As Goldman summarizes, “there is little doubt that “Carbon Neutral 2060” will be an enormous undertaking given China’s natural endowment of coal, China’s economic structure of being an industrial powerhouse and its current stage of economic development.” That said, features of its political and economic system also suggest that China may be better positioned to take on the challenge than other countries. In the case of China, Goldman expects a two-step multi-speed approach where most of the emission-cutting takes place after 2035 and different sectors and regions proceed at different paces.

While nobody can predict what happens in 40 years, one thing is clear: there can be “no global solution without China.”

Goldman writes that solving the problem of “climate change” requires drastic decreases in global greenhouse gas emissions. But cutting global emissions is also extremely challenging because of various externalities (e.g., the cost of one country’s emissions may be borne by people in another country) and collective action failures (e.g., polluting activity may move from high carbon tax jurisdictions to low carbon tax jurisdictions). In this context, China will need to be an integral part of any solution to the climate change problem.

Why? Because with China accounting for 30% of the world’s total CO2 emissions, Goldman writes that “no global solution is viable without China.”

Some more details from Goldman:

Relative to its global shares of population and GDP, China emits significantly more CO2 (Exhibit 2). There are two reasons for this.

• First, China is rich in coal and coal generates much more CO2 than natural gas for every unit of electricity produced. For example, coal accounts for 68% of China’s electricity supply vs. 29% in the US and 21% in the European Union.
• Second, China’s economic structure is more energy-intensive than many other countries. For example, for every Yuan of GDP produced, the secondary industry (industrials) consumes three times as much electricity as the tertiary industry (service) in China. Despite the ongoing progress in expanding the service sector, the secondary industry is still 39% of China’s GDP, compared to only 18% in the US.

Besides the difficulties originated from its economic structure, China’s development stage imposes additional challenges to its de-carbonization efforts. The next chart shows the relationship between per capita GDP and per capita emissions over 1990-2019 data for 20 major economies. Initially, as GDP increases from a low level, emissions rise accordingly, and it is only after GDP per capita reaches around $40,000 in PPP terms – which was the level for the US in 1990 and Japan in 2015 – do emissions per capita begin to stabilize and decline. That turning point is about 2.5 times of China’s current per capita GDP. That means that realistically, Chinese CO2 emissions are set to double in the coming years!

Given the significant differences across economies, Goldman also compare mainland China with Taiwan and South Korea, two economies that share similar culture and economic structure to China. It aligned the mainland China economy in 2010 with Taiwan’s in 1987 and South Korea’s in 1991, as these years marked the respective times when GDP growth started to decelerate notably. Exhibit 4 shows that mainland China’s GDP growth has been tracking the experience of Taiwan’s and South Korea’s closely and may average around 5% over the next 10 years. Exhibit 5 shows that, if mainland China’s carbon emissions were to also follow Taiwan and South Korea’s experience, they would increase significantly over the coming decade in the absence of drastic policy changes and/or technological breakthroughs.

There are many other obstacles faced by China, including the relatively young capital stock and potentially bigger financial spillover effects. On capital stock, the International Energy Agency (IEA) estimates that the average age of assets in Chinese chemical, iron and steel, and cement industries is only around 10 years, while the typical lifetime of these assets is 30-40 years (Exhibit 6). Replacing relative young capital stock is more likely to create stranded assets and generate negative wealth effects.

On financial spillovers, because of China’s heavy reliance on coal for energy, coal mining and coal-fired power utilities also account for a significant share of total bank lending in China – approximately 5% – compared to other countries (e.g., 1% in Japan and South Korea). If demand for coal were to contract rapidly, many coal mines and coal-fired power plants could become insolvent, raising the potential for default on their loans and bonds. Some researchers have suggested that default rates among coal miners could exceed 20% by 2030. Under this scenario, the sector would come under as much stress as when energy prices collapsed in 2014 (Exhibit 7).4 The losses on bank loans could ultimately reduce real GDP by 1pp based on Goldman estimates of the links between NPLs, bank lending, and economic growth.

