Record Leverage Means No Policy U-Turn For The PBOC
By Ye Xie, Bloomberg macro commentator and analyst
That seems the thinking behind U.S. President Joe Biden’s economic plan, which now includes a $2.3 trillion spending proposal for infrastructure, green investment and research. Of course, there are still questions about how much Congress can actually deliver, and the spending will be spread out over eight years, meaning the immediate impact on the economy is likely to be less than the headline number suggests. That perhaps explains why Treasury yields increased only modestly Wednesday. The fact that the stock market set new highs suggests that the improvement in earnings is likely to outpace any rise in yields or potential increase in taxes.
Back in China, good economic news continues to be treated as bad news for markets. Despite solid PMI data, the CSI 300 Index fell, making it the only major benchmark to post a loss for the year on Bloomberg’s WEI major equity ranking page. Part of the concern is that policy makers will tighten rates to contain financial leverage. China’s total debt increased 29% points last year to 315% of GDP, driven by companies and provincial governments borrowing during the pandemic, according to Citigroup.
Ironically, the very same debt overhang is a constraint on policy tightening. Those highly leveraged firms are vulnerable to rising interest rates and more stringent financial conditions.
Citigroup’s economists found about 600 listed Chinese companies with leverage ratios 20 points above their sector averages. Their combined market valuation amounted to 11 trillion yuan ($1.7 trillion), or 17% of the stock market. Assuming their debt is mostly financed by banks, every one percentage point rise in the lending rate would boost their interest payments by 152 billion yuan, equivalent to 30% of their profits, economists led by Liu Li-Gang wrote in a note.
Property developers are particularly vulnerable, given their high debt levels and uncertainties regarding regulators’ “three red line” policy aimed at limiting indebted companies’ capacity to borrow. For developers, a rate hike of one percentage point rate will increase their interest costs by 49 billion yuan, or 42% of their profits.
“While rising leverage ratio is a concern, the very factor could also be used to argue for caution when the PBOC starts to exit its supportive monetary policy,” Liu and his colleagues wrote. “If not handled with care, we will not only see the Chinese version of ‘taper tantrum’ in the financial markets, but also potentially witness the rising risk of default from those highly indebted enterprises.”
It sounds like the PBOC will be walking a tightrope from here.
Navalny Begins Prison Hunger Strike As Supporters Claim Kremlin “Slowly Killing” Him
A day after The Washington Post featured an op-ed claiming that “the Kremlin may be slowly killing Alexei Navalny in prison,” the anti-Putin activist has announced on Wednesday that he’s begun a hunger strike to protest medical conditions at the prison facility, following his 2-and-a-half year sentence which was handed down last month.
He’s said to be protesting the refusal of prison medical staff at the notorious Penal Colony No. 2 east of Moscow to treat a suspected trapped nerve in his back. Navalny has also stated he’s lost sensation in one of his legs due to weeks of severe back pain, for which he recently went to so far as to voice fears his leg may have to be amputated.
Prison authorities have shot back, saying Navalny is in “stable and satisfactory” condition, with top Kremlin officials recently chalking it up to his supporters still engaged in an anti-Russia propaganda war that has help from the West.
In a letter posted by his legal team to social media Navalny said, “I demand that a doctor be allowed to see me, and until this happens, I am declaring a hunger strike.”
In a prior message last week Navalny first accused prison authorities of“deliberate denial of due medical assistance” in order to ensure his suffering. He essentially claimed “torture” – though he related it to prison-orchestrated sleep deprivation.
“My condition has worsened. I feel acute pain in my right leg, and I feel numbness in its lower part,” Navalny wrote. “I have trouble walking.” His lawyer Olga Mikhailova had added to this in follow-up televised remarks, saying that his condition is “extremely unfavorable”. She said, “Everyone is afraid for his life and health.”
A number of international headlines then seized on the torture allegations, reporting that the 44-year old outspoken Putin critic who previously alleged the Russian president ordered his poisoning with nerve agent last August is now being literally “tortured” as part of his confinement.
He’s also said to have been threatened with solitary confinement over bad behavior and repeat violations for failing to conform to the strict prison regimen.
