Month: July 2021

Authored by Tsvetana Paraskova via OilPrice.com,

The European Bank for Reconstruction and Development (EBRD) will no longer invest in oil and gas exploration and production, the bank’s Managing Director Harry Boyd-Carpenter told Reuters as the institution pledged to align all its activities to the Paris Agreement goals from the end of next year.

“We will no longer invest in upstream oil and gas projects,” Boyd-Carpenter told Reuters on Thursday.

On the same day, the bank announced that its Board of Governors decided at the Annual Meeting 2021 to accelerate decarbonization across the regions it operates, supporting them to reach net-zero emissions by 2050.

The EBRD invests in projects in central and eastern Europe, Central Asia, and the Southern and Eastern Mediterranean.

The EBRD, however, will continue to invest in selected oil and gas projects in the downstream and midstream that are aligned to or contribute to the Paris Agreement goals, EBRD’s Boyd-Carpenter told Reuters.

“The low carbon transition requires the world economy to move in less than 30 years from a more than 80 per cent reliance on fossil fuels to a net-zero model. This is a challenge that is unprecedented in economic history. Similarly, the associated opportunity is enormous,” the EBRD’s First Vice-President Jürgen Rigterink said in a statement.

The EBRD is the latest bank to announce it would halt financing for one or other form of oil and gas.   

Last year, Deutsche Bank ended financing for new oil and gas projects in the oil sands and the Arctic region effective immediately.

In the United States, Goldman Sachs said in December 2019 that it would decline to finance new Arctic oil exploration and production and new thermal coal mine development or strip mining. Wells Fargo and JPMorgan have also said they would stop financing new oil and gas projects in the Arctic.  

Earlier this year, UN Secretary-General António Guterres’ said that banks should finance low-carbon climate-resilient projects, not big fossil fuel infrastructure that is not even cost-effective anymore.

The owners and insurers of the massive container ship, Ever Given, which blocked the Suez Canal in late March and closed the world’s most important shipping lane for almost a week, settled Sunday with Egyptian authorities, allowing the vessel to exit the canal later this week, according to AP News. 

The Suez Canal Authority (SCA) will allow Ever Given and its crew to set sail on Wednesday after settling compensation disputes. Since late March, owners and insurers of the vessel and SCA officials have been bickering over settlement figures for canal disruptions. 

Last month, an “agreement in principle” between the vessel’s owners and SCA was announced, but it now appears finalized. 

Readers may recall the 1,312 feet long mega-ship was traversing the southern part of the canal when high winds diverted it off course and become stuck, blocking all vessel traffic in the shipping lane for six days. After the vessel was dislodged, SCA demanded nearly $1 billion from the ship’s Japanese owners for lost revenue and the cost of salvaging it. But the amount was later publicly lowered to $550 million.

“We are pleased to announce that… good progress has been made and a formal solution agreed,” said Faz Peermohamed, a member of the London-based Stann Marine law firm, which represents owner Shoei Kisen and its insurers.

“Preparations for the release of the vessel will be made and an event marking the agreement will be held at the Authority’s headquarters in Ismailia in due course,” Peermohamed said.

There were no details about settlement figures. The signing of the settlement contract would be held on Wednesday at a ceremony as the vessel departs from Great Bitter Lake, a large saltwater lake in Egypt that is part of the Suez Canal.

The entire ordeal lasted more than three months and appears to be finally over. Ever Given and its crews are lucky because some maritime disputes can be locked up in courts for years, stranding crews and precious cargo. 

By SouthFront,

The Taliban seem unstoppable all over Afghanistan, as their gains are followed by even more gains.

In recent days, the Taliban’s march through northern Afghanistan gained momentum with the capture of several districts from fleeing Afghan forces. More than 300 Afghan military personnel crossed from Afghanistan’s Badakhshan province as Taliban fighters advanced towards the border. The Afghan soldiers escaped to neighboring Tajikistan, saving their lives from the enemy.

On July 4th, the Taliban was on the verge of taking Faizabad, the provincial capital of the Badakhshan province.

Senior local officials have already taken a flight and escaped to Kabul.

Following the fall of dozens of districts of the Badakhshan province, Afghan commandos of special operation forces were deployed to the strategic city. The gains in northeastern Badakhshan province in recent days have mostly come to the insurgent movement without a fight.

The areas under Taliban control in the north are increasingly strategic, running along Afghanistan’s border with central Asian states. Last month the religious movement took control of Imam Sahib, a town in the Kunduz province opposite Uzbekistan and gained control of a key trade route.

Taliban spokesman Zabihullah Mujahid confirmed the fall of the districts and said most were captured without a fight. The Taliban in previous surrenders have shown video of Afghan soldiers taking transportation money and returning to their homes. From those who didn’t return, many have joined the Taliban ranks as deserters from the Afghani army.