While there are various other observations in the full Goldman report (available in the usual place), the bank’s conclusion is that in its pursuit of a “multi-speed approach”, Beijing needs to strike a balancing act in nachieving net zero emissions: too fast a change may derail other policy goals such as doubling income by 2035, but moving too slowly could lead emissions to peak at too high a level. The first of the two steps features low-cost abatement measures such as renewable power and waste/recycling as well as R&D investment to improve abatement technologies. Higher-income regions within China with a low energy intensity of output can afford to move first and their focus is likely to be on the transportation sector.

The bottom line is that as with everything else, whatever China states in public, what happens in reality is usually the opposite. Which is why all those hoping that Beijing will hold true to its promise of carbon neutrality by 2060… will be disappointed. It’s also why the true environmentalists – and not those poseurs hoping for a quick popularity or SnapChat boost – are encouraged to bring their complaints and laments to China and to stop focusing so much on the US…

… whose emissions are now at a three decade low and dropping fast.

Authored by Jack Phillips via The Epoch Times,

U.S. Attorney John Durham, who was tapped by former Attorney General William Barr to lead a special counsel probe into the origins of the Trump-Russia inquiry, announced his resignation from his position as U.S. attorney of the District of Connecticut.

A spokesperson for the Department of Justice (DOJ) confirmed to the Daily Caller and other news outlets that Durham is still special counsel. Fox News reporter Chad Pegram also reported that Durham will continue his work in probing the origins of the FBI’s Russia investigation and whether there were any irregularities and wrongdoing.

A post on the DOJ’s website states that Durham’s office as special counsel was moved to the Main Justice department.

“My career has been as fulfilling as I could ever have imagined when I graduated from law school way back in 1975,” Durham said in a news release from the Justice Department on Friday.

“Much of that fulfillment has come from all the people with whom I’ve been blessed to share this workplace, and in our partner law enforcement agencies. My love and respect for this Office and the vitally important work done here have never diminished. It has been a tremendous honor to serve as U.S. Attorney, and as a career prosecutor before that, and I will sorely miss it.”

The Epoch Times reached out to the DOJ and White House to confirm whether Durham, who has not yet released his long-awaited report, will stay special counsel.

Several weeks ago, President Joe Biden’s administration had asked U.S. attorneys to resign by the end of February.

A justice department spokesman told news outlets in early February that “continuing the practice of new administrations, President Biden and the Department of Justice have begun the transition process for the U.S. Attorneys.”

In his probe, Durham has issued few public statements but in December 2019, he disputed some of the findings of the Justice Department’s inspector general, Michael Horowitz, who had concluded that the FBI was justified in opening its probe as to whether former President Donald Trump’s campaign colluded with the Russian government.

“Based on the evidence collected to date, and while our investigation is ongoing, last month we advised the Inspector General that we do not agree with some of the report’s conclusions as to predication and how the FBI case was opened,” Durham said in a DOJ statement at the time.

So far, Durham netted a single charge and guilty plea in August after former FBI lawyer Kevin Clinesmith, who was accused of altering an email about Trump campaign associate Carter Page.

Barr in December told the Wall Street Journal that Durham was making “significant progress” in his investigation, but Trump said weeks before that that Durham did not want to investigate top FBI officials, including former Director James Comey and his deputy, Andrew McCabe.

“We’re still waiting for a report from a man named Durham, who I have never spoken to, and I have never met. They can go after me before the election as much as they want, but unfortunately Mr. Durham didn’t want to go after these people, or have anything to do with going after them before the election. So who knows if he is ever going to even do a report,” said Trump.

The former commander-in-chief has long asserted that the Obama administration weaponized the FBI and DOJ to carry out allegedly unjust investigations into his 2016 campaign, often describing it as the “greatest witch hunt” in U.S. history.

Barr also told the WSJ that the most revealing documents pertaining to the origins of the Trump-Russia probe, known as Crossfire Hurricane, have already been made public—although Barr’s assertion has been disputed by independent researchers.

According to the DOJ’s news release on Friday, First Assistant U.S. Attorney Leonard C Boyle will serve as acting U.S. attorney after Durham leaves by Feb. 28.

“The Office will be in the extraordinarily capable hands of Len and our superb supervisory team who, together, guarantee that the proper administration of justice will continue uninterrupted in our District,” Durham said in the news release.