Youtube, the video hosting platform owned by Google, announced on March 29 that they are going to test making the “dislike” count on videos invisible.
The tech giant says that it’s being done in response to “targeted dislike campaigns” and “creator feedback around well-being.”
“In response to creator feedback around well-being and targeted dislike campaigns, we’re testing a few new designs that don’t show the public dislike count,” YouTube announced on Twitter.
“If you’re part of this small experiment, you might spot one of these designs in the coming weeks.”
“Viewer feedback has always been, and will continue to be, an important part of YouTube. But we’ve heard from creators that the public dislike counts can impact their wellbeing, and may motivate a targeted campaign of dislikes on a creator’s video. So, we’re testing designs that don’t include the visible like or dislike count in an effort to balance improving the creator experience, while still making sure viewer feedback is accounted for and shared with the creator. ”
A majority of responses on both the Twitter announcement and on the support page disapprove of the idea, with some comments suggesting the move is a consequence of the tremendous imbalance of “dislikes” on the present administration’s videos on their White House channel.
Some other commentators expressed concerns that it would not be good for people who want to obtain feedback about the video quality, whether it be for creators or viewers.
In January, YouTube deleted what appears to be thousands of “dislikes” from videos on the official channel of President Joe Biden’s White House. The company said it’s a part of its regular efforts to remove engagement it considers inauthentic.
People on the platform noticed that dislikes have been disappearing by the thousands from several White House videos and started posting before-and-after screenshots on social media shortly after the incoming administration took over the channel and published its first videos.
The screenshots indicate a total of at least 16,000 dislikes were removed from at least three videos. Even after the adjustments, the five videos on the channel had about 14,000 likes combined versus nearly 60,000 dislikes as of 3:30 p.m. on Jan. 21.
In response to a screenshot of one of the videos, YouTube told The Epoch Times that it’s monitoring engagement on the site to detect and remove activity it considers spam so that only engagement it considers organic remains. The mechanism worked as intended in the case of the Biden video, the company stated.
“YouTube regularly removes any spam likes or dislikes from your videos,” the company stated in a 2019 tweet.
“It may take up to 48 hours for the numbers to be updated.”
It isn’t clear how YouTube discerns between authentic and inauthentic engagement; the company didn’t immediately respond to a request for further details.
“No one wants this,” Nerdrotic, a pop-culture YouTuber tweeted, adding, “Dislikes are helpful for a great many things and this is what puts YouTube above all others.”
YouTube and its owner, Google, have long faced accusations of political bias. The companies have said their products are developed and run as politically neutral, but employee accounts and leaked internal materials indicate the companies are indeed infusing their politics into their products.
Google shifted millions of votes in the Nov. 3, 2020, presidential election by pushing its political agenda onto its users, according to research psychologist Robert Epstein, who assembled a team of more than 700 voters to monitor what results they were receiving from channels such as search results, reminders, search suggestions, and newsfeeds ahead of the election.
President Joe Biden officially unveiled his $2 trillion American Jobs Plan during a speech today in Pittsburgh, Pennsylvania. He promised to devote big dollar amounts to the even bigger goal of rebuilding America’s infrastructure, broadly defined.
“It’s not a plan that tinkers around the edges. It’s a once-in-a-generation investment in America, unlike anything we’ve seen or done since we’ve built the interstate highway system or the space race,” Biden said today. “Our infrastructure is crumbling. It’s 13th in the world.”
Some $610 billion of Biden’s $2 trillion spending spree would go toward transportation infrastructure, with $115 billion of that money going toward repairing highways and bridges, as well as local streets.
At least $20 billion would go toward safety improvements for all modes of transit, including cyclists and pedestrians, according to a White House outline of the American Jobs Plan. In practice, that likely means a lot of federal funding for sidewalks and bike lanes. Another $85 billion of the transportation funding in Biden’s plan will go toward repairing existing public transit and funding expansions of those systems.
That money, the White House says, will double federal spending on public transit. It comes on the heels of multiple rounds of federal aid to transit included in various COVID relief bills.