The Taliban reportedly captured the city of Farah, another provincial capital, and the largest city of the Farah Province in western Afghanistan. Footage of the city showed dozens of Afghani army soldiers, many of which were killed.

Hundreds are being killed on each side every day, with reports coming in from scores of Taliban being killed by Afghan security forces, and still the Taliban are the ones coming in on top and capturing even more areas. A significant impetus to the Taliban was the fact that the US abandoned its key position – the Bagram air base – and has turned it over to the Afghanistan Army.

Initially, the Taliban spokesman said that everything had been either been taken by the Americans or destroyed, but it seems that U.S. forces have left behind radar and navigation systems as well as hundreds of vehicles.

On July 3, the Afghan Civil Aviation Authority revealed that the U.S. military left behind Radar and Very-Small-Aperture Terminal (VSAT) systems at the air base. The systems, which were deactivated by U.S. troops before withdrawal, were successfully reactivated by Afghan engineers.

Seeing as how there’s significant equipment there, the Taliban may change their decision not to attempt to capture the base, and in exchange turn their gaze towards it, as it would be a great boon to their operations.

Authored by Victor Davis Hanson via AmGreatness.com,

This Fourth of July holiday we might pause for a moment from our festivities to ask how we collectively lost our minds over the last 15 months—and are we yet regaining any semblance of our sanity? 

A pandemic caused by the leak of a Chinese-engineered virus and its coverup was cause enough for nationwide madness. But the spread of COVID–19 was followed by a nationalized and often politicized “flatten-the-curve” quarantine that soon ensured a stir-crazy nation. Tens of millions saw no people, and heard nothing human other than what was fed to them through television and computers. No wonder they grew paranoid, conspiratorial, and angry, and soon forgot the therapeutic nature of personal interaction and the shared humanity of being in the physical presence of others.

Our first self-induced recession came next and lasted over a year, destroying all the hard work of the prior three years. Next ensued the death of George Floyd and a subsequent 120 days of rioting, looting, and arson. The immediate costs were $2 billion in damage, over 25 deaths, 14,000 arrests, and a Lord of the Flies anarchy with no-go zones in our major cities. A McCarthyite frenzy followed, as remote-controlled America hunted down the supposed “racists” among us—while career agendas, personal grudges, and ideological hatred fueled the cancel culture.

All this was antecedent to our first election in which Election Day voting was incidental, not essential, to the outcome. This was also our first presidential campaign in which the incumbent was stricken by a pandemic virus. And his opponent, due to his age and infirmity, simply reverted to the 19th century style of staying home and outsourcing the electioneering to the Democratic-media complex. Biden’s basement became the equivalent of the “front-porch” of homebound candidates of a century and more ago. 

The derangement was then capped off, first, by a buffoonish riot at the Capitol followed by a Reichstag-fire style militarization of Washington, D.C., in a “never let a crisis go to waste” psychodrama. Then came a novel second and unprecedented presidential impeachment, without a special prosecutor, witnesses, or cross examinations. It was based on the myth of a deadly “armed insurrection” fueled by President Trump, which purportedly led to the murder of a police officer. Later most of the writs of the House impeachment were proven fantasies, from the idea of “armed” and “well-organized” to “murderous” revolutionaries. The only mysteries were the identity of the unnamed officer who fatally shot an unarmed female protester and military veteran, and why the government has still not released thousands of hours of video detailing the riot. 

That impeachment charade was followed by a trial in the Senate—without the chief justice presiding—of a president, who was no longer in office. 

The finale was the promise of a “moderate” good ol’ Joe Biden from Scranton—the supposed correction to Trump. In reality, Biden’s first 150 days proved, as the cynics predicted, that he was mere cover and conveyance for the implementation of the most radical agenda since the 1930s.

So we can cut America some slack when we ponder why the entire country is now descending into a collective madness, given the amount of propaganda and media distortion pumped out during the quarantine, and since. 

The Chaos of Daily Living

Within the space of about 6 months in 2021, the costs of the essentials of life have skyrocketed—food, gasoline, housing, appliances, cars and trucks, and building materials. Non-ending streams of stimulus money, huge deficits, and pent-up demand so far have ensured that Americans would pay such spiking prices. And soon radical inflation may trigger 1970s stagflation and then recession, as the “why-go-to-work?” checks and consumer zeal finally cease, but the government printing machine keeps going. What good is free government money if spiraling prices eat away the entitlement? 

California is the worst run of our states. But it is also always a helpful bellwether of where we are descending. The state has plenty of oil and natural gas. There are still remnants of a once thriving nuclear and hydroelectric industry. But power outages are now commonplace—to the point that, like Third-Worlders, we merely shrug when the lights go out as if it were a green way of reducing carbon emissions.  