Accompanying the public release of the ODNI report which finds that Crown Prince Mohammed bin Salman (MbS) “approved” of the 2018 murder of  journalist Jamal Khashoggi, which was based mostly on a prior CIA investigation into the death, the US announced sanctions on multiple individuals identified in the report but stopped short slapping MbS himself with penalties. 

Among these is Ahmad Hassan Mohammed al Asiri, former deputy head of Saudi Arabia’s General Intelligence Presidency, who the US Treasury sanctioned for being the top level operative charged with carrying out Khashoggi’s assassination at the consul in Istanbul.

Also, 76 Saudis were hit with what’s been dubbed the “Khashoggi Ban” (on travel) which targets those engaged in “extraterritorial counter-dissident activities” which seek violence or intimidation of overseas dissidents “including but not limited to the Khashoggi killing.” A number of these were actually part of MbS’ “elite” private security detail which “answers only to him” – as the report reads.

As we detailed Friday, the kingdom has formally rejected the US intelligence report’s findings, saying through official SPA:

The Saudi Ministry of Foreign Affairs states that the Kingdom’s government completely rejects what was stated in the U.S. report provided to Congress on the crime of killing citizen Jamal Khashoggi.

The Kingdom of Saudi Arabia “categorically rejects the abusive and incorrect conclusions” the official said. “The concerned individuals were convicted and sentenced by the courts in the Kingdom, and these sentences were welcomed by the family of Jamal Khashoggi, may he Rest In Peace,” it added.

Meanwhile there’s growing criticism even from within Biden’s own party leadership in Congress that the president is being no different from Trump in giving MbS a free pass.

There’s an emerging view that Biden is doing the same thing as Trump—that while the words are different, MBS is still getting a pass in the end. @jaketapper is right about that. At the same time, Biden ended Trump’s policy of boosting the Saudis with arms sales & support in Yemen https://t.co/lCBn2c043p

— Andrew Desiderio (@AndrewDesiderio) February 26, 2021

In particular Adam Schiff, the Democrat Chair of the House Permanent Select Committee on Intelligence, is demanding no less than the following severe action:

“The President should not meet with the Crown Prince, or talk with him, and the Administration should consider sanctions on assets in the Saudi Public Investment Fund he controls that have any link to the crime.”

Here’s Schiff’s full statement…

Biden getting lots of pushback now

Schiff: “The Biden Administration should explore ways to ensure the repercussions for the brutal murder of Mr. Khashoggi go beyond those who carried it out, to the one who ordered it — the Crown Prince himself. He has blood on his hands…” pic.twitter.com/dUytiu8uYZ

— Andrew Desiderio (@AndrewDesiderio) February 26, 2021

There’s further growing pushback in the mainstream media, surprisingly, that Biden is ready to essentially “let the murderer walk”:

Correct:

“Instead of imposing sanctions on M.B.S., Biden appears ready to let the murderer walk. The weak message to other thuggish dictators considering such a murder is: Please don’t do it, but we’ll still work with you if we have to.”
https://t.co/Jmg4bNywtv

— Hassan Hassan (@hxhassan) February 27, 2021

Despite Biden’s recent and past rhetoric of ‘getting tough’ on the Saudis, presumably intended as opposite Trump’s policy of essentially shielding Riyadh, the “punishment” on MbS will likely now go no further than the public and international humiliation of being named in the ODNI report.

And it won’t take long for things to return to “business as usual” – including more billions in weapons sales – between the US and the kingdom.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Last week, we discussed that the market was likely starting to adjust for higher rates. As we stated, historically, there is little room for error as higher rates undermine one of the critical “bullish supports” that low rates justify high valuations.

This past week, rates jumped higher, putting a further pause in the stock rally for now. As we stated over the last few weeks, the upside remains limited with the money-flow sell signal still intact. (The vertical dashed blue line denotes when the signals initially triggered.)

Thursday morning before the market opened, I discussed the two areas we watch very closely: the 10-year treasury rate and the volatility index. Both were on extremely oversold signals, and if they turned higher, such would suggest a continued correction in the market. That turned out to indeed be the case.

Currently, as shown above, the money flows remain positive, but “sell signals” are firmly intact. Such suggests downward pressure on prices currently.

We do expect that market will likely muster a short-term oversold rally next week. However, the risk of a continued correction in March is likely if money flows deteriorate further. It is advisable to use any rallies to reduce equity risk and rebalance allocations accordingly.