The CARES Act, passed in March 2020, gave transit agencies $25 billion in emergency aid. The subsequent relief bill passed by Congress in December 2020 allocated another $15 billion toward the industry. The $1.9 trillion American Rescue Act topped this up with another $30 billion in funding.
And while Biden’s plan says that this additional funding is also targeted at expanding systems to meet rider demand, actual rider demand has plummeted during the pandemic by as much 65 percent, according to a recent study from the Reason Foundation (which also publishes this website).
The president said in his speech today that his American Jobs Plan would replace the 10 most economically significant bridges in the country, but otherwise omitted details about what specific projects he’d like to fund.
Biden’s transportation infrastructure plans are “vague because the focus is all on the second-order effects of transportation, not on actual transportation,” says Adrian Moore, vice president of research at the Reason Foundation. “It’s all about what’s going to happen for equity or climate change or suburban development.”
Indeed, one can see that in the very name of the American Jobs Plan, the title of which does not mention infrastructure. That’s more than a rhetorical point. The focus on jobs, and particularly unionized American jobs, means that Biden’s $2 trillion spending plan will buy a lot less infrastructure than it otherwise could.
Prevailing wage laws that require federal infrastructure projects to pay union rates to workers are a known contributor to America’s outrageously high infrastructure costs. So are Buy America provisions that generally mandate federally-funded infrastructure projects procure (often more expensive) domestic parts and materials.
Biden doubled down on both of those features of American infrastructure spending in his speech tonight.
“I’m a union guy. They built the middle class, it’s about time they get a piece of the action” he said, adding later that “not a contract will go out that I control that will not go to a company that is an American company with American products all the way down the line and American workers.”
Boosting union employment and American manufacturing is hardly the only broad goal Biden invoked in his speech. He also said spending on infrastructure would help us compete with China, combat climate change, kickstart economic growth, and, incredibly, reduce the federal deficit.
The nitty-gritty of which particular projects will bring us all these good things will have to be hashed out later. It certainly didn’t get a lot of attention tonight.
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US Army Raises Europe Threat Level To ‘Potential Imminent Crisis’ On Ukraine-Russia Fears
The recent rise in tensions between the US and Russia over continued simmering conflict in Ukraine seemed to correspond with the Biden administration entering the White House. Many pundits have commented that on a foreign policy front things are eerily feeling like a throwback to the Obama years of 2014 or 2015, whether its the Ukraine and Crimea crises, or Syria returning to headlines again (including Biden’s ordered airstrikes on the country in February), or the growing Russia-NATO standoff.
This past weekend we were among the very few to take notice of the Pentagon’s latest large military equipment delivery to Ukraine’s army via the port of Odessa, following Biden earlier pledging that “Crimea is Ukraine” and that he’d work to thwart Russian aims in the region.
And now this week the US European Command (EUCOM) has issued a notification of a raised ‘threat level’ in Europe. The designation has been officially raised to one of “potential imminent crisis” this week. It comes just as The New York Times and others are reporting a serious escalation in fighting in Eastern Ukraine, which has signaled the collapse of yet another cease-fire.
The raised threat level centers on Ukraine’s commander-in-chief of national armed forces alleging that Russia has amassed more troops on its border this week, and further that “pro-Moscow separatists were systematically violating a ceasefire in eastern Ukraine,” according to Reuters.
Kiev’s parliament followed by announcing a sharp “escalation” in the east – a contested region which has seen 14,000 deaths going back to 2014.
The NY Times had linked the raised alert status by EUCOM specifically to Ukraine, writing “the U.S. military’s European Command raised its watch level from possible crisis to potential imminent crisis — the highest level — in response to the deployment of the additional Russian troops.”
The report also described the infusion of new Russian military equipment to the Kremlin-backed rebels, something which the latest follow-up statement by Kremlin spokesman Dmitry Peskov downplayed, charging that it is the Ukrainian side now taking “provocative actions that would lead to war”.
The Times report cited a US official who estimated that some 4,000 additional Russian troops remained behind along the Ukraine border region following the end of recent military drills, something which one retired Army general said could just be “posturing” designed to test the Biden administration.