Forty million people driving on roads and highways intended for 20 million people—27 percent of them not born in America—becomes a “Road-Warrior”-like wildness intended to discourage the kind of driving to which we became accustomed in the 20th century. Any trip over 200 miles cannot be calibrated by traditional “arrival times.” Ad hoc repairs on ancient roads paralyzes traffic not already slowed by accidents. Speeding and traffic violations are commonplace. Either the population ignores or does not know the law, or a paranoid law enforcement is reluctant to enforce the laws, or there are simply too few patrol cars responsible for too many drivers.  

Gas can range from $4.00 to over $5.00 a gallon; $100 fill-ups are common. To go to a California Home Depot or Lowes store is to be amazed at grades of plywood priced at nearly $90 a sheet. 

Californians are leaving in droves, but housing costs are still soaring. Californians love nice houses. But those who have them don’t like to allow anyone to build new ones for others. 

A horrendous drought has dried up reservoirs and dropped the water tables of most aquifers. Privately, Californians know that it was madness not to build reservoirs, all cancelled over 30 years ago, or to allow the California Water Project’s infrastructure to decay, or to continue to allow scarce fresh water to flow into the sea, or not to invest in new technologies of underground water savings and storage.  

But they also know that as long as the Bay Area’s activists have sufficient supplies of water (from their own early 20th century, far-seeing politicians who created the huge Hetch Hetchy transference and won first-dibs allotments from the subsequent California Water Project), they will continue to push green agendas, the disastrous consequences of which the elite avoid, given their own wealth and power.  

High-speed rail is a tragic joke. It is inert and unfinished. The ostentatious half-built overpasses stand like modern graffiti-stained versions of Stonehenge. Its only ostensible purpose seems to have been a green plan to siphon money from road repair and expansion. 

Mention San Francisco to a Californian, and the same, monotonous warnings arise: don’t go there! And if you must, don’t park there—since smashing into a car and stealing its contents are viewed as understandable redistribution rather than criminal acts. Others advise to check constantly the soles of your shoes: human and animal excrement is ubiquitous as the city’s sanitation regresses to something resembling Old Cairo or medieval London.  

I drive often to the central Sierra. For the last 4 years the talk there was “Why don’t they do something about the millions of trees that have died from drought and bug infestation?” The locals now say of the incinerated forests “Why don’t they do something about the millions of those charred black trees?” Such sincere questions assume people matter more than ideology. They don’t.  

In a state where defecation on the sidewalks apparently hurts no one, drought and fires consuming a forest are also OK—as long as it is likewise deemed a function of nature. In California, logging an acre of timber is insurrectionary; 400,000 acres going up in smoke is “stuff happens.”

Policies and Politicians 

The truth is that the necessities of life—safety, affordability of the essentials, transportation, power, and fuel—are now iffy. If 15 years ago, Americans more or less saw each other as fellow citizens rather than as members of rival tribes, now they are resegregating into Dark Age bands. In place of oral bards and mythic sagas, we have dry and racist “critical race theory.” 

There is no media credibility left after assuring us for years that the Steele dossier was the gold standard, that Robert Mueller’s dream team would prove “collusion,” that Donald Trump sicced the federal police on demonstrators for a cheap photo-op stunt, that Hunter Biden’s laptop was Russian disinformation, and that only conspiracists could make a looney connection between COVID-19’s ground zero origins in Wuhan and a nearby level 4 virology lab, with ties to the Chinese military. 

The current chaos of everyday life of course follows from national policy and politics. The streets are on a reverse trajectory into the 1970s, since crime is redefined as either tolerable collateral damage, “equity,” or a collective indictment of society rather than one of individual culpability. When mayors claim that burning a police precinct is a mere loss of “brick and mortar,” or taking over downtown Seattle is just part of a “summer of love,” or when the architect of the “1619 Project” claims looting is not violence, then crime is no longer crime. 

The Left says it has not defunded the police because there are still police to be seen. But progressives have done something far more insidious: America has destroyed police deterrence by a year of anti-police venom, by prosecutors selectively and asymmetrically exempting the arrested, and by prompting police retirements, resignations or simple slowdowns. There is now in the minds of all big-city cops a constant cost-to-benefit calculation: going into the inner city has become a lose/lose/lose/lose/lose proposition in which a 911 call from the danger zone can get an officer killed, injured, fired, suspended, imprisoned, or rendered a fool, as the successfully arrested are summarily let go.  

The country has gone mad with debt. Both parties are responsible for the massive spending. The Republican defense is that Democrats would spend even more—and, if they are lavishing entitlements to buy votes, why shouldn’t we? 

The Left’s excuse is not just the old idea of redistribution, but a new revolutionary myth that money and debt are really irrelevant constructs. A novel economic pseudoscience has revised or discarded the oppressive idea of having to pay back what was borrowed.  

Traditionalists and conservatives always assumed that the military, the intelligence and investigatory agencies, and the prosecutorial industry were at least above politics, defenders of traditional and constitutional norms, and completely professional in their service.  