We continue to suggest some caution. Despite media claims to the contrary, higher interest rates will matter, as we will discuss next. More importantly, they tend to matter a lot.

The Fed Is Walking Into A Trap

We sent the following market commentary out to our RIAPRO subscribers yesterday morning:

• Jim Bullard: “The rise in bond yields is a good sign so far.”

• Esther George “LONG-TERM YIELD RISE DOESN’T WARRANT MONETARY RESPONSE”

• R. Bostic: FED DOESN’T NEED TO RESPOND TO YIELDS AT THIS POINT

Jerome Powell, Jim Bullard, Esther George, Raphael Bostic, and other Fed members are steadfast in their determination to use an excessive amount of monetary stimulus to promote inflation and growth. The reflationary trade and the weak dollar over the last few months are confirmation that investors believe the Fed is making headway toward its goals.

The problem is that bond investors also believe they are making progress. On Tuesday and Wednesday, Jerome Powell said that he is not concerned about inflation and will keep the monetary pedal to the metal in no uncertain terms. The quotes above are all excellent reasons for bond investors to keep selling.

Selling in the bond market became problematic this week as yields in the economically sensitive 5-and 7-year sectors rose precipitously. Previously, it was 10- and 30-year bonds taking the brunt of selling activity. The shorter, intermediate sectors largely determine mortgage, corporate, and auto borrowing rates.

They steer economic activity.

While the Fed is running accommodative monetary policy, the market is increasingly imposing tighter financial conditions.

The Fed has a choice. They can watch yields rise to the detriment of economic growth, or they can walk back monetary policy. Doing so requires tapering QE and raising rates. Either action will pose problems for overvalued equity markets based on a tailwind of easy monetary policy.

To put it bluntly, the Fed is walking into a trap where at some point, they will get forced into deciding between rescuing the bond market or the stock market.

Why Higher Rates Are A Problem

It is essential to understand the impact of rates on a heavily leveraged economy.

1) Economic growth is still dependent on massive levels of monetary interventions. An increase in rates curtails growth as rising borrowing costs slows consumption.

2) The Federal Reserve runs the world’s largest hedge fund with over $7.5-Trillion in assets. Long Term Capital Mgmt., which managed only $100 billion, nearly derailed the economy when rising rates caused its collapse. The Fed is 75x that size.

3) Rising interest rates will immediately slow the housing market. People buy payments, not houses, and rising rates mean higher payments.

4) An increase in interest rates means higher borrowing costs which lowers profit margins for corporations. 

5) One of the main bullish arguments over the last 11-years remains stocks are cheap based on low interest rates. That will change very quickly.

6) The negative impact on the massive derivatives market could lead to another credit crisis as rate-spread derivatives go bust.

7) As rates increase, so do the variable rate interest payments on credit cards. With the consumer already impacted by stagnant wages, under-employment, and high costs of living; a rise in debt payments would further curtail disposable incomes. Such would lead to a contraction in spending and rising defaults. (Which are already happening as we speak)

8) Rising defaults on the debt will negatively impact banks that are still not adequately capitalized and still burdened by massive levels of bad debt.

9) Commodities, which are sensitive to the direction and strength of the global economy, will revert as economic growth slows.

10) The deficit/GDP ratio will surge as borrowing costs rise sharply. The many forecasts for lower future deficits will crumble as new estimates begin to propel higher.

I could go on, but you get the idea.

Putting It In Pictures

The ramifications of rising interest rates apply to every aspect of the economy.

As rates rise, so do rates on credit card payments, auto loans, business loans, capital expenditures, leases, etc., while corporate profitability gets reduced.

Currently, the economy requires almost $4.50 in debt to manufacture $1.00 of economic growth. Given the dependence on debt to fund growth, higher interest rates would be inherently destructive.

More importantly, consumers have sunk themselves deeper into debt as well. Currently, the gap between wages and the costs of supporting the required “standard of living” is at a record. With a requirement of over $16,000 in debt to maintain living standards, there is little ability to absorb higher rates before it drastically curbs consumption. 

The annual deficit of over $4000 to make up the gap between the cost of living and current incomes increases debt loads on consumers. Higher interest rates will further absorb discretionary incomes into debt service.