Meanwhile Washington has apparently put Moscow ‘on notice’ over a potential Ukraine escalation…
Russia MOD says Milley initiates phone call today just as concern grows again about Russian presence along Ukraine border https://t.co/pZm2NFZlJl
Despite long ago falling out of daily and weekly headlines, the war in the Donbass region has remained a ‘low-simmering conflict’ which has never stopped. Battle lines and disputed fronts, along with rival checkpoints, have been consistently manned.
The usual military exercises that take place this time of year, or larger than usual troop build-up?
Russian forces are deploying massive amounts of military hardware into #Crimea. One of the largest deployments I’ve seen in recent memory. pic.twitter.com/KKZnGzS7y1
However, as the NYT noted, “Four Ukrainian soldiers were killed and another seriously wounded in a battle against Russian-backed separatists in the Donetsk Region” on Tuesday, suggesting a severe flare-up on the horizon which could once again draw in external Western forces, especially as Biden has lately vowed to get “tough” on Putin’s Russia.
Rep. Matt Gaetz possesses text message screenshots, an email, and a typed document that purportedly support his claims that a federal investigation into his relationship with a 17-year-old is related to an extortion scheme against him.
On Tuesday, the New York Times reported that the Justice Department is investigating whether Gaetz had a sexual relationship with a 17-year-old and paid her to travel with him. Gaetz has called the report “totally false.” Gaetz told Axios that his lawyers told him that he “was not a target but a subject of an investigation regarding sexual conduct with women.”
The Florida Republican countered the report on Twitter and in statements to Axiosand Fox News with a claim that his family is being extorted for $25 million and that the people pushing stories about an investigation into his relationships with women are the people extorting him and the subjects of an FBI extortion investigation over the last few weeks.
The documents in Gaetz’s possession detail an alleged scheme that revolves around attempts by former Air Force intelligence officer Bob Kent and Beggs & Lane attorney David McGee, a former federal prosecutor, to free ex-FBI agent-turned-private investigator Robert Levinson from imprisonment in Iran.
Levinson went missing in Iran in March 2007. McGee is the attorney for the Levinson family. Kent in December 2018 had planned a secret mission to try to rescue Levinson, but he was reportedly thwarted by the federal government.
Screenshots provided to the Washington Examiner show a message that his father, Don Gaetz, a former Florida state Senate president, said he received from Kent on March 16. The message proposes “a plan that can make [Matt Gaetz’s] future legal and political problems go away.” Gaetz has denied any relationship with a minor.
Despite the family members of Levinson saying in March 2020 that they presumed him to be dead based on information given by U.S. officials, the alleged message from Kent said he had located Levinson in Iran and has two “proof of life videos.” Kent also requested the Gaetz family’s help returning Levinson in exchange for giving Matt Gaetz credit for the operation and promising a presidential pardon for unnamed legal issues.
The next day, on March 17, Don Gaetz purportedly met with Kent, and Kent handed him a three-page document outlining “Project Homecoming.” That document detailed a plan to save Levinson at the cost of a $25 million loan.
In 1983, Don Gaetz co-founded VITAS Healthcare, and in 2004, he and his co-founders reportedly sold their stock in the company for $406 million.
In the Project Homecoming document, Kent then asked that the loan should be deposited in the trust account of Beggs & Land, naming David L. McGee, and deposited no later than March 19.
The Project Homecoming document states that Gaetz is “under investigation by the FBI for various public corruption and public integrity issues” and alleges that the FBI is aware of photos depicting Gaetz in a “sexual orgy with underage prostitutes.”
“In exchange for the funds being arranged, and upon the release of Mr. Levinson, the team that delivers Mr. Levinson to the President of The United States shall strongly advocate that President Biden issue a Presidential Pardon, or instruct the Department of Justice to terminate any and all investigations involving Congressman Gaetz,” the document reads.
It also implied that the White House has some knowledge of the plan: “The team has been assured by the President that he will strongly consider such matters because he considers the release of Robert Levinson a matter of National Urgency.” The White House did not immediately respond to a request for comment.
