Month: April 2022

Days before Russia’s invasion of Ukraine, China staged a huge cyberattack on Ukrainian military and nuclear facilities, according to intelligence memos obtained by The Times.

According to the report, over 600 defense ministry websites in Kiev, as well as other institutions, were hit by thousands of hacking attempts which were ‘coordinated by the Chinese government,’ according to Ukraine’s security service, the SBU.

A source in the spy agency revealed that, in an apparent sign of complicity in the invasion, Chinese attacks started before the end of the Winter Olympics and peaked on February 23, the day before Russian troops and tanks crossed the border.

The SBU said China’s attacks sought to infiltrate targets ranging from border defence forces to the national bank and railway authority. They were designed to steal data and explore ways to shut down or disrupt vital defence and civilian infrastructure. –The Times

The Times also reports that Russia attempted to hobble Ukraine’s computer networks and government websites shortly before the invasion – however the ‘fingerprints’ left by this attempt were distinct from the Chinese attacks, according to the SBU.

The SBU said China’s attacks sought to infiltrate targets ranging from border defence forces to the national bank and railway authority. They were designed to steal data and explore ways to shut down or disrupt vital defence and civilian infrastructure

— The Times (@thetimes) April 1, 2022

“The number of people China has engaged in cyberoperations is enormous. A lot of them are part of the People’s Liberation Army, which is part of the [Chinese Communist] party,” said Steve Tsang, director of the Soas China Institute. “We all believe that they have a cyberforce that attacks states. They have been more engaged in getting information rather than shutting people down. If they’re working in Ukraine they’re working in support of Russians. The implications of this would be they are potentially subjected to sanctions.”

The Biden administration has corroborated the alleged Chinese cyberattack, according to The Times.

China has notably refused to condemn Russia for the Ukraine invasion – while Chinese President Xi Jinping notably hosted Russian President Vladimir Putin during the Beijing Winter Olympics in early February, where the men signed a joint statement declaring that their strong ties have “no limits” and “no ‘forbidden’ areas of cooperation.”

Shortly after the agreement, Ukraine’s SBU claims they saw “increase in activity against our country’s networks in mid-February with active CNE operations being conducted daily,” which peaked on Feb. 23, the day before the invasion.

“Intrusions that are of particular concern include the CNE campaigns directed at the State Nuclear Regulatory Inspectorate, and the Ukrainian Investigation Website focused on Hazardous Waste,” reads one memo shared with The Times by an SBU source. “This particular CNE attack by the Chinese cyberprogram included the launch of thousands of exploits with attempts pointed to at least 20 distinct vulnerabilities.”

The timing appears to confirm that Moscow had already informed Beijing of its invasion plans, cybersecurity experts said. “It sounds like they didn’t care that they were seen — they had an objective to get in and get what they needed as quickly as possible,” Tom Hegel, a senior threat researcher at SentinelOne, a US cybersecurity firm, said. -The Times

Not to worry, however, as President Joe Biden – whose family’s dealings with a CCP-linked energy company have recently resurfaced – insists China isn’t a threat.

1 YEAR AGO TODAY: Joe Biden bragged about spending more time with China’s Xi Jinping than any other world leader and dismissed China as not a threat, saying “China’s not our problem.” pic.twitter.com/N4NeLkoKY5

— Trump War Room (@TrumpWarRoom) October 23, 2020

News of the alleged cyberattacks come as European leaders pressed Beijing to choose a side – the West or the Kremlin – with EU President Ursula von der Leyen relaying the bloc’s concerns about Ukraine to Xi.

Remember that time the media spent four years insisting Russia had leverage over Trump based on a fabricated dossier – only to now completely ignore any actual leverage Beijing may have over the current US President?

It might be time to activate super negotiator Hunter Biden, who has experience dealing with high-level Chinese and Ukrainian figures.

Authored by Lance Roberts via RealInvestmentAdvice,com,

Yield curve inversion conversations are dominating the media to the point it almost sounds like the start of a bad joke.

“A yield curve inversion walks into a bar. The bartender asks ‘hey, what’s got you down?’”

The conversations are primarily dismissive under the “this time is different” scenario. As noted by Yahoo Finance last week:

“Take a look at the August 2019 inversion. A recession did happen a year and a half later. But it was triggered by a global pandemic — something bond markets could not have possibly foreseen or predicted.”