“But what about those charts that show the average American has deleveraged themselves? “

The vast majority of the deleveraging only occurred in the top 20% of income earners, which you would expect. It is hard to suggest that a family barely making ends meet before the pandemic crisis suddenly found excess cash flow to pay off debt.

Interest rates matter. When rates hit a point where consumers and businesses can’t justify further indebtedness, a credit-driven economy slows down.

Warren Buffett, published his annual letter to Berkshire Hathaway shareholders on Saturday. The billionaire has been updating his shareholders in the same format for more than six decades. 

The 90-year-old began on a slightly dour – clearly political – tone:

“We retain our constitutional aspiration of becoming ‘a more perfect union.’ Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so,”

But then the “Oracle of Omaha” rotated wisely back to ‘f**k yeah Murica’ mode:

“Today, many people forge similar miracles throughout the world, creating a spread of prosperity that benefits all of humanity. In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America,” Buffett wrote.

“Despite some severe interruptions, our country’s economic progress has been breathtaking.”

“Our unwavering conclusion: Never bet against America,” he said.

Here are some of the key points outlined in the letter to shareholders:

On the stock market:

“Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide.”

“Eventually, of course, the party ends, and many business ’emperors’ are found to have no clothes.”

On the bond market:

“Bonds are not the place to be these days … Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.”

On the economy:

“Despite some severe interruptions, our country’s economic progress has been breathtaking.”

On overpriced mistakes: Buffett conceded that the $11 billion writedown Berkshire took last year was due to what was a “mistake” in 2016, when he paid too much for Precision Castparts. Precision is a fine company, Buffett said, but he admitted he made a big error.

“I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business.”

On the energy markets:

“[O]ur country’s electric utilities need a massive makeover in which the ultimate costs will be staggering.”

Notably, after buying back a record $9 billion of its own shares in Q3, Berkshire was unable to find attractively priced investments, and continued the buyback spree repurchasing a similar amount in Q4, bringing its annual buyback for 2020 to a record $24.7 billion. “Berkshire made no sizable acquisitions and operating earnings fell 9% We did, though, increase Berkshire’s per-share intrinsic value by both retaining earnings and repurchasing about 5% of our shares…. The math of repurchases grinds away slowly, but can be powerful over time. The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses.”

And unable to find better investments, Buffett has continued to repurchase its own stock, :

“Berkshire has repurchased more shares since year-end, and is likely to further reduce its share count in the future. That action increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet.”

Perhaps to be expected, the company’s cash – which in Q2 hit a record $146.6 billion, declined by $7.4BN, to a still remarkable $138.9 billion, as Buffett continues to struggle to find investments and as Berkshire throws off cash faster than he can find higher-returning assets to snap up.

Finally, in terms of actual results, the company reported Q4 operating income of $5.02 billion, up 14% from $4.42 billion Y/Y, with insurance underwriting resulting in an operating loss of $299 million, down -65% Y/Y.

As Bloomberg notes, swings in Berkshire’s massive $281.2 billion stock portfolio (which showed a 5.1% stake in Japanese trading conglomerate Itochu Corp)…

… feed into the company’s net income because of an accounting technicality. That drove net income up 23% to $35.8 billion in the fourth quarter from a year earlier. After another disappointing year, Berkshire’s Class A shares gained roughly 2.4% last year, falling short of the 16% increase in the S&P 500, and less than 1/100th the 306% return of bitcoin in 2020.

As Bloomberg notes, Buffett only briefly touched on one of the largest questions looming over Berkshire – how long he might stay at the helm. He once again referenced a favorite CEO, Mrs. Blumkin, who founded Nebraska Furniture Mart. She worked until she was 103 – “a ridiculously premature retirement age as judged by Charlie and me,” Buffett wrote, referring to Charlie Munger.

And speaking of Munger, Buffett’s letter comes days after the Berkshire Vice Chairman sounded off about the “wild speculation” in markets. 

“I hate this luring of people into engaging in speculative orgies. [Robinhood] may call it investing, but that’s all bullshit,” Munger said on Thursday. 

“It’s really just wild speculation, like casino gambling or racetrack betting. There’s a long history of destructive capitalism, these trading orgies whooped up by the people who profit from them.”