No longer. There is now a new military-industrial-intelligence-legal complex. Its hierarchy is politically weaponized, and amply renumerated. The careers of John Brennan, James Clapper, James Comey, Andrew McCabe, General Mark Milley and a score of retired 4-stars officers, Robert Mueller and his dream team, and the Department of Justice are characteristically determined and calibrated by politics rather than competence.  

The usual consequences follow: half the country no longer trusts its once esteemed FBI, CIA, or military. And when these agencies veer from their assigned tasks, it is no wonder that they miss impending signs of terrorism in Boston, Fort Hood, and San Bernardino, had little clue that the “JVs” of ISIS were expanding in Iraq, and never really informed the American people about the costs, the benefits, the stakes and the likely future of the two-decade Afghan war. In the 1960s the Left sought to tarnish the reputation of what they saw as hated government institutions and failed; in the 2020s, the Left diminished the reputation of what they now saw as useful and malleable institutions and succeeded. 

America does not quite know what will follow from the first months of the Biden Administration. Already, it has managed to destroy the idea of a border, with an anticipated 2 million entering the country illegally over a 12 month period. It demolished the idea of the police and prosecutorial deterrence curbing crime. It is ending the trajectory of America’s natural gas and oil renaissance that enriched the country, and freed it from Middle East entanglements. And it killed off the notion that government should seek to ensure that race is not how we collectively define the content of our individual characters.  

Abroad 

Meanwhile, our enemies and rivals—China, Iran, and Russia especially—are giddy at what America has become. The American Left, they believe, has done a much better job of denying Chinese culpability for a Chinese-engineered virus than had the Chinese communist media. 

When billionaires, such as Michael Bloomberg, see China as essentially democratic (“The communist party wants to stay in power in China, and they listen to the public . . . Xi Jinping is not a dictator.”), when Charles Munger applauds their clampdown on outspoken capitalists like Jack Ma (“I don’t want the, all of the Chinese system, but I certainly would like to have the financial part of it in my own country, . .  . Communists did the right thing. They just called in Jack Ma and say, ‘You aren’t gonna do it, sonny.’””), and when Bill Gates believes that in the midst of the pandemic, a lying China had done “a lot of things right in the beginning,” we can conclude America’s richest are placing their bets on a Chinese-Communist controlled 21st century, and will adjust accordingly.

Our adversaries can’t quite believe their good fortune. Had they thought up ways to divide and impoverish America, to see its cities burned, and looted, to weaken its economy and currency, to erode the unity of its once feared military, and to entrench the most effective critics of America in America—not in Beijing, Moscow, Pyongyang, or Tehran, but in corporate boardrooms, campuses, newsrooms, Hollywood, Wall Street and the Pentagon—they could not have improved on what has happened in 2020-21, the era of our collective meltdown.

On America’s Independence Day, the Chinese were busy in low Earth orbit conducting their first spacewalk outside a new space station. 

Chinese astronauts have completed extravehicular activities (EVAs) and returned to the space station core module Tianhe, the China Manned Space Agency (CMSA) has said. #GLOBALink pic.twitter.com/791MjcT2pm

— China Xinhua News (@XHNews) July 5, 2021

According to a China Manned Space Engineering Office statement, two astronauts (taikonauts) on Sunday made the first spacewalk outside the country’s new space station core module Tianhe or Heavenly Harmony. 

Chinese astronauts Liu Boming and Tang Hongbo successfully opened the exit door of the space station core module Tianhe at 8:11 a.m. (Beijing Time) on July 4, 2021. As of 11:02 a.m., donning new-generation homemade EMU (extravehicular mobility unit) spacesuits Feitian, meaning flying to space, astronauts Liu Boming and Tang Hongbo have successfully exiting the module from the Tianhe core module, and also completed the installation of foot limiter and extravehicular workbench on the robotic arm. Follow up, with the support of the robotic arm, they will cooperate with each other to carry out the assembly of relevant equipment outside the space station. 

China’s space agency plans another 11 launches through the end of 2022 to complete the new 70-ton station. This comes as the International Space Station (ISS) celebrated its 20 years in operation with an end of lifespan by 2030. Already, the space station has shown signs of wear and tear amid a series of malfunctions, including air leaks. 

In early April, Russia said it would pull out of the ISS in 2025 and build a space station by 2030 if President Vladimir Putin provides funding. If not, Russia could soon find itself working with the Chinese in space.

President Xi Jinping has touted China’s space dream as he was recently cited by state media as saying space is the path to “national rejuvenation.” 

By Larry McDonald, author of The Bear Traps Report

You have to give pause when you think that the only news in markets that mattered today is OPEC+ and what the next move is by them. We live in a world with growing demand, shrinking supply. ESG matters, climate change, inflation, Iran, etc, mean nothing today in the global crude market.  All people want to know is what OPEC+ is going to do next. So clearly IT is an important issue for the market before we tackle anything else.