That isn’t accurate as the recession occurred only 6-months later. Furthermore, the bond market did know there was something very wrong economically as the Fed was engaged in a massive repurchase operation to bail out hedge funds.

As we noted then, all that was required to push the economy into a recession was an “unexpected, exogenous event.” That event turned out to be a pandemic.

Notably, when psychology changes, for whatever reason, the rotation from “risk-on” to “risk-off” will find Treasury bonds as a “store of safety.” Historically, such is always the case during crisis events in markets.

Once again, it is pretty likely investors should not overlook the message from the bond market. Bonds are essential for their predictive qualities, so analysts pay enormous attention to U.S. government bonds, specifically to the difference in their interest rates.

This data has a high historical correlation to where the economy, stock, and bond markets generally head longer term. Such is because everything from volatile oil prices, trade tensions, political uncertainty, the dollar’s strength, credit risk, earnings strength, etc., reflects in the bond market and, ultimately, the yield curve.

Yield Curve Inversions

When it comes to yield curve inversions, the media always assumes this time is different because a recession didn’t occur immediately upon the inversion. There are two problems with this way of thinking.

1. The National Bureau Of Economic Research (NBER) is the official recession dating arbiter. They wait for data revisions by the Bureau of Economic Analysis (BEA) before announcing a recession’s official start. Therefore, the NBER is always 6-12 months late dating the recession.

2. It is not the inversion of the yield curve that denotes the recession. The inversion is the “warning sign,” whereas the un-inversion marks the start of the recession, which the NBER will recognize later.

As discussed in “BTFD Or STFR,” if you wait on the official announcement by the NBER to confirm a recession, it will be too late. To wit:

“Each of those dots is the peak of the market PRIOR to the onset of a recession. In 9 of 10 instances, the S&P 500 peaked and turned lower prior to the recognition of a recession.“

Most of the yield spreads we monitor, shown below, have yet to invert. However, the best signals of a recessionary onset occur when a bulk of the yield spreads turn negative simultaneously. However, even then, it was several months before the economy slipped into recession.

When numerous yield spreads turn negative, the media will discount the risk of a recession and suggest the yield curve is wrong this time. However, the bond market is already discounting weaker economic growth, earnings risk, elevated valuations, and a reversal of monetary support.

Historically, a recession followed when 50% or more of the tracked yield curves inverted. Every time. (Read this for a complete history.)

Ignore At Your Own Risk

In the World War II real-time strategy (RTS) game Company of Heroes, the engineer squad would sometimes say:

“Join the army they said. It’ll be fun they said.” 

Since then, the statement has become a common meme on the internet to espouse the disappointment from various actions, from doing the laundry to getting a job.

Well, the latest suggested action, which will ultimately lead to investor disappointment, is:

“Ignore the yield curve they said. It’ll be fun they said.” 

In March 2019, Mark Kolanovic of J.P. Morgan stated:

“Historically, equity markets tended to produce some of the strongest returns in the months and quarters following an inversion. Only after [around] 30 months does the S&P 500  return drop below average,”

12-months later, the market was down 35%, and the economy was in the deepest recession since the “Great Depression.”

The yield curve is sending a message that investors should not ignore. Furthermore, it is a good bet that “risk-based” investors will likely act sooner than later. Of course, the contraction in liquidity causes the decline, which will eventually exacerbate the economic contraction. 

Despite commentary to the contrary, the yield curve is a “leading indicator” of what is happening in the economy currently, as opposed to economic data, which is “lagging” and subject to massive revisions.

More importantly, while the consumer may be continuing to support growth currently, such can, and will, change dramatically when job losses begin to occur. Consumers are fickle beasts, and it will happen very rapidly when a change in psychology occurs.

While using the “yield curve” as a “market timing” tool is unwise, it is just as foolish to dismiss the message it is currently sending entirely.

History has not been kind to those that do.

Ukrainian farmers have been stealing tanks and other Russian military equipment with their tractors. Videos have surfaced online in recent weeks, and the question many have asked is what happens with all the captured war machines?

It just so happens that the Ukrainian parliament (also known as Rada) passed a new measure rewarding anyone, even Russian soldiers, to turn over equipment to Ukraine for a reward. 