Munger will be on stage with Buffett at the annual meeting to answer questions in May – we’re assuming he will continue his spat with Robinhood. 

Read the entire letter below: 

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

Did you happen to notice the big news in Bitcoin the other day?

It wasn’t the sound of the top forming at $59,000 or Janet Yellen’s comments about its ‘inefficiency.’

It was settling, once and for all, the argument that central planners and oligarchs aren’t omnipotent.

The State of New York’s pathetic slap on the wrist of Tether marked the moment Bitcoin joined the ranks of the ‘Too Big to Fail.’

Somewhere Peter Schiff is sad.

This lawsuit was supposed to be the nuclear bomb goldbugs thought would finally blow up bitcoin and return the world to their vision.

Too bad that multi-megaton nuke was more like an M-80 going off in my neighbor’s backyard.

“Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie,” James said in a statement.

“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” she further said, adding:

“These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”

This is a face-saving statement for the press by NY Attorney General Laetitia James. Because if there really was a Ponzi scheme at the heart of Tether’s business in 2018-19 then she would have gotten them to cough up a helluva lot more than $18.5 million.

If the powers that be could destroy bitcoin at this point they would have pressed further charges against Tether, undermining the structure of the entire bitcoin market which is increasingly becoming a function of Tether liquidity.

But they didn’t.

In fact they gave Tether and Bitfinex the same treatment they gave J.P. Morgan for gold and silver market manipulation and the entire mortgage industry for fraudulently robosigning legal documents.

In other words, ‘We fined some folks.’

Most, if not all of the anti-bitcoin arguments come down to “the government hates it they will ban it.” But what happens when the government admits it can’t?

So while, Murray Rothbard was right, the establishment hates a free market more than anything else, Murray was also right that their is a limit to their power.

This statement is proving prescient for how many in the establishment are reacting to the first truly free market in currencies we have seen in a long time, as #BTC is proving harder to control with unallocated paper derivatives than “freegold” has been.https://t.co/otarcQeTLW pic.twitter.com/wKFi02ZUFJ

— Luke Gromen (@LukeGromen) February 25, 2021

Um, someone tell Janet Yellen and Bill Gates running the anti-environment talking point that Bitcoin uses a lot of electricity isn’t working.

It’s the oligarchs’ latest talking point. And it’s pathetic.

Someone tell Laetitia James to get back in there and fight.

Meanwhile Bitfinex and Tether agree to quarterly monitoring of their books as a gesture of “transparency” and add $18.5 million to the failing tax coffers of New York State.

Whatever hinckey stuff they do they will now — like the major primary dealer banks — settle up at the end of the quarter to present the face to meet the regulators that they meet (with apologies to T.S. Eliot).

And, make no mistake, I think Bitfinex and Tether are sketchy as all get out. In fact, I think 95% of the entire crypto market is sketchy.

But, that doesn’t make it unreal or becoming something unstoppable. Because it doesn’t matter what purists want. The market, in the aggregate, is smarter than any one person.

And the market wants what bitcoin and Tether are selling… right now.

It may want something different in the future. The market is nothing if not fickle…. and gods bless it for this.

Which brings me to why this lawsuit is so important. There was a recent uptick in anti-tether noise out there, doomsdaying the latest bitcoin rally.

This article “The Bit Short: Inside Crypto’s Doomsday Machine“ (very long, and reasonably well researched) from January outlines a strong argument as to why Tether could be a scam.

And I want to point out how well-timed it was, published January 14th, coinciding with the first attempt to derail bitcoin’s rise.

He goes into a lot about Tether, staking his entire argument on their responding to this lawsuit as the proximate cause for their cashing out of their scam.

He does a forensic analysis of the Bahamanian banking system, lays out the mechanisms for startup company scam, the whole nine yards. Kudos to the writer, it’s a good tale you should read it.

He also didn’t sign his work, but, you know, details.

That doesn’t mean however:

1. He’s right.

2. Things can’t evolve or change.

3. Tether isn’t performing a valuable service

4. Demand for bitcoin liquidity outstrips available supply

In the end, this is just another great piece of writing that misses the bigger picture.

The market decides what it wants not you or me.

