LARRY KUDLOW: Chinese spy balloon is a huge breakdown in our national security

America Misses The Power Objective Authored by Francis Sempa via RealClear Wire, The ideology that drives U.S. policy in Ukraine is eroding our strategic position abroad. On February 20, President Biden made a “surprise” visit to Kyiv, where he announced another half-billion dollars in aid to Ukraine, and stated, “Kyiv stands, Ukraine stands, Democracy stands.” “Americans stand with you,” Biden told Ukrainian President Volodymyr Zelenskyy, “and the world stands with you.” Biden further remarked that U.S. support for Ukraine is “not just about freedom in Ukraine, it’s about freedom of democracy at large.”   What’s lacking in all of this rhetoric is a reasoned assessment of U.S. national interests in the outcome of the Ukraine War. Some supporters of increased U.S. involvement on Ukraine’s side claim that if we do not stop Putin in Ukraine, some NATO ally will be next—a revival of the “domino theory” and the “lessons of Munich” that contributed significantly to our increased involvement in the Vietnam War. The notion of Putin’s Russia, which has an economy the size of Italy’s and whose armed forces are having a difficult time holding on to two eastern provinces of Ukraine, sweeping across the European plain to the English channel is a fantasy.   Contrast eastern Europe with the western Pacific, where American interests are clearly geopolitical in nature. China has the second-largest economy in the world, a huge reserve of manpower, a strong and ever-growing military power at both the conventional and nuclear levels (including, according to the Pentagon, more ICBM missile silos than the U.S.), and a geopolitical program that seeks to unite huge portions of the Eurasian landmass against the United States. China’s economic and political influence extends across Central Asia and into Africa and the Middle East via the Belt and Road Initiative. Its naval power extends from the East and South China Seas, through the South Sea, and into the Indian Ocean, where it has developed ports called the “String of Pearls” that threaten to outflank southern India. One of America’s top Air Force Generals recently revealed in a leaked memo that China’s Central Military Commission under the leadership of President Xi held a “war council” last October related to Taiwan. And, China recently launched what is being called a “surveillance balloon” across America’s heartland, which U.S. fighters belatedly shot down off the coast of South Carolina after it had traversed the Aleutian Islands, parts of Alaska, Canada, and much of the continental United States. Naval War College Professor James Holmes called this a Chinese “trial balloon” designed to gauge U.S. reaction to this blatant invasion of its airspace. Senator Tom Cotton remarked that the balloon should have been shot down or captured once it was discovered over the Aleutians. American leaders, Holmes writes, need to recognize that China is at war with us all of the time. In the tradition of Sun Tzu and Mao Zedong, China views peacetime as nothing more than “war without bloodshed.” Most troubling of all is the strategic partnership between the two Eurasian giants, which is only gaining strength in response to the foreign policy of the Biden Administration. Therein lies America’s strategic dilemma of pursuing our interests or our values. The two motives of U.S. foreign policy—interests or values—sometimes coincide but often clash. Henry Kissinger, among others, has written about this foreign policy dilemma, most profoundly in his book Diplomacy. Kissinger says that given America’s peculiar domestic political evolution, a foreign policy that ignores one or the other of these motives will eventually lose the support of the American people and therefore become politically unsustainable. Historically when U.S. policymakers have been faced with the dilemma, they have chosen geopolitics over liberal values, even as they have cloaked that choice with value-laden rhetoric. Consider two examples. During the First World War, President Woodrow Wilson publicly promoted the idea of peace without annexations and national self-determination for all peoples, even as he secretly countenanced Great Britain and France carving-up territories in the Middle East. And, during the Second World War, President Franklin Roosevelt publicly promoted the Four Freedoms and a postwar world where peace would be enforced by the United Nations, even as he provided massive aid and military supplies to Stalin’s Soviet regime, the very antithesis of freedom and peace. In both examples, geopolitical interests trumped liberal values but the rhetoric of liberal values persisted. However, one looks in vain to find an American president from George Washington through Theodore Roosevelt who thought it necessary to couch geopolitical interests in the language of liberal values. The late Angelo Codevilla made this the principal theme of his last book America’s Rise and Fall Among Nations. Codevilla highlighted the foreign policy wisdom of George Washington and John Quincy Adams, statesmen who never confused geopolitical interests with liberal values, and who never thought it necessary to disguise hardheaded realism with soft-headed rhetoric. That notion changed in the early twentieth century, when the Progressive Movement introduced and promoted the idea that human nature was perfectible. There is no doubt that George Washington, John Quincy Adams and every other nineteenth century president would have ridiculed this idea as ahistorical and unempirical. When the idea of human perfectibility was translated into foreign policy, the ideology of “democratism” emerged, which held that Western values were universal and should be spread throughout the globe.  Democratism led to related ideas that human rights were universal and that American foreign policy should work to bring about an earthly Utopia. As Robert Nisbet noted in his masterful book The Present Age, “Ever since [Woodrow] Wilson, with only rarest exceptions, American foreign policy has been tuned not to national interests but to national morality.” This idea grew in strength after World War II and perhaps reached its apogee during the presidency of Jimmy Carter. Carter, at least initially, made human rights the centerpiece of his foreign policy, though he applied it more vigorously to America’s allies (the Shah in Iran, Somoza in Nicaragua) than her enemies (the Soviet Union, Cuba). But democratism’s most vigorous champion was President George W. Bush, who reacted to the terrorist attacks of September 11, 2001, by launching a crusade for democracy in the Middle East and southwest Asia. Beyond launching failed wars based on values over interests, the Bush administration supported the further expansion of NATO towards Russia’s borders, including public support for the admission of Georgia and Ukraine to the Western alliance. Bush appeared to be oblivious to traditional notions of spheres of influence, and appeared to be equally oblivious to Russian history. Bush’s successors only compounded the problem by expanding NATO further. A comparison of maps of Europe in 1990 and 2022 reveals the geography of NATO expansion as viewed from Russia, showing, with the lone exception of Belarus, hostile and potentially hostile countries in an arc stretching from Scandinavia to the Balkans and Turkey.    The most strategically significant consequence of America’s unbounded democratism in the late twentieth and early twenty-first century has been to push Russia into the arms of China. The old Sino-Soviet bloc split in the 1960s due to internal rivalries. Richard Nixon’s diplomacy exploited and widened that split. Now, the bloc has effectively reformed—not based on ideology but on geopolitical rivalry with the United States. As Alexander Korolev points out in the feature article in The Diplomat, that Sino-Russian strategic partnership stems not only from the cordial relationship between Xi Jinping and Putin, but from long-term structural trends that have been building since the end of the Cold War. These trends are based on geopolitics, not values. Korolev write that America’s antagonism toward both China and Russia “further contributes to the consolidation of China-Russia alignment” because “[c]onfrontation with both China and Russia results in a convergence of the two countries’ views of the U.S. as their greatest security threat.” Washington’s hostile approach to both Eurasian great powers is a strategic error. The Biden administration has framed both the Ukraine War and China’s actions in the South China Sea as part of a broader ideological competition between democratic and autocratic powers. Somehow, the country that once sided with Josef Stalin to defeat Hitler, and sided with Mao Zedong to help bring down the Soviet empire, is loath to even consider ending or at least softening its hostility to Putin’s Russia in order to lessen China’s strategic threat. This is the triumph of democratism and liberal values over geopolitical interests. Unfortunately, we have been the author of our current strategic dilemma. We have suffered the fate of other great nations who, after achieving victories in great conflicts—in America’s case, the Cold War—approached the rest of the world with hubris and arrogance. During the previous three decades, our foreign policy has helped fuel China’s rise, pushed Russia closer to China, and overextended our commitments and resources in peripheral conflicts that did little or nothing to enhance our security. We have forgotten the wise counsel of perhaps America’s greatest geopolitical thinker Nicholas Spykman, who cautioned:              The statesman who conducts foreign policy can concern               himself with values of justice, fairness, and tolerance only               to the extent that they contribute to or do not interfere               with the power objective. They can be used instrumentally               as moral justification for the power quest, but they must be               discarded the moment their application brings weakness.               The search for power is not made for the achievement of               moral values; moral values are used to facilitate the               attainment of power.    America’s primary geopolitical interest should be to maintain the political pluralism of Eurasia, not foster a closer relationship between the two most powerful Eurasian countries. Francis P. Sempa writes on foreign policy and geopolitics. His Best Defense columns appear at the beginning of each month.  Tyler Durden Tue, 03/07/2023 - 22:05.....»»

Did U.S. Firms Help Propel China’s Balloon Fleet? Authored by Susan Crabtree via RealClear Wire, Sen. Mark Kelly, who previously served as a decorated space shuttle pilot with NASA, waded into the Chinese spy balloon uproar early this week after keeping publicly mum about it for several weeks. The Arizona Democrat said it makes no sense for the U.S. military to launch expensive missiles at weather balloons or other benign floating objects. Kelly was referring to a heat-seeking, air-to-air missile used in recent weeks to shoot down several high-flying aerial objects that the administration later suggested likely didn’t pose a threat. Earlier in the month, a U.S. Air Force F-22 shot down a Chinese surveillance balloon after it breached American airspace and floated across the country, setting off a firestorm in Washington. Kelly, who is set to be inducted into the U.S. Astronauts Hall of Fame in May, says he’s working on legislation that would require weather balloons to carry transponders that would communicate with air traffic control systems to separate research balloons from mysterious objects. “It would really help the Defense Department to be able to sort out what is civilian science payload, what’s a weather balloon, what’s a NASA balloon, what’s a private company in the United States doing, what might be even a U.S. military,” Kelly, who was tapped to chair a Senate Armed Services subcommittee amid the balloon controversy, told the Associated Press. Sen. John Tester, a Montana Democrat who is heading up the investigation into how a Chinese surveillance balloon was allowed to pass over crucial U.S. missile sites, including some in his state, was more forceful. “We’re going to get to the bottom of what happened and make sure we have a plan going forward to detect and then find out what potential problems this balloon may have caused,” Tester told Fox News. China’s high-altitude spy balloon controversy appears to have taken most Washington lawmakers and the intelligence community by surprise, but it really shouldn’t have. China’s interest in these stratospheric dirigibles has been an open secret for nearly a decade. Kelly himself has first-hand knowledge of China’s investments in near-space balloon technology. The Arizona senator co-founded a balloon space-exploration company named World View in 2012. Just two years later, he helped facilitate investments for the firm from Chinese tech giant Tencent, RealClearPolitics reported in 2020. Kelly’s eldest daughter, Claudia Kelly, served as World View’s business opportunity manager from 2016 to 2019, according to her LinkedIn profile. Tencent is one of the world’s largest Internet enterprises and owns the popular social media platform WeChat, a texting application with more than one billion users worldwide. In recent years Tencent has faced international bans and scrutiny over its practice of monitoring the activity of its users inside and outside China and for the Chinese government’s use of the data as a key component in its mass surveillance and persecution of the Uyghur population and other minorities, as well as dissidents – even those who have escaped China. In 2020, President Trump issued an executive order banning it and the popular social media app TikTok in the United States. But a U.S. district court judge issued an injunction blocking the order several months later. President Biden withdrew the order in 2021, while directing the Commerce Department to investigate foreign influence enacted through the apps. To be fair to Kelly and his role in facilitating the Tencent investment in World View, in 2014, WeChat’s surveillance applications in China were either not widely known or weren’t yet fully instituted. When the Tucson-based company was first launched, it focused on space tourism with plans to charge $75,000 per commercial passenger on flights to near outer space in a capsule attached to a giant helium balloon. By 2015, the company shifted to contracting with NASA and the Department of Defense to use the balloon, known as a stratollite, to carry unmanned payloads for extended periods and provide imagery of the earth with a resolution sharp to five centimeters, far better than satellites can offer. Kelly served as a strategic adviser to World View until launching his senate campaign in 2019. According to his 2019-2021 financial disclosure report and amendments filed with the Senate as required, he maintained a $100,000-$250,000 financial stake in the company. It’s unknown how much the stock is worth now – or whether Kelly still owns it. After this investment and others drew scrutiny in his Senate campaign, in 2021 Kelly moved his assets to a blind trust, a formal arrangement in which lawmakers officially transfer management of their financial assets to an independent trustee to oversee. Kelly has at least one other tie to Tencent. His 2020 Senate campaign accepted $5,000 from David Wallerstein, Tencent’s chief exploration officer, responsible for the company’s operations outside mainland China and business initiatives with multinational partners. Neither Kelly nor World View has disclosed the total amount of investments the company received from Tencent. In the fall of 2014, Jane Poynter, the then-CEO of World View Enterprises, announced during a visit to Beijing that Tencent had invested an undisclosed sum in the venture. In April 2016, as part of a subsequent $15 million investment round, World View announced that it had received more funds from Tencent and three other venture capital firms. Chinese news reports from November 2014 quoting Poynter show that Kelly was instrumental in securing the first Tencent investment. In an article in the Oriental Morning Post, translated from Mandarin, Poynter is quoted as saying that a “Tencent American leader named David met Mark Kelly, a space pilot of our team.” “After Mark introduced him to space travel technology, David was very interested and willing to invest at this stage,” she added. “When I choose a partner, I value the contribution this partner can bring to the project, and Tencent can push our cooperation to China. I think it is very important.” Back in 2020, the company did not respond to several RCP requests to clarify Poynter’s statements about Kelly’s role in facilitating the Tencent investments and what Poynter meant when she touted Tencent’s ability to “push our cooperation to China.” Another article in English-language newspaper China Daily elaborated on how Tencent became involved in World View. Poynter told the paper that Wallerstein “has already met with one of World View’s pilots and exchanged ideas on future technology and that she considered the passion and contribution that Tencent could give to the project of “huge significance to her operation.” Jacob Peters, who served as a Kelly campaign spokesman, in an email exchange with RCP in 2020, confirmed that Kelly was a World View co-founder and that “in the early stages, he spoke to many people about his experiences as a pilot and astronaut.” He argued that Tencent has “no influence in the company’s day-to-day business” and referred questions about the company’s future to World View. Peters touted World View’s work with the Department of Defense and NASA and its role in creating jobs and generating millions for Arizona’s economy. He didn’t mention, however, that World View never reached its job-creation goals, promised as part of a deal to allow the company to lease a $15 million county facility for no upfront costs. It also experienced several setbacks in its early years, including an explosion of a stratospheric balloon during ground testing in 2019 that caused more than $475,000 in damages to the company’s county-owned building, and ceiling tiles to fall on employees at a Raytheon missile storage facility near the property. No one from Kelly’s Senate office, including Peters, his press secretary, responded to several email inquiries from RCP over the last week. World View’s press office also didn’t respond to several inquiries. From 2014 to 2016, when World View was a new start-up company, U.S.-China relations were far less acrimonious than they are now. However, there were still grave intelligence concerns about their government’s theft of U.S. intellectual property and outright hacking of U.S. government agencies and private companies. For more than a decade U.S. law has barred American astronauts from working with China in space due to security concerns. In 2012, National Security Agency Director Keith Alexander said China’s cyber espionage of U.S. intellectual property constituted the “greatest transfer of wealth in history.” And in 2014 and 2015, the U.S. formally blamed China for hacking into the Office of Personnel Management, compromising the personal data of hundreds of thousands of federal workers, including all who had applied for top secret clearances. In his blind trust filings with the Senate, Kelly also reported having a $100,001-$250,000 stake in Boom Technology, a high-speed aircraft company in Colorado that partnered with a Chinese based travel company to help “bring supersonic flight to China.” World View executives have repeatedly denied sharing any technology information with Tencent. But the near-space travel business model was something the company openly marketed, and Chinese companies apparently were eager to copy it. In 2016, the same year of TenCent’s second investment in World View, a Chinese company, Kuang-Chi Science, poured a whopping $1.5 billion into a space balloon tourism business. ArsTechnica, a website covering news and opinions about technology and science, reported that the Kuang-Chi operations “appears to be similar to that of an American company, World View Enterprises.” Citing the Chinese company’s website and a China Daily report, ArsTechnica said human flights would reach an altitude of 24 kilometers (about 15 miles) and “then cruise for two to three hours before a controlled descent.” “If this experience sounds a bit familiar, that’s because it seems modeled after that of Tucson, Arizona-based World View, which plans to fly six passengers in a pressured cabin to an altitude of 30km,” the website noted. When RCP reached out to World View in 2020, Ashley Smith, a company spokeswoman, downplayed Tencent’s level of investment, calling the Chinese company “an early investor” that now maintains “less than 5% in common stock.” “They do not have a seat on the board, means of control, or any access to inside information about the company or its technology,” she told RCP at the time. Since World View shifted its focus to the unmanned stratollites for Earth observation, which have defense applications, Smith said, “World View has not taken foreign investment and has reported all foreign interest and its entire ownership structure to the Defense Counterintelligence Security Agency (DCSA) to obtain security and facility clearance.” The DCSA “has concluded that foreign interests do not have any influence, control, or authority over World View,” Smith added. However, when RCP contacted DCSA directly to verify that it had given World View its seal of approval, the DCSA Office of Communications and Congressional Affairs denied that it had offered a clearance for World View. The agency told RCP in an email that in January 2020, it had suspended the process to grant World View a clearance for defense work, though it would not disclose the “internal deliberations” or “specific communications” that led to the decision. The international uproar over China’s spy balloon comes at a sensitive time for World View. In January, the company announced plans to go public in a merger with special-purpose acquisition company Leo Holdings, a deal worth $350 million. It’s expected to close in the second quarter of this year. Last November, World View also announced a partnership with Sierra Nevada Corp, an American aerospace and national security contractor, to jointly operate balloons for defense “intelligence, surveillance, and reconnaissance.” Over the last several years, plenty of U.S. China experts have been warning about Chinese investment in the U.S. space industry. A 2018 article in The Hill newspaper said China was increasingly investing in U.S. space industry start-ups, including the one in World View, even as it increased its cyberattacks on U.S. technology companies. The article noted that the Justice Department had charged Chinese hackers with stealing data from 45 technology companies and government agencies, including NASA. It also highlighted a decision by Boeing to cancel a satellite order with Global IP, a Los Angeles-based start-up, following a Wall Street Journal investigation that shed light on a $200 million investment by a Chinese company into the startup. In 2021, the U.S. intelligence community in a Global Risk Assessment report warned that China was working to weaponize space and gain a strategic edge in operations “integral to potential military campaigns by the [People’s Liberation Army].” Since the China spy balloon controversy rattled Washington earlier this month, U.S. intelligence sources have confirmed that China’s balloon fleet is part of a broader effort to beat the U.S. on a new near-space battlefield. Brendan Mulvaney, the director of the China Aerospace Institute, a research center serving the U.S. Air Force, told RCP that China has gone to great lengths to build up its technological high-flying balloon capabilities – some quite publicly. “I remind people that not only does China steal technology, but they are more than willing to legally purchase it, invest in it, hire people, etc., whenever possible,” he said in an email. “Without knowing the exact details, it’s hard to say how this [near-space balloon technology] information was transferred, but we can say for sure that this and other technology is making its way to China.” Yet, if U.S. intelligence knew about the coming threat, why didn’t it prevent Chinese investments in U.S. space exploration companies? The Committee on Foreign Investments in the U.S. is designed to monitor and prevent U.S. adversaries’ influence on U.S. companies that could be detrimental to national security. But the agency usually focuses on mergers and doesn’t prevent smaller start-up investments from Chinese companies, experts told RCP. In recent years, U.S. agencies have instituted several safeguards to monitor foreign investment and restrict the flow of high-tech exports to China and other adversaries. The Treasury and Commerce Departments also have slapped sanctions on Chinese companies widely known for their surveillance products. In early February, the U.S. Department of Commerce’s Bureau of Industry and Security added six Chinese companies linked to People’s Liberation Army aerospace programs to a sanctions blacklist for being a “national security threat” as a result of the tension between Washington and Beijing over the incursion of a hot air balloon in U.S. airspace. As a result, the six Chinese companies are prohibited from obtaining U.S. goods and technologies without prior authorization or a license from the U.S. Government.  Amy Mitchell, a former senior official at the Departments of State and Defense, said the U.S. government could do far better than this scattershot approach with its Chinese sanctions. Instead, lawmakers should be establishing some across-the-board prohibitions for Chinese investments and U.S. exports, she said. “It can be some decoupling of the very problematic companies, it can be additional sanctions – there are multiple ways to do this,” Mitchell told RCP. “But what we are doing right now is like whack-a-mole. We don’t have one kind of comprehensive approach to this issue, and the first step is closing the loopholes in the current system that the CCP is exploiting.” Others urge a more cautious approach. Matt Turpin, a visiting fellow at Stanford’s Hoover Institution who served on the National Security Council during the Trump administration, warns against going too far in arbitrarily passing punitive laws aimed at China that could weaken U.S. competitiveness. In a capitalist system, arbitrarily changing private investment rules will “disadvantage the companies in the long term,” Turpin said. “So, we want to be certain about where to draw the lines.” On the flip side, Chinese companies – even those closely affiliated with PLA and some that the U.S. has sanctioned – are increasingly funded by U.S. investors. Many China companies also are listed on U.S. stock exchanges. “We need to plug the holes,” Mitchell said. “We have to come up with a formula that protects our national security, and for some reason, we're just not doing it.” According to the 2021 Annual Report to Congress of the U.S.-China Economic and Security Review Commission, U.S. holdings of Chinese equity and debt securities have risen by 57.5% since 2017 to $1.2 trillion total. Many Republicans want to force these Chinese companies to give up their listings on Wall Street if they refuse to open their books to U.S. accounting regulators. New laws could also bar them from raising money from American investors. A Senate bill, sponsored by Sens. Todd Young and Mike Braun of Indiana and Marco Rubio of Florida, would prohibit investments in Chinese companies and entities reasonably believed to be involved in activities contrary to the national security or foreign policy interests of the United States. Rep. Mike Gallagher, who chairs the new House China Select Committee, plans to introduce a House version of the bill. Gordan Chang, a Chinese American lawyer who lived and worked in Hong Kong for two decades, says Americans need to step out of their comfort zone and do far more to confront the growing national security and economic threat from China. “China has a doctrine of civil-military fusion, which means that the Chinese military has access to everything that every Chinese company or university or research institution has gained,” he said. “So, if we ignore those differences between the U.S. and China, we are effectively allowing the Chinese to pillage the United States.” “It’s a very simple question: If we want to survive, we’re going to have to take measures that once were considered to be extreme” against China. Tyler Durden Sat, 02/25/2023 - 11:30.....»»