“For a helicopter – 500 thousand dollars, a tank – 100 thousand, respectively. If, for example, someone is ready to come to us by plane – it’s a million dollars,” the first vice-speaker of the Ukrainian parliament Oleksandr Kornienko said in a statement Saturday. 

Here’s a complete breakdown of Ukraine’s reward system for the voluntary transfer of Russian military equipment to the Ukrainian Armed Forces (all prices are in USD): 

• Combat aircraft (fighter and assault aircraft) – 1,000,000;

• Combat helicopter – 500,000;

• Reactive volley fire system – 25,000 – 35,000;

• Tank, ground artillery (self-propelled) – 100,000;

• Infantry fighting vehicle (landing), armored personnel carrier, armored reconnaissance patrol vehicle – 50,000;

• Military vehicle (truck, specialized), military tractor, military engineering vehicles: reconnaissance, demining, mine barriers, bridges, fencing, for paving roads, for earthworks, to overcome water obstacles – 10,000;

• Ships of 1st or 2nd rank – 1,000,000;

• Ships of 3rd or 4th rank – 500,000

• Ships of military (auxiliary) support – 200,000;

• Ships of small combat (reconnaissance) purpose – 50,000.

Kornienko said Russian troops would be motivated to hand over the weapons to “replenish their financial status” and their “misunderstanding of the meaning of why they are dying.” He added: “the reward tool will work.” 

This is certainly an innovative way to buy weapons at a discount. Ukrainian farmers stand to make a killing. 

Authored by J.G.Collins via The Epoch Times,

Someone once said that you never actually “buy” a home.  Instead, you merely commit to paying an annuity: the mortgage.

That’s largely true. The price and “value” of homes for the overwhelming majority of homeowners is a function of home buyers’ ability to make payments.

And with the Federal Reserve signaling further interest rate hikes, home buyers and sellers—and assorted others who use credit—will incur knock-on effects from those increases.

The low rates of the last several years, together with additional money creation from the Fed and other reckless fiscal and monetary policy, have led to an extraordinary increase in home prices, particularly as a consequence of the CCP Virus becoming pandemic.

In just 18 months, median home prices surged 26.5 percent, from $322,600 at the end of the second quarter of 2020 (or “2020Q2”) to $408,100 in 2021Q4.

That price surge, together with the higher interest rates the Fed promises now, makes a huge difference in buyers’ options and their monthly payments.

Let’s compare mortgage payments for the $322,600 in 2020Q2 and the $408,100 in 2021Q4 using a 20 percent down-payment and the 30-year conventional mortgage national average interest rate, and take no account of points or property taxes.

If one bought the property at the end of 2020Q2, the mortgage carry charge on that loan using the national average 30 year 3.07 percent interest rate that was in effect at the end of 2020Q2, buyers would make a $64,520 down payment and make required monthly payments of  $1,097.84.

If one bought the property at the end of 2021Q4, the mortgage carry charge on that loan using the national average 30 year 3.11 percent interest rate that was in effect at the end of 2020Q2, buyers would make a $81,620 down payment and make required monthly payments of  $1,395.90, or 27 percent more than in 2020Q2. But if the same mortgage terms were secured just last week, March 24, after the Fed raised their rate by a quarter-point, when rates spiked to 4.42 percent, the payment would be $1,638.74, an incredible 49 percent more than at 2020Q2—in just 18 months! From the beginning of the year to last week—less than three months—the payments have spiked over 17 percent!

But let’s assume that the homebuyer in 2020Q2 is a time traveler and he’s home shopping last week. He can still only afford the same $1,097.84 he could afford then. He still has his $64,520 downpayment, but with a 30-year mortgage at 4.42 percent, the maximum value of a home he can afford now is just $283,238,  or $39,362—more than 12 percent—less than the $322,600 average home value when he went to purchase in 2020Q2.

All that is unfortunate for our time-traveling home purchaser.

But it’s even worse for the seller.

Let’s assume the time traveler is now selling the home he had bought in 2020Q2 and, for simplicity, let’s ignore any payments he made between then and last week. That means at the closing of the home sale, the seller would be “underwater,” owing the mortgage holder nearly $40,000.

All these mortgage computations simply mean there will be a lot of “knock-on” effects in the economy.