The sticking point in the talks – the UAE (United Arab Emirates) want a higher baseline after large-scale CAPEX investments in recent years’ production capacity and wants to boost production by 700mbd. On the other hand, the Saudis do not want to offend the Russians and other players by adjusting the UAE baseline.

• *BRENT CRUDE SURPASSES $77 PER BARREL FOR FIRST TIME SINCE 2018 – Bloomberg

Gasoline, Summer Driving Season

After the U.S. handed far more control over the price of oil to the Saudis and Russians, consumers are paying the price. The White House wants this problem fixed by the time the 2022 midterm elections come around. Brent now up close to 116% since the eve of the 2020 U.S. Presidential election.

We are told OPEC+ is proud their “control of price” regime is back. A mere year ago, it was hard to grasp that they had any control after a 10-year hiatus as the dictator of pricing. We feel they canceled today’s planned meetíng just to save the pain of having to create more anxiety in the market when they say they could not land on a solution. Frankly, the solution likely lies behind closed doors with a few parties and not the whole group. That is likely what is happening. But there are a bunch of people out there that say they have ‘inside contacts’ that likely know or think they know.

“The deal we see is, no extension past April 2022, gives time for UAE to argue for a higher baseline, both are sides committed, Larry, there is a low probability of a destructive breakdown with a large boost in production, not happening.”

– CIO in Canada, in our live Bear Traps, chat on the Bloomberg terminal.

The market hanging on the outcome of the weekend along with the meteoric rise of Saudi control of the market over the last year. All should be seen as a sign that they (OPEC+) don’t want to blow this opportunity. The March 2020 testosterone show inflicted a lot of pain on all sides, those scars are still healing. Oil price risk is to the upside. The likely UAE deal is a kick of the can to April 2022. The world is watching them again for signs of control or lack of it. OPEC lost control for 10 years when the Shale drilling spewed new non-OPEC supply into the market in ’09 and they don’t want to lose control like that again.

We are in a period of strong demand and weak supply. The UAE weekend proposal says no extension past April 2022, OPEC + wanted the extension for all of 2022. In recent months, years, the Saudis have worked many other members into contained quotas, baselines.

A total breakdown is highly unlikely, “the oil market globally is in a sweet spot, there is too much money on the line for all the players. Demand globally is strong, we are looking at a deficit of 2.3 to 2.5mbd in June, the highest since last year coming out of covid” – CIO of a large energy fund in Canada.

If OPEC can’t make that perfect scenario work then it is sending a signal of significant weakness to the market, then volatility to pricing will be back. That means derivatives players will start controlling the price and we could see dramatic whipsaws in prices as we did in the last decade prior to COVID rebalancing the market. While Saudi is in control, you won’t see the shorts show up. They have warned the speculators to stay away or be hurt. They listened for the most part but would show up again if this cartel were to start showing significant cracks. We just don’t think that OPEC+ is that unwise to let all of their great efforts go to waste over this quota issue. Demand surge is real, summer driving. Overall market dynamics best in decades, the risk to oil prices is to the upside.

“All the emergency spare capacity is outside the USA now Larry.” – Portfolio Manager in the U.S. Midwest.

Spare capacity globally is mostly inside core OPEC, the ESG overdose has crushed US shale investments (see “Why One Bank Thinks ESG Could Trigger Hyperinflation“)

“There is too much money in the hands of core OPEC, two years ago this was NOT the case with shale cranking” – CIO, Macro Fund in NYC.

Further to that, there is an agreement that all parties are saying they are obligated to work with until Apr ’22. Even UAE says they are not trying to be a thorn or break up the cartel or even the agreement. So I think we can assume this agreement will be honored and we have relative stability until then. That is a lifetime in this market lately. Iran’s new supply risk is out in November in terms of getting oil to mkt, current shale new rigs coming online are not sufficient to impact prices near term.

“Watch RIG equity as CAPEX investment start to come in, Q3. Very tight global market through year-end. One producer needs to produce 2.3mbd to get the mkt into a surplus, that is a high bar, not in anyone´s interest.” – CIO Energy Fund in Canada.

US shale is not a threat as it is very high-cost production and requires higher prices or contango in the curve to see incremental supply enter the system. Also, the ESG (backfire) narrative still weighs heavy on their ability to grow. In this cycle, companies are being forced to return capital to shareholders, there is far less cowboy up speculation, drilling. Frankly, this ‘noise’ around OPEC+ stability only shakes the ground under the US producer to remember how quickly prices could collapse again.

“It is time to think of the oil curve CL1 (front-month futures contract) is priced at $75.16 vs. CL36 (36 months out futures contract) down at $57.95. As you can see above the spread above is eye-opening looking back from 2005 to 2021. “Larry, the one-year backwardation roll is 11%, just wow” says a veteran oil trader in our live chat.