Stephen M. Alford, who has previously faced fraud and extortion charges, was also allegedly at the March 17 meeting and gave Don Gaetz his business card showing Captum Consultants. The April 2020 articles of incorporation for the company indicate they came from Beggs & Land, McGee’s firm.
Kent, McGee, and Alford did not respond to requests for comment.
McGee told the Daily Beast on Tuesday night, following Gaetz naming him on national television, that any claims that he or his law firm were involved in extortion are “completely, totally false,” adding, “This is a blatant attempt to distract from the fact that Matt Gaetz is apparently about to be indicted for sex trafficking underage girls.”
Another email chain appears to confirm the existence of the FBI investigating extortion claims.
“My client, Don Gaetz, was approached by two individuals to make a sizable payment in what I would call a scheme to defraud,” Jeffrey Neiman said in a March 25 email to the Department of Justice. “The FBI is not asking Don to voluntarily and proactively assist in their investigation, which Don is willing to do. Please confirm that your Office and the FBI would like Don’s assistance in this matter and that he will be working at the Government’s request.”
Assistant U.S. Attorney David Goldberg responded: “I can confirm that your client is working with my office as well as the FBI at the government’s request in order to determine if a federal crime has been committed. This has been discussed with, and approved by, the FBI as well as the leadership of my office and components of Main Justice.”
The Department of Justice and the FBI declined to comment on the email or the existence of an extortion investigation. Neiman also declined to comment.
Gaetz on Fox News Tuesday night said his father wore a wire in order to assist with the case, and he demanded that the “Department of Justice and the FBI release the audio recordings that were made under their supervision and at their direction, which will prove my innocence.”
He suspects that a leak to the New York Timesstory about the investigation into whether he had a relationship with a 17-year-old was timed to thwart the FBI investigation into the extortion.
“This former Department of Justice official tomorrow was supposed to be contacted by my father so that specific instructions could be given regarding the wiring of $4.5 million as a down payment on this bribe,” Gaetz said. “I don’t think it’s a coincidence that tonight, somehow, the New York Times is leaking this information, smearing me, and ruining the investigation that would likely result in one of the former colleagues of the current DOJ being brought to justice for trying to extort me and my family.”
The 17-year-old in question “doesn’t exist,” Gaetz said, adding that he has “not had a relationship with a 17-year-old. That is totally false.”
President Joe Biden officially unveiled his $2 trillion American Jobs Plan during a speech today in Pittsburgh, Pennsylvania. He promised to devote big dollar amounts to the even bigger goal of rebuilding America’s infrastructure, broadly defined.
“It’s not a plan that tinkers around the edges. It’s a once-in-a-generation investment in America, unlike anything we’ve seen or done since we’ve built the interstate highway system or the space race,” Biden said today. “Our infrastructure is crumbling. It’s 13th in the world.”
Some $610 billion of Biden’s $2 trillion spending spree would go toward transportation infrastructure, with $115 billion of that money going toward repairing highways and bridges, as well as local streets.
At least $20 billion would go toward safety improvements for all modes of transit, including cyclists and pedestrians, according to a White House outline of the American Jobs Plan. In practice, that likely means a lot of federal funding for sidewalks and bike lanes. Another $85 billion of the transportation funding in Biden’s plan will go toward repairing existing public transit and funding expansions of those systems.
That money, the White House says, will double federal spending on public transit. It comes on the heels of multiple rounds of federal aid to transit included in various COVID relief bills.
The CARES Act, passed in March 2020, gave transit agencies $25 billion in emergency aid. The subsequent relief bill passed by Congress in December 2020 allocated another $15 billion toward the industry. The $1.9 trillion American Rescue Act topped this up with another $30 billion in funding.
And while Biden’s plan says that this additional funding is also targeted at expanding systems to meet rider demand, actual rider demand has plummeted during the pandemic by as much 65 percent, according to a recent study from the Reason Foundation (which also publishes this website).
The president said in his speech today that his American Jobs Plan would replace the 10 most economically significant bridges in the country, but otherwise omitted details about what specific projects he’d like to fund.