In short, it doesn’t mean Tether was intended to be a scam but could simply have been, like bitcoin itself, a service so needed by the market that demand for it far outstripped its ability to perform within its operating parameters, i.e. 100% dollar reserves 100% of the time.

That’s the main reason why Laetitia James settled out of court and Tether admitted no wrongdoing. The market was simply moving faster than the money pouring in and out of the crypto-space could clear and they shuffled some money around to, in the end, protect their clients and their business.

Here’s an aphorism which bears on this story, “It’s easier to beg for forgiveness than permission.”

$18.5 million and a negative headline is cheap to protect what is now a $35 billion business.

But, the premise of this article has been a standard refrain in the crypto-skeptic land for four years.

It boils down to, “You all know Tether’s a scam, right!?”

It’s a glaring bit of editorial bias. Because many of the arguments that people make about bitcoin and cryptocurrencies in general are built on the premise that everyone holding them wants to at some point “cash out and get back to dollars.”

Stupid is as stupid tweets.

Gold is blowing through support and Peter is shitposting about GBTC?

There’s a dollar short squeeze happening or didn’t you notice? https://t.co/w4sRAD9HhW

— Tom Luongo (@TFL1728) February 26, 2021

But what does the market look like when a critical mass of people make a psychological shift valuing their portfolios not in dollars but bitcoin?

One could argue we’re in the process of finding out the answer to that right now.

I’ve talked about the potential for this shift previously here, here and here for anyone who still isn’t listening.

And that scares the living daylights out of everyone who makes their money outside of the dollar, bull or bear, but especially the bears.

Because for a generation now those bears were sold by people like Peter Schiff and the writer of this article which was disseminated far and wide in gold circles that gold was the only alternative to the dollar.

But it’s not and they are bitter about it.

They created what I now call “Gold-Only Bugs.”

For four years I’ve listened patiently to every argument against bitcoin and tether. They aren’t completely wrong. But they do, I think, overstate the risks.

I continue to hedge my bets against monetary insanity. I’m one of the few people in this space that advocates de-risking across all cash-equivalent asset classes.

Smart enough to know he doesn’t know the future with any certainty. I own and advocate Gold,Silver, Bitcoin, altcoins and cash. It’s the only rational position to take.

— Tom Luongo (@TFL1728) February 25, 2021

With this lawsuit and the whole Tether Time Bomb removed from the market bitcoin is now part of the big time. It’s a multi-trillion industry. Those don’t just dry up and blow away without damaging the very people trying to defend against it.

When you owe the bank a thousand dollars it’s your problem. When you owe the bank a trillion dollars it’s their problem Bitcoin is a variation on that idea.

Blackrock’s buying bitcoin, folks.

Blackrock.

Coinbase is filing for an IPO. It’ll be at a valuation higher than Facebook’s.

In fact, it’ll be the biggest IPO in U.S. market history.

The bookrunning fees alone will make Goldman’s or Morgan’s next quarter a blowout.

They said the internet was a fad, too.

But yet you still think a troika of Participatory Medal Winners like Janet Yellen, Christine Lagarde and Jerome Powell are going to stop this train?

You think they can just wave their magic wands and make it all go poofta?

Why would Tether and Bitfinex run away with all the money now when they just won? Bigly.

They can pull massive yield in DeFi on their USDT and bitcoin. But they’re going to give up their first-mover advantage in the immensely important stablecoin space for a couple of billion which can be seized by any government?

The only central banker with a brain is Powell, as he properly identified the threat to their rule… and it’s not bitcoin.

It’s stablecoins like tether.

Because what is the dollar except a stablecoin backed by the confidence of the debtholders of Nancy Pelosi’s ability to extract wealth from Americans to pay the coupons?

If someone builds a better one than the dollar eventually it’s game over for the debt-based system.

Why would Tether run away with a few billion in depreciating dollars when they can literally bring down the entire monetary system and replace it with their product?

The reality is that the day the dollar becomes irrelevant is the day Tether folds up shop and completes their scam because no one will want dollars and a dollar-pegged stablecoin with dollar reserves will be redundant.

I’m not saying that day is here. No. We’re a long way off from that day.

But this lawsuit settling with such a whimper is a primal scream marking the next phase of the war between central banks and the people.