Unidentified Anomalous Phenomena shot down over Alaska and Canada this weekend have not been officially linked to the Chinese spy balloon. Map showing the approximate locations of UAP across North America in Jan/Feb 2023Insider US fighter aircraft shot down an object threatening airspace over Alaska on Friday. F-22 pilots who saw the object said it "interfered with their sensors" and had no propulsion system. On Saturday and Sunday, additional objects were shot down over Canada and near the US border. A week after shooting down a suspected Chinese spy balloon that floated over the country, F-22 jets shot down an unidentified object threatening flights over Alaska on Friday. Reports offer conflicting details about the object's capabilities and origin, and US intelligence officials have released limited information about its design or intended purpose.Recently, Unidentified Anomalous Phenomena have been observed not just over the United States, but floating above Canada, Colombia, and Costa Rica. It's been an extraordinary week for UAPs in North AmericaIn addition to the first surveillance balloon seen over the country beginning January 31, a second balloon was spotted floating over Latin America on February 4, and two unidentified objects were shot down over Alaska and Canada on Friday and Saturday.An additional object was shot down on Sunday over Lake Huron, near the US-Canadian border, prompting a brief closure of the airspace around Michigan to "support Department of Defense activities." The Wall Street Journal reported the object, the third shot down in three days, was shaped like an octagon and hovered at an altitude of 20,000 feet.Airspace over Montana was also briefly restricted on Saturday after reports of radar anomalies in the region, the North American Aerospace Defense Command said in a statement posted to Twitter, but after an investigation, no additional object was found.US officials say China has a global operation of surveillance balloons collecting data on military bases, including the balloon downed last week, but the object shot down Friday has not been confirmed to be linked to Chinese officials — or anyone else. Here is what we know about the object shots down over the weekend.3 UAP were at an altitude that conflicted with commercial flights"I can confirm that the Department of Defense was tracking a high-altitude object over Alaska airspace in the last 24 hours," White House National Security Council spokesperson John Kirby told reporters at a Friday briefing. "The object was flying at an altitude of 40,000 feet and posed a reasonable threat to the safety of civilian flight."The balloon seen floating above the country last week hovered at around 60,000 feet, according to the Pentagon — which is well out of the general cruising altitude of commercial aircraft, which normally operate between 33,000 and 42,000 feet. Officials haven't confirmed the origin of the objectsKirby said officials first became aware of the item on Thursday night, but even after shooting it down could not confirm its origin, saying: "We do not know who owns it, whether it's state-owned or corporate-owned or privately owned. We just don't know.""If it was another Chinese spy balloon, that indicates that China is either incompetent in operating these platforms or potentially deliberately provoking the US," Michael P. Mulroy, a former Pentagon official, told The New York Times. "It is also important for the US and China to maintain direct communications during times like this. Especially between the militaries."Officials confirmed the origin of last week's Chinese surveillance balloon two days after it was first sighted. Chinese officials have acknowledged the first balloon came from their country, but maintain it was a civilian airship used mainly for "meteorological research." "We're calling this an object because that's the best description we have right now," Kirby said Friday. China has not made any claims regarding the objects shot down in Canada and Alaska, but authorities in the eastern Shandong province said Sunday they had also seen an "unidentified flying object" near the Yellow Sea and planned to shoot it down, according to China's state-affiliated tabloid, The Global Times.During a Sunday interview with ABC News, Senate Majority Leader Chuck Schumer said he had been briefed on the objects shot down on Friday and Saturday and had been told they were likely balloons."But much smaller than the first one," Schumer said, reiterating that the object's altitude could have interfered with commercial airspace, prompting the decision to bring it down immediately. "The first balloon, there was a much different rationale, which I think was the appropriate rationale. We got enormous intelligence information from surveilling the balloon as it went over the United States."Schumer did not confirm whether the objects shot down Friday or Saturday had come from China.Sailors assigned to Explosive Ordnance Disposal Group 2 recover a high-altitude surveillance balloon off the coast of Myrtle Beach, South Carolina, Feb. 5, 2023.Petty Officer 1st Class Tyler ThompsonThere may be surviving evidence in the debrisOfficials are working to recover the debris from the object shot down on Friday, which landed on frozen water off the Alaskan coast near the Canadian border. CBS News reported the object was downed near Prudhoe Bay.The object shot down on Saturday was spotted in the Northern Canadian territory of Yukon. Reuters reported Prime Minister Justin Trudeau said Canadian officials would recover and analyze the debris.The Yukon high-altitude object was described by Canadian Defence Minister Anita Anand as cylindrical in shape, Reuters reported, though no other details have yet been released. It is unclear if the object shot down off the Alaskan coast was of similar size or shape.The debris field in the Atlantic Ocean after the first balloon was shot down measured "15 football fields by 15 football fields," with a depth of around 50 feet, General Glen VanHerck, commander of NORAD and US Northern Command, told reporters on Monday. He added that the balloon was about 200 feet tall with a payload the size of a "jet airliner" and estimated it weighed a few thousand pounds. Schumer told ABC News on Sunday it remains unclear what intelligence China was able to gather from the balloon shot down on February 4, but the debris would be pieced back together to determine what information may have been collected."So that's a huge coup for the United States," Schumer said.Conflicting reports from pilotsPrior to shooting down the object, Kirby told reporters, the pilots of the F-22 jets that took it down circled it and determined it was unmanned and lacked the ability to maneuver midair and change its speed like previous balloons have been seen doing.He did not share additional details about the object.While official government sources are quiet on the object, others are sharing reports from the pilots who tracked it."Some of the F-22 Pilots who Tracked the Aircraft that was downed over Alaska yesterday said that it 'Interfered with their Sensors' and that 'They could see No Propulsion Systems on the Aircraft not knowing how it could possibly be staying in the Air,'" according to the public military and intelligence scanner, Open Source Intelligence Monitor.Some of the pilots, OSIM reported, did not experience interference with their systems and could not agree on a description of the object.Open Source Intelligence Monitor did not immediately respond to Insider's request for comment.CNN reported an anonymous source with knowledge of the briefing said the pilots shared conflicting observations about the object, including that it had interfered with their systems and that they could not explain how it stayed in the air.An F-22 Raptor from Tyndall Air Force Base, Fla., flies over Nellis AFB, Nev., during Red Flag 16-1, Feb. 5, 2016. Twelve Tyndall F-22s participated in Red Flag 16-1, a joint-training, full-spectrum readiness exercise designed to provide the most realistic combat training possible.US Air ForceUnidentified Anomalous Phenomena are showing up in more places than the skyIn December, the Department of Defense established the All-domain Anomaly Resolution Office to identify "unidentified anomalous phenomena" — in space, in the air, on land, or in the sea — that may threaten national security. The term UAP replaces the traditional "unidentified flying object" or UFO designation, as officials expect to evaluate anomalies "across all domains."While it is unclear if unknown terrestrial objects have been seen recently, former Navy pilots David Fravor and Alex Dietrich told CBS News in 2021 about an encounter with an unknown object while conducting pre-deployment training in 2004.The pair described flying their aircraft over the ocean, and seeing an area of roiling whitewater on the surface below. Just above the whitewater was a "white Tic Tac looking" object with "no predictable trajectory." "It was unidentified," Dietrich said. "And that's why it was so unsettling to us. Because we weren't expecting it. We couldn't classify it."Footage released by the Pentagon in 2020 also revealed unknown objects speeding across the ocean surface that had been spotted by Navy pilots. "Dude, this is a f--king drone, bro," CBS News reported one of the pilots exclaims in the video. Another person says "there's a whole fleet of them.""They're all going against the wind," the first pilot said. "The wind's 120 knots to the west. Look at that thing, dude! It's rotating!"A 2021 report from the Office of the Director of National Intelligence, said "in 18 incidents, described in 21 reports, observers reported unusual UAP movement patterns or flight characteristics. Some UAP appeared to remain stationary in winds aloft, move against the wind, maneuver abruptly, or move at considerable speed, without discernable means of propulsion. In a small number of cases, military aircraft systems processed radio frequency (RF) energy associated with UAP sightings."The 2022 report noted that, among the 171 uncharacterized incidents, "some of these uncharacterized UAP appear to have demonstrated unusual flight characteristics or performance capabilities, and require further analysis."Representatives for the Pentagon and US Northern Command did not immediately respond to Insider's request for comment.Officials have acknowledged surveillance balloons have been seen floating in US airspace several times over the last few years, though they have not always been immediately identified — three devices spotted during the Trump administration were initially classified as UFOs.This story has been updated.Read the original article on Business Insider.....»»

Trump announced that he's running for president in 2024. Insider previously spoke with Cruz, Rubio, and others who had front-row seats to his rise. Donald Trump defeated 16 Republicans en route to winning the 2016 GOP presidential nomination. History books would be written very differently had that not happened.Marianne Ayala/InsiderThe most famous escalator ride in American political history was almost an elevator ride. Donald Trump's operatives couldn't decide whether to send him down the escalator to announce his presidential candidacy or have him take the elevator instead. They landed on the escalator, and that moment would set in motion a 13-month ride that would ultimately ensconce him atop the GOP as its 2016 standard-bearer.On Tuesday, Trump officially announced his 2024 presidential bid, marking the start of yet another race in his storied political career. Seventeen Republicans aspired to be president of the United States during the 2016 election cycle, one of the most unorthodox and unconventional the country had ever seen. Only one emerged from the pileup — Trump — who would learn he was the nominee on the Trump Tower elevator he almost descended on back on announcement day.During those tumultuous months from June 2015 to July 2016, the Republican Party establishment's reluctant journey to accepting a reality-TV celebrity as their presidential nominee laid bare deep ideological and cultural divisions within their ranks. Traditional Republicans found themselves outflanked by an insurgent former lifelong Democrat whose impulses and approach conflicted with their own. But by the time of the Republican National Convention in Cleveland five years ago this week, running from July 18 through the 21st, Republicans who did not support Trump fell in line.In interviews with nearly two dozen people — including several 2016 Republican candidates, party officials, and both GOP and Democratic campaign operatives — Insider collected never-before-reported recollections from Trump's hostile takeover of the GOP. The story that follows covers the Trump Tower escalator ride that was mocked from all directions and yet started everything; the Trump official behind renting a crowd for the big campaign announcement speech; and Melania Trump's plagiarism of Michelle Obama's Democratic National Convention speech eight years earlier.These 2016 insiders also described how the Trump team prepared for the first GOP debate in Cleveland by hanging with a member of Aerosmith and how his campaign polled Ivanka Trump as a vice-presidential candidate amid the RNC's last-minute gambit to dump Trump.The human drama of the Republican primary campaign has been all but forgotten, replaced by what came after: Trump versus Hillary, Russian hackings, WikiLeaks, and the infamous "Access Hollywood" tape — and the four ensuing wild years that roiled the nation and the world.But for any of that to happen, Trump must first become the leader of the GOP. What you are about to read is the oral history of that story.Chapter 1: The escalatorFor 29 years before his fateful escalator ride, Trump toyed with the idea of running for president. This time he was serious. Aides carefully planned and scripted the event and his remarks; Trump improvised.Corey Lewandowski, Trump campaign manager: We had a number of variables which we had to factor in, which was either come down the elevators in the back of the room and have him walk out through a blue curtain and onto the stage, or come down into the lobby, come down that now famous escalator ride, and then go up onto the stage. But what our goal was, was making him look as presidential from the very onset, which means the American flag behind him, the stage was exactly how we wanted it, with a podium, with the same type of microphone that presidents traditionally use.The most famous escalator ride in US political history.Christopher Gregory/Getty ImagesDonald McGahn, Trump campaign counsel: I was at the top. He went down. And I remember seeing the crowd go nuts.Adrienne Elrod, Hillary for America director of strategic communications: We all kind of stopped what we were doing and chuckled at the fact that this is happening. And we all kind of said, "Yeah, he's going to be in the race for about six weeks. He'll use this to make some more money and grow the Trump brand and try to launch a new television show."Sarah Isgur, deputy campaign manager for Carly Fiorina: What a weird thing for the advance team to think was OK — like him standing on this escalator.Tim Miller, communications director for Jeb Bush: I thought it was a ridiculous show.Corey Lewandowski: We had people who were on the periphery of the campaign and thought they were campaign strategists who wanted to have elephants and monkeys and donkeys running through Trump Tower.Donald McGahn: There was a lot of building security checking each other's credentials, because we had different levels of credentials. It took them a while to realize there was a hierarchy of credentials. There were security guards telling other security guards to move.Corey Lewandowski: There were five different sets of credentials and all-access to media and volunteers. They all had the wrong date printed on it. They all said June 16, 2016. So we had to send this poor woman by the name of Joy out to Brooklyn at, like, 3 o'clock in the morning to get these reprinted, because we knew that if it wasn't perfect we'd be chastised.Josh Schwerin, Hillary for America national spokesman: He was not a serious person at that point. There had been debate of will-he-won't-he for a really long time. It didn't seem like a serious thing.Sarah Isgur: I remember thinking: "Man, I'm surprised he couldn't even get people there. That seems insane."Amanda Carpenter, communications director for Ted Cruz: It seemed strange. I was watching the coverage of "Oh, did they pay people to show up? Who were these people?"Corey Lewandowski: That's a Michael Cohen special. Michael Cohen decided that he was going to go hire one of his buddies and pay his buddy without getting any campaign approval. You know, $50 for every person to come in, to stand in Trump Tower.I literally spent the entire day of Trump's announcement screaming at TV executives. Tim MillerMichael Cohen, Trump personal attorney: Trump hired David Schwartz to coordinate the campaign launch, which he did professionally. Any allegation of payments to actors is an absolute lie that was promoted by Corey Lewandowski.David Schwartz, partner at Gotham Government Relations: We were hired to put that entire event together. That event was really our brainchild: The most famous escalator ride in the history of politics was that one. Bottom line is, we had thousands of people there, and then the press accused us of hiring thousands of actors. Based on the fee that I got, that would not have been a good business decision on anyone's part. The reality is we hired 50 people, some of whom were part-time actors I found out later on. But we hired 50 people to help coordinate an event that brought in thousands of people. There were people at the door that couldn't get in. That night, all of the sudden, I got accused of hiring thousands of actors.Tim Miller: So Trump is going to speak, and Sean Hannity was going to give Trump Jeb's slot that night, because they announced the same day. So I'm standing outside Bed Bath & Beyond in Miami, shouting at Hannity, like, "What the F is your problem?" F this and F that. "How can you give this guy our slot?" Then I remember going in to shop and coming out and yelling at some other anchors. I literally spent the entire day of Trump's announcement screaming at TV executives.Corey Lewandowski: He did not deliver one word of the speech as it was written. We provided the speech to every media outlet and said, "Remarks as prepared by Donald Trump for his announcement speech." There were some media outlets that actually just printed them verbatim. Probably had egg on their face afterward. Because as we know, Donald Trump went on to speak extemporaneously for 45 minutes and talk about some of the individuals coming across the border that were never in the original speech. And I assume some are good people.Trump promised to make America great again and vowed to take on the growing might of China in a speech launching his run for the presidency in 2016. He made his way to the stage as Neil Young's "Rockin' in the Free World" played.Kena Betancur/AFP via Getty ImagesAmanda Carpenter: I was, like, "OK, well, at least he's talking about mostly our type of issues. People will realize he's a clown. And then this whole thing will melt like cotton candy. And we'll be back to maybe a Jeb, Rubio, Cruz race."Lindsey Graham, GOP senator and 2016 presidential candidate: I thought his announcement was pretty extreme. I thought the rhetoric around his announcement and some of his policy positions would make it almost disqualifying.Chapter 2: Early disastersA month after his campaign announcement, at the Family Leadership Summit in Ames, Iowa, Trump attacked Sen. John McCain. The Arizona senator and 2008 Republican presidential nominee had been a prisoner of war in Vietnam. "He's not a war hero," Trump told the moderator Frank Luntz. "He's a war hero because he was captured. I like people who weren't captured." It proved to be the first of a series of moments early on when it looked like Trump's campaign was over before it had even really begun.Marco Rubio, GOP senator and 2016 presidential candidate: Look, everybody — every traditional observer of politics — thought his campaign was dead when he said the things he said about John McCain.GOP Sen. John McCain of Arizona in the US Capitol in July 2015, days after Trump said the Vietnam POW was "not a war hero."Andrew Harnik/AP PhotoCorey Lewandowski: We had a whole day planned in Iowa that day. I remember it very vividly. I waited for Mr. Trump to walk off the stage, and I said, "I'd like to speak to you." He said, "I was pretty good, right?" I said, "Sir, could I speak to you over here for a second, please?" We went into a locker room, which is where the referees or umpires, depending on the sport, would get dressed in that gymnasium. And I said: "Sir, by all accounts, John McCain is a war hero. You need to apologize." He said, "Yeah, no apologies."Marco Rubio: That was a pretty early sign that the dynamics of American politics have changed. Part of it is just the way the public now consumes political news. It's very different than 20 years ago. It's covered more like entertainment or sports, and less like public policy. It was a perfect forum for a candidate with a message and the experience that he had.I called my wife just as we were getting onto the plane. I said, 'Hey, baby, I'm coming home.' She said, 'Oh, the day is over?' I said, 'No, no — the campaign is over.' She said, 'What do you mean?' I said: 'It's over. We're done.' Corey Lewandowski, Trump campaign managerCorey Lewandowski: I called my wife just as we were getting onto the plane. I said, "Hey, baby, I'm coming home." She said, "Oh, the day is over?" I said, "No, no — the campaign is over." She said, "What do you mean?" I said: "It's over. We're done."We flew from Iowa back to New Jersey, and this guy Dave picked us up in the car and we drove over to Mr. Trump's home. As we walked in the door, Mrs. Trump was waiting for us. She said: "You're right. John McCain isn't a war hero. What he has done for the veterans has been shameful." In the meantime, I'd been getting phone calls from every major political pundit and conservative talk-show host except Rush Limbaugh. They were all telling me that Donald Trump had to apologize — that his race was over if he didn't apologize immediately.Michael Cohen: Melania played a very limited role during the campaign not believing Donald would actually win. However, when directly asked for her opinion on a matter by Donald, she offered it readily.Chapter 3: The DebatesOn August 6, inside Quicken Loans Arena in Cleveland, 10 Republican presidential candidates took part in the first debate. Trump was a neophyte to debates, and his team was more interested in hanging out with the Aerosmith lead guitarist Joe Perry than prepping, auguring the alchemy of entertainment and politics that would define the Trump era. If Trump was a made-for-television candidate, he benefited from the unconventional nature of that cycle's nearly dozen debates, spanning from August 2015 to March 2016.Corey Lewandowski: We had a little bit of downtime before we went over to the arena. We landed the plane in Cleveland, and we got a phone call from Don McGahn, who was then our general counsel. "Hey, Aerosmith is close by. Do you mind if they bring their tour bus over and party with us for a little while?" We said, "100% — bring Aerosmith over!"Donald McGahn: Close, but that's a little off.Corey Lewandowski: So we sat there with Aerosmith about an hour before the debate, swapping stories of Aerosmith as opposed to doing debate prep.Steven Tyler of Aerosmith listens from the audience during the first official 2016 Republican presidential debate in Cleveland.Brian Snyder/ReutersDonald McGahn: It wasn't the whole band. It was Joe Perry. He was intrigued by the emerging Trump phenomenon. Remember, this was before there were any primary debates, and it was all new to everyone. Stuff that would be from Mars on any other campaign was perfectly normal for the Trump campaign.By this point, Trump was getting ready for the debate, so Joe had to wait a little bit. On the way out the door, Trump says something about "rock stars have all the ladies," which apparently Perry got mad at, because he's been married for decades and takes all that stuff pretty seriously. After the debate, if you watch the film, Joe goes up on stage and finds Trump and proceeds to tell him that he's married and he doesn't sleep around.The subtext is that Steven Tyler already had tickets to the debate through some other wing of Trump Org. Joe didn't want to be upstaged — wanted to meet with Trump rather than just go to the debate. Apparently, there's a whole internal Aerosmith thing among the political persuasion of the band.After the first debate, the prime-time contests took on a familiar pattern, with Trump becoming their draw and center of gravity.Marco Rubio: The first time I got on the debate stage, there were, like, 100 people on stage. So it was a very unique race, because you had so many different people running.Rand Paul, GOP senator and 2016 presidential candidate: I blame as much as anything the media. The media organizes the debates.Sarah Isgur: It wasn't a debate. You were debating yourself. How could you use your time as effectively, and where can you jump in on a question that wasn't to you?The top-polling 2016 Republican presidential candidates in August 2015 at their first official debate in Cleveland. From left: Chris Christie, Marco Rubio, Ben Carson, Scott Walker, Trump, Jeb Bush, Mike Huckabee, Ted Cruz, Rand Paul, and John Kasich.Chip Somodevilla/Getty ImagesCorey Lewandowski: Let me just remind you, Trump had never been on the debate stage. And he was going up against a Princeton-educated debate champion in Ted Cruz, and career politicians and executives who've done this their entire life. So we spent time talking to Mr. Trump about some of the possible questions that would come up. We wrote one-liners on every candidate, just so he would have a quick retort if he wanted that.Rand Paul: It's hard to have much exchange when you don't get much time. It's unfair the way the debates are set up. They really make it impossible for the underdog to have much of a chance.Lindsey Graham: I never got on the big stage. That's frustrating. I was never able to poll well enough.Sean Spicer, chief strategist and communications director for the Republican National Committee: You're sitting there and watching Trump say, "Yeah, I don't know." And you think, "OK, that would have been a death knell for anybody else. It would have been, like, 'Boom — you're out.'"Josh Hawley, GOP candidate for Missouri attorney general: The one debate I remember, he starts by attacking Rand Paul. "I don't know why Rand Paul is even on the stage." I remember thinking, "I can't believe he's saying this stuff out loud." You can understand why people are watching the debates. Because you wonder, "Well, what's gonna happen next?"Rick Gates, deputy Trump campaign chairman: Donald Trump had this amazing ability to size people up — a "Little Marco" — in literally a one- or two-word phrase that so encapsulated who they were that people said: "This guy is absolutely right. He's telling us the truth." So it was almost impossible to compete with Donald Trump in that regard.Corey Lewandowski: Everyone has a plan until you get punched in the face. And we just kept punching people in the face.Tim Miller: If you're designing a candidate to do a poor job of being the one to go head-to-head with Trump, it would be Jeb. He was an easy punching bag because of his family. He's not an alpha type on a debate stage.—NTA by Mic (@NavigatingTrump) March 4, 2016Josh Schwerin: The most memorable debate experience? I was on the road, and it was the one where Trump and Rubio got into an argument about hand size, which I then had to brief President Clinton on. Which was one of the more awkward moments in my life, I would say. We were in Louisiana. He didn't at first believe me that this was the topic of a debate. I had to show him the CNN headline. I tried to not add any commentary and just let him read it for himself. Because it was not the most comfortable conversation to have with the former president of the United States. He was amused, but also really aghast that this is what they had devolved to.The evening after the Cleveland debate, with exhaustion setting in, Trump ignited another controversy when he phoned into "CNN Tonight" with Don Lemon and said that the Fox debate moderator Megyn Kelly had "blood coming out of her eyes, blood coming out of her wherever." Kelly had aggressively questioned Trump about his past comments about women, and his post-debate commentary would only further solidify the narrative that Trump had a problem with sexism.Sean Spicer: I think she thought that was going to be the gotcha moment.Corey Lewandowski: I remember getting a phone call that Friday night. I was in my apartment in New York at, like, 9 o'clock — we were supposed to be traveling to South Carolina the next day — from a guy by the name of Erick Erickson. And he says, "I just listened to the interview, and I've got teenage daughters and a wife, and Donald Trump is no longer invited to my event, because it was such an egregious thing to do."I didn't even know what the hell he was talking about. I said, "What happened?" I call Mr. Trump, and he says: "Yeah, I don't know. Maybe I said something." I again tell him it was one of these things where his campaign was over. And he just doubled down on it. He powered through it. And once again, 48 hours later, we were into a new news cycle.At the Ronald Reagan Presidential Library in Simi Valley, California, the candidates faced off in another marathon debate, during which Trump attacked Rand Paul's height and Carly Fiorina blasted Trump for mocking her appearance in an interview with Rolling Stone a few days before the debate. ("Look at that face! Would anyone vote for that? Can you imagine that, the face of our next president?!") "I think women all over this country heard very clearly what Mr. Trump said," Fiorina would say that night to raucous applause.Sarah Isgur: We were landing — this was back when not every airplane had WiFi. And so I was landing and getting WiFi back, and that's when I saw it. And, I mean, she knew immediately that was the best opportunity we'd ever had. Like the thing sucking up all the oxygen just gave us an oxygen mask.Tim Miller: Carly did a good job.Sarah Isgur: Trump realized the mistake he had made. That's why he never touched her again.Chapter 4: Republicans cannibalize themselvesIn the months-long lead-up to February's Iowa caucuses, the massive Republican field continued to jockey for position, and Trump continued to suck most of the oxygen out of the room and vacuum up earned media. By the end of 2015, the oxygen deprivation had winnowed the field by five candidates. The candidates who remained were trapped in something like a prisoner's dilemma in which they turned fire on everyone else but Trump. Meanwhile, the former celebrated neurosurgeon Ben Carson began to gain traction among social conservatives nationwide, particularly in Iowa. During a rally in Fort Dodge, Trump went after his future Cabinet appointee, reenacting Carson's teenage tribulations — ridiculous mock knife fight, anyone? — purely for laughs. Trump's team planned it on the plane, and it led to an awkward exchange in the motorcade afterward.