“Spikes in oil prices have triggered economic slowdowns historically. Remember, oil isn’t a forward-looking product. It is a ‘demand is here now’ product.. The curve shows it, CL36 at 2y highs vs. CL1 at 7y highs speaks volumes. WTI is saying this is a short-term supply and demand imbalance, Otherwise, PBR would be at $50/sh, its closer to $12.” – Veteran energy sector portfolio manager in Brazil.

Inventories are dropping and global demand is on the rise via economic re-opening, a massive increase in driving and massive unprecedented infrastructure spending around the world. We have yet to see the impact of global travel amongst countries via airlines which will add almost 3 mil b\d of demand. We don’t see any increase in OPEC+ production being considered as a threat to the current price. In this status quo market, we need more of their supply or we are going to see higher oil prices. The current situation is a very unique opportunity for OPEC to cash in. Non-OPEC – Ex USA production spare capacity around the world in decline.

“We see strong demand (India, Europe) with real supply risk, it is not in OPEC´s interest to blow this opportunity.” – CIO London. Oil has a shot at $90 to $100 in, next 6 months.

We do not believe that a price-destructive “non-deal” is in the cards at this time. This is the strongest period OPEC+ has had in the market in decades and they don’t want to give that all up.

The big three internet and social media companies Facebook, Twitter and Google have warned the Hong Kong government that they could quit the city altogether if new controversial data protection laws ostensibly to “combat doxxing” are pushed through. The Silicon Valley giants reportedly made their stance known “privately” according to reporting in The Wall Street Journal Monday.

Without doubt the new proposed legal amendments to existing data protection laws are closely related to the pro-China crackdown which has for many months utterly stifled the kind of large-scale pro-independence protests which defined much of 2019. Facebook, Twitter and Google’s anger over the possible beefed-up law centers on the part that would make them liable for revealing individuals’ private information online. Also in the cross-hairs is Amazon.

Doxxing was widely viewed as a favored tactic of young anti-China activists, which reportedly targeted pro-mainland HK officials and entities while sometimes violent protests raged in the streets. The amendments were first proposed in May by Hong Kong’s Constitutional and Mainland Affairs Bureau and would also impose steep penalties on individuals caught doxxing, including up to five years in prison and a fine of up to 1 million Hong Kong dollars (or over $120,000). 

The US companies are also alarmed at how vague the definition of doxxing might be defined by HK authorities at a moment the ‘national security law’ continues to be used as a broad, blunt instrument for pursuing activists and dissidents. At this point, a number of the most prominent protest leaders are either in jail or in exile, with Joshua Wong, Agnes Chow and Jimmy Lai currently serving prison sentences related to things like the “anti-mask” law and unauthorized assembly.

The tech giants worry their own local employees and system administrators would inevitably be subject to criminal charges based merely on the actions of random individual users, including what might be viewed in the West as political free speech, but which Hong Kong and its Beijing backers would view as banned speech. Google’s Hong Kong Web site is considered to be much less censored when compared to mainland China’s filters designed to prevent access to government-critical information and sources.

The previously undisclosed June 25 letter from an industry group through which Facebook, Twitter, and Google raised their alarm said bluntly that—

“The only way to avoid these sanctions for technology companies would be to refrain from investing and offering the services in Hong Kong…”

The letter calls the proposed penalties “completely disproportionate and unnecessary response” that will cast a broad enough legal net that will no doubt punish “innocent acts of sharing information online,” according to select quotes unveiled for the first time in WSJ.

Anti-Doxxing Law Could Force Tech Giants Including Amazon, Google From Hong Kong, Industry Group Warns https://t.co/uq6B6r50DD pic.twitter.com/pHSi9x6US5

— Forbes (@Forbes) July 5, 2021

Though it remains to be seen whether they would go through with this ‘nuclear option’ – as Google and Facebook have elsewhere threatened to – for example in Australia for very different reasons (related to advertising revenue and new government efforts to ensure greater reward for local news sources).

The city’ some 7.5 million population doesn’t make it a huge user-base compared to much of the rest of the US companies’ global presence; however, it’s unthinkable to many that such a central international financial hub could be without Google or Twitter, for example. It would also certainly negatively impact any future protests movements or activists’ ability to rapidly share information, as the law will also extend to Telegram, or any alternative platforms. 

Paul Haswell of Hong Kong-based law firm Pinsent Masons summarized the slippery slope scenario easily foreseeable if the law goes into effect: “A broad reading of the rules could suggest that even an unflattering photo of a person taken in public, or of a police officer’s face on the basis that this would constitute personal data, could run afoul of the proposed amendments if posted with malice or an intention to cause harm, he said,” according to WSJ.

Authored by Frank Fang via The Epoch Times,

U.S. billionaire investor Charlie Munger, vice chairman of Berkshire Hathaway, praised China’s communist regime for its silencing of Alibaba founder Jack Ma.