Since wages have increased far slower than home prices, and home prices are dependent on the ability of buyers to make payments, we anticipate home prices will fall considerably. We might also find more recent home buyers disillusioned with their purchase and perhaps walking away from their mortgage commitment, leaving their bankers holding the bag. (This happened to a large extent during the mortgage crisis in 2008, although the Dodd-Frank Act purports to have imposed measures that will prevent it from recurring.)

But beyond home values and purchases, these home mortgage payment issues will affect the broader economy.

Before the pandemic, home values were inversely proportional to the distance from city centers; homes were cheaper the further they were from the city. While that may change somewhat as a consequence of more workers telecommuting, it’s still reasonable to assume the pre-pandemic correlation will largely continue and may even push affordable homes even further from the city center.

With the average cost of a gallon of gas over $4 and the country still years away from having electrical vehicle recharging infrastructure, that means middle-income working people will be commuting longer and at a higher cost.  That will further reduce their discretionary income, so families will have less money to spend on restaurant meals, travel, Christmas spending, and other luxuries.

This will also have demographic effects. Family formation is likely to decrease as middle-income couples will be far less able to afford the enormous costs of rearing children and have less time to participate in parenting. Our demographics—which were already in a bad place before the pandemic—will suffer even more. As a consequence, the generation that would normally come into its own in 2045 or so won’t be nearly as robust as it would otherwise be.

Of all the knock-on effects of the pandemic and the Fed’s management of its balance sheet, this intergenerational effect is perhaps the most pernicious and dangerous, particularly as it will be coming at a time when China has targeted 2050 as the year it plans to surpass the United States.

The reason is found in a demographic lesson from World War I.

Some Americans snicker at our oldest ally, France, as “cheese-eating surrender monkeys” because France fell to the Nazis so quickly in World War II. But as Molly Ivins wrote nearly 20 years ago in a column every American should read,  “One million, four hundred thousand French soldiers were killed during World War I. As a result, there weren’t many Frenchmen left to fight in World War II.”  The fathers of the sons who would have fought the Nazis in 1940 had been lost in the trenches of World War I a generation earlier.

At a  time when our principal adversary—and our potential enemy—China, plans to be coming into the apex of power, the United States will be struggling to fill the ranks of our military and to maintain our economy because family formation will be acutely and adversely affected by reckless federal economic policy that was decades in the making.

Unless the leadership of the nation acts soon to address the looming crisis of Americans’ ability to make home mortgage payments and afford homes, they will continue to endanger our economy, our lifestyles, and possibly even our national security.

Since the start of Russia’s  “special military operation” in Ukraine and the subsequent sanctions levied by the West, the western press (and western authorities) have become obsessed with tracking the luxury assets belonging to Russia’s billionaire class. Italy has already seized hundreds of millions of euros’ worth of yachts and villas, and it’s not the only jurisdiction seizing assets (or preparing to do so).

Given his high visibility in the West, it’s perhaps not a surprise that Roman Abramovich’s assets (which, until very recently, included Chelsea Football Club, the popular English Premier League team which he recently placed in the hands of a trust ahead of a sale) have been the focus of particular attention. Two of his yachts ended up in Turkey after fleeing European sanctions.

Now, an investigation by the FT has managed to pierce the veil of secrecy surrounding Abramovich’s assets, and as it turns out, the two megayachts mentioned above represent only a part of his fleet.

The Solaris and Eclipse (worth $474 million and $437 million, respectively) are safely in Turkey. But the FT has discovered that the Russian billionaire also owns the Halo and Garçon, which are both presently moored in Antigua, leaving them within the reach of European authorities.

Per the report, the Antiguan government was unaware of his ownership of the luxury vessels docked on the island prior to being informed by the FT.

This opacity of ownership, a common theme that authorities have confronted in seeking to track down assets owned by sanctioned individuals (while Abramovich has been sanctioned by the EU, Washington has so far held off, purportedly at the urging of Ukrainian President Volodymyr Zelensky), illustrates just how difficult it can be to find and seize oligarchs’ assets.

According to the FT, both Halo and Garçon, valued at $38 million and $20 million, respectively, and are now at risk of being seized.