—Vaughn Hillyard (@VaughnHillyard) November 13, 2015Corey Lewandowski: Mr. Trump says to Mark, the head of the Secret Service detail: "Hey, Mark. How did we do?" And Mark says, "Very good, sir!" And Mr. Trump says, "Do you have any advice?" And Mark says, "Just one, sir."I'm like, "You gotta be shitting me. This guy has been on the job a hot second and he's already giving the candidate advice? He's the fucking Secret Service guy!" And Mark, who's a great guy and I have enormous respect for, says: "Sir, please don't have anybody come up on the stage and stab you. We have to shoot them!"Then Trump goes, "Oh, Mark — the guy was 80."And Mark goes: "No, don't. Please. Here is my only advice. Please don't ask anyone to come up on the stage." And I said: "OK, like, I agree with you, head of Secret Service detail protection, let's not have anyone come up on the stage."February 2016 opened with Ted Cruz mounting a surprise win in Iowa and Trump complaining that the election was rigged.Newt Gingrich, former House speaker and 2012 GOP presidential candidate: Trump could never perform a classic Iowa campaign. First of all, it's not who he is. It's inconceivable he was going to go to small towns three times. But how could you create a replacement campaign? I called him one afternoon and said: "What you have to do is get on Facebook every day. People have to feel that you're in their living room or their kitchen every day. Then the familiarity will lead them to decide." I must have said that to him in October. And at Christmas, we were at my wife's sister-in-law's. He calls and says: "This is Donald. We just finished taping 58 Facebook videos."Sean Spicer: I had breakfast one morning with Corey. He was very clear that the expectations were that Trump needed to win Iowa. He was going all in, doing anything he could.Corey Lewandowski: Cruz's campaign was so focused, they put all their eggs in the Iowa basket. Then at the very end of the night of the Iowa caucus, they sent out a mass distribution that said, "Ben Carson is getting out of the race — vote for Ted Cruz." We believe that those votes went from Dr. Carson to Ted Cruz, and that is ultimately what led Donald Trump to finish second in the Iowa caucus.Marco Rubio: It was obvious he was doing it differently than everybody else was.Corey Lewandowski: There was a brief period of time where Marco Rubio started to go after Donald Trump and attack him. And you actually saw a movement in the polls, but what did Marco's team do? They started hearing from their donors, and their donors said: "This is beneath you. You should not be talking about the size of Mr. Trump's hands. This is not becoming of a presidential candidate."Marco Rubio: He has a real understanding of the media ecosystem and what feeds it—what it is the media wants to report on and getting narratives across. And that was probably underappreciated when everybody was kind of running traditional political campaigns and he was running a 21st-century, modern version of what we have. And it worked.The ensuing four weeks — starting with the Iowa caucuses at the beginning of February 2016 — saw the remaining Republican challengers cannibalize each other instead of Trump. Taking out the top guy after the Iowa caucuses, Ted Cruz, was too lofty a goal for Chris Christie in early 2016. So the straggling two-term governor of New Jersey settled on taking out the first-term senator from Florida, portraying Rubio as too green to be president. Meanwhile, Trump aides worried their candidate's obsession over not coming in first in Iowa could spell the end of his campaign.Mike DuHaime, senior strategist to Chris Christie: So it was on the plane ride back from Iowa to New Hampshire, it was really the governor himself and basically said: "This is what we have to do. Now is the time to take on Marco."Corey Lewandowski: I called the grown children — Don, Eric, and Ivanka — told them what was happening, brought Mr. Trump in, and, over a meal of McDonald's in the back room of our Manchester office, told him that if he wants to continue to bitch about the results in Iowa and not lay out his vision for what he wanted to achieve for America to the people in New Hampshire, this race was over. It was a very candid conversation; it was just he and I in the room. He listened intently. You walked out of that room. He went to a town-hall meeting with CNN that afternoon and Manchester. He came and ran a positive message.Then he went to a shift change at the Manchester police department, where he talked about supporting the men and women in law enforcement. And we campaigned in New Hampshire on Thursday and Friday, on Saturday, on Sunday, and on Monday. And on Tuesday, Donald Trump won the state of New Hampshire by 17 points, with 35%, in the 17-way primary. It was a complete blowout, the biggest blowout in the primary's history.With the field on the verge of collapsing, the GOP establishment's favorite son, Jeb Bush, sensed opportunity — albeit briefly. They pinned their hopes on the candidate's mother, the former first lady.Tim Miller: There was a small window where we felt, like, "Mrs. Bush is coming up, somebody is going to take some momentum here out of New Hampshire." That's not Cruz or Trump. It'll either be us or a Kasich or Rubio. We thought maybe we can kind of channel this and have a McCain-like 2008 sort of bump.Our internal numbers were going up a little bit right around the time when Mrs. Bush came to visit us. And it was just lovely, and she's just so charming and wonderful and aligned and blunt. And I remember briefing her for — she was interviewing with Norah O'Donnell. I was pretty clear, and I asked her what she was going to say if she was asked about them. I asked her her thoughts about Cruz and Trump, and she gave her very candid negative assessments of both of them. After each sort of rant she went on, she then looked at me and said, "But I'm not going to say that."Former first lady Barbara Bush introduces her son Jeb Bush at a town-hall meeting in Derry, New Hampshire, in February 2016.Charles Ommanney/The Washington Post via Getty ImagesCorey Lewandowski: We could attack Jeb for being a fake rich guy. Because he wasn't as rich as Trump. And then we could attack him for being a career politician. And then we can attack him for being low energy. He became an easy target for us because he had never had a tough battle.Christie dropped out after Trump won New Hampshire. Meanwhile, Bush's campaign never got going. He suffered perhaps most from a viral video after he told a New Hampshire audience on February 4, 2016, to "please clap."Tim Miller: The "please clap" thing is Ashley Parker's fault. I never will forgive her for that. She was the one who tweeted it out first and made everybody go back and find it and make it seem cringe.It was like a totally normal human response to an awkward audience moment that he was trying to let it go ahead. And then it got turned around on the internet to seem like he's begging people to clap for him. Like: 'Please clap for me, please clap for me. I'm so sad. I'm in last place.' Such is life. Tim MillerAshley Parker, reporter at The New York Times: I made it the kicker of my story. Once I tweeted it out, it just took on a totally unexpected life of its own.Tim Miller: It was like a totally normal human response to an awkward audience moment that he was trying to let it go ahead. And then it got turned around on the internet to seem like he's begging people to clap for him. Like: "Please clap for me, please clap for me. I'm so sad. I'm in last place." Such is life.Ashley Parker: It was sort of a poignant moment and a telling moment, in certain ways, but I think some of this got lost in the meme. It was also a lighthearted moment.All told, 12 Republican candidates started out in February. By the time Super Tuesday rolled around, on March 1, 2016, the field stood at five. Amid the South Carolina primary, holed up at a Hilton Garden Inn, the Bush campaign compiled speeches for dropping out and forging deeper into other states' nominating contests. Surrounded by the Bush family, the New York Jets owner Woody Johnson, and staffers, the son and brother of two former presidents dropped out of the race. He was the 2016 campaign's original front-runner with a nearly $100 million war chest.Rob Portman, GOP senator from Ohio: The Republican primary was a surprise for people because most of us thought Jeb Bush came into it with the most mainstream Republican support.Tim Miller: There were a couple of folks around Jeb who wanted him to keep going, and he called us back in and said: "You know, this is, I can't, can't do it. I can't move forward. So we have to, you know, we have to do this." He was all business. And he looked at me and says, "I've got it." And we went over the speech, you know, just like we would have with any other speech. He was wistful, obviously, and a little sad, but very businesslike. Like, this happened, he gave it his all, and he recognized staying in was only going to make things more likely at that point for Trump.Discarded lawn signs for Jeb Bush and Ben Carson lie on the ground outside a polling station in Columbia, South Carolina, on February 20, 2016.Joshua Roberts/ReutersMarco Rubio: Generally I was happy when people dropped out, because that meant, you know, one less candidate out there and a pool of voters that were now available to go after. Unfortunately for me, they didn't drop out soon enough.Chapter 5: Trump takes control: Super Tuesday, Indiana's decisive primaryIn March, as the contest narrowed, Trump went on a tear on Super Tuesday, winning Virginia, Vermont, Georgia, Tennessee, Arkansas, Massachusetts, and Alabama, setting up a battle royal between Trump, Cruz, and Kasich in Indiana's May primary.Rick Gates: By March, clearly he was the front-runner, and he was gaining delegates. But at the same time, you could see the party apparatus starting to work against him.Lindsey Graham: I endorsed Ted Cruz. I ran out of people to endorse. I was sort of the Dr. Kevorkian of endorsing. Everybody I endorsed politically died.Amanda Carpenter: It was essentially coming down to a Cruz-Trump race, and Kasich was refusing to get out. People like John Boehner and others were signaling that they weren't going to help Cruz and consolidate the field. They were just saying, "Well, we'll just nominate Trump and let him lose."Tim Miller: Jeb endorsed Cruz pretty quickly after he dropped out. Gave Marco Florida all to himself. I went to work for a super PAC that spent millions of dollars attacking Trump in Florida. Like, what more did you want from us?Mike DuHaime: Mitt Romney was potentially the most influential endorsement during that cycle. He was the previous nominee, and he had this massive fundraising network. So the thought was that if Mitt endorsed somebody, that person could become the one who could coalesce people. He never did.Mitt Romney, 2012 Republican presidential nominee: There's really no reason for me to add to that story.Tim Miller: There's an alternate history where Trump gets treated like a joke from the start. There's another alternate history where all of the campaigns attack him and treat him seriously from the start and he never really takes off. We'll never know. I do think that in both of those alternative histories, he could've gotten killed in the crib.A London pub set up cardboard cutouts of the faces of Ted Cruz, Trump, and Marco Rubio in March 2016 as part of an informal survey for customers to log which they disliked the most.Justin Tallis/AFP via Getty ImagesIn the early spring of 2016, the Trump campaign began to make some changes atop its organizational chart, hiring Paul Manafort, the veteran delegate wrangler of RNC conventions who'd turned into a jet-setting shadowy political operative for foreign autocrats.Rick Gates: Paul Manafort was brought in at the end of March. Trump had been advised to meet with Paul because Paul knew how to deal with conventions. The media had been reporting that the Republican convention was going to be contested. So you needed somebody to understand the nuances of how a contested convention works.The first call he made was to Jim Baker, the broker of the last contested convention. We had a secret meeting with Baker at the Jones Day law firm, our lawyer at the time. He and Trump had a fantastic meeting. Baker was as smooth as he typically is, and Trump was very interested in Baker's experience.The second call, which I thought was interesting, was to Dick Cheney. Cheney had agreed to support Trump, but he wanted to do it from behind the scenes. He wanted to be helpful for the party and support the nominee, but clearly he was not comfortable yet to move all into Trump's camp, given his relationship with the Bush family.Another interesting call was to Marco Rubio. Paul got Marco on the phone, and Rubio said he would look at how Trump was going to run his campaign, and, at the appropriate time, he might be willing to support him. Paul hung up and started smirking. I said, "What's going on?" He goes, "Marco used to be my driver at the 1996 Republican convention."At a hastily arranged event in Indianapolis, in a last-stand effort ahead of Indiana's decisive primary and following Trump's big wins in five East Coast states, Ted Cruz announced that Carly Fiorina would be his running mate if he emerged from the GOP primary with his party's nomination. It was an odd, awkward event that featured a botched handshake between the two.Sarah Isgur: The most important thought was, who can actually beat Trump at this point? He was underperforming with women. Cruz wasn't women's favorite candidate either. So if women in the middle of the Republican Party were up for grabs, maybe Carly could help with that.Jeff Roe, campaign manager for Ted Cruz: They had a really good rapport, and it was a man-bites-dog publicity event. So we thought it would be newsworthy, and that's how it came together.Adrienne Elrod: By that point, we realized it was over, and we started planning for the general election.Amanda Carpenter: I like Carly and respect her a lot, but it was just a play. You just tried to signal that we would be serious about things: "Look, we would bring a woman onto the ticket." I mean, it was kind of a last-ditch attempt.Nothing fancy to explain there: We fumbled for a moment, and it makes for an amusing video after the fact. Ted CruzJeff Roe: What's funny is we practiced the handshake.Sarah Isgur: Oh, my God. My memory is that not only did they practice the handshake, we made them practice the handshake. They balked at us and said that we were idiots for making them practice. They did it in a way teenagers will do something, like rolling their eyes. And then to have them do the most awkward, whatever that was, in the world.Jeff Roe: It's always awkward when candidates do the victory wave. We freaking practiced it, and they still screwed it up.Ted Cruz: Nothing fancy to explain there: We fumbled for a moment, and it makes for an amusing video after the fact.Jeff Roe: They really liked each other, legitimately liked each other. So it was what it was, a guy running for president who announced his VP before he got the nomination. It's going to be a little funky. If we could get conservatives to unite against Trump, then this could be a thing. It wasn't, "Oh, isn't this kind of funny?" We did not treat it as being funny.Lindsey Graham: I think it had slipped away by then.Days later, during an event on May 2, Fiorina fell through the stage while campaigning with Cruz.Sarah Isgur: I was doing something on my phone. They were, like, "Carly just fell!"Jeff Roe: I think she stepped off the thing. It's better from the camera angle than it was in real life. But the camera angle looks bad.Sarah Isgur: I was, like, "Oh, my God."One of the most pivotal endorsements during the final days of the GOP nominating contest was still up for grabs. On April 29, 2016, in a radio interview in Indianapolis, Gov. Mike Pence, himself running for reelection, endorsed Cruz to appease his socially conservative base. But Pence also threaded the needle with kind words about Trump. "I'm not against anybody, but I will be voting for Ted Cruz in the Republican primary," Pence said in an interview with WIBC's Greg Garrison. Trump won despite Pence's endorsement.Rick Gates: That night we set up a rally inside Trump Tower for Trump to kind of do his victory party. But we didn't say anything about being the presumptive nominee. We didn't take any liberties. We just stayed in our lane, and we knew at some point Cruz is going to have to drop out. We didn't know he was going to drop out that night.Jeff Roe: We stayed in a hotel. I cannot remember the name of the hotel, and, unbelievably, there was a dog show there. So we stayed up there the whole weekend, and we made our decision with these dogs barking next to us the whole damn time.Ted Cruz: When I was giving my speech and I said the words "We're suspending the campaign," a woman in the crowd let out a wail. It was piercing. I almost broke down. I finished the speech, and one of the things I'm still frustrated to this day is that I wanted to stay out there and thank the hundreds of volunteers who were there that night who were grieving. And I couldn't. I couldn't hold back the tears. There was an army of TV cameras there, and I'll be damned if I was going to let the media turn Lyin' Ted into Cryin' Ted. I had to leave the room because I simply couldn't hold back. I'm grateful that Heidi spent probably an hour just hugging everyone and saying thank you. I wish I had the strength to do that. I didn't. But Heidi did it for us. That piercing cry from the woman in the crowd. I'll never forget.Rick Gates: We found out that Cruz had dropped out after Trump had gone through the hallway to the elevator. It was Melania and Trump and myself and Paul in the elevator. And it was just utter silence. Paul turned to Trump and said, "Do you now know that you're one of two people who is going to be the next president of the United States?"Sarah Isgur: I was listening to the "Hamilton" soundtrack just over and over and over on the bus with my headphones on with the senior Cruz team and Cruz and Heidi and Carly. I wish I had had a better mood, attitude, whatever you want to call it. But you just worked your heart out and lost, and now you don't have time off. You're just back doing it for someone else. I say all that because when he lost, I was in sort of a historical, pensive mood. I remember wondering who had run against Hitler in Germany and thinking those people deserve more credit in history. Because you can know what the threat is and you can give everything you've got and still lose.Mike DuHaime: There were too many people who wanted to beat Trump but didn't have the courage to get behind any one person, because they didn't want to offend either us or Jeb or Marco or Cruz. So it was just too little too late.Ultimately, Pence, despite not endorsing Trump, became Trump's pick for the vice-presidential nomination — because of "divine intervention."Trump walks with Mike Pence on stage during a July 2016 campaign event in New York to announce Pence as Trump's running mate.Evan Vucci/AP photoRick Gates: Unbeknownst to Trump, we polled Ivanka to understand where she was. We didn't think that he was necessarily seriously going to move forward with it. But Paul thought we got to at least test it, because you never know, everything else about this race has been different. So why not? Let's look at this, you know, in totality. She had pretty good name recognition for that part. But at the end of the day, even she knew that she was not wanting to be the candidate. And so we moved on very quickly.Trump wanted to bring on somebody that was his friend, that he could work with as vice president, that he was able to communicate with very easily. And so this idea of Chris Christie and Newt Gingrich kind of being among the front-runners was absolutely accurate. But in the background we were looking at people like Mike Pence, Joni Ernst, and Bob Corker who might bring some significant role or resource to the campaign in order to help Trump win.So they came up with a short list very early on, and we reached out to the candidates individually. One of the first candidates was Mike Pence. He was the first VP candidate we met with at Bedminster. I was put in charge of vetting for Pence along with the lawyer A.B. Culvahouse. I staffed that meeting. This is the first time that Trump was physically meeting Mike Pence. And I think it's humorous in the sense that up to this point, Trump thought that Pence was not doing well in his governor's race. Trump felt like if he wasn't winning the governorship of Indiana, how in the world would he be able to help Trump as a vice-presidential candidate?And I say to this day, it was just divine intervention on how everything worked out for the first time they had met. Pence was ultimately selected. And we had a scenario where we met at Bedminster for the first time, Pence and his wife, Karen, and daughter Charlotte were there. And it was Trump and myself in the room. And Trump immediately started the meeting looking at Pence's daughter, Charlotte, and saying, "Charlotte, you know, your dad supported Ted Cruz in Indiana, not me." And it broke the ice and it was great. And to Mike's credit, he said, "Yes, Mr. Trump — uh — that was my fault." And it immediately just kind of got them into a position of really getting to know each other. And the visit was not without its challenges, because they are two very different people.Chapter 6: The RNC, July 2016Their presidential dreams crushed, a handful of Trump's 2016 rivals had by this point quit fighting and pledged allegiance to the seemingly inevitable nominee. But there were holdouts, like Rubio, Cruz, and Graham, who were still refusing to bend the knee. The climax came in Cleveland.Marco Rubio: I didn't go to the convention because I was running for reelection. I had announced late, so I needed every day I could spare in Florida.Tim Miller: I ended up not going to Cleveland. I drove to Richmond and got blackout drunk with my friend.Melania Trump at the end of her speech on the opening day of the Republican National Convention on July 18, 2016.Toni L. Sandys/The Washington Post via Getty ImagesRick Gates: On the first night of the convention, Melania did a fantastic job in the speech. And then about an hour and a half later, we start getting calls about the speech and about how it may have had information in it from a speech that Michelle Obama gave. And then, obviously, people started digging into the two speeches, and then they started comparing it.My wife calls me about an hour later, I think just a little after midnight, and says, "You're being blamed for it." And I was in a complete state of shock, because none of us had seen the speech until just before she gave the speech. And the way that the process worked, it was fed into a system run by the RNC where they would typically check for grammatical mistakes, but they never checked for content — obviously a correction that was made after that night. But at that point, nobody had thought to check Melania's speech because she had taken the team of speechwriters and done it. And what we found out after the fact was that there was an individual who had been guided by the speech firm that had given ideas and previous examples of speeches, and the speechwriter that helped him a lot, he was not political in nature and so, from what we now know, taken some of those aspects of the speech and included it, unbeknownst to Melania. And I don't think it was a deliberate intent, but obviously it created such a stir.Entering the convention, candidates who vociferously opposed Trump during the primary had to decide how to handle the convention optics. Former candidates such as Fiorina took a different tack than former candidates such as Cruz.Sarah Isgur: Carly couldn't endorse Trump and she couldn't not endorse him. I think that the phrase that was used was "You don't show up to someone's birthday party and talk about what a son of a bitch they are."Amanda Carpenter: I was working for CNN, and I had an inkling that Cruz was going to do something. I thought, another good, last-ditch attempt to try to at least signal opposition to what was going to happen.Rick Gates: We had negotiated with Cruz that he would be able to speak but that he would need to come out and say he was endorsing Donald Trump, which up until that moment he hadn't committed to. We asked for a copy of the speech in advance, but he didn't give it to us. We felt Cruz was going to renege on his commitment, which you naturally would assume.There was a lot of jockeying at the last minute. Jared and I were at the hotel with Trump in his suite. We're on the phone with Paul, who was over at the convention center. Nobody wanted Cruz to speak except for Paul, who thought it would be a disaster if he didn't, since we had committed to it. But Trump refused to allow him to speak, and so we were working out how we were going to tell Cruz this.Ted Cruz: The purpose of the speech was to lay out a path that I hoped then-candidate Trump would follow. A path to unifying conservatives. A path to honoring the promises that we had been making to the American people. What I said in the speech is vote for candidates who you trust to defend freedom and to defend the Constitution. And that is very much what I hoped Donald Trump would do. At the time I didn't know if he would or not. There were reasons to have concerns. I did have concerns.Amanda Carpenter: It was all pretty high-level, high-stakes theatrics going on — on everyone's part.Rick Gates: So we go over to the convention center in the motorcade. We have Trump in a holding room, and he's watching the proceedings on TV. He asked me where the rest of the family is. We had a family box, which we called the VIP box, in the corner of the convention center, looking directly onto the stage. Trump said: "'We'll check it out. Let's go."So we walk through the halls, and everybody's shouting "Trump! Trump! Trump!" He's building momentum. I'm thinking, this is way early for him to come down into this area, before Pence comes out to speak. And then he just kind of moseys out of the room right around the corner, because the stairs lead down into the box. He gets into the stairwell, and he turns to me and says, "Watch this."Ted Cruz: I didn't know it was coming. I had no idea. It didn't occur to me that that would be the campaign's reaction. Given that, for any nominee, the objective typically is to unify the party and win in November.Amanda Carpenter: I just remember how loud the boos were. And how I was worried for Heidi, watching her just kind of whisked out.Ted Cruz: If you look at what I said in the speech, the words were virtually identical to what Ted Kennedy said about Jimmy Carter and to what Ronald Reagan said about Gerald Ford. Neither one of them, at their respective conventions, endorsed the nominee. And the reason I know it was identical is I had both of those speeches in front of me when I was writing it and very deliberately used the same language.Amanda Carpenter: I didn't think anybody was in real danger, but just watching everything that happened at Trump rallies and the violence outside the convention, it was uncomfortable.Sean Spicer: Trump owned the moment. He gets stuff in a way that I don't think people appreciate in terms of — what's the right word? — pageantry. It's like showbiz, in the sense that he knows how to make a presentation.Trump's takeover of the GOP would culminate in a dark, authoritarian speech that would presage much of his reign over the country and, years later still, his party. "I alone can fix it," he infamously claimed.Rick Gates: Trump was very involved in writing the speech. We had created a framework for it. But as with every speech, he put his words to it, he put his rhythm, his content, to a large extent. It was a speech that I think resonated with a lot of people at that time. It was one that showed the issues with America, the problems that we were having, based on, in his view, failed leadership, across not just Democratic administrations but Republicans too. He felt very particular about immigration, about China, about making sure that America could be the best country it could be. And he had a different idea of how to do that. And so in laying that out in the speech — and it was a long speech, longer than we had anticipated, but it needed to show Americans — not just Republicans, but all Americans — what was wrong and how we could potentially fix it. And so it kind of codified both those dark moments of where you feel like there's no hope or optimism to feeling very optimistic by the end. And you could sense that he poured everything he had into that speech.The balloon drop after Trump formally accepted the GOP's 2016 presidential nomination in Cleveland. He'd go on to defeat the Democratic nominee, Hillary Clinton, that November and serve a single term as president of the United States.Jeff J Mitchell/Getty ImagesLindsey Graham: I thought it was a pretty good speech. But I never thought he could win. I really didn't. I thought we would lose big. So what the hell do I know?Rick Gates: I'll never forget it, because he was also involved in the actual walk out and how he was going to do it. And just the way that the optics were very important for him. And it was going to either create a momentum booster, which is exactly what you want out of a convention, because at the end of the day, a convention is an event where you get to control the entire script, you don't have a bunch of people criticizing you or weighing down on it, you can certainly try, but at the end of the day, the majority of Americans are seeing exactly what you put on prime time. That 7-to-10-p.m. slot is the most important time of any convention, Republican or Democrat. And so with Trump that night, giving that speech, if he did it, it ultimately gave us a 10-point boost.Donald McGahn: The thing I remember the most are the number of people who still opposed Trump at that point and who were not at all enthusiastic about him. But then after he won, they were the first people in line saying, "I was with you the whole time, and I should get a job." That's the biggest thing I remember about the convention: the lack of honest support Trump was getting, even then.Rick Gates: When we first started planning the convention, it turns out that the RNC had hired a production team, that part of their team had been involved in "The Apprentice." So Trump, he has a style of getting to know everybody who works under him. At the convention, during the walk-through, Trump saw a director he knew, and they connected right away. This individual had a sense of what Trump would like, and he presented an overall plan. Trump loved it. We had to change a few things along the way at Trump's request, but this idea that you create the optic of somebody coming out in this kind of silhouette way through the middle doors — it was almost like a rock concert more than a convention, and people reacted that way. I'll never forget people texting me and emailing me, like, "I've never seen a walk out like that, not ever."Sarah Isgur: By that point, not only has Trump taken over the Republican Party, but the Democratic Party has responded to him as well. So he has had a huge effect on the Democratic Party. Think of it like evolution. There's this thing called Red Queen theory, where parasites actually affect the evolution of their hosts. The two will keep evolving to get advantage over one another. So it really matters what advantage the parasite gets next time, because that's how the host is going to evolve next time.John Cornyn, GOP senator from Texas: Every day was a surprise. Read the original article on Business Insider.....»»

"Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday's shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions. The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge... ... as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression. Alas, so far there is nothing but silence from the Fed - which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout - and as traders await something to break big time across global markets... This is the week of the barbell trade: deep OTM calls and puts as things either break or CBs panic. — zerohedge (@zerohedge) September 26, 2022 ... this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32. It wasn't just FX and stocks crashing: British bonds also cratered as yields surged to the highest in more than a decade, sparking talk of emergency action by the Bank of England. For one example of the total chaos look no further than 5Y UK Gilts which have exploded 51bps higher and last traded around 4.58% as the market now prices in Similar implosions were observed in US TSYs, where the 10Y traded just shy of Friday's mini blowout, and was last seen at 3.7828% as bond traders are hit by VaR shocks at the same time in every possible market. Turning back to stocks, the rout wasn't isolated to just one market and an index of global stocks traded to the lowest since 2020. European equities extended declines after sliding into a bear market on Friday, with mining and energy stocks underperforming as metals and oil fell. “We’re in a period of global gloom, with pessimism blanketing different countries for different reasons,” said Ed Yardeni, president of his eponymous research firm, who warned of growing storm clouds for the US economy. “The latest data jibe with our growth recession scenario, but the risks of a full-blown recession are obviously increasing,” he wrote in a note Monday. In premarket trading, major US tech and internet stocks including Apple, Amazon and Microsoft tumbled. Here are some other notable premarket movers: Farfetch (FTCH US) shares fall as much as 4.43% in US premarket trading, after Citi begins coverage of the luxury online retailer with a sell rating, with broker flagging “weak” underlying profitability. Shares of US-listed Macau casinos jump in premarket trading, after Macau government said tour groups from mainland China could resume as early as November. Wynn Resorts (WYNN US) jumps 5.4%; Las Vegas Sands (LVS US) +6.9%, Melco (MLCO US) +9.6% and MGM resorts (MGM US) +1.6% Cryptocurrency-exposed stocks edged higher in premarket trading on Monday as Bitcoin rose above $19,000. Marathon Digital (MARA US) +1.9%, Coinbase (COIN US) +0.4% Keep an eye on Diana Shipping (DSX US) and Safe Bulkers (SB US) as Jefferies downgraded them to hold from buy and lowered dry bulk estimates to reflect the decline in dry bulk charter rates. European shares extended their fall to Dec. 2020 lows; sliding 1% and extending losses as investors priced a major economic shock and recession. The Stoxx 600 Index was down 1% by 10:50am in London, touching its lowest since December 2020, with real estate and banks among the worst performing sectors, while technology shares outperformed. Italy’s FTSE MIB bucked broader European declines to trade little changed, after Giorgia Meloni won a clear majority in Sunday’s election, in line with expectations. Banks and real estate stocks were the worst-performing sectors in Europe on Monday, with declines led by UK stocks as the pound and UK bonds slump. The Stoxx 600 Banks Index and the Stoxx 600 Real Estate are both down at least 2.5% while the benchmark gauge is 1.1% lower. The bank index decline is led by UK names including Virgin Money (-10%), Lloyds (-4.6%) and NatWest (-4.5%). Virgin Money was today resumed with a hold rating at Berenberg; broker said that the lender is expected to see revenue declines and a sector- lagging return on tangible equity which will affect ability to re-rate. Among real estate stocks, the UK’s Safestore Holdings (-4.2%), Assura (-3.9%) and Derwent London (-3.8%) are among the worst performers; non-index member housebuilders, including Persimmon, Bellway and Taylor Wimpey, are also plunging as the pound’s slump prompts talk of emergency action by the Bank of England. Here are the most notable movers today: The Stoxx 600 Tech Index rises as much as 2.4%, set for its biggest one-day outperformance against the broader Stoxx 600 since early-August, with semiconductor stocks leading gains. Among chip stocks, ASML rose as much as +3.7% after Santander upgraded the stock to neutral from underperform Italy’s FTSE MIB index gains, bucking weaker markets in Europe, after Giorgia Meloni won a clear majority in Sunday’s election. While the outcome was in line with expectations, the fact that the coalition didn’t obtain a super majority needed to change the constitution reassures investors. Telecom Italia rose as much +7.4%, FinecoBank +5.1%, Moncler +4.4% Unilever shares rise as much as 3.7% after it announced that CEO Alan Jope will retire from the company at the end of 2023, in a move that Jefferies analyst Martin Deboo (buy) sees as a positive development. RPS Group shares rise as much as 13% after Tetra Tech’s agreed deal to buy the company at 222p/share in cash, representing a 7.8% premium to an offer WSP made in August. Liberum does not rule out a counterbid. Belimo shares rise as much as 8.5% since the market isn’t fully pricing in its growth outlook, Berenberg says in a note, moving to buy and establishing a Street-high CHF440 target. The stock gains as much as 8.1%, the most since March 2021. Zalando shares rise as much as 4.8% after Citi analyst says they like the long-term investment story, short-term earnings risks are still high. UK Domestics: the most remarkable reaction to Friday’s not-so-mini budget, however, might be in lenders’ shares. The decline in banking stocks reflects investors’ pessimistic view on Britain’s economy. HSBC fell as much as 2.9%; Lloyds -4.3%, NatWest -4.7% and Barclays -3.0%. Virgin Money UK shares drop as much as 10% after Berenberg resumed a hold rating in note, stating that in many ways the UK small banks are “more different than they are alike.” Utilities are the day’s worst-performing European sector. Citi analyst Piotr Dzieciolowski says the EU’s funding for its policy response has so far been insufficient and also expects uncertainty to persist for UK names. United Utilities fell as much as -3.4%, Drax -3.8% Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes, and a gauge of German business confidence deteriorated. Earlier in the session, a rout in Asian stocks extended into Monday as rising concerns about a global recession and weak demand hit the region’s exporters and materials producers. The MSCI Asia Pacific Index declined as much as 2.3% to the lowest since April 2020, dragged lower by TSMC, BHP and Toyota Motor. All but one sector traded lower with materials leading the slump.  South Korean stocks fell the most in the region, with the benchmark tumbling 3% to more than a two-year low. The Korean market’s heavy tech exposure has proven costly amid rising rates and a stronger dollar, with fears that a looming recession may wreak havoc on global demand. Gauges in Hong Kong and China reversed earlier gains as the region’s selloff intensified.   Korea Assets Are Asia’s Biggest Losers on Global Recession Angst “Investor sentiment is again at the stage of extreme fear,” said Lee Kyoung-Min, an analyst at Daishin Investment. “It is becoming solid and clear that Kospi and other global stock markets are on a mid-to-long term downward trend.” Asian stock benchmarks are being buffeted by global headwinds as well as risks of their own. The Federal Reserve’s relentless rate hike campaign is pushing Asian currencies lower and raising the risk of capital outflows, while China’s adherence to Covid Zero is hurting growth in the region’s economic giant.  If Monday’s losses are extended through the week, the MSCI Asia Pacific Index will see its longest run of declines since 2015. Japan stocks declined more than 2% as the nation resumed trading after a holiday on Friday. The Philippine stock market was closed Monday as Super Typhoon Noru barreled into the main Luzon island.  Among the key issues investors are watching this week are speeches by central bank officials in US and Europe, including Fed Chair Jerome Powell on Tuesday. Japanese equities tumbled as the market reopened following a three-day weekend, tracking US peers lower after the Fed’s hawkish comments last week deepened fears of a global downturn. The Topix fell 2.7% to close at 1,864.28, while the Nikkei declined 2.7% to 26,431.55. Toyota Motor contributed the most to the Topix decline, decreasing 3.2% after its monthly production update lagged expectations. Out of 2,169 stocks in the index, 145 rose and 1,985 fell, while 39 were unchanged. “There is a possibility that inflation will not subside and interest rates will rise further, which the markets will not like,” said Shoji Hirakawa, a chief global strategist at Tokai Tokyo Research. In Australia, the S&P/ASX 200 index fell 1.6% to close at 6,469.40, as energy and mining shares plummeted. An energy gauge including oil and coal linked securities declined by the most since March 2020.  The New Zealand market was closed for a holiday In India, key stocks gauges plunged to their lowest closing levels in almost two months as the global equity rout continues. The S&P BSE Sensex dropped 1.6% to 57,145.22 in Mumbai to its lowest since July 28. The NSE Nifty 50 Index fell 1.8%, its biggest single-day plunge since Sept. 16. Both the indexes, down in four of the past five weeks, have lost almost 6% since this month’s peak. Volatility in domestic equities is likely to remain elevated this week, pending monthly derivatives expiry on Thursday. Of 30 shares in the Sensex index, 24 fell and 6 advanced. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by utilities and power companies.  The Indian rupee weakened to a new record against the dollar amid surging US Treasury yields. The Reserve Bank of India’s rate-setting panel will announce monetary policy later this week. As noted above, while stocks are ugly, rates are a horrorshow as Treasuries extended their worst bond slide in decades as a dollar gauge rose to yet another record. Treasuries extended losses in a bear flattening move with yields cheaper by up to 10bp across the belly of the curve. US 10-year yields around 3.78%, cheaper by 6bp on the day with 5s30s spread flatter by 5bp, dropping as low as -45.4bp in European session; UK yields cheaper by 60bp to 25bp from front- end out to long-end of the curve. The Move comes as market participants brace for accelerated policy tightening from global central banks and headlines such as this: *TRADERS PRICE IN UP TO 200BPS OF BOE RATE HIKES BY NOVEMBER Yields on 2-year gilts are 60bp cheaper heading into early US session, while the pound recovers slightly after reaching a fresh all-time low. US session focus on 2-year auction, while a barrage of Fed speakers are expected for the week. Peripheral spreads widen to Germany with 10y BTP/Bund widening 7bps to 238bps. FX, of course, is a disaster, with the Bloomberg Dollar Spot Index rising a fifth consecutive day as the greenback advanced versus most of its Group-of-10 peers. The pound plunged almost 5% to $1.0350 in Asian trading, the lowest recorded in Bloomberg data going back to 1971, while gilts crashed after the UK government vowed to press ahead with more tax cuts, stoking fears that new fiscal policies will send inflation and debt soaring, triggering emergency rate hikes. The options market signals no respite even as the pound rebounded from a record low hit during the Asia session. The yield on two- year bonds surged more than 55 basis points to 4.51%, while the 10-year yield rose 37 basis points to 4.19%. Money markets price in more than 150 basis points of rate increases by the BoE’s next policy meeting in November The euro steadied after earlier dropping to $0.9554; European bond yields rose; Italian bonds underperformed German peers. Giorgia Meloni won a clear majority in Sunday’s Italian election, setting herself up to become the country’s first female prime minister at the head of the most right-wing government since World War II. Germany’s IFO business expectations slid to 75.2 in September from 80.3 in August. That’s the lowest since April 2020. Analysts had predicted a drop to 79. An index of current conditions also fell. The Australian and New Zealand dollars pared some losses after earlier touching fresh 2-year lows. Aussie bond yields rose by up to 13bps, led by the front end The yen weakened amid a broadly stronger dollar. Bank of Japan Governor Haruhiko Kuroda said the government’s intervention in the foreign exchange market last week was appropriate given the recent volatility in the yen The currency’s rally is “untenable” for risk assets, according to a note by Morgan Stanley strategists led by Michael Wilson, while Sian Fenner, senior Asia economist for Oxford Economics, said that “It’s a king US dollar...“It’s adding to inflationary pressures and more central banks raising rates more than we have historically seen.” In commodities, WTI slides almost 1% to trade near $78/bbl. Spot gold mostly unchanged near $1,643/oz. Bitcoin climbs above $19,000. Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week. Looking at today's calendar, we get the September Dallas Fed manufacturing activity index, and the August Chicago Fed national activity index. Central bank speakers include the Fed's Bostic, Collins, Logan and Mester; ECB's Lagarde also speaks as does Nagel, Guindos, Centeno and Panetta speak, BoE's Tenreyro speaks. Market Snapshot S&P 500 futures little changed at 3,706.25 MXAP down 2.0% to 142.24 MXAPJ down 1.4% to 463.08 Nikkei down 2.7% to 26,431.55 Topix down 2.7% to 1,864.28 Hang Seng Index down 0.4% to 17,855.14 Shanghai Composite down 1.2% to 3,051.23 Sensex down 1.2% to 57,378.30 Australia S&P/ASX 200 down 1.6% to 6,469.41 Kospi down 3.0% to 2,220.94 STOXX Europe 600 down 0.2% to 389.70 German 10Y yield little changed at 2.08% Euro little changed at $0.9683 Brent Futures down 0.7% to $85.59/bbl Brent Futures down 0.7% to $85.59/bbl Gold spot up 0.1% to $1,645.98 U.S. Dollar Index little changed at 113.22 Top Overnight News from Bloomberg Chancellor of the Exchequer Kwasi Kwarteng must do more to reassure the markets about his plans for the economy after a selloff sent the pound crashing to an all-time low against the dollar, said Gerard Lyons, an external adviser to Prime Minister Liz Truss The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers. The UK had $108 billion in foreign currency reserves at the end of August, according to data from the IMF Hedge funds ramped up bullish bets on the pound just days before the UK government’s unexpectedly large tax cuts sent the currency tumbling The ECB’s newest policy maker, Boris Vujcic, says “it’s clear that this is the right way to go,” backing this month’s 75-basis point interest-rate hike ECB Vice President Luis de Guindos said the biggest problem facing the continent’s economy is record inflation, which is becoming more broad-based, threatening investment and consumer spending ECB Governing Council member Yannis Stournaras says the central bank must maintain the main principles of gradualism and flexibility, since the problem it faces is different from the one that the US Fed faces China made it more expensive to bet against the yuan in the derivatives market, ramping up support for the currency as it slides toward the weakest level since the 2008 financial crisis A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly negative in a resumption of last week's global stock rout amid the continued surge in the dollar and higher yields, while there was also FX volatility which saw a flash crash in GBP/USD to a record low. ASX 200 was dragged lower amid losses in the commodity-related sectors and with sentiment dampened by the collapse of potential M&A deals involving Ramsay Health-KKR and Link Administration-Dye & Durham. Nikkei 225 underperformed with Mazda Motors among the worst hit as it considers exiting Russian operations. Hang Seng and Shanghai Comp retraced most of their initial losses with Hong Kong underpinned following the scrapping of hotel quarantine policy and with casinos boosted as Macau is to resume tour groups from China, while the property industry benefits after China Construction Bank formed a CNY 30bln housing rental fund and some Twitter sources also circulated that some China state banks were reportedly ordered to buy stocks to contain selling. Top Asian News PBoC injected CNY 42bln via 7-day reverse repos with the rate kept at 2.00% and CNY 93bln via 14-day reverse repos with the rate kept at 2.15% for a net CNY 133bln injection. There were rumours circulating on social media of a coup against Chinese President Xi, although experts and journalists in Beijing dismissed the rumours and said there was no evidence to support them, according to The Print. Philippines Stock Exchange announced a trading suspension for Monday amid a typhoon in the capital, according to Reuters. European bourses are softer after a mixed cash open and despite a brief foray higher, Euro Stoxx 50 -0.5%, as sentiment remains subdued amid recession/inflation concerns. The breakdown features modest outperformance in the FTSE MIB as Italian election results are in-line with expectations. Stateside, futures are lower across the board in-fitting with peers going into a week of Fed speak and inflation data. Top European News UK PM Truss said she is determined to make the special relationship with the US even more special and said she agreed with US President Biden that it is vital to protect the Northern Ireland Good Friday Agreement, while she wants to find a way forward with a negotiated solution with the EU, according to Reuters and a CNN interview. UK PM Truss is to review visa schemes in an attempt to ease UK labour shortages, according to FT. UK Chancellor Kwarteng hinted that more tax cuts are on the way and claimed his tax cuts “favour people right across the income scale” amid accusations they mainly help the rich, according to Evening Standard. UK Chancellor Kwarteng said he is focused on growing the economy and the longer term when asked about the market reaction to his statement on Friday. Kwarteng added that he shares ideas with BoE Governor Bailey but added that Bailey is completely independent and Kwarteng is confident the BoE is dealing with inflation, according to Reuters. UK opposition Labour Party leader Starmer said they would reintroduce the top rate of income tax at 45% which the government announced to scrap last week, while he added that they will support the government plan to lower the basic rate of income tax to 19%, according to Reuters. Italy's right-wing bloc is seen winning the national election with 43.3% and centre-left bloc is seen winning 25.4%, according to the first projection by LA7 TV based on the actual vote count.. Click here for newsquawk snap analysis. Italy's Meloni said Italians gave clear backing to a centre-right government led by the Brothers of Italy and said the situation is difficult and needs contribution from everyone. It was separately reported that Italy's Democratic Party conceded in the election and said it will be the main opposition force, while Italy's Meloni claimed leadership of the next Italian government, according to Reuters and AFP. FX DXY climbed to a fresh YTD high of 114.58 before paring modestly, but remaining firmer, as GBP in particular lifts off worst levels. Cable succumbed to a flash crash overnight, with GBP/USD hitting an all-time-low around 1.0350 as participants confidence in the economy slips. EUR suffers amid the mentioned USD move but derives relative benefit from GBP, while ECB speakers thus far have added little. Antipodeans and CAD weighed on by broader risk and commodity pressure. Japanese Finance Minister Suzuki said the government and BoJ share views on concerns about a weak JPY, while he added that FX intervention had a certain effect and there is no change to the stance that they will respond to market moves as needed, according to Reuters. PBoC set USD/CNY mid-point at 7.0298 vs exp. 7.0019 (prev. 6.9920) PBoC imposed a 20% risk reserve requirement for FX forward sales from September 28th to rein in yuan weakness. Fixed Income Gilts have retained some composure after slumping over 200ticks at the commencement of trade and have settled around halfway between intraday extremes. EGBs downbeat in sympathy while BTPs marginally lag core-EGB peers as Italian as-expected election results are digested with BTP-Bund only modestly wider as such. Stateside, USTs are pressured in-fitting with peers and also conscious of the week's supply docket getting underway via a 43bln 2yr. Central Banks Fed’s Bostic (2024 voter) said inflation is too high and that they need to do all they can to bring it down and said demand is beginning to shrink which will ultimately pay dividends in inflation levels. Bostic also stated that there are scenarios where they can avoid deep pain but there will likely be some job losses, according to Reuters. BoJ's Kuroda says the BoJ will maintain accommodative monetary conditions to support companies, hopes to support a positive economic cycle, long-term inflation expectations have begun to heighten, via Reuters. Intervention from the MoF is an "appropriate" move, does not think gov't intervention and BoJ policy are contradictory. Amamiya says the domestic economy is picking up, must carefully watch how FX moves affect the economy and prices. BoJ Governor Kuroda says when he stated that BoJ forward guidance will not change for 2-3yrs, did not refer to guidance on keeping short and long-term rates at present of lower levels via Reuters. ECB's de Guindos says Q3 and Q4 point towards growth rates being close to zero within the EZ, the scenario is market by high uncertainty, lower growth and higher inflation. ECB's Panetta says ECB is assessing the potential of distributed ledger technology (DLT) and "the extent to which it could improve our services.". Capital Economics calls for the BoE to "get on the front foot with a big rate hike". Allianz's El-Erian says, on GBP, the fall is about extra tax cuts and Chancellor Kwarteng could recalibrate this. Alternative, would be for the BoE to hike at an emergency meeting. Adding, he would hike by 100bp. BoE publishes key elements of the 2022 annual cyclical scenario stress test; includes a scenario where the Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before gradually reduced to sub-3.5%. Commodities WTI and Brent November futures remain subdued in early European trade following last week’s recession-induced losses. Spot gold trades in tandem with the Buck and sees resistance at around USD 1,650/oz after falling to USD 1,627/oz as a casualty of the Sterling flash crash overnight. LME metals are softer across the board with 3M copper futures having a hard time reclaiming USD +7,500/t status with upside capped by the Buck. Iraq began trial operations at the Karabala oil refinery which has a production capacity of 140k bpd, according to a statement from the Oil Ministry. German Chancellor Scholz signed a strategic agreement with UAE’s President on accelerating energy security and industrial growth, while UAE’s ADNOC signed an agreement with Germany’s RWE which includes ADNOC exporting its first LNG cargo to RWE and will conduct trial shipments of low-carbon ammonia to Germany. Furthermore, Chancellor Scholz said while visiting Doha that he talked with the Emir about LNG deliveries and that they want to achieve further progress, according to Reuters. Germany is preparing a national electricity price cap to be implemented this fall in the scenario the EU falls to agree on a similar move for the entirety of the bloc, via WSJ citing officials. Vitol's CEO said at the Asia Pacific Petroleum Conference that Russian gas supply cuts put enormous strain on supply-demand in Europe and that high gas prices are to impact 60%-80% of demand, while Ecopetrol's CEO said they are increasing crude exports to Europe this year to replace Russian supplies and are drilling 600 oil wells this year. Anglo American (AAL LN) tightens copper production guidance for Chile to 560k-580k tonnes of copper (prev. 560k-600k tonnes) due to lower throughput at Los Bronces caused by a combination of water restrictions and a change in ore characteristics, via Reuters. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.23, prior 0.27 10:30: Sept. Dallas Fed Manf. Activity, est. -10.0, prior -12.9 Central Banks 10:00: Boston Fed’s Susan Collins Speaks to Boston Chamber of... 12:00: Fed’s Bostic Discusses Income Inequality 12:30: Fed’s Logan Speaks at Banking Conference 16:00: Fed’s Mester Discusses Economic Outlook DB's Jim Reid concludes the overnight wrap I wonder whether any research report has ever been written whilst watching synchronised swimming? Well if not, then you’re reading the first ever as I’m getting a head start on the early morning news by starting this on Sunday evening watching my daughter Maisie do her second session after getting into the local club. Watching this sport is going to take some getting used to after years of watching football, cricket, golf, F1, athletics, rugby... actually.... virtually every sport bar synchronised swimming. I think everyone felt they were swimming in a tsunami of newsflow last week after one of the most incredible macro weeks in recent memory in terms of breadth of events. Yes there have been more extreme weeks in crises but last week had a bit more variety and was outside of a crisis period. If over 500bps of global rate hikes wasn’t enough, you also had 2yr US yields moving higher for the 12th successive day on Friday (the longest steak since data begins in 1976), the BoJ intervening in FX markets for the first time since 1998, and what can only be termed as one of the darker days for sterling assets on record on Friday after a mammoth tax giveaway in what was a mini-budget in name and not by nature. Henry and I put a note out on Friday night (link here) showing that it was the third worst day for Sterling (-3.57%) since Black Wednesday in 1992, with the worst two since being the day after the Brexit vote (-8.1%) and after the initial covid shock in 2020 (-3.71%) when there was a global flight to dollars. We also show a graph of daily Sterling moves back to 1862 and on that it was the 41st worst day in history spanning 47,000 trading days. Obviously in the long era of fixed FX rates there were the occasional big devaluations which were much bigger than Friday. This morning is Asia it fell around -4.5% at one point (1.0392) which was a record low against the Dollar. It's around -2.78% as I type. This follows a weekend interview where Chancellor Kwarteng suggested that more tax cuts were to come so that certainly was a red rag to markets. Will we hear from the upper echelons of the BoE today? Watch out for any comments, especially at the market open. DB's George Saravelos suggested on Friday that the Bank of England need to do an inter meeting hike to restore policy credibility. There’s also a graph in our note mentioned above showing that Friday was the worst day for 5yr gilts (+50.3bps) since a +200bps hike in 1985 when sterling was also slumping. So maybe omens here. I suppose the only slight mystery is the timing of the sell-off as the mini-budget in magnitude was broadly in-line with the recent elevated fiscal expectations that had been building. However perhaps it was the unabashed revival of trickle-down economics that had markets a little aghast. It goes against the current economic orthodoxy and the overall zeitgeist of our immediate times. As such there is likely to be concerns of a credibility issue. We are publishing our long-term study today with the title “How we got here, and where we’re going?”. In it we try to put the current macro woes into historical context in an attempt to work out where we’re going. There are quite a few people who have proof-read it on my team and they were all thoroughly depressed at the end. I didn't feel that way writing it but maybe it's a case of starting point perceptions. Anyway, look out for it around the European lunchtime. Overnight in Italy, the right-wing alliance led by Giorgia Meloni's Brothers of Italy party was on course to become the nation’s first woman prime minister after exit polls gave it a clear majority. With the full results due later today, she is predicted to win up to 26% of the vote ahead of her closest rival Enrico Letta from the centre left. The right wing alliance is slated to be on course for around 43% of the vote, enough for a majority if correct. As I type, the euro is extending its losses against the dollar for the fifth day, its longest streak since April 28, falling as much as -0.5% to 0.9638, albeit being overshadowed by Sterling. For this week we have an array of consumer-driven economic data in the US and some important European inflation prints. We will also get a number of consumer sentiment indicators across the key economies and PMIs from Asia. Away from the data, there are more than 30 central banker appearances across the Fed and the ECB to keep markets busy. Tomorrow also sees referendums in the Russia-annexed Ukrainian territories as the conflict goes into its eight month. Going through the data in more details now. Starting with the US, the PCE and personal income and spending data will be front and centre for markets next week as they gauge the extent of inflationary pressures and the strength of the consumer. The Fed’s preferred inflation gauge, the PCE, due Friday, will be watched for signs of price pressures we saw in last week's CPI report. Our US economists expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tightening pedal. For the other two data points, our team forecasts a +0.1% MoM increase for both income and consumption. Final US Q2 GDP will also be released on Thursday and although DB expect no change to the -0.6% second reading, watch out for the annual benchmark revisions back to Q1 2017. History could be re-written that could have some implications for how we all think about the economy. In other US data, we will also get the consumer confidence index on Tuesday, along with durable goods orders, and inventories data on Wednesday, with the Chicago PMI on Friday. Over in Europe, all eyes will be on September's inflation data, including the Euro Area flash CPI release on Friday. Our economists are expecting the measure to hit a record +9.5%, up from the previous record of +9.1% in August. Other data in the region will include consumer and economic sentiment from Germany, France, Italy and the Eurozone throughout the week. Meanwhile, EU energy ministers will meet again on Friday regarding the emergency intervention amid elevated energy prices. Finally, next week's earnings line up will feature a number of retail bellwethers on Thursday. Among them will be Nike, H&M and Next. Micron will report that day as well. See our usual day by day guide to the week at the end which contains many of the key Fed and ECB speakers including Powell and Lagarde. Stock markets across Asia are mostly lower this morning. The Kospi (-2.40%), Nikkei (-2.30%) and the S&P/ASX 200 (-1.40%) are leading the declines. Meanwhile, the Hang Seng (+0.11%) is swinging between gains and losses after rising by +2.45% initially with Chinese shares mixed as the Shanghai Composite (-0.10%) is trading lower while the CSI (+0.46%) is up as we go to press. Stock futures in DMs are pointing to further losses with contracts on the S&P 500 (-0.49%), NASDAQ 100 (-0.46%) and DAX (-0.33%) all moving lower. Early morning data showed that Japan’s manufacturing sector continued to expand albeit at a slower pace as the latest au Jibun Bank manufacturing PMI slipped to a 20-month low of 51.0 in September from 51.5 in August, pulled lower by high energy and raw material prices that was exacerbated by a weak yen. At the same time, the au Jibun Bank services PMI returned to expansion, recording a level of 51.9 in September from August's 49.5 final reading. Moving on to China, in order to stabilise expectations in the FX market, the People’s Bank of China (PBOC) today raised the risk reserve requirement on foreign exchange forward sales to 20% from 0% beginning September 28 as the yuan faces increasing depreciation pressure, in line with most major currencies amid broad dollar strength. Looking back now on a week that will not be forgotten anytime soon. While there were historic central bank hikes all week, the biggest news came from the fiscal authorities, following the UK’s budget Friday, which had the largest tax cut package since the 1970s. Gilt yields had their largest one-day increase in decades with 2yrs +44.7bps, 5yrs +50.3bps, and 10yrs +33.3bps. As we mentioned at the top, 5yrs yields saw their largest move since 1985 after a +200bps hike aimed at helping a plunging currency. The pound fell -3.57% against the US dollar to within a percentage point of the weakest in the post-Bretton Woods 51yr free float era. It was already a busy macro week before the blockbuster budget, where we got more than 500bps of global central bank hikes and a currency intervention from Japan. In terms of the biggest players, the Fed delivered its third consecutive 75bp hike while the BoE delivered its second 50bp hike in a row, with both banks guiding toward yet more tightening, while the BoJ remained the outlier by keeping its accommodative policy in place, which isn’t going to help the yen turnaround even with intervention. When all was said and done, sovereign bonds and equities sold off in size, while yield curves flattened. 2yr Treasuries (+33.4bps, +7.9bps Friday), 2yr Bunds (+38.5bps, +7.2bps Friday), 2yr Gilts (+82.1bps, +44.7bps Friday) reached their highest levels since 2007, 2008, and 2008, respectively, as markets priced in more tightening to overcome inflationary pressures (and in the case of the UK, fiscal expansion). 10yr Treasuries (+23.5bps, -2.9bps Friday) ended the week a touch lower on the day but hit their highest levels since 2011 during the week, while 10yr Bunds (+26.8bps, +5.9bps Friday), and 10yr Gilts (+69.1bps, +33.3bps Friday) hit their highest levels since 2013 and 2011, respectively. The mixture unsurprisingly proved unpalatable to risk assets, driving the STOXX 600 and S&P 500 back to their lows for the year. The STOXX 600 retreated -4.37% on the week and -2.34% on Friday, the worst weekly and daily return since mid-June. The S&P 500 fell -4.65% (-1.75% Friday), returning to bear market territory. The FTSE managed to stay above its YTD lows, but still fell -3.01% on the week, its worst weekly return since mid-June as well, and retreated -1.97% on Friday, the worst daily return since early July. Tyler Durden Mon, 09/26/2022 - 08:08.....»»

“Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday's shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions. The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge... ... as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression. Alas, so far there is nothing but silence from the Fed - which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout - and as traders await something to break big time across global markets... This is the week of the barbell trade: deep OTM calls and puts as things either break or CBs panic. — zerohedge (@zerohedge) September 26, 2022 ... this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32. It wasn't just FX and stocks crashing: British bonds also cratered as yields surged to the highest in more than a decade, sparking talk of emergency action by the Bank of England. For one example of the total chaos look no further than 5Y UK Gilts which have exploded 51bps higher and last traded around 4.58% as the market now prices in Similar implosions were observed in US TSYs, where the 10Y traded just shy of Friday's mini blowout, and was last seen at 3.7828% as bond traders are hit by VaR shocks at the same time in every possible market. Turning back to stocks, the rout wasn't isolated to just one market and an index of global stocks traded to the lowest since 2020. European equities extended declines after sliding into a bear market on Friday, with mining and energy stocks underperforming as metals and oil fell. “We’re in a period of global gloom, with pessimism blanketing different countries for different reasons,” said Ed Yardeni, president of his eponymous research firm, who warned of growing storm clouds for the US economy. “The latest data jibe with our growth recession scenario, but the risks of a full-blown recession are obviously increasing,” he wrote in a note Monday. In premarket trading, major US tech and internet stocks including Apple, Amazon and Microsoft tumbled. Here are some other notable premarket movers: Farfetch (FTCH US) shares fall as much as 4.43% in US premarket trading, after Citi begins coverage of the luxury online retailer with a sell rating, with broker flagging “weak” underlying profitability. Shares of US-listed Macau casinos jump in premarket trading, after Macau government said tour groups from mainland China could resume as early as November. Wynn Resorts (WYNN US) jumps 5.4%; Las Vegas Sands (LVS US) +6.9%, Melco (MLCO US) +9.6% and MGM resorts (MGM US) +1.6% Cryptocurrency-exposed stocks edged higher in premarket trading on Monday as Bitcoin rose above $19,000. Marathon Digital (MARA US) +1.9%, Coinbase (COIN US) +0.4% Keep an eye on Diana Shipping (DSX US) and Safe Bulkers (SB US) as Jefferies downgraded them to hold from buy and lowered dry bulk estimates to reflect the decline in dry bulk charter rates. European shares extended their fall to Dec. 2020 lows; sliding 1% and extending losses as investors priced a major economic shock and recession. The Stoxx 600 Index was down 1% by 10:50am in London, touching its lowest since December 2020, with real estate and banks among the worst performing sectors, while technology shares outperformed. Italy’s FTSE MIB bucked broader European declines to trade little changed, after Giorgia Meloni won a clear majority in Sunday’s election, in line with expectations. Banks and real estate stocks were the worst-performing sectors in Europe on Monday, with declines led by UK stocks as the pound and UK bonds slump. The Stoxx 600 Banks Index and the Stoxx 600 Real Estate are both down at least 2.5% while the benchmark gauge is 1.1% lower. The bank index decline is led by UK names including Virgin Money (-10%), Lloyds (-4.6%) and NatWest (-4.5%). Virgin Money was today resumed with a hold rating at Berenberg; broker said that the lender is expected to see revenue declines and a sector- lagging return on tangible equity which will affect ability to re-rate. Among real estate stocks, the UK’s Safestore Holdings (-4.2%), Assura (-3.9%) and Derwent London (-3.8%) are among the worst performers; non-index member housebuilders, including Persimmon, Bellway and Taylor Wimpey, are also plunging as the pound’s slump prompts talk of emergency action by the Bank of England. Here are the most notable movers today: The Stoxx 600 Tech Index rises as much as 2.4%, set for its biggest one-day outperformance against the broader Stoxx 600 since early-August, with semiconductor stocks leading gains. Among chip stocks, ASML rose as much as +3.7% after Santander upgraded the stock to neutral from underperform Italy’s FTSE MIB index gains, bucking weaker markets in Europe, after Giorgia Meloni won a clear majority in Sunday’s election. While the outcome was in line with expectations, the fact that the coalition didn’t obtain a super majority needed to change the constitution reassures investors. Telecom Italia rose as much +7.4%, FinecoBank +5.1%, Moncler +4.4% Unilever shares rise as much as 3.7% after it announced that CEO Alan Jope will retire from the company at the end of 2023, in a move that Jefferies analyst Martin Deboo (buy) sees as a positive development. RPS Group shares rise as much as 13% after Tetra Tech’s agreed deal to buy the company at 222p/share in cash, representing a 7.8% premium to an offer WSP made in August. Liberum does not rule out a counterbid. Belimo shares rise as much as 8.5% since the market isn’t fully pricing in its growth outlook, Berenberg says in a note, moving to buy and establishing a Street-high CHF440 target. The stock gains as much as 8.1%, the most since March 2021. Zalando shares rise as much as 4.8% after Citi analyst says they like the long-term investment story, short-term earnings risks are still high. UK Domestics: the most remarkable reaction to Friday’s not-so-mini budget, however, might be in lenders’ shares. The decline in banking stocks reflects investors’ pessimistic view on Britain’s economy. HSBC fell as much as 2.9%; Lloyds -4.3%, NatWest -4.7% and Barclays -3.0%. Virgin Money UK shares drop as much as 10% after Berenberg resumed a hold rating in note, stating that in many ways the UK small banks are “more different than they are alike.” Utilities are the day’s worst-performing European sector. Citi analyst Piotr Dzieciolowski says the EU’s funding for its policy response has so far been insufficient and also expects uncertainty to persist for UK names. United Utilities fell as much as -3.4%, Drax -3.8% Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes, and a gauge of German business confidence deteriorated. Earlier in the session, a rout in Asian stocks extended into Monday as rising concerns about a global recession and weak demand hit the region’s exporters and materials producers. The MSCI Asia Pacific Index declined as much as 2.3% to the lowest since April 2020, dragged lower by TSMC, BHP and Toyota Motor. All but one sector traded lower with materials leading the slump.  South Korean stocks fell the most in the region, with the benchmark tumbling 3% to more than a two-year low. The Korean market’s heavy tech exposure has proven costly amid rising rates and a stronger dollar, with fears that a looming recession may wreak havoc on global demand. Gauges in Hong Kong and China reversed earlier gains as the region’s selloff intensified.   Korea Assets Are Asia’s Biggest Losers on Global Recession Angst “Investor sentiment is again at the stage of extreme fear,” said Lee Kyoung-Min, an analyst at Daishin Investment. “It is becoming solid and clear that Kospi and other global stock markets are on a mid-to-long term downward trend.” Asian stock benchmarks are being buffeted by global headwinds as well as risks of their own. The Federal Reserve’s relentless rate hike campaign is pushing Asian currencies lower and raising the risk of capital outflows, while China’s adherence to Covid Zero is hurting growth in the region’s economic giant.  If Monday’s losses are extended through the week, the MSCI Asia Pacific Index will see its longest run of declines since 2015. Japan stocks declined more than 2% as the nation resumed trading after a holiday on Friday. The Philippine stock market was closed Monday as Super Typhoon Noru barreled into the main Luzon island.  Among the key issues investors are watching this week are speeches by central bank officials in US and Europe, including Fed Chair Jerome Powell on Tuesday. Japanese equities tumbled as the market reopened following a three-day weekend, tracking US peers lower after the Fed’s hawkish comments last week deepened fears of a global downturn. The Topix fell 2.7% to close at 1,864.28, while the Nikkei declined 2.7% to 26,431.55. Toyota Motor contributed the most to the Topix decline, decreasing 3.2% after its monthly production update lagged expectations. Out of 2,169 stocks in the index, 145 rose and 1,985 fell, while 39 were unchanged. “There is a possibility that inflation will not subside and interest rates will rise further, which the markets will not like,” said Shoji Hirakawa, a chief global strategist at Tokai Tokyo Research. In Australia, the S&P/ASX 200 index fell 1.6% to close at 6,469.40, as energy and mining shares plummeted. An energy gauge including oil and coal linked securities declined by the most since March 2020.  The New Zealand market was closed for a holiday In India, key stocks gauges plunged to their lowest closing levels in almost two months as the global equity rout continues. The S&P BSE Sensex dropped 1.6% to 57,145.22 in Mumbai to its lowest since July 28. The NSE Nifty 50 Index fell 1.8%, its biggest single-day plunge since Sept. 16. Both the indexes, down in four of the past five weeks, have lost almost 6% since this month’s peak. Volatility in domestic equities is likely to remain elevated this week, pending monthly derivatives expiry on Thursday. Of 30 shares in the Sensex index, 24 fell and 6 advanced. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by utilities and power companies.  The Indian rupee weakened to a new record against the dollar amid surging US Treasury yields. The Reserve Bank of India’s rate-setting panel will announce monetary policy later this week. As noted above, while stocks are ugly, rates are a horrorshow as Treasuries extended their worst bond slide in decades as a dollar gauge rose to yet another record. Treasuries extended losses in a bear flattening move with yields cheaper by up to 10bp across the belly of the curve. US 10-year yields around 3.78%, cheaper by 6bp on the day with 5s30s spread flatter by 5bp, dropping as low as -45.4bp in European session; UK yields cheaper by 60bp to 25bp from front- end out to long-end of the curve. The Move comes as market participants brace for accelerated policy tightening from global central banks and headlines such as this: *TRADERS PRICE IN UP TO 200BPS OF BOE RATE HIKES BY NOVEMBER Yields on 2-year gilts are 60bp cheaper heading into early US session, while the pound recovers slightly after reaching a fresh all-time low. US session focus on 2-year auction, while a barrage of Fed speakers are expected for the week. Peripheral spreads widen to Germany with 10y BTP/Bund widening 7bps to 238bps. FX, of course, is a disaster, with the Bloomberg Dollar Spot Index rising a fifth consecutive day as the greenback advanced versus most of its Group-of-10 peers. The pound plunged almost 5% to $1.0350 in Asian trading, the lowest recorded in Bloomberg data going back to 1971, while gilts crashed after the UK government vowed to press ahead with more tax cuts, stoking fears that new fiscal policies will send inflation and debt soaring, triggering emergency rate hikes. The options market signals no respite even as the pound rebounded from a record low hit during the Asia session. The yield on two- year bonds surged more than 55 basis points to 4.51%, while the 10-year yield rose 37 basis points to 4.19%. Money markets price in more than 150 basis points of rate increases by the BoE’s next policy meeting in November The euro steadied after earlier dropping to $0.9554; European bond yields rose; Italian bonds underperformed German peers. Giorgia Meloni won a clear majority in Sunday’s Italian election, setting herself up to become the country’s first female prime minister at the head of the most right-wing government since World War II. Germany’s IFO business expectations slid to 75.2 in September from 80.3 in August. That’s the lowest since April 2020. Analysts had predicted a drop to 79. An index of current conditions also fell. The Australian and New Zealand dollars pared some losses after earlier touching fresh 2-year lows. Aussie bond yields rose by up to 13bps, led by the front end The yen weakened amid a broadly stronger dollar. Bank of Japan Governor Haruhiko Kuroda said the government’s intervention in the foreign exchange market last week was appropriate given the recent volatility in the yen The currency’s rally is “untenable” for risk assets, according to a note by Morgan Stanley strategists led by Michael Wilson, while Sian Fenner, senior Asia economist for Oxford Economics, said that “It’s a king US dollar...“It’s adding to inflationary pressures and more central banks raising rates more than we have historically seen.” In commodities, WTI slides almost 1% to trade near $78/bbl. Spot gold mostly unchanged near $1,643/oz. Bitcoin climbs above $19,000. Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week. Looking at today's calendar, we get the September Dallas Fed manufacturing activity index, and the August Chicago Fed national activity index. Central bank speakers include the Fed's Bostic, Collins, Logan and Mester; ECB's Lagarde also speaks as does Nagel, Guindos, Centeno and Panetta speak, BoE's Tenreyro speaks. Market Snapshot S&P 500 futures little changed at 3,706.25 MXAP down 2.0% to 142.24 MXAPJ down 1.4% to 463.08 Nikkei down 2.7% to 26,431.55 Topix down 2.7% to 1,864.28 Hang Seng Index down 0.4% to 17,855.14 Shanghai Composite down 1.2% to 3,051.23 Sensex down 1.2% to 57,378.30 Australia S&P/ASX 200 down 1.6% to 6,469.41 Kospi down 3.0% to 2,220.94 STOXX Europe 600 down 0.2% to 389.70 German 10Y yield little changed at 2.08% Euro little changed at $0.9683 Brent Futures down 0.7% to $85.59/bbl Brent Futures down 0.7% to $85.59/bbl Gold spot up 0.1% to $1,645.98 U.S. Dollar Index little changed at 113.22 Top Overnight News from Bloomberg Chancellor of the Exchequer Kwasi Kwarteng must do more to reassure the markets about his plans for the economy after a selloff sent the pound crashing to an all-time low against the dollar, said Gerard Lyons, an external adviser to Prime Minister Liz Truss The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers. The UK had $108 billion in foreign currency reserves at the end of August, according to data from the IMF Hedge funds ramped up bullish bets on the pound just days before the UK government’s unexpectedly large tax cuts sent the currency tumbling The ECB’s newest policy maker, Boris Vujcic, says “it’s clear that this is the right way to go,” backing this month’s 75-basis point interest-rate hike ECB Vice President Luis de Guindos said the biggest problem facing the continent’s economy is record inflation, which is becoming more broad-based, threatening investment and consumer spending ECB Governing Council member Yannis Stournaras says the central bank must maintain the main principles of gradualism and flexibility, since the problem it faces is different from the one that the US Fed faces China made it more expensive to bet against the yuan in the derivatives market, ramping up support for the currency as it slides toward the weakest level since the 2008 financial crisis A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly negative in a resumption of last week's global stock rout amid the continued surge in the dollar and higher yields, while there was also FX volatility which saw a flash crash in GBP/USD to a record low. ASX 200 was dragged lower amid losses in the commodity-related sectors and with sentiment dampened by the collapse of potential M&A deals involving Ramsay Health-KKR and Link Administration-Dye & Durham. Nikkei 225 underperformed with Mazda Motors among the worst hit as it considers exiting Russian operations. Hang Seng and Shanghai Comp retraced most of their initial losses with Hong Kong underpinned following the scrapping of hotel quarantine policy and with casinos boosted as Macau is to resume tour groups from China, while the property industry benefits after China Construction Bank formed a CNY 30bln housing rental fund and some Twitter sources also circulated that some China state banks were reportedly ordered to buy stocks to contain selling. Top Asian News PBoC injected CNY 42bln via 7-day reverse repos with the rate kept at 2.00% and CNY 93bln via 14-day reverse repos with the rate kept at 2.15% for a net CNY 133bln injection. There were rumours circulating on social media of a coup against Chinese President Xi, although experts and journalists in Beijing dismissed the rumours and said there was no evidence to support them, according to The Print. Philippines Stock Exchange announced a trading suspension for Monday amid a typhoon in the capital, according to Reuters. European bourses are softer after a mixed cash open and despite a brief foray higher, Euro Stoxx 50 -0.5%, as sentiment remains subdued amid recession/inflation concerns. The breakdown features modest outperformance in the FTSE MIB as Italian election results are in-line with expectations. Stateside, futures are lower across the board in-fitting with peers going into a week of Fed speak and inflation data. Top European News UK PM Truss said she is determined to make the special relationship with the US even more special and said she agreed with US President Biden that it is vital to protect the Northern Ireland Good Friday Agreement, while she wants to find a way forward with a negotiated solution with the EU, according to Reuters and a CNN interview. UK PM Truss is to review visa schemes in an attempt to ease UK labour shortages, according to FT. UK Chancellor Kwarteng hinted that more tax cuts are on the way and claimed his tax cuts “favour people right across the income scale” amid accusations they mainly help the rich, according to Evening Standard. UK Chancellor Kwarteng said he is focused on growing the economy and the longer term when asked about the market reaction to his statement on Friday. Kwarteng added that he shares ideas with BoE Governor Bailey but added that Bailey is completely independent and Kwarteng is confident the BoE is dealing with inflation, according to Reuters. UK opposition Labour Party leader Starmer said they would reintroduce the top rate of income tax at 45% which the government announced to scrap last week, while he added that they will support the government plan to lower the basic rate of income tax to 19%, according to Reuters. Italy's right-wing bloc is seen winning the national election with 43.3% and centre-left bloc is seen winning 25.4%, according to the first projection by LA7 TV based on the actual vote count.. Click here for newsquawk snap analysis. Italy's Meloni said Italians gave clear backing to a centre-right government led by the Brothers of Italy and said the situation is difficult and needs contribution from everyone. It was separately reported that Italy's Democratic Party conceded in the election and said it will be the main opposition force, while Italy's Meloni claimed leadership of the next Italian government, according to Reuters and AFP. FX DXY climbed to a fresh YTD high of 114.58 before paring modestly, but remaining firmer, as GBP in particular lifts off worst levels. Cable succumbed to a flash crash overnight, with GBP/USD hitting an all-time-low around 1.0350 as participants confidence in the economy slips. EUR suffers amid the mentioned USD move but derives relative benefit from GBP, while ECB speakers thus far have added little. Antipodeans and CAD weighed on by broader risk and commodity pressure. Japanese Finance Minister Suzuki said the government and BoJ share views on concerns about a weak JPY, while he added that FX intervention had a certain effect and there is no change to the stance that they will respond to market moves as needed, according to Reuters. PBoC set USD/CNY mid-point at 7.0298 vs exp. 7.0019 (prev. 6.9920) PBoC imposed a 20% risk reserve requirement for FX forward sales from September 28th to rein in yuan weakness. Fixed Income Gilts have retained some composure after slumping over 200ticks at the commencement of trade and have settled around halfway between intraday extremes. EGBs downbeat in sympathy while BTPs marginally lag core-EGB peers as Italian as-expected election results are digested with BTP-Bund only modestly wider as such. Stateside, USTs are pressured in-fitting with peers and also conscious of the week's supply docket getting underway via a 43bln 2yr. Central Banks Fed’s Bostic (2024 voter) said inflation is too high and that they need to do all they can to bring it down and said demand is beginning to shrink which will ultimately pay dividends in inflation levels. Bostic also stated that there are scenarios where they can avoid deep pain but there will likely be some job losses, according to Reuters. BoJ's Kuroda says the BoJ will maintain accommodative monetary conditions to support companies, hopes to support a positive economic cycle, long-term inflation expectations have begun to heighten, via Reuters. Intervention from the MoF is an "appropriate" move, does not think gov't intervention and BoJ policy are contradictory. Amamiya says the domestic economy is picking up, must carefully watch how FX moves affect the economy and prices. BoJ Governor Kuroda says when he stated that BoJ forward guidance will not change for 2-3yrs, did not refer to guidance on keeping short and long-term rates at present of lower levels via Reuters. ECB's de Guindos says Q3 and Q4 point towards growth rates being close to zero within the EZ, the scenario is market by high uncertainty, lower growth and higher inflation. ECB's Panetta says ECB is assessing the potential of distributed ledger technology (DLT) and "the extent to which it could improve our services.". Capital Economics calls for the BoE to "get on the front foot with a big rate hike". Allianz's El-Erian says, on GBP, the fall is about extra tax cuts and Chancellor Kwarteng could recalibrate this. Alternative, would be for the BoE to hike at an emergency meeting. Adding, he would hike by 100bp. BoE publishes key elements of the 2022 annual cyclical scenario stress test; includes a scenario where the Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before gradually reduced to sub-3.5%. Commodities WTI and Brent November futures remain subdued in early European trade following last week’s recession-induced losses. Spot gold trades in tandem with the Buck and sees resistance at around USD 1,650/oz after falling to USD 1,627/oz as a casualty of the Sterling flash crash overnight. LME metals are softer across the board with 3M copper futures having a hard time reclaiming USD +7,500/t status with upside capped by the Buck. Iraq began trial operations at the Karabala oil refinery which has a production capacity of 140k bpd, according to a statement from the Oil Ministry. German Chancellor Scholz signed a strategic agreement with UAE’s President on accelerating energy security and industrial growth, while UAE’s ADNOC signed an agreement with Germany’s RWE which includes ADNOC exporting its first LNG cargo to RWE and will conduct trial shipments of low-carbon ammonia to Germany. Furthermore, Chancellor Scholz said while visiting Doha that he talked with the Emir about LNG deliveries and that they want to achieve further progress, according to Reuters. Germany is preparing a national electricity price cap to be implemented this fall in the scenario the EU falls to agree on a similar move for the entirety of the bloc, via WSJ citing officials. Vitol's CEO said at the Asia Pacific Petroleum Conference that Russian gas supply cuts put enormous strain on supply-demand in Europe and that high gas prices are to impact 60%-80% of demand, while Ecopetrol's CEO said they are increasing crude exports to Europe this year to replace Russian supplies and are drilling 600 oil wells this year. Anglo American (AAL LN) tightens copper production guidance for Chile to 560k-580k tonnes of copper (prev. 560k-600k tonnes) due to lower throughput at Los Bronces caused by a combination of water restrictions and a change in ore characteristics, via Reuters. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.23, prior 0.27 10:30: Sept. Dallas Fed Manf. Activity, est. -10.0, prior -12.9 Central Banks 10:00: Boston Fed’s Susan Collins Speaks to Boston Chamber of... 12:00: Fed’s Bostic Discusses Income Inequality 12:30: Fed’s Logan Speaks at Banking Conference 16:00: Fed’s Mester Discusses Economic Outlook DB's Jim Reid concludes the overnight wrap I wonder whether any research report has ever been written whilst watching synchronised swimming? Well if not, then you’re reading the first ever as I’m getting a head start on the early morning news by starting this on Sunday evening watching my daughter Maisie do her second session after getting into the local club. Watching this sport is going to take some getting used to after years of watching football, cricket, golf, F1, athletics, rugby... actually.... virtually every sport bar synchronised swimming. I think everyone felt they were swimming in a tsunami of newsflow last week after one of the most incredible macro weeks in recent memory in terms of breadth of events. Yes there have been more extreme weeks in crises but last week had a bit more variety and was outside of a crisis period. If over 500bps of global rate hikes wasn’t enough, you also had 2yr US yields moving higher for the 12th successive day on Friday (the longest steak since data begins in 1976), the BoJ intervening in FX markets for the first time since 1998, and what can only be termed as one of the darker days for sterling assets on record on Friday after a mammoth tax giveaway in what was a mini-budget in name and not by nature. Henry and I put a note out on Friday night (link here) showing that it was the third worst day for Sterling (-3.57%) since Black Wednesday in 1992, with the worst two since being the day after the Brexit vote (-8.1%) and after the initial covid shock in 2020 (-3.71%) when there was a global flight to dollars. We also show a graph of daily Sterling moves back to 1862 and on that it was the 41st worst day in history spanning 47,000 trading days. Obviously in the long era of fixed FX rates there were the occasional big devaluations which were much bigger than Friday. This morning is Asia it fell around -4.5% at one point (1.0392) which was a record low against the Dollar. It's around -2.78% as I type. This follows a weekend interview where Chancellor Kwarteng suggested that more tax cuts were to come so that certainly was a red rag to markets. Will we hear from the upper echelons of the BoE today? Watch out for any comments, especially at the market open. DB's George Saravelos suggested on Friday that the Bank of England need to do an inter meeting hike to restore policy credibility. There’s also a graph in our note mentioned above showing that Friday was the worst day for 5yr gilts (+50.3bps) since a +200bps hike in 1985 when sterling was also slumping. So maybe omens here. I suppose the only slight mystery is the timing of the sell-off as the mini-budget in magnitude was broadly in-line with the recent elevated fiscal expectations that had been building. However perhaps it was the unabashed revival of trickle-down economics that had markets a little aghast. It goes against the current economic orthodoxy and the overall zeitgeist of our immediate times. As such there is likely to be concerns of a credibility issue. We are publishing our long-term study today with the title “How we got here, and where we’re going?”. In it we try to put the current macro woes into historical context in an attempt to work out where we’re going. There are quite a few people who have proof-read it on my team and they were all thoroughly depressed at the end. I didn't feel that way writing it but maybe it's a case of starting point perceptions. Anyway, look out for it around the European lunchtime. Overnight in Italy, the right-wing alliance led by Giorgia Meloni's Brothers of Italy party was on course to become the nation’s first woman prime minister after exit polls gave it a clear majority. With the full results due later today, she is predicted to win up to 26% of the vote ahead of her closest rival Enrico Letta from the centre left. The right wing alliance is slated to be on course for around 43% of the vote, enough for a majority if correct. As I type, the euro is extending its losses against the dollar for the fifth day, its longest streak since April 28, falling as much as -0.5% to 0.9638, albeit being overshadowed by Sterling. For this week we have an array of consumer-driven economic data in the US and some important European inflation prints. We will also get a number of consumer sentiment indicators across the key economies and PMIs from Asia. Away from the data, there are more than 30 central banker appearances across the Fed and the ECB to keep markets busy. Tomorrow also sees referendums in the Russia-annexed Ukrainian territories as the conflict goes into its eight month. Going through the data in more details now. Starting with the US, the PCE and personal income and spending data will be front and centre for markets next week as they gauge the extent of inflationary pressures and the strength of the consumer. The Fed’s preferred inflation gauge, the PCE, due Friday, will be watched for signs of price pressures we saw in last week's CPI report. Our US economists expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tightening pedal. For the other two data points, our team forecasts a +0.1% MoM increase for both income and consumption. Final US Q2 GDP will also be released on Thursday and although DB expect no change to the -0.6% second reading, watch out for the annual benchmark revisions back to Q1 2017. History could be re-written that could have some implications for how we all think about the economy. In other US data, we will also get the consumer confidence index on Tuesday, along with durable goods orders, and inventories data on Wednesday, with the Chicago PMI on Friday. Over in Europe, all eyes will be on September's inflation data, including the Euro Area flash CPI release on Friday. Our economists are expecting the measure to hit a record +9.5%, up from the previous record of +9.1% in August. Other data in the region will include consumer and economic sentiment from Germany, France, Italy and the Eurozone throughout the week. Meanwhile, EU energy ministers will meet again on Friday regarding the emergency intervention amid elevated energy prices. Finally, next week's earnings line up will feature a number of retail bellwethers on Thursday. Among them will be Nike, H&M and Next. Micron will report that day as well. See our usual day by day guide to the week at the end which contains many of the key Fed and ECB speakers including Powell and Lagarde. Stock markets across Asia are mostly lower this morning. The Kospi (-2.40%), Nikkei (-2.30%) and the S&P/ASX 200 (-1.40%) are leading the declines. Meanwhile, the Hang Seng (+0.11%) is swinging between gains and losses after rising by +2.45% initially with Chinese shares mixed as the Shanghai Composite (-0.10%) is trading lower while the CSI (+0.46%) is up as we go to press. Stock futures in DMs are pointing to further losses with contracts on the S&P 500 (-0.49%), NASDAQ 100 (-0.46%) and DAX (-0.33%) all moving lower. Early morning data showed that Japan’s manufacturing sector continued to expand albeit at a slower pace as the latest au Jibun Bank manufacturing PMI slipped to a 20-month low of 51.0 in September from 51.5 in August, pulled lower by high energy and raw material prices that was exacerbated by a weak yen. At the same time, the au Jibun Bank services PMI returned to expansion, recording a level of 51.9 in September from August's 49.5 final reading. Moving on to China, in order to stabilise expectations in the FX market, the People’s Bank of China (PBOC) today raised the risk reserve requirement on foreign exchange forward sales to 20% from 0% beginning September 28 as the yuan faces increasing depreciation pressure, in line with most major currencies amid broad dollar strength. Looking back now on a week that will not be forgotten anytime soon. While there were historic central bank hikes all week, the biggest news came from the fiscal authorities, following the UK’s budget Friday, which had the largest tax cut package since the 1970s. Gilt yields had their largest one-day increase in decades with 2yrs +44.7bps, 5yrs +50.3bps, and 10yrs +33.3bps. As we mentioned at the top, 5yrs yields saw their largest move since 1985 after a +200bps hike aimed at helping a plunging currency. The pound fell -3.57% against the US dollar to within a percentage point of the weakest in the post-Bretton Woods 51yr free float era. It was already a busy macro week before the blockbuster budget, where we got more than 500bps of global central bank hikes and a currency intervention from Japan. In terms of the biggest players, the Fed delivered its third consecutive 75bp hike while the BoE delivered its second 50bp hike in a row, with both banks guiding toward yet more tightening, while the BoJ remained the outlier by keeping its accommodative policy in place, which isn’t going to help the yen turnaround even with intervention. When all was said and done, sovereign bonds and equities sold off in size, while yield curves flattened. 2yr Treasuries (+33.4bps, +7.9bps Friday), 2yr Bunds (+38.5bps, +7.2bps Friday), 2yr Gilts (+82.1bps, +44.7bps Friday) reached their highest levels since 2007, 2008, and 2008, respectively, as markets priced in more tightening to overcome inflationary pressures (and in the case of the UK, fiscal expansion). 10yr Treasuries (+23.5bps, -2.9bps Friday) ended the week a touch lower on the day but hit their highest levels since 2011 during the week, while 10yr Bunds (+26.8bps, +5.9bps Friday), and 10yr Gilts (+69.1bps, +33.3bps Friday) hit their highest levels since 2013 and 2011, respectively. The mixture unsurprisingly proved unpalatable to risk assets, driving the STOXX 600 and S&P 500 back to their lows for the year. The STOXX 600 retreated -4.37% on the week and -2.34% on Friday, the worst weekly and daily return since mid-June. The S&P 500 fell -4.65% (-1.75% Friday), returning to bear market territory. The FTSE managed to stay above its YTD lows, but still fell -3.01% on the week, its worst weekly return since mid-June as well, and retreated -1.97% on Friday, the worst daily return since early July. Tyler Durden Mon, 09/26/2022 - 08:08.....»»