Biden’s transportation infrastructure plans are “vague because the focus is all on the second-order effects of transportation, not on actual transportation,” says Adrian Moore, vice president of research at the Reason Foundation. “It’s all about what’s going to happen for equity or climate change or suburban development.”
Indeed, one can see that in the very name of the American Jobs Plan, the title of which does not mention infrastructure. That’s more than a rhetorical point. The focus on jobs, and particularly unionized American jobs, means that Biden’s $2 trillion spending plan will buy a lot less infrastructure than it otherwise could.
Prevailing wage laws that require federal infrastructure projects to pay union rates to workers are a known contributor to America’s outrageously high infrastructure costs. So are Buy America provisions that generally mandate federally-funded infrastructure projects procure (often more expensive) domestic parts and materials.
Biden doubled down on both of those features of American infrastructure spending in his speech tonight.
“I’m a union guy. They built the middle class, it’s about time they get a piece of the action” he said, adding later that “not a contract will go out that I control that will not go to a company that is an American company with American products all the way down the line and American workers.”
Boosting union employment and American manufacturing is hardly the only broad goal Biden invoked in his speech. He also said spending on infrastructure would help us compete with China, combat climate change, kickstart economic growth, and, incredibly, reduce the federal deficit.
The nitty-gritty of which particular projects will bring us all these good things will have to be hashed out later. It certainly didn’t get a lot of attention tonight.
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Daily Briefing: Archegos Unwinds as S&P 500 Flirts with 4000
Real Vision editor Jack Farley welcomes Real Vision’s Weston Nakamura and Max Wiethe to the Daily Briefing. After briefly analyzing the day’s price action (U.S. equities surged as Treasury yields rose), they analyze the forced liquidation of Archegos Capital. Weston provides insight into the mechanics of the over-the-counter derivatives that were involved in the blow-up as well as big banks such as Goldman Sachs, Nomura, and Credit Suisse that were prime brokerages to Archegos Capital.
Microsoft Wins $22 Billion Contract To Supply US Military With Augmented-Reality Headsets
One year after beating out rivals like Amazon for the coveted Pentagon “JEDI” contract, a $10 billion mandate to rebuild the Pentagon’s cloud-computing infrastructure (despite a lawsuit from Amazon alleging unfair discrimination in the awarding of the contract), Microsoft has just won another major DoD contract, this one worth potentially more than 2x the JEDI contract.
Microsoft shares climbed on the news that the company had won a contract to build more than 120,000 custom HoloLens augmented-reality headsets for the US Army. The contract could be worth up to $21.88BN over a 10-year stretch.
Investors celebrated the news likely because, according to CNBC, the deal shows Microsoft can generate meaningful revenue from a “futuristic product” like the HoloLens, which involved years of research, and also lies beyond the company’s core competency area – software and its Windows operating system.
The mega-contract follows a much smaller contract worth $480MM Microsoft received to develop prototypes of the Integrated Visual Augmented System. The new contract is essentially an order to put that prototype into mass production.
Though it was widely panned when first release, the HoloLens (which costs $3,500) overlays a holographic interface over real-world environments, and allows users to interact using hand and voice gestures. For example, the headset can use thermal imaging to reveal enemy combatants hiding in the night.
It will also enable soldiers to fight and train using the same system.
“The IVAS headset, based on HoloLens and augmented by Microsoft Azure cloud services, delivers a platform that will keep soldiers safer and make them more effective,” Alex Kipman, a technical fellow at Microsoft and the person who introduced the HoloLens in 2015, wrote in a blog post. “The program delivers enhanced situational awareness, enabling information sharing and decision-making in a variety of scenarios.”
While Google parent Alphabet’s employees do everything they can to stymie their employers’ attempts to win lucrative contracts from the Department of Defense (GOOG’s hyper-progressive employees have deemed working with the DoD “immoral”, though they had little, if anything, to say about Google’s efforts to break back into the Chinese market) Microsoft is apparently taking the opposite tack.
We wonder which approach shareholders will appreciate more? After all, the Pentagon probably could have ordered 120,000 souped-up Google Glass headsets just as easily.