*  *  *

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Around 0200 ET Saturday morning, the Democratic-led House of Representatives passed the second-largest stimulus package of the pandemic that includes a $15 minimum wage hike. 

Lawmakers passed the bill by a thin margin: 219-212, with two Democrats (Reps. Jared Golden (Maine) and Kurt Schrader (Ore.)) joining all Republicans in voting against it. 

2:04:30 a.m. – #HR1319 – On passage Passed by the Yeas and Nays: 219 – 212 (Roll no. 49). https://t.co/ZcqIY06C4r

— U.S. House Floor (@HouseFloor) February 27, 2021

The bill’s passage comes as COVID-19 deaths top half a million, and more than ten million people have lost their jobs and are battling food and housing insecurities. 

“The bill includes some big-ticket items that would deliver important relief to businesses, workers, and the broader economy. It includes $1,400 stimulus checks for those making up to $75,000, $400 expanded weekly unemployment insurance benefits through August 29, and billions of dollars for arenas such as schools, state and local governments, and restaurants. It also increases Affordable Care Act subsidies for low- and middle-income Americans and expands both the child tax credit and the earned income tax credit,” according to VOX. 

The bill also includes a $15 minimum wage hike, despite a recent Senate parliamentarian’s ruling that the minimum wage increase cannot be included in the stimulus package.

Democrats are using budget reconciliation, which allows passage of some legislation with only 51 votes in the Senate, rather than the 60 if the opposition filibusters. The Dems have 51 votes if Vice President Kamala Harris is asked to vote upon a tie-breaking, which means Dems could push Biden’s agenda through.

However, the parliamentarian’s ruling underscores the bill’s fragility as it reaches the Senate – where it only takes one Dem to doom Biden’s rescue package. 

Already, centralist Dems, such as Sen. Joe Manchin of West Virginia, have balked at the idea of increasing the minimum wage from $7.25 to $15 an hour. 

Others, such as the more progressive wing of the party, like Vermont independent Bernie Sanders, have stood tall on their support to include the bill’s $15 minimum wage increase. 

Bear in mind that Republicans have introduced their versions of bills to increase the minimum wage.

• Sens. Mitt Romney (R-Utah) and Tom Cotton (R-Ark.) proposed an increase to $10/hour by 2025. This bill, however, contains a provision that would mandate E-Verify for all employers to ensure the rising wages go to “legally authorized workers,” which likely would not get any Democratic support.
• Sen. Josh Hawley (R-Mo.) introduced an alternative to the Democrats’ proposal that would use federal dollars to increase low-earning workers’ income. One foreseeable problem: the subsidy would disproportionally benefit those in states that have kept their minimum wages low.

But, of course, Bernie and his progressive buddies won’t stand for anything less than $15!

Some economists are warning that the legislation is too ambitious and may spark unwanted inflation. 

JPM’s chief economist Michael Feroli warned Biden’s stimulus package would not ease overheating concerns. 

In response to this MMT madness in Washington – treasury yields violently rose this past week ahead of House’s stimulus vote. More money flooding the economy sets off alarm bells on inflation risk, conjuring dark images in the minds of traders of the 1970s when central banks struggled to contain rising prices, sort of like what’s happening today (read: Food Inflation Is The Best Predictor Of Bond Yields). 

As readers found out last week, February saw a massive shift in the market’s perception of the Fed’s rate-hike trajectory… now pricing in more than 4 rate-hikes between 2022 and 2024…

Laying it all out for readers, additional rounds of stimulus could stoke inflationary fears that would continue to depress tech stocks. 

This is bad news for much of the Robinhood crowd who has yet to trade a rising rate environment. 

So the question we ask: How long until the Fed intervenes to suppress rates? After all, other central banks this week freaked out with announcements of increased bond purchases to contain their sovereign yields from rising higher. 

White House press secretary Jen Psaki and White House Chief of Staff Ron Klain have explicitly said that the Biden admin would not go against parliamentarian and use Harris. But given that Speaker of the US House of Representatives Nacy Pelosi went ahead with the bill, who knows…

Given Pelosi’s actions, this has the optics of a hot potato pass off to the senate… So Pelosi can remove herself from any blame should things not proceed smoothly. Now it is Senate Republicans that will be blamed (by the mainstream media) for Americans not getting their stimulus checks.