An Asian Bretton Woods? Authored by Alasdair Macleod via GoldMoney.com, The financial war between Russia with China’s tacit backing on one side, and America and her NATO allies on the other has escalated rapidly. It appears that President Putin was thinking several steps ahead when he launched Russia’s attack on Ukraine. We have seen sanctions fail. We have seen Russia achieve record export surpluses. We have seen the rouble become the strongest currency on the foreign exchanges.  We are seeing the west enter a new round of European monetary inflation to pay everyone’s energy bills. The euro, yen, and sterling are already collapsing — the dollar will be next. From Putin’s point of view, so far, so good. Russia has progressed her power over Asian nations, including populous India and Iran. She has persuaded Middle Eastern oil and gas producers that their future lies with Asian markets, and not Europe. She is subsidising Asia’s industrial revolution with discounted energy. Thanks to the west’s sanctions, Russia is on its way to confirming Halford Mackinder’s predictions made over a century ago, that Russia is the true geopolitical centre of the world. There is one piece in Putin’s jigsaw yet to be put in place: a new currency system to protect Russia and her allies from an approaching western monetary crisis. This article argues that under cover of the west’s geopolitical ineptitude, Putin is now assembling a new gold-backed multi-currency system by combining plans for a new Asian trade currency with his new Moscow World Standard for gold. Currency developments under the radar Unreported by western media, there are some interesting developments taking place in Asia over the future of currencies. Earlier this summer, it emerged that Sergei Glazyev, a senior Russian economist and Minister in charge of the Eurasian Economic Commission (EAEU), was leading a committee planning a new trade currency for the Eurasian Economic Union. As put forward in Russian and EAEU media, the new currency is to be comprised of a mixture of national currencies and commodities. A weighting of some sort was suggested to reflect the relative importance of the currencies and commodities traded between them. At the same time, the new trade settlement currency was to be available to any other nation in the Shanghai Cooperation Organisation and the expanding BRICS membership. The ambition is for it to become an Asia-wide replacement for the dollar.  More specifically, the purpose is to do away with the dollar for trade settlements on cross-border transactions between participants. It is worth noting that any dollar transaction is reflected in US banks through the correspondent banking system, potentially giving the US authorities undesirable economic intelligence, and information on sanction-busting and other activities deemed illegal or undesirable by the US authorities. Furthermore, any transaction involving US dollars becomes a matter for the US legal system, giving US politicians the authority to intervene wherever the dollar is used. As well as removing these disadvantages, through the inclusion of a basket of commodities there appears to be an acceptance that the new trade currency must be more stable in terms of its commodity purchasing power than exists with that of the dollar. But we can immediately detect flaws in the outline proposal. The mooted inclusion of national currencies in the basket is not only an unnecessary complication, but any nation joining it would presumably trigger a wholesale rebalancing of the currency’s composition. Including national currencies is a preposterous suggestion, as is any suggestion that the commodity element should be weighted by trade volumes transacted between participating states. Instead, an unweighted average of energy, precious metals, and base metals makes more sense, but even that does not go far enough. The reasons are illustrated by the two charts in Figure 1.  The upper chart shows baskets of different categories of commodities indexed and priced in dollars. Between them, they represent a wide range of commodities and raw materials. These baskets are considerably less volatile than their individual components. For example, since April 2020 oil has risen from a distorted minus figure to a high of $130, whereas the energy basket has risen only 6.3 times, because other components have not risen nearly as much as crude oil and some components might be rising while others might be falling. Agriculture raw materials are comprised of cotton, timber, wool, rubber, and hides, not raw materials liable to undesirable seasonality. But the average of the four categories is considerably more stable than its components (the black line). We are moving towards price stability. However, all commodities are priced in US dollars, which being undesirable, cannot be avoided. Pricing in gold, which is legal money, eventually resolves this problem because it can be fixed against participating currencies. The result of pricing the commodity categories in gold and the average of them is shown in the lower chart. Since 1992, the average (the black line) has varied between 0.37 and 1.66, and is currently at 0.82, or 18% less than in January 1992. This is as stable as it gets, and even this low volatility would probably be less if the dollar wasn’t itself so volatile and the gold price manipulated by nay-saying western authorities. To further illustrate these points, Figure 2 shows the dollar’s volatility in terms of crude oil. Before the abandonment of Bretton Woods in 1971, the price of oil hardly changed. Since then, measured by gold the dollar has lost 98% of its purchasing power. Furthermore, the chart shows that it is the dollar which is extremely volatile and not oil, because the price of oil in gold is relatively constant (down only 20% from 1950), while in dollars it is up 33.6 times with some wild price swings along the way. Critics of measuring prices in gold ignore the fact that legal money is gold and not paper currencies or bank credit: attempts by governments and their epigones to persuade us otherwise are propaganda only.  Therefore, Glazyev should drop currencies from the proposed basket entirely and strive to either price a basket of non-seasonal commodities in gold, or alternatively simply reference the new currency to gold in a daily fix. And as the charts above confirm, there is little point in using a basket of commodities priced in dollars or gold when it is far simpler for the EAEU nations and for anyone else wishing to participate in the new trade currency to use a trade currency directly tied to the gold price. It would amount to a new Asian version of a Bretton Woods arrangement and would need no further adjustment. Attributing them to excessive credit, from recent statements by President Putin it is clear he has a better understanding of currencies and the west’s inflationary problems than western economists. Intellectually, he has long demonstrated an appreciation of the relationship between money, that is only gold, and currency and credit. His knowledge was further demonstrated by his insistence that the “unfriendlies” pay for energy in roubles, taking control of the media of energy exchange into Russia’s own hands and away from those of his enemies. In short, Putin appears to understand that gold is money and that the rest is unreliable, weaponizable, credit. So, why does he not just command a new trade currency to be created, backed by gold? Enter the new Moscow gold standard Logic suggests that a gold-backed currency will be the outcome of Glazyev’s EAEU committee’s trade currency deliberations after all, because of a subsequent announcement from Moscow concerning a new Russian bullion market.  In accordance with western sanctions, the London Bullion Market refused to accept Russian mined and processed gold. It was then natural for Russia to propose a new gold market based in Moscow with its own standards. It is equally sensible for Moscow to set up a price fixing committee, replicating that of the LBMA. But instead of it being the basis for a far larger unallocated gold deposit account offering by Russian and other banks, it will be a predominantly physical market.  Based in Moscow, with a new market called the Moscow International Precious Metals Exchange, the Moscow Gold Standard will incorporate some of the LBMA’s features, such as good delivery lists with daily, or twice daily fixings. The new exchange is therefore being promoted as a logical replacement for the LBMA. But could that be a cover, with the real objective being to provide a gold link to the new trade currency planned by Glazyev’s EAEU committee? Timing suggests that this may indeed be the case, but we will only know for sure as events unfold. If it is to be backed by gold, the considerations behind setting up a new trade currency are fairly straightforward. There is the Chinese one kilo bar four-nines standard, which is widely owned, has already been adopted throughout Asia, and is traded even on Comex. Given that China is Russia’s long-term partner, that is likely to be the standard unit. The adoption of the Chinese standard in the new Moscow exchange is logical, simplifying the relationship with the Shanghai Gold Exchange, and streamlining fungibility between contracts, arbitrage, and delivery. Geopolitics suggest that the simple proposition behind the establishment of a new Moscow exchange will fit in with a larger trans-Asia plan and is unlikely to move at the glacial pace of developments between Russia and China to which we have become accustomed. The gold question has become bound up in more rapid developments triggered by Russia’s belligerence over Ukraine, and the sanctions which quickly followed. There can be little doubt that this must be leading to a seismic shift in gold policy for the Russian Chinese partnership. The Chinese in particular have demonstrated an unhurried patience that befits a nation with a sense of its long history and destiny. Putin is more of a one-man act. Approaching seventy years old, he cannot afford to be so patient and is showing a determination to secure a legacy in his lifetime as a great Russian leader. While China has made the initial running with respect to gold policy, Putin is now pushing the agenda more forcefully. Before Russia’s invasion of Ukraine, the strategy was to let the west make all the geopolitical and financial mistakes. For Putin perhaps, the lesson of history was informed by Napoleon’s march to the gates of Moscow, his pyrrhic victory at Borodino, and his defeat by the Russian winter. Hitler made the same mistake with Operation Barbarossa. From Putin’s viewpoint, the lesson was clear — Russia’s enemies defeat themselves. It was repeated in Afghanistan, where the American-led NATO enemy was conquered by its own hubris without Putin having to lift so much as a finger. That is why Russia is Mackinder’s Pivot Area of the World Island. It cannot be attacked by navies, and supply line requirements for armies make Russia’s defeat well-nigh impossible Following the Ukraine invasion, Putin’s financial strategy has become more aggressive, and is potentially at odds with China’s economic policy. Being cut off from western markets, Putin is now proactive, while China which exports goods to them probably remains more cautious. But China knows that western capitalism bears the seeds of its own destruction, which would mean the end of the dollar and the other major fiat currencies. An economic policy based on exports to capitalistic nations would be a passing phase.  China’s gold policy was aways an insurance policy against a dollar collapse, realising that she must not be blamed for the west’s financial destruction by announcing a gold standard for the yen in advance of it. It would be a nuclear equivalent in a financial war, only an action to be taken as a last resort. Developments in Russia have changed that. It is clear to the Russians, and most likely the Chinese, that credit inflation is now pushing the dollar into a currency crisis in the next year or two. Preparations to protect the rouble and the yuan from the final collapse of the dollar, long taught in Marxist universities as inevitable, must assume a new urgency. It would be logical to start with a new trade settlement currency as a testbed for national currencies in Asia, and for it to be set up in such a way that it would permit member states to adopt gold standards for their own currencies as well. Possession of bullion is key The move away from western fiat currencies to gold backed Asian currencies requires significant gold bullion ownership at the least. The only members, associates, and dialog partners of the Shanghai Cooperation Organisation and the EAEU whose central banks have not increased their gold reserves since the Lehman failure when the credit expansion of dollars began in earnest, are minor states. Since then, between them they have added 4,645 tonnes to their reserves, while all the other central banks account for only 781 tonnes of additional gold reserves. But central bank reserves are only part of the story, with nations running other, often secret national bullion accounts not included in reserves. The appendix to this article shows why and how China almost certainly accumulated an undeclared quantity of bullion, likely to be in the region of 25,000 tonnes by 2002 and probably more since.  Since 2002, when the Shanghai Gold Exchange opened and China’s citizens were permitted for the first time to own gold, gold delivered into public hands has totalled a further amount of over 20,000 tonnes. While the bulk of this is jewellery and some has been returned to the SGE as scrap for re-refining, it is clear that the authorities have encouraged Chinese citizens to retain gold for themselves, which traditionally has been real money in China. According to Simon Hunt of Simon Hunt Strategic Services, as well as declared reserves of 2,301 tonnes Russia also holds gold bullion in its Gosfund (the State Fund of Russia) bringing its holdings up to 12,000 tonnes. This is significantly greater than the 8,133 tonnes declared by the US Treasury, over which there are widespread doubts concerning the veracity of its true quantity. Obviously, the Asian partnership has a very different view of gold from the American hegemon. Furthermore, in recent months evidence has confirmed what gold bugs have claimed all along, that the Bank for International Settlements and major bullion operators such as JPMorgan Chase have indulged in a price suppression scheme to discourage gold ownership and to divert bullion demand into synthetic unallocated accounts.  The secrecy that surrounds reporting of gold reserves to the IMF raises further suspicions over the true position. Furthermore, there are leases and swaps between central banks, the BIS, and bullion dealers that lead to double counting and bullion recorded as being in possession of governments and their central banks but being held by other parties. As long ago as 2002 when the gold price was about $300 per ounce, Frank Veneroso, who as a noted analyst spent considerable time and effort identifying central bank swaps and leases, concluded that anything between 10,000 and 15,000 tonnes of government and central bank gold reserves were out on lease or swapped — that is up to almost half the total official global gold reserves at that time. His entire speech is available on the Gold Antitrust Action Committee website, but this is the introduction to his reasoning: “Let's begin with an explanation of gold banking and gold derivatives. “It is a simple, simple idea. Central banks have bars of gold in a vault. It's their own vault, it's the Bank of England's vault, it's the New York Fed's vault. It costs them money for insurance - it costs them money for storage--- and gold doesn't pay any interest. They earn interest on their bills of sovereigns, like US Treasury Bills. They would like to have a return as well on their barren gold, so they take the bars out of the vault and they lend them to a bullion bank. Now the bullion bank owes the central bank gold---physical gold---and pays interest on this loan of perhaps 1%. What do these bullion bankers do with this gold? Does it sit in their vault and cost them storage and insurance? No, they are not going to pay 1% for a gold loan from a central bank and then have a negative spread of 2% because of additional insurance and storage costs on their physical gold. They are intermediaries---they are in the business of making money on financial intermediation. So they take the physical gold and they sell it spot and get cash for it. They put that cash on deposit or purchase a Treasury Bill. Now they have a financial asset---not a real asset---on the asset side of their balance sheet that pays them interest---6% against that 1% interest cost on the gold loan to the central bank. What happened to that physical gold? Well, that physical gold was Central Bank bars, and it went to a refinery and that refinery refined it, upgraded it, and poured it into different kinds of bars like kilo bars that go to jewellery factories who then make jewellery out of it. That jewellery gets sold to individuals. That's where those physical bars have wound up---adorning the women of the world… “We have gotten, albeit crude, estimates of gold borrowings from the official sector from probably more than 1/3 of all the bullion banks. We went to bullion dealers, and we asked, "Are these guys major bullion bankers, medium bullion bankers, or small-scale bullion bankers?" We classified them accordingly and from that we have extrapolated a total amount of gold lending from our sample. That exercise has pointed to exactly the same conclusion as all of our other evidence and inference---i.e., something like 10,000 to 15,000 tonnes of borrowed gold.” Veneroso’s findings were stunning. But two decades later, we have no idea of the current position. The market has changed substantially since 2002, and today it is thought that swaps and leases are often by book entry, rather than physical delivery of bullion into markets. But the implications are clear: if Russia or China cared to declare their true position and made a move towards backing their currencies with gold or linking them to gold credibly, it would be catastrophic for the dollar and western fiat currencies generally. It would amount to a massive bear squeeze on the west’s longstanding gold versus fiat policy. And remember, gold is money, and the rest is credit, as John Pierpont Morgan said in 1912 in evidence to Congress. He was not stating his opinion, but a legal fact. In a financial crisis, the accumulated manipulation of bullion markets since the 1970s is at significant risk of becoming unwound. The imbalance in bullion holdings between the Russian Chinese camp and the west would generate the equivalent of a financial nuclear event. This is why it is so important to understand that instead of being a longstop insurance policy against the Marxist prediction of capitalism’s ultimate failure, it appears that the combination of planning for a new trade currency for Asian nations centred on members of the EAEU, coinciding with the introduction of a new Moscow-based bullion standard, is now pre-empting financial developments in the west. That being the case, a financial nuclear bomb is close to being triggered. *  *  * Appendix China’s gold policy. China actually took its first deliberate step towards eventual domination of the gold market as long ago as June 1983, when regulations on the control of gold and silver were passed by the State Council. The following Articles extracted from the English translation set out the objectives very clearly: Article 1. These Regulations are formulated to strengthen control over gold and silver, to guarantee the State's gold and silver requirements for its economic development and to outlaw gold and silver smuggling and speculation and profiteering activities.  Article 3. The State shall pursue a policy of unified control, monopoly purchase and distribution of gold and silver. The total income and expenditure of gold and silver of State organs, the armed forces, organizations, schools, State enterprises, institutions, and collective urban and rural economic organizations (hereinafter referred to as domestic units) shall be incorporated into the State plan for the receipt and expenditure of gold and silver. Article 4. The People's Bank of China shall be the State organ responsible for the control of gold and silver in the People's Republic of China. Article 5. All gold and silver held by domestic units, with the exception of raw materials, equipment, household utensils and mementos which the People's Bank of China has permitted to be kept, must be sold to the People's Bank of China. No gold and silver may be personally disposed of or kept without authorization. Article 6. All gold and silver legally gained by individuals shall come under the protection of the State. Article 8. All gold and silver purchases shall be transacted through the People's Bank of China. No unit or individual shall purchase gold and silver unless authorised or entrusted to do so by the People's Bank of China. Article 12. All gold and silver sold by individuals must be sold to the People's Bank of China. Article 25. No restriction shall be imposed on the amount of gold and silver brought into the People's Republic of China, but declaration and registration must be made to the Customs authorities of the People's Republic of China upon entry. Article 26. Inspection and clearance by the People's Republic of China Customs of gold and silver taken or retaken abroad shall be made in accordance with the amount shown on the certificate issued by the People's Bank of China or the original declaration and registration form made on entry. All gold and silver without a covering certificate or in excess of the amount declared and registered upon entry shall not be allowed to be taken out of the country. These articles make it clear that only the People’s Bank was authorised to acquire or sell gold on behalf of the state, without limitation, and that citizens owning or buying gold were not permitted to do so and must sell any gold in their possession to the People’s Bank. Additionally, China has deliberately developed her gold mine production regardless of cost, becoming the largest producer by far in the world.[ii] State-owned refineries process this gold along with doré imported from elsewhere. Virtually none of this gold leaves China, so that the gold owned today between the state and individuals continues to accumulate. The regulations quoted above formalised the State’s monopoly over all gold and silver which is exercised through the Peoples Bank, and they allow the free importation of gold and silver but keep exports under very tight control. The intent behind the regulations is not to establish or permit the free trade of gold and silver, but to control these commodities in the interest of the state. This being the case, the growth of Chinese gold imports recorded as deliveries to the public since 2002, when the Shanghai Gold Exchange was established and the public then permitted to buy gold, is only the more recent evidence of a deliberate act of policy embarked upon thirty-nine years ago.  China had been accumulating gold for nineteen years before she allowed her own nationals to buy when private ownership was finally permitted. Furthermore, the bullion was freely available, because in seventeen of those years, gold was in a severe bear market fuelled by a combination of supply from central bank disposals, leasing, and increasing mine production, all of which I estimate totalled about 59,000 tonnes. The two largest buyers for all this gold for much of the time were private buyers in the Middle East and China’s government, with additional demand identified from India and Turkey. The breakdown from these sources and the likely demand are identified in the table below: In another context, the cost of China’s 25,000 tonnes of gold equates to roughly 10% of her exports over the period, and the eighties and early nineties in particular also saw huge capital inflows when multinational corporations were building factories in China. However, the figure for China’s gold accumulation is at best informed speculation. But given the determination of the state to acquire gold expressed in the 1983 regulations and by its subsequent actions, it is clear China had deliberately accumulated a significant undeclared stockpile by 2002.  So far, China’s long-term plans for the acquisition of gold appear to have achieved some important objectives. To date, additional deliveries to the public through the SGE now total over 20,000 tonnes. China’s motives China’s motives for taking control of the gold bullion market have almost certainly evolved. The regulations of 1983 make sense as part of a forward-looking plan to ensure that some of the benefits of industrialisation would be accumulated as a risk-free national asset. This reasoning is similar to that of the Arab nations capitalising on the oil-price bonanza only ten years earlier, which led them to accumulate their hoard, mainly held in private as opposed to government hands, for the benefit of future generations. However, as time passed the world has changed substantially both economically and politically. 2002 was a significant year for China, when geopolitical considerations entered the picture. Not only did the People’s Bank establish the Shanghai Gold Exchange to facilitate deliveries to private investors, but this was the year the Shanghai Cooperation Organisation formally adopted its charter. This merger of security and economic interests with Russia has bound Russia and China together with a number of resource-rich Asian states into an economic bloc. When India, Iran, Mongolia, Afghanistan, and Pakistan join (as they now have or are already committed to do), the SCO will cover more than half the world’s population. And inevitably the SCO’s members are looking for an alternative trade settlement system to using the US dollar.  At some stage China with her SCO partner, Russia, might force the price of gold higher as part of their currency strategy. You can argue this from an economic point of view on the basis that possession of properly priced gold will give her a financial dominance over global trade at a time when we are trashing our fiat currencies, or more simply that there’s no point in owning an asset and suppressing its value for ever. From 2002 there evolved a geopolitical argument: both China and Russia having initially wanted to embrace American and Western European capitalism no longer sought to do so, seeing us as soft enemies instead. The Chinese public were then encouraged, even by public service advertising, to buy gold, helping to denude the west of her remaining bullion stocks and to provide market liquidity in China. What is truly amazing is that the western economic and political establishment have dismissed the importance of gold and ignored all the warning signals. They do not seem to realise the power they have given China and Russia to create financial chaos as a consequence of gold price suppression. If they do so, which seems to be only a matter of time, then London’s fractional reserve system of unallocated gold accounts would simply collapse, leaving Shanghai as the only major physical market.  This is probably the final link in China’s long-standing gold strategy, and through it a planned domination of the global economy in partnership with Russia and the other SCO nations. But as noted above, recent events have brought this outcome forward. Tyler Durden Fri, 09/09/2022 - 23:40.....»»