In a letter to the British high commissioner to Barbados regarding the yachts, Antiguan minister of foreign affairs Paul Chet Greene said the island would “provide full assistance to the government of the United Kingdom” if it receives a request under the two nations’ Mutual Legal Assistance Treaty.

The letter noted that Antigua had requested information on the company that owns the two boats – British Virgin Islands-registered Wenham Overseas Limited – after “persistent allegations by the Financial Times that the vessels could be owned by Mr Roman Abramovich.” In response, the British high commission provided Antiguan authorities with a letter, seen by the FT, “from the Financial Investigation Agency of the British Virgin Islands which states the beneficial owner of Wenham Overseas Ltd is Roman Abramovich”.

What’s more, British authorities also believe Abramovich is the owner of a fifth yacht presently docked in the South of France.

A person with knowledge of Abramovich’s boat collection and documents seen by the FT indicate that the oligarch may also still be the owner of Sussurro, the first yacht he bought in 1998, despite reports he had given it to an ex-wife in a divorce. The person who correctly identified the two yachts in Antigua as belonging to Abramovich told the FT the oligarch still owned Sussurro. The vessel’s owner is listed in maritime registers as Vesuvius International Limited in the British Virgin Islands. BVI documents show this company was deregistered there in 2017. Another Vesuvius International was registered in Jersey the same year.

In total, Abramovich’s fleet of vessels is worth roughly $1 billion. And while the two most expensive yachts are already safely stowed away in Turkey, he will likely need to move fast if he wants to avoid the rest of his fleet from falling into the hands of European authorities.

Authored by Kalev Leetaru via RealClear Politics,

How are food prices being covered on television news?

The timeline below shows total mentions of food prices across CNN, MSNBC and Fox News over the past decade, showing that mentions largely faded in 2014, before rising again in late 2019 to 2020 and surging around May 2021.

Fox News has mentioned food prices almost as much as CNN and MSNBC combined over the past decade.

Personality-driven shows dominate mentions of food prices.

Looking just since the start of the pandemic, food prices receive a burst of attention from late February to mid-May 2020 as the initial wave of lockdowns and restrictions raised questions of food access. Mentions surged again in May 2021 and have remained elevated since.

Over the course of the pandemic, Fox News has led mentions of food prices.

Looking at the total seconds of airtime in which food prices were mentioned in the onscreen text since the start of the pandemic, Fox News leads with 26 hours, followed by CNN’s 12 hours and MSNBC’s 7 hours.

Looking at business channel mentions since the start of the pandemic, Fox Business leads, with Bloomberg and CNBC roughly equal.

After European nations imported the most gas from Russian sources yesterday in months, scrambling to stock up on supplies as Russian President Vladimir Putin’s deadline to either pay for gas in rubles (or be cut off) came and went, Russian gas giant Gazprom has officially halted all deliveries to Europe via the Yamal-Europe pipeline, a critical artery for European energy supplies.

GAZPROM HAS STOPPED DELIVERIES OF RUSSIAN GAS TO GERMANY VIA YAMAL-EUROPE PIPELINE

— zerohedge (@zerohedge) April 2, 2022

Instead of flowing toward Germany and the EU, gas supplies on Friday and Saturday started flowing in the opposite direction, according to Gascade, the network operator.

In recent months, the EU has already boosted imports of LNG from the US…

…and despite President Biden’s promise to bolster to exports to the EU (although he stipulated that not all of this additional capacity would come from the US), researchers at Goldman Sachs have already shown that US exports of LNG are already at capacity.

Another problem for pipeline-dependent Europe: the continent presently doesn’t have the infrastructure to allow it to rapidly ramp up imports of LNG, which must be carefully processed and “regassified” before it can be distributed to utilities and other distributors of energy.

A map below illustrates the level of dependence that various European economies have on Russia.

But it’s not just the Germans who must now make due without Russian gas supplies. British energy major Shell is being cut off from Russian supplies in response to the UK’s economic sanctions on Russia, said Dmitry Peskov, the press secretary of Russian President Vladimir Putin.

“London wants to be the leader of everything anti-Russian. It even wants to be ahead of Washington! That’s the cost!” Peskov outlined.

So far, the UK is the only country to have imposed sanctions on Russia’s Gazprombank, through which payments for Russian natural gas are made. The measure effectively denies Britain the ability to pay for the commodity, and has forced Gazprom to walk away from the sales and trading arm. In accordance with Putin’s decree that Russian gas be paid for in rubles, Gazprom has set up foreign-currency accounts for customers where their currencies can be converted into rubles on the Moscow exchange.