“Communists did the right thing,” said Munger on what the Chinese regime did to Ma, in an interview with CNBC on June 29.

JESUS FUCKING CHRIST.
pic.twitter.com/39kvjeZucl

— INVESTMENT HULK (@INVESTMENTSHULK) July 4, 2021

Munger, a longtime business partner of Warren Buffett, said the Chinese Communist Party (CCP) “just called in Jack Ma” and told him “you aren’t gonna do it, sonny,” pointing out that the Chinese tech billionaire was looking to “wade into banking” and “just do whatever he pleased.”

“I don’t want the, all of the Chinese system, but I certainly would like to have the financial part of it in my own country,” Munger said.

Ma had publicly criticized China’s financial industry in October last year, when he said that Chinese banks had a “pawnshop mentality” and added that the Chinese finance sector “basically doesn’t have a system.” After making the remarks, Ma disappeared, before making his first public appearance in January.

Meanwhile, the Chinese regime launched an antitrust probe against Alibaba in December last year, before slapping a fine of $2.8 billion on it in April for anti-competitive tactics. In response to the fine, Alibaba issued a statement saying the company was “full of gratitude and respect” since it “would not have achieved our growth without sound government regulation and service.”

Alibaba’s affiliate Ant Group has also been targeted. In April, Chinese regulators demanded the fintech group undergo a restructuring overhaul, five months after the company’s $37 billion initial public offering (IPO) in Shanghai and Hong Kong was suspended.

Munger also criticized the U.S. free-market economy.

He explained,

“Our own wonderful free enterprise economy is letting all these crazy people go to this gross excess,” meanwhile the Chinese regime “step[s] in preemptively to stop speculation.”

Additionally, Munger praised China’s response to the COVID-19 pandemic, saying that as a totalitarian state, the Chinese regime could “simply shut down the country for six weeks.”

“That turned out to be exactly the right thing to do. And they didn’t allow any contact,” Munger said.

The Chinese regime took draconian measures to stop the spread of the CCP virus, the pathogen that causes the disease, after concealing the outbreak the outbreak by silencing whistleblower doctors. These measures included sealing off residents’ doors and forcing people to take unproven COVID-19 drugs.

In January, Human Rights Watch called out these draconian measures, urging the Chinese regime to stop its campaign against people seeking redress for abuses linked to the outbreak.

“The Chinese government’s narrative that it has won the COVID-19 ‘war’ is conditioned on silencing those who speak out about failings in the government’s pandemic response and abuses committed under the pretext of stopping the spread of the virus,” said Wang Yaqiu, China researcher at Human Rights Watch, in a statement.

Some Chinese citizens have filed lawsuits against government officials in Wuhan, the epicenter of the CCP virus outbreak last year, over their handling of the outbreak.

Munger has been open about his admiration for the Chinese regime in recent months. During a shareholders meeting in May, he praised the Chinese communist leaders for how they allowed “businesses to flourish” and that there were now “a bunch of billionaires” in China.

In February, he told the annual meeting of the Los Angeles-based Daily Journal Corp., where he serves as chairman, that “the strongest companies in the world are not in America. I think Chinese companies are stronger than ours and are growing faster.”

It’s hardly a secret that the Wall Street/central bank establishment is not a fan of energy-intensive proof of work (PoW) crypto tokens in general and bitcoin in particular. Even Elon Musk infamously U-turned in his support for bitcoin after he – gasp – discovered that electricity electricity is involved in the creation of cryptocurrencies (coincidentally, right around the time China made it abundantly clear that for the digital yuan to flourish and for Tesla cars to keep selling in China, Musk would have to turn his back on the largest cryptocurrency).

But what about far more energy efficient proof-of-stake (PoS) tokens such as Cardano, Polkadot, Tezos, Polygon, and – soon – Ethereum 2.0?  Here things get a little confusing because unlike the rest of the crypto space which is almost universally loathed by Wall Street analysts, when it comes to the PoS subspace, the sellside appears to have developed a bit of a soft spot.

Take JPMorgan analyst Ken Worthingon and Samantha Trent who in a lengthy primer on staking, meant to identify where the biggest growth opportunities are in the crypto space (for companies like Coinbase which they cover), they not only disagree with the most famous crypto skeptic of all, their own boss Jamie Dimon, who 4 years ago said he would fire anyone caught trading bitcoin, but by extrapolating current growth trends in the PoS space, conclude that as bitcoin and ethereum increase in popularity, staking – the process of pledging one’s cryptos to pocket interest –  will gain traction as a source of revenue for institutional and retail investors alike, and that once ethereum merge happens into ethereum 2.0, JPM estimates that staking, which is currently a $9bn business for the crypto economy, “will grow to $20bn following the  Ethereum merge, and could get to $40bn by 2025 should proof-of-stake grow to the dominant protocol” (at which point the duo expects Coinbase to get a $500mn staking revenue run rate).