Rabobank: When The "Food System" Breaks Down, Everything Will Break Down With It By Michael Every of Rabobank Frogs in Boiling Water The headlines today will naturally be all about French President Macron winning re-election over Le Pen. There was such a flood of market commentary before the vote underlining that a Le Pen victory would have been a larger shock than Brexit, etc., and EUR was up in early Asian trading despite the fact that nobody actually thought Le Pen would win: either people secretly feared she might, or it’s ‘buy the rumour, buy the fact’. However, here is an uncomfortable fact: Le Pen scored around 42% of the vote. 5 years ago she got 34%. When her father ran against Chirac in 2002, he got 18%. Think 2027 on that basis. Indeed, if you look at the first round in 2022, Macron only won just over quarter of those who bothered voting, so around 21% of the eligible public, with the populist right and left hoovering up much of the rest, and the two establishment parties collapsing. 91% of those who voted for leftist Melenchon in the first round and Macron in the second say they did so to bloc Le Pen, not because Macron would be a good president. What kind of electoral mandate is that? Eyes will now turn to the French parliamentary elections and traditional promises to ‘heal divisions’: how? The French, like *all* economies, democratic or authoritarian, are Al Gore’s analogy of frogs in a pot of water whose temperature is slowing rising ever-closer to boiling point. The rumor was that if Marcon won there would be an EU oil embargo post-election: will this now occur? If so, markets will be roiled. If not, Europe will be roiled. Indeed, even given a further defeat for right-wing populism in Slovenia overnight, the EU remains deeply divided. In the eyes of many in the east, Germany is part of the problem, not part of the solution over Ukraine, as is Austria, which just rejected Ukrainian EU membership. What about France, given Macron’s predilection for failed Russian diplomacy and his constant harping on about European “strategic autonomy”? One wonders what the EU intellectuals who claim the Ukraine war is the fault of the US, and that the best response would be to accept spheres of influence, would say if the US were to agree and walk away from NATO given Europe is in Russia’s sphere, geographically, and that is what France sometimes seems to want geopolitically. China is very big on that too as part of its new Global Peace Initiative. Yet for now, a Russian commander in Ukraine states the plan is to take the east and south as far as the Russian-speaking breakaway region of Transnistria, implying an attack on Moldova. That’s not possible now. It doesn’t mean it won’t be soon. Indeed, the FT reports three individuals who have spoken to Putin say that he is not interested in a peace deal now, and instead wants a land-grab he can present as a victory. In short, while many in the EU may not be interested in this war, it is interested in them. Meanwhile, as if that were not enough, things are heating up on other fronts. In Covid-struck Shanghai, there are photos of gates being welded over the entrances of residential buildings, and an allegation from Radio Free Asia that authorities in Hunan are demanding passports be handed over in response to a surge in online searches about emigration. The lockdown’s impact on the Chinese economy is huge, including on ports. There is going to be another slump in shipments to the US and Europe, which industry experts call “staggering” in scale. That will create bullwhip effects as supply dries up even as demand fall offs (due to high prices), thus keeping prices high rather than allowing them to adjust down. Then there will be a flood of goods when things re-open, creating US logistical logjams and price-gouging all over again. As Fortune puts it: “‘Companies are beginning to panic’: Experts say China’s lockdowns will make inflation and the supply chain nightmare even worse”. This lockdown will also hit intra-Asia trade heading to the US and Europe. As Freight Waves puts it, “Vietnam, Malaysia, Taiwan, Japan, Korea, Indonesia and Cambodia have factories waiting on crucial raw materials needed to finish goods ranging from apparel and footwear to furniture. This pipeline saw an expansion in the trade as more American importers diversified their manufacturing out of China as a way to work around the China tariffs. But what this pandemic has revealed is even with this “manufacturing diversification,”  the dependency on China has never been fully severed.” So, a pan-Asian slowdown; more shortages; and a stronger argument for total supply-chain separation from China rather than just one degree, or to give up and get used to lock-downs. Friday also saw Indonesia cancel all exports of palm oil from 28 April until further notice. That takes out the world’s largest producer and exporter of this key vegetable oil at the same time as Ukraine’s sunflower oil is also largely off the world market. Naturally, this is going to have a vast knock-on effect across the global agri complex – and we were already seeing rationing in some Western supermarkets. Moreover, this underlines the recent trend of food exporters opting to stop doing so; on top of some countries using food exports as a ‘weapon’; and the US ‘weaponizing’ their currency. Together, this changes the geo-economic equation for net food importers who had been relying on exporting widgets in the assumption the dollars earned could be exchanged for food: and when that system breaks down, everything breaks down with it; complex global supply chains stop working. Yes, we aren’t there yet, but the progression is similar to that of the French elections: 18%; 34%; 42%, etc. However, rather than an instant Mad Max-style return to global barter, or a ‘Bretton Woods 3’, we will likely see the US dollar remain the lesser of all other evils for most of the global economy, if not all of it, alongside national-security protectionism and even greater dollar weaponization: with us or against us; in or out of the global network, and end-consumers in the West. Indeed, compared to most Europeans, many Americans are quite capable of thriving in a Mad Max world, and some seem to crave it. The macro reflects the micro. One way to boost the US dollar and deal with the risks of supply-side inflation becoming entrenched in wages, even if misplaced, is higher US rates, which are coming. Yet that puts ever greater pressure on all kinds of markets. Keep looking at the key cross USD/JPY, trading at 128.60 this morning. Something is going to give there if the Fed sticks to its present path. Is it higher JGB yields, and so an end to de facto MMT, unless Japan can re-establish a trade surplus despite soaring commodity import prices? There is a global (mercantilist) lesson in that which we have been flagging for years, and it’s not a good one for long corporate supply chains. It could also throw a wrench in global capital flows given Japan’s traditional role as capital exporter – might we see another jerk higher in Treasury yields too as a result? Or, if the BOJ ‘holds the door’, is it a lower JPY instead? In which case, how long until others follow? Friday and today both saw USD/CNY and USD/CNH begin to creak significantly, with lower daily fixings for CNY than expected and a large market move lower - CNH was trading at 6.53 this morning vs. 6.32 in mid-February, CNY at 6.55. Yes, on a trade-weighted basis this is merely China trying to slide down the string of a rising US dollar balloon rather than outright depreciation. Yet given USD/CNY is all the market looks at, it’s significant – especially for already-struggling Chinese borrowers. For example, if we were to see the USD up 10% from here, it would suggest USD/CNY well past 7 unless China wants to hold onto that balloon forever. Who is hedged for that? And what about the price of commodities still priced in dollars? Markets are already reeling almost across the board – except for the geopolitical trade described above. The S&P is -10.4% year-to-date (y-t-d); China’s Shanghai index was -16.6% at time of writing, and a market-leading Chinese fund just shifted its equity exposure to zero; Bloomberg’s global aggregate fixed income index is -10.4%; Bitcoin was -15.6%; and yet even given the recent dip in oil, Bloomberg’s commodity index is up 30.1% y-t-d; and the broad US dollar index is up 5.8%. So, savour the Macron victory, Mr Market; but you are not luxuriating in a hot-tub drinking champagne – you are in a very different body of water. Tyler Durden Mon, 04/25/2022 - 10:21.....»»

"Nice Narrative" But No: Why One Strategist Thinks Zoltan Pozsar's "Bretton Woods 3" Is Never Going To Happen Ever since Zoltan Pozsar started echoing Zero Hedge circa 2010, and in note after feverishly-drafted note, the former NY Fed repo guru has been writing about a coming monetary revolution in which commodity-backed currencies such as the yuan become dominant and gradually displace the world's reserve currency - the US Dollar - which slowly fades into irrelevancy in a world where commodities are the fulcrum asset and where paper wealth is increasingly meaningless, there have been three reactions: i) those who have no idea what Zoltan is writing about (that would be about 98%), ii) those who agree wholeheartedly and believe that the USD should be dethroned as a reserve currency yesterday, and iii) those who are just a little bit "displeased" with all the attention the strategist (who has correctly called every major crisis and turning point in markets in the past decade) is getting and are starting to lash out at his stream of consciousness. Rabobank's Michael Every, himself a geopolitical status quo skeptic yet clearly misaligned with Zoltan as to what happens next (and in reality a believer that the broken system we have now will be the broken system we have for a long, long time to come), is in group three, and following a handful of "subtweet" shots across the Zoltan bow (which have barely registered in the financial media, especially Bloomberg, which Every continuously mocks yet reads religiously) the Rabobank strategist has (bravely) penned the closest thing to a Pozsar rebuttal we have seen.  Is he right, or is he just unhappy with how much attention Pozsar is getting? We leave it to readers to decide, and republish his latest note, "Why "Bretton Woods 3" Won't Work" in its entirety below. Why ‘Bretton Woods 3’ Won’t Work Nice narrative: but it’s just ‘mercantilism’ Summary Sanctions on Russia are seen as accelerating a dramatic shift towards a new global commodity-focused ‘Bretton Woods 3’ architecture However, this is actually a very old economic argument: mercantilism History, logic, trade data, and economic geography all show the US can do well in that kind of realpolitik environment By contrast, the opportunity to shift global trade flows away from USD to others is limited: fundamentally, neither CNY nor commodity currencies are set up to rival USD globally The USD will therefore retain its global role despite the ‘Bretton Woods 3’ hype Many bad sequels The world is experiencing dramatic changes in its security, political, economic, and financial architecture. Indeed, alongside war in Ukraine we see headlines about ‘Cold War 2’, ‘Bretton Woods 3’, and even World War 3. We will not comment on the risks of World War 3, as flagged by Russians such as Karaganov, given it is impossible to trade for. However, China and Russia are openly trying to build a new world order, which we argued would happen back in 2017: this report focuses on the viability of a global FX architecture remake to a so-called ‘Bretton Woods 3’ (BW3). We argue that: BW3 has an appealing narrative, and we agree with a lot of its core arguments. However, it is not a new concept at all, but an old one – mercantilism. That’s an environment that still suits the US and allies. As such, we can look at history, logic, trade data, and geoeconomics to see that BW3 will not work as sold. We may see some USD trade shift to CNY via offset or barter. However, the most this would cover is just 3.3% of global trade, vs. CNY’s current 2.6% share of global FX reserves. The more likely shift is just 1% of global trade. With much of this being offset, the impact on $6.6trn daily global FX markets would be negligible. Overall, the USD will retain its global role despite the BW3 claim of a new architecture ahead. The pitch Let’s first run through the key arguments made for B3W: (i) High inflation and supply-chain logjams mean Western central banks and economies can no longer rely on quantitative easing (QE) as a policy crutch: you cannot print commodities. More QE now just means more inflation and currency debasement. (ii) States instead need control of key commodities and supply chains, including maritime logistics, with military might required to secure them. (iii) Sanctions on Russia and possible secondary sanctions on others have “weaponised” the USD, euro (EUR), and yen (JPY). Fewer countries will want to hold such reserves if they can be frozen or appropriated, as happened with Russia and Afghanistan. These trends are accelerating a global shift to alternative FX, payment systems, and trading patterns. (iv) We will see a new commodity- and supply-chain based FX architecture replace the USD-centric system: Russia just called for BRICs countries to create exactly such a new FX system. (v) Commodity currencies and China’s renminbi (CNY) are seen as major winners in this new order. A good narrative isn’t enough Markets like a good narrative. BW3 has one given: high inflation and commodity prices; central bank impotence; concerns over the imminent withdraw of US QE – and fears over what having to restart it would imply; and talk of geopolitical and geoeconomic realignments and fracturing. Moreover, BW3 does not require the audience to suspend much disbelief. Relative US political, economic, financial, and military muscle has declined in recent decades. Even US soft power is fading: and China’s movie box-office has been larger than the US since 2018, dominated by local films. The famous ‘Sunset Boulevard’ line from a fading movie star is, “I Am Big. It's the Pictures That Got Small.” The US is still big, but others are no longer as relatively small as they were. However, BW3 is not new. Indeed, it takes us almost full circle in time and FX structure (Figure1). In short: The post-WW2 original Bretton Woods system had USD tied to gold in a divided Cold War world economy with stringent capital controls. That lasted 26 years before collapsing due to the Triffin Paradox (which we shall return to later) and the shift to fiat USD in the 1970s. Then we saw evolution to the recycling of so-called ‘petrodollars’ as oil prices surged following the 1973 Yom Kippur War. The end of the Cold War saw globalisation and higher USD capital flows into emerging markets... and the resulting Mexican (1995) and then Asian Crisis (1997-98) That led to the de facto BW2 of USD FX reserve hoarding and recycling, as emerging markets opted to run large current account surpluses rather than deficits. The 2000’s US-steered hyper-globalisation saw a boom in funding in the five-decade old Eurodollar, via both bank and shadow-bank channels. The Global Financial Crisis (GFC) and subsequent slump in Western growth saw a long-run shift to a reliance on central bank QE to try to stabilise markets and economies. That ‘new normal’ approach was brought to an end by populist discontent with the inequality it drives, and the fiscal response to Covid: yet Covid also showed reflationary fiscal policies are not possible without national control of commodities and supply chains. War in Ukraine is pushing us into Cold War 2 - and non-USD ‘reserve currencies’ backed by commodities. In short, BW3 is not forward, but backwards looking. We have seen many elements of it before. Yet past attempts at building BW3 frameworks created enormous problems! The post-war Bretton Woods timeframe left excludes it, but one could look to the fragmentation of the global monetary order and trading system in the 1930s, for one key --and worrying— parallel: however, that saw the end of the gold standard, not a move towards one. Indeed, we have long taken a historical and structural view of markets that leads us to agree on the BW3 view of the ineffectiveness of QE; the geopolitical importance of logistics; the necessity to control supply chains and trade to maintain currency power; and of the ongoing fragmentation of the global economy. We even linked this all to FX structures back in 2015. Furthermore, we agree we are heading not just to Cold War but to global Great Power struggles in which trade and currency will play key roles. Yet taking this kind of view, it becomes clear that BW3 will still work more in the USD’s favor than for any rival currency being touted. We will now look at the historical, logical, structural, trade- data, and geoeconomic reasons to briefly summarise Why B3W Won’t Work (WBW3WW). WBW3WW 1: history The global economy has seen commodity currency foundations in the past. The most obvious was the gold standard on and off 1815-1971, and in its purest form from 1815-1913. There are many key lessons we can draw from this period for BW3 proponents. The likes of Argentina saw more FX stability under it that is has since (Figure 2): and Argentina is still a commodity producer today that might be looking at BW3. However, inflation was only well contained on average by regular deflation (Figure 3). It is unclear that a modern economy would want to see such start-stop price swings. Moreover, a commodity standard restricts excessive growth of credit by either the government or the banking sector. While a positive case for both can be made, would any economy want to embrace that hairshirt approach? On the government side, the current vogue is for more, not less state spending in the name of national security: and for more, not less social welfare to narrow income gaps. Without the latter, the gold standard did not stop the many attempted revolutions of 1848 or 1870 in Europe: rather it encouraged them. One could expect the same under BW3. Russia, which runs a conservative fiscal policy, might be prepared to embrace that approach. However, China cannot. On the private side, China has seen an explosion of debt since 2008: tying itself to an FX commodity standard would mean implosive deflation in Chinese asset prices if new lending was capped. Moreover, China’s total public sector debt, including local governments, is already that of a European state, and the IMF says its augmented fiscal deficit was a staggering -16.5% of GDP in 2021. Geopolitically, the gold standard was zero-sum. With a (mostly) fixed stock of gold, states either gained the metal through trade, which was also zero-sum, or war. Free trade was tried at British behest, but Europe quickly learned the secret of British success was actually mercantilism and imperialism. It followed suite, with a lag – and so did WW1 (Figure 5). Indeed, ‘Debt: The First 5,000 Years’ (Graeber, 2011) echoes Polanyi (1944) in arguing past historical periods of exogenous money, such as gold, saw more war compared to endogenous, fiat/debt-based periods of expansion. Of course, when debt-based expansions end similar problems can arise, as we see today: yet embracing a global commodity currency standard would guarantee that outcome from the outset. WBW3WW 2: logic The four logical functions a global FX reserve currency must meet are: (i) store of value; (ii) method of accounting; (iii) means of exchange; and (iv) overcoming the Triffin Paradox. All of these still favor USD over any rivals. Store of value Commodity currencies are either pegged to the USD, in which commodities are priced, or are highly volatile (Figure 6). Unless global commodities are now going to permanently lose that volatility, and volatility is actually increasing in many of them, then commodity currencies will not lose theirs either. No rival global currencies offer the trust of US markets. Yes, USD (EUR, JPY, etc.) are now “weaponised” for Afghanistan, Russia, Belarus, and anyone who supports the invasion of Ukraine. However, CNY is highly politicized, as is RUB, and Chinese markets have seen net capital outflows since the start of the Ukraine War. Do any potential BW3 currencies inspire broad global trust, or just in pockets? High US inflation hardly backs the USD. However, the Fed is flagging rate hikes of as much as 325bp this year and quantitative tightening (QT). That backdrop will support USD: and that is true if that level of rates can be sustained, or if it can’t, and the US (and world) economy falls into recession – taking commodity prices with it. Only if the US re-embraces QE despite high inflation would the USD’s store of value be undermined. We agree that military power ultimately underpins global reserve currencies. On that front, while overstretched, the US still holds primacy, and its allies in Europe, Australia, and Japan are rearming rapidly. By contrast, Russia’s martial prowess has been called into question in Ukraine, and China’s remains entirely untested, despite the incredible growth rate of its armed forces. Method of accounting No other global currencies offer the scale of US markets or its ‘network effect’. Try to talk about trends in global GDP without using USD as the common denominator. In a reflexive logic, the more people who use a currency, the more the currency is used. This is particularly the case in terms of Eurodollars (offshore USD borrowing). The sheer scale --hence power-- of Eurodollar debt means setting up an alternative is a daunting task: even China had $2.7trn of FX debt as of the end of Q4 2021. Indeed, if one presumes USD will be pushed aside, one is logically arguing a lot of Eurodollar debt will default, as few will be able to earn enough USD to repay it. That would mean global market chaos. Means of exchange The USD is welcomed globally, and its high liquidity means low transaction costs. The same is not true for any other potential alternative currencies. Indeed, China lacks an open capital account, which means CNY is not free-moving or freely traded. This is an economic policy choice on China’s part which hugely limits CNY’s global attractiveness. Triffin Paradox The Triffin Paradox is that global demand for a reserve currency forces the country that owns it to run trade deficits. For fiat USD that also means offshoring industry (i.e., via foreign net exports to the US) and, as we now see, rising domestic inequality. There is growing pushback against this within the US, but no idea of how to maintain USD’s reserve status while doing so. Any BW3 currency trying to push USD aside would have to be willing to run large trade deficits too. However, if commodity prices are high, major commodity producers run trade surpluses, stopping the spread of their currency; and if commodity prices collapse, their currency does too, again limiting its global attractiveness. China also runs a large merchandise trade surplus (even if it also runs a huge commodities deficit) in order to support industrial employment, as well as to ensure the stability of CNY via the balance of payments. Combined with capital controls, this further limits any global reserve role that the currency could ever hope to play. How does one earn CNY? How do CNY get into the global system within BW3? WBW3WW 3: structure Fundamentally, BW3 does not work because of the structure of the global economy. The essential nature of commodities has been laid bare by the Ukraine War, but total global trade in them is still far smaller than other goods combined (Figure 7). That is a very low ceiling, or narrow base, to build a new world order on. Perhaps if all commodity exporters were united it might be possible – but they aren’t. Indeed, only a few major food exporters are pro-BW3 (Table 1). One can take out the Western producers: Australia, Canada, the EU, New Zealand, and the US. In terms of energy, there are again major Western producers --Australia, Canada, and the US-- but the majority are located in the Middle East. The US is the traditional hegemon there too. True, this situation may be changing as the US tries to pivot to Asia and is dragged back to Europe by Russia – but it is a huge geopolitical gap for China to fill, even presuming the US doesn’t pivot back. Moreover, global oil markets need a base currency that is: liquid, which CNY is not; freely tradable, which CNY is not; and stable, which CNY only is because it does not meet the other two criteria, and because it is soft pegged to the USD! Even a move to oil priced in a basket of currencies is hugely complex to maintain across all OPEC partners, which is why it has not happened yet. Hence energy producers are seen as ‘floating’ at best but are hardly set to rush to switch the USD for CNY (Table 2). In terms of mineral exporters, there are a large number of floating countries, and the same general cluster in the pro-West and pro-BW3 camps. The simple message is that BW3 has a significant tranche of global commodities behind it, but mainly because of Russia; the West has the same, but because of a broader range of resource-rich economies; and most of the world’s producers are looking on at the prospect of a global bifurcation with extreme discomfort. In short, BW3 does not yet have buy-in even from the majority of economies that are supposedly the primary beneficiaries of it. WBW3WW 4: more structure As just alluded to on oil, we have another issue: which currency will dominate BW3 trading? It’s one thing to say, “commodity currencies.” It’s another to explain how the BW3 would function if BRL, ARS, AUD, RUB, IRR, etc., were all commodity pricing currencies simultaneously. Who would clear this? At what exchange rate? In what system? Until that is resolved, the USD needs to remain the currency commodities are priced in, even if we see some offsetting BW3 transactions in local FX. Indeed, the proto-BW3 is attempting to keep the current global architecture while trying to cut some USD out of some trades, or to insert another currency where they were previously absent. To give three key examples: Saudi-China CNY oil sales: Saudi Arabia may export some oil to China and be paid in CNY for the first time. It exported $56bn of energy to it in 2019 – but that is a fraction of the $2.6 trillion traded global oil market. Because the Saudis’ own currency is pegged to USD, it would open itself up to FX volatility using CNY. As such, Saudi would price oil in USD and allow (some) payment in CNY; then the Saudis would sell the CNY back for USD. There are limits to what Saudi Arabia would sell in CNY, however, to avoid accumulating CNY of no use to them unless everyone else makes the same shift. Russia-India INR trade: Floated trade between Russia and India to avoid USD will also be priced in USD and transacted in INR. A bank account will be opened in India for Russia, and as Russian commodities (and weapons) arrive in India, INR will be credited to it: as Russia buys goods from India, the account will be debited. This is de facto bilateral barter, technically in INR, and leaves Russia with either the need to buy more than it needs from India, or to accumulate INR claims it cannot usefully transfer elsewhere. Europe-Russia RUB trade: Russia demanded to be paid in RUB for its gas, and perhaps all commodities, and Europe refused to do so. Yet a face-saving solution was found. Europe still pays for Russian gas in EUR or USD, but Russia insists on Gazprombank selling them for RUB to a Russian entity before both are then remitted back to Russia. Meanwhile, Europe appears intent on - slowly - decoupling from Russian energy completely. It should be clear that a BW3 anchor FX/clearing currency would have to be found. Even though China is huge commodity importer, not exporter, which runs counter to the whole BW3 concept, CNY is the obvious candidate as a BW3 anchor: only China has the economic scale. As already shown, CNY does not meet the criteria to be a global reserve currency because of its closed capital account and trade surpluses. However, for the BW3 commodity producers that China runs a deficit with, CNY may be able to play a larger role. (Figure 8.) Yet because CNY is still not going to be a true global alternative to USD for structural reasons, there are still rigid limits on how much bilateral China-BW3 trade we might actually see shift, as we shall now show. WBW3WW 5: trade data The numbers don’t add up for BW3 and CNY – at least not as a global game-changer. Total global exports and imports were $38trn in 2019 (Figure 10) to remove Covid/post-Covid distortions. The US accounted for $4.2trn; Canada, the UK, Australia, and Japan --all 5-Eyes geopolitical allies, or under the US defence umbrella-- $4.0trn; the Eurozone $5.2trn internally and another $4.0trn externally; China $4.6trn; and the rest of the world $16.2trn, most of it in USD. (NB the data are only available in USD!) In summary, China accounted for 12% of global trade vs. just 2.6% of central bank reserves at end of 2021 (Figure 11). On the surface, that appears a very bullish argument for the currency, BW3 or not – and BW3 argues it will rise. However, we need to dive into that $4.6trn/12% data to show why CNY is not doing better, and likely won’t do much better even under a proposed BW3. (Figure 12 shows China’s trade breakdown by region and separates Russia from the continent of Europe for obvious reasons.) First, China’s trade with Hong Kong ($561bn) is counted as external. We colour it red to show it is part of the national economy.  