Now that Putin is turning up the pressure, the European nations have a difficult choice ahead: either they can play ball and demonstrate to the world that their efforts to wean themselves off of their dependence on Russian energy have been mostly in vain. Or they can face a “catastrophic” economic crisis as energy prices soar, leading to rationing, blackouts and other measures that will make the 1970s oil crisis in the US look like child’s play.

Authored by Bryan Jung via The Epoch Times,

The recent financial sanctions imposed on Russia for its invasion of Ukraine are threatening to weaken the dominance of the U.S. petrodollar as the world currency, said First Deputy Managing Director Gita Gopinath of the International Monetary Fund (IMF) to The Financial Times.

The sanctions may result in a more fragmented international monetary system, warned Gopinath.

She had previously said that the sanctions against Russia would not foreshadow the demise of the dollar as the world’s reserve currency and that the Ukraine crisis would slow growth, but not cause a global recession.

The United States, the EU, and the Group of Seven nations have hit Russia with a bundle of heavy sanctions and blocked the country from using SWIFT, the global communications service that clears international financial transactions, virtually cutting it off from the global financial markets and international trade.

The United States also froze $630 billion in assets held in international reserves by the Russian Central Bank.

The Russian government is retaliating by demanding payment in rubles or gold for purchases of energy and other important commodities.

“If they want to buy, let them pay either in hard currency, and this is gold for us, or pay as it is convenient for us, this is the national currency,” said the head of Russia’s energy committee, Pavel Zavalny.

The United States and the UK have imposed embargoes on Russian energy exports, but the EU, which is more reliant on energy imports, is more reluctant to ban it.

The new policy has hit the EU the hardest, sending gas prices on the continent up by 30 percent on March 30.

Meanwhile, the ruble has since risen to a three-week high past 85 against the dollar after the Moscow Stock Exchange reopened after the initial round of sanctions.

Zavalny has suggested that buyers from countries friendly to Russia, such as China, could pay in their own fiat currencies or in Bitcoin.

Russia had been planning for years to reduce its dependence on the petrodollar since the United States imposed sanctions in retaliation for its annexation of Crimea in 2014.

The current crisis in Ukraine has only accelerated those plans.

Before the recent conflict, Russia still had roughly a fifth of its foreign reserves in dollar-denominated assets, mainly held overseas in Germany, France, the UK, and Japan, which have since sided with the United States to isolate Moscow from the global financial system.

Gopinath said that Russia’s response to the sweeping sanctions could encourage the emergence of small currency blocs based on trade between separate groups of countries and would lead to further diversification of the reserve assets held by national central banks.

“Countries tend to accumulate reserves in the currencies with which they trade with the rest of the world, and in which they borrow from the rest of the world, so you might see some slow-moving trends towards other currencies playing a bigger role [in reserve assets],” she said.

However, Gopinath doubts that the dominance of the U.S. dollar would likely be challenged in the medium term, as it is backed by strong and highly credible institutions and the fact that it is freely convertible.

“The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” said Gopinath.

“We are already seeing that with some countries renegotiating the currency in which they get paid for trade.”

Gopinath did note that the dollar’s share of international reserves had fallen from 70 percent to 60 percent over the past 20 years, with the emergence of other trading currencies.

About a quarter of the decline in the dollar’s share is attributed to greater use of the Chinese yuan, but less than 3 percent of global central bank reserves are denominated in that currency, according to the IMF.

The IMF deputy director said that the conflict is spurring the adoption of an international digital finance system, utilizing cryptocurrencies and central bank digital currencies.

“All of these will get even greater attention following the recent episodes, which draws us to the question of international regulation,” said Gopinath.

“There is a gap to be filled there.”

The CCP had been preparing for the use of the yuan as a global currency before the current crisis and was already ahead in adopting a central bank digital currency.

However, Gopinath said that the yuan was unlikely to replace the dollar as the dominant reserve currency.

“That would require having full convertibility of the currency, having open capital markets and the institutions that can back [them]. That is the slow-moving process that takes time, and the dollar’s dominance will stay for a while,” she said.