A quick aside for novices: currently the bitcoin and ethereum blockchains use an energy-demanding process called proof-of-work to ensure all transactions on the network are valid and that the network’s distributed record is accurate. It is this Proof of Work process that is the basis for all criticism that bitcoin and various other cryptos, are energy inefficient as they require brute force “mining” to maintain the system.

However, in order to create a more scalable and energy-efficient system, blockchain development teams, including the decentralized finance movement, ethereum (which Goldman recently called the “Amazon of Information” in a lengthy report in which it panned bitcoin as a “one trick pony” and praised ethereum as the next big thing in crypto), are switching from proof-of-work to proof-of-stake, where investors lock-up their funds on the blockchain in exchange for rewards.

While we have discussed it at length previously, staking is an essential part of maintaining the integrity of the cryptocurrency ecosystem for proof-of-stake tokens. In order to record cryptocurrency transactions, the blockchain needs to be updated and validated. Two protocols are used for this validation, proof-of-work (the current dominant blockchain validating protocol, used by Bitcoin and currently by Ethereum) and proof-of-stake (the emerging and faster growing protocol that is the core of staking.) Both the PoS and PoW protocols incentivize blockchain validation by issuing (generally in-kind) rewards, with Bitcoin miners rewarded in Bitcoin and Ethereum 2.0 minters rewarded in Ethereum 2.0, for example.

A selection of the largest PoS tokens is shown below.

Staking cryptocurrencies like SOL or BNB earn yields ranging from 4% to as high as 15.9% annually, according to data from staked. The Winklevoss crypto exchange Gemini currently advertises to  investors the chance to earn annual yields up to 7.4% by holding on to their stablecoin.

The report also says that as the volatility of cryptocurrencies declines, the ability to earn a positive real return will be an important factor in helping the market become more mainstream. That’s why, JPM projects that the number of tokens utilizing the proof-of-stake protocolwill continue to grow faster than the number of tokens using the proof-of-work protocol. Here, the greater the number of PoS tokens, the greater the market cap associated with PoS, the greater the investment income opportunity for token holders in the staking process and for companies that facilitate staking.

The JPM analysts also echo what we said over a month ago, namely that in their view, “the PoS protocol is becoming increasingly popular and is benefiting from concerns about the energy consumption and resource utilization for tokens using the PoW protocol. When combined with a proof-of-stake system that better aligns token holders and their blockchain validation together with enhanced security, we see new tokens increasingly adopting the PoS protocol, driving the staking opportunity higher over time.”

This is important for companies that JPM’s analysts cover such as Coinbase, because the analysts predict that staking will become a growing source of income for cryptocurrency intermediaries like Coinbase, especially after Ethereum 2.0 which is scheduled to be complete in 2022. JPMorgan estimates that staking presents a $200 million revenue opportunity for Coinbase in 2022, up from $10.4 million in 2020.

As for the demand side, as cryptos mature and volatility declines, a key driver of investor interest will be yield PoS tokens generate:

Individuals or institutions are incentivized to stake their cryptocurrencies to earn passive income rewarded in-kind from the network. Nominal yields can be high from staking and are contingent both on the design of the token as well as the participation rates in the staking pools. While not the main draw for individual or corporate participants in the cryptomarkets at this time in our opinion, yield earned through staking can mitigate the opportunity cost of owning cryptocurrencies versus other investments in other asset classes such as US dollars, US Treasuries, or money market funds in which investments generate some positive nominal yield. In fact, in the current zero rate environment, we see the yields as an incentive to invest.

In other words, while most focus on the explosive capital appreciation (and depreciation) qualities of cryptos where bitcoin went from $30K to $60K and then back again to 30% just this year alone, a growing area of interest for less aggressive investors will be the yield they can generate on their various crypto tokens and stablecoins.

To be sure, this transformation from PoW to PoS will take a while, and will require the successful conversion of the PoW Ethereum 1.0 into PoS Ethereum 2.0. Meanwhhle, as shown in the chart below, the cryptocurrency market remains dominated by proof-of-work, which accounts for roughly 70% of the cryptocurrency market capitalization. This is largely driven by the two largest tokens, Bitcoin and Ethereum, which are both (currently) proof-of-work, although it is critical to note that Ethereum is due to migrate to proof-of-stake protocol in the coming months (Ethereum 2.0 was originally supposed to launch in January 2020, and is now expected to enter its final launch phase in 2022.).

Of course, there are risks, and the potential ability to earn consistent positive yield through staking cryptocurrencies is dependent on market volatility. For example, ethereum competitor Solana lets investors take the native SOL cryptocurrency, currently valued at $32.76, and earn SOL rewards. If the value of the SOL token were to tank, there would be no real gains. This is true of any staking cryptocurrency.

That said, JPM is confident that as the crypto market matures and volatility decreases, staking will likely become a more reliable source of revenue (much more in the full JPM report).