China could switch that to CNY but would undermine the role of Hong Kong and the HKD’s USD peg. Then we have Russia ($111bn); the Middle East ($263bn); Africa ($208bn); Asia excluding Japan, India, and South Korea ($728bn); and Latin America ($315bn) adding a further total of $1.6trn. All are shown in shades of orange to indicate they are open to doing trade in CNY. However, more than half of total trade ex. Hong Kong is with North America, Europe, Oceania, or parts of Asia that for geopolitical reasons will not trade in CNY. Moreover, China’s trade patterns (Figure 13) show how much it relies on surpluses with North America and Europe: the risk is that the more China backs BW3, the less the West trades with it, undermining its total trade surplus. In short, China’s maximum CNY global trade share is 4.3% vs. its current 2.6% share of CNY reserves globally. The primary targets for a major USD > CNY switch are in Asia ex. Japan , India, and South Korea (Figure 13). However, ‘orange’ countries might only shift some trade to CNY, not all of it: the trade logic says that will be the case. China imported $211bn of goods from Asia* in 2019, half primary goods/resources, where we presume it could be the BW3 anchor, half manufactures (Figure 14). It exported $517bn of low, medium, and high-tech items as part of electronics supply chains. This left a large trade surplus for China. If bilateral trade was all in CNY, Asia* would need Chinese FDI or loans to cover its trade deficit, with no means of net earning CNY. Moreover, many of the electronics goods it imported from China are re-exported to Western markets, earning USD. As such, the maximum Asian* countries would want to shift to CNY would equal their China exports, as an offset to their imports from China (the red area in Figure 14). So, the total shift in trade is not imports and exports ($728bn), but Asia’s* exports to China ($211bn) doubled, which is $422bn. Yet the number is likely even lower given the complexity of managing balanced CNY trade in so many categories of products. We could perhaps see the total of Asia’s commodity exports to China shift to CNY, so only $120bn. As such, total CNY trade might only be $240bn from a total of $728bn. And presumably those commodities would still be priced in USD – at least until the Middle East, from which Asia* buys energy, changes its currency peg. Similarly, China’s trade with the Middle East saw it import $146bn of mainly primary goods/resources, while exporting $116bn of a broad range of goods (Figure 16). China obviously wants to buy all its commodities in CNY. However, as already noted, the Middle East, with currencies mainly pegged to USD, would only consider switching trade to CNY to the total of their import bill from China, which is less than that total. In short, $116bn of Middle East commodity sales could shift to CNY and be doubled with $116bn of CNY flowing back in the other direction for consumer goods. That is the maximum CNY shift unless China sells a lot more to the region, which would arguably need to be military equipment. The geopolitical risks there should be clear! If oil and gas are still priced in USD, this would be de facto barter or countertrade avoiding USD more than real trade in CNY. Looking at Latin America (Figure 17), the region exported $149bn of commodities to China, and China sold it $151bn of goods of all kinds. Here we see a genuine argument for more CNY trade compared to the total bilateral trade being done. The picture is similar for Africa (Figure 18), where total exports to China were $95bn, of which $85bn were commodities, while China sold $113bn of goods to it. We should also add Russia (Figure 19), where Chinese exported $53bn and imported $57bn, with Russia running a slight trade surplus. For obvious geopolitical reasons, Russia is rapidly embracing CNY – but major Chinese firms from SOEs to Huawei are still wary of US and EU sanctions so far. Using this methodological approach for each region/economy China trades with, we can summarise the total global CNY shift we expect to see (Figure 20). The total theoretical CNY shift is if all trade moves to it under BW3. However, only some countries would and not all countries will do all trade in it: grey areas indicate where they will not. The major CNY shift (in light orange) is if all potential pro-BW3 countries maximize their CNY trade at the level of their total imports or exports, whichever is lower. The likely CNY shift assumes a lower move to CNY with an assumed coefficient driven by geopolitics. In Russia’s case we assume it is 0.8 (i.e., 80% of maximum shifts to CNY). For the Middle East, we assume 0.25 because of USD pegs; for Africa, 0.30 given geopolitical competition for its commodity exports from Europe, Japan, the US, and India; and for Asia* and Latin America 0.25 because of economic competition and/or ties to Japan or the US. The results are hardly a paradigmatic shift away from USD: The major CNY trade shift is worth $1,254bn, equal to 3.3% of global trade vs. a current CNY global reserve equal to 2.6% of the global total. As such, CNY holdings would rise by around a third in Africa, Latin America, the Middle East, and Russia – but nowhere else. (Figure 21.) The likely CNY trade shift is worth $381bn, equal to 1% of global trade. That is lower than the current holdings of CNY reserves: while some economies would add more, Western economies may hold less. (Figure 21.) In terms of FX trading, the major shift is only worth $4.8bn per working day, a drop in the ocean for the $6.6trn global FX markets, and much of that would be offset trading, not selling USD for CNY. In the more likely case, it is only $1.5bn a day, which would hardly be noticed. In short, BW3 is not looking like a global alternative to USD – just a cluster of Chinese hub-and-spokes offset/barter trades trying to avoid USD as middleman. WBW3WW 6: geoeconomics BW3’s prospects would be boosted if CNY was adopted by third parties globally: yet we have already explained why this is structurally very hard to achieve. Two countries that both run trade surpluses with China, e.g., Brazil and Russia, could decide to use CNY to settle some bilateral trade. However, given CNY would remain structurally locked out of the USD’s broader global role, this could arguably best occur within the specific industries that earn CNY: how much intra-commodity industry Brazil–Russia trade do we see? Not much at all. This is economic geography at work – and against BW3. Global trade-flows mean even if more commodity producers were on board with BW3 it would count for little because BW3 does not replicate the structure of commodity producers, goods manufacturers, and final consumer markets - which are mainly in the West. Commodity producers can try to force the West to take their currency, like Russia, via economic coercion. Yet countries running large trade surpluses don’t allow others to earn that currency to pay in it! Moreover, the West can walk away – as it is pledging to do from Russian energy. Unless every commodity producer backs BW3, there are alternatives - and/or technological innovation to reduce commodity intensity. And, to reiterate, if all key commodity producers walked away from the West, they would lose those markets for their commodities. The only way BW3 could avoid this problem would be if the global economy fragments into multiple value chains. The West still has key resources, technology, allies, a strong military, and could even onshore production if needed: could BW3 commodity producers (and China as importer) replicate or sustain value chains without Western technology and Western end consumers? Looking back, some BW3 countries tried that during the last Cold War – and import substitution did not work well for them (Figure 22). Moreover, look at the terrible demography in Russia and China, and their structural economic problems. Could either afford to walk away into a more isolated, combative realpolitik BW3? It seems highly unlikely Russian autarchy work this time given repeated failures over the course of history. How long until it can replace its foreign-built capital stock, foreign-designed cars, trucks, and planes, or high-tech goods? China could fill that BW3 technology gap: yet if so, it would lose Western markets. We would see geopolitical fragmentation – not horizontally, as BW3 commodity producers replace the West, but with parallel value chains from commodity producers to China and the West. Yet look back at Figure 13 and imagine what the loss of a net $430bn in EUR and USD net trade inflows would do for China’s economic and FX stability. That is more than China can hope to offset with lower use of USD under BW3. And what would decoupling mean for its commodity demand, which is where it is supposed to be the BW3 anchor? And let’s not forget China already has economic problems that call into question how long it will remain a giant commodity consumer (i.e., iron ore). Mapping out the problem To make these economic-geography points in another way, we created 3-D BW3 trade maps (Figures 23, 24) that show intra-BW3 trade by region, excluding India, Japan, and South Korea and China; and with China and the US. The conclusion should be immediately obvious: intra-BW3 trade excluding China is only a fraction of that between each of those regions and China,... or with North America – which can be seen is still a hugely important trade partner for most of them. In short, CNY will not be adopted by third parties either within BW3 or outside it. WBW3WW: conclusion Alongside dramatic world events ‘Bretton Woods 3’ has an appealing market narrative. Indeed, we agree with a lot of its core arguments, depressing as they are. However, it is not new. It is old. And in not looking back enough, it fails to look forward sufficiently. To argue that we are going to see shifts to Cold War and global Great Power struggles, and a world in which commodities, logistics, and the military all play key roles alongside finance and currency, and with a geopolitical need to run large trade surpluses, is to argue for an ancient economic philosophy: mercantilism. Modern economists may have forgotten the true meaning of that term, but it reigned as long as commodity currencies did – and it implies a highly realpolitik global environment. To be fair, BW3 implies the same without naming it directly. Yet is that backdrop negative for USD and positive for BW3? No. A mercantilist realpolitik environment is one in which the requisite set of resources and diverse sources of power, after some policy shifts(!), still rest more with the US and its allies and their military, soft power, and financial power, than with a cluster of commodity-producing states (and one commodity importer). That is especially true if that cluster want to create a parallel economic and financial structure from disparate net exporter polities, who do not trade horizontally together to any great degree, and while also still exporting to the rival West! As such, BW3 will not work, and USD will retain its leading global role – albeit perhaps with more sticks and fewer carrots. If we were to see fewer USD circulating internationally via trade, servicing Eurodollar debt will just get harder – and that will keep a structural bid behind USD. By contrast, borrowing in CNY will still be unattractive for almost every economy given China’s persistent trade surpluses and capital controls. As such, on BW3 all we will see at best, is a marginal increase in the ‘offsetting’ use of CNY ahead – and more rapid global decoupling, likely to its ultimate detriment. Tyler Durden Wed, 04/13/2022 - 19:00.....»»

First Half of Fiscal Year 2022 Financial Highlights Total revenues were $369.6 million, an increase of 13.8% compared to the comparable prior year period. Gross margin was 35.3%, compared to 36.1% for the comparable prior year period. Non-GAAP gross margin was 35.4%, compared to 36.1% for the comparable prior year period. Net income attributable to Hollysys was $44.3 million, a decrease of 14.6% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $51.3 million, a decrease of 3.3% compared to the comparable prior year period.  Diluted earnings per share was $0.72, a decrease of 16.3% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.83, a decrease of 4.6% compared to the comparable prior year period. Net cash provided by operating activities was $51.1 million. Days sales outstanding ("DSO") of 173 days, compared to 163 days for the comparable prior year period. Inventory turnover days of 48 days, compared to 41 days for the comparable prior year period. Second Quarter of Fiscal Year 2022 Financial Highlights Total revenues were $216.3 million, an increase of 10.7% compared to the comparable prior year period. Gross margin was 36.1%, compared to 37.7% for the comparable prior year period. Non-GAAP gross margin was 36.2%, compared to 37.7% for the comparable prior year period. Net income attributable to Hollysys was $30.1 million, a decrease of 4.1% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $33.1 million, an increase of 2.9% compared to the comparable prior year period. Diluted earnings per share was $0.49, a decrease of 3.9% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.54, an increase of 1.9% compared to the comparable prior year period. Net cash provided by operating activities was $29.3 million. DSO of 147 days, compared to 142 days for the comparable prior year period. Inventory turnover days of 50 days, compared to 40 days for the comparable prior year period. See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin, non-GAAP net income attributable to Hollysys and non-GAAP diluted earnings per share. BEIJING, March 15, 2022 /PRNewswire/ -- Hollysys Automation Technologies Ltd. (NASDAQ:HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the second quarter and first half of fiscal year 2022 ended December 31, 2021. Dr. Changli Wang, the CEO and director of Hollysys, stated: "We are very delighted to report another fiscal quarter with solid financial and operational performance against all external and internal odds. Amid a disturbing and unfavorable environment, Hollysys never forgot our vision of bringing people better lives, showed great solidarity, confidence and strength to all, especially when wrapped in sandpaper, and lived up to our mission and honor. Today, in a seemingly mundane moment, fate requires me to be here shouldering the responsibility of leading Hollysys to a widely shared expectation of a promising future. We will continue to demonstrate the classic Hollysys spirit, building up and adding value to the Company through larger market shares and penetration on pillar business units of industrial automation ("IA") and rail transportation automation ("RTA") and potential drives on possible new business segments like new energy, among others. There was a decrease in net income for the reporting period compared to that for the comparable prior year period, primary due to an increase in operating expenses, especially research and development expenses and general and administration expenses. However, we believe such investment in operating expenses will give more knowledge and insights for the Company to optimize its existing operation and achieve greater economies of scale in a long run. Here I would like to take the opportunity to discuss the current situation of the Company and address a brief development strategy. The Company is of high growing potential. After over a month's discussion with colleagues from different levels and business units, a fact found is that Hollysys embraced various expertise from our competitors and our senior technicians have grown into capable specialists or managers with clear minds, distinct directions and glowing motivations over years. In addition, our research and development capability has been enhanced significantly. Furthermore, the current incentive plan and performance appraisal system are effective and encouraging. Externally, China is facing the challenges of an aging population tendency and achieving carbon peaking and carbon neutrality goals, which provides Hollysys with great developing opportunities and directions. Based on the situations stated above, Hollysys mapped out developing strategy below. On IA business, we are initiating steps to extend aggressively by grasping the chance of market reshuffle with advantages of our exceptional and reliable solutions, sophisticated engineering work, competent personnel and national service network. Additionally, we are extending product lines down stream to hardware and upper stream to comprehensive integrated control platforms. On RTA business, we will sustain and fortify our market share in high speed rail, enrich product lines constantly, foster subway signaling for a further breakthrough, and promote application of new products of urban transportation. In new business segments, we intend to launch new energy related products and services after proper investigation and evaluation. Then I would like to share some highlights and breakthrough the Company made in the first half of fiscal year 2022: IA business continued its strong growth momentum with larger market shares. The Company keeps investment in research and development, aiming at users' challenges, carries out technological innovation, and strives to meet the needs of users. In the first half of fiscal year 2022, for example, Hollysys launched a new product—Industrial Optical Bus Control System ("OCS"), and achieved a number of contract breakthroughs. The application of the technology can help customers greatly reduce project cost, cut construction period and improve maintenance efficiency. This not only created huge economic benefits for customers, but also saved lots of non-ferrous copper for the society and fulfilled goals of energy saving and emission reduction. The smooth implementation of the projects also creates conditions for the full promotion of OCS in 2022. At the same time, Hollysys launched a fully self-controllable Distributed Control System ("DCS") to meet the increasing requirements of customers on reliability and security. In the first half of fiscal year 2022, such updated DCS system has been applied successfully in the project of 600MW power unit, the pipage of refined oil product, etc. In the field of chemical and petrochemical industry, the Company has maintained its fast pace, which proves that its strategy of "vigorously developing chemical and petrochemical industry" is effective. In the first half of the fiscal year 2022, we gained a number of breakthrough projects, including signing a large scale oil refining project in Hainan. In addition, as of December 31, 2021, the Company has accumulated 38 offshore platform project orders, ranking first among domestic suppliers. In our RTA business, we are excited about winning some key contracts. For example, we signed contracts to provide Automatic Train Protection ("ATP") with automatic train operation function to the Pearl River Delta region and the contract to provide Supervisory Control and Data Acquisition ("SCADA") system to Chengdu rail transit Line 30 Phase I. At the same time, the Company continues to offer various after-sales services, including software upgrading, spare parts sales, and maintenance and replacement services for high speed rail. Especially, in Hong Kong, we successfully entered into the second three-year maintenance contract with Mass Transit Railway Corporation Limited. In project delivery, several lines that we participated in went into operation, such as our track circuit which officially went into service, representing the first application of Hollysys track circuit on C2 high speed rail. Also, the first application of Hollysys subway signaling system in Kunming Changshui Airport Express went into full operation smoothly. In addition to boosting and exploring diversified development opportunities, the Company is also continuously promoting the incubation of innovative businesses. In the first half of the fiscal year 2022, both highway business and vocational education business have made remarkable progress. For example, in the field of vocational education, a comprehensive project of high-speed railway operation control drill field was signed with a railway vocational and technical college. In the field of highway, we signed the intelligent platform project of tunnel inspection and highway operation decision. For overseas business, Thomson Line II in Singapore that the Company provided SCADA has been successfully put into operation. Under the threat of COVID-19, Hollysys project team worked unitedly to achieve the successful delivery of the project while ensuring personal safety and health, and won a very challenging and valuable award of the "Engineering Safety Excellence Award" 2021 from the Land Transport Authority of Singapore. Overall speaking, COVID-19 remains a challenge to the business unit of mechanical and electrical solutions and other overseas business. We will keep monitoring the impact of COVID-19, and risk control remains our key focus. With our clear strategies, contentious dedication and experienced loyal expertise, we believe that we will continue to create greater value for our clients and shareholders."   Second Quarter and First Half Year Ended December 31, 2021 Unaudited Financial Results Summary (In USD thousands, except for %, number of shares and per share data) Three months ended December 31, Six months ended December 31, , 2021 2020 % Change 2021 2020 % Change Revenues $ 216,251 195,328 10.7% $ 369,636 324,795 13.8%     Integrated solutions contracts revenue $ 166,505 142,468 16.9% $ 291,068 248,174 17.3%     Products sales $ 9,871 8,458 16.7% $ 19,517 15,026 29.9%     Service rendered $ 39,875 44,402 (10.2)% $ 59,051 61,595 (4.1)% Cost of revenues $ 138,264 121,709 13.6% $ 239,254 207,675 15.2% Gross profit $ 77,987 73,619 5.9% $ 130,382 117,120 11.3% Total operating expenses $ 54,268 40,172 35.1% $ 91,947 62,903 46.2%     Selling $ 13,620 10,260 32.7% $ 23,029 18,435 24.9%     General and administrative $ 25,965 14,404 80.3% $ 43,040 24,757 73.8%     Research and development $ 20,611 18,620 10.7% $ 36,660 28,601 28.2%     VAT refunds and government subsidies $ (5,928) (3,112) 90.5% $ (10,782) (8,890) 21.3% Income from operations $ 23,719 33,447 (29.1)% $ 38,435 54,217 (29.1)% Other (expense) income, net $ (9) 1,545 (100.6)% $ 959 2,774 (65.4)% Foreign exchange loss $ (1,288) (3,345) (61.5)% $ (1,714) (5,668) (69.8)% Gains on disposal of investments in an   equity investee $ 7,995 - 100.0% $ 7,995 - 100.0% Share of net income of equity investees $ 774 2,768 (72.0)% $ 986 4,659 (78.8)% Dividend income from equity investments $ 179 3 5866.7% $ 179 3 5866.7% Interest income $ 3,323 2,922 13.7% $ 6,183 6,720 (8.0)% Interest expenses $ (22) (141) (84.4)% $ (366) (277) 32.1% Income tax expenses $ 4,767 5,906 (19.3)% $ 8,669 10,666 (18.7)% Net loss attributable to non-controlling   interests $ (167) (71) 135.2% $ (341) (151) 125.8% Net income attributable to Hollysys   Automation Technologies Ltd. $ 30,071 31,364 (4.1)% $ 44,329 51,913 (14.6)% Basic earnings per share $ 0.49 0.52 (5.8)% $ 0.73 0.86 (15.1)% Diluted earnings per share $ 0.49 0.51 (3.9)% $ 0.72 0.86 (16.3)% Share-based compensation expenses $ 2,713 763 255.6% $ 6,306 938 572.3% Amortization of acquired intangible assets $ 353 79 346.8% $ 632 155 307.7% Non-GAAP net income attributable to   Hollysys Automation Technologies Ltd.(1) $ 33,137 32,206 2.9% $ 51,267 53,006 (3.3)% Non-GAAP basic earnings per share(1) $ 0.54 0.53 1.9% $ 0.84 0.88 (4.5)% Non-GAAP diluted earnings per share(1) $ 0.54 0.53 1.9% $ 0.83 0.87 (4.6)% Basic weighted average number of ordinary   shares outstanding 60,946,596 60,500,387 0.7% 60,884,346 60,498,431 0.6% Diluted weighted average number of   ordinary shares outstanding 61,682,393 60,933,785 1.2% 61,556,602 60,693,633 1.4% (1) See the section entitled "Non-GAAP Measures" for more information about these non-GAAP measures. Operational Results Analysis for the Second Quarter Ended December 31, 2021 Compared to the second quarter of the prior fiscal year, the total revenues for the three months ended December 31, 2021 increased from $195.3 million to $216.3 million, representing an increase of 10.7%. In terms of revenues by type, integrated contracts revenue increased by 16.9% to $166.5 million, products sales revenue increased by 16.7% to $9.9 million, and services revenue decreased by 10.2% to $39.9 million. The following table sets forth the Company's total revenues by segment for the periods indicated. (In USD thousands, except for %) Three months ended December 31, Six months ended December 31, 2021 2020 2021 2020 $ % of Total Revenue $ % of Total Revenue $ % of Total Revenue $ % of Total Revenue Industrial Automation 113,833 52.7 92,889 47.6 216,294 58.5 174,819 53.8 Rail Transportation Automation 79,411 36.7 81,269 41.6 115,346 31.2 109,965 33.9 Mechanical and Electrical Solution 23,007 10.6 21,170 10.8 37,996 10.3 40,011 12.3 Total 216,251 100.0 195,328 100.0 369,636 100.0 324,795 100.0 Gross margin was 36.1% for the three months ended December 31, 2021, as compared to 37.7% for the same period of the prior fiscal year. The gross margin fluctuated mainly due to product and service mix. Gross margin of integrated solutions contracts, product sales, and service rendered was 27.5%, 75.0% and 62.0% for the three months ended December 31, 2021, as compared to 27.9%, 85.6% and 59.8% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 36.2% for the three months ended December 31, 2021, as compared to 37.7% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 27.7% for the three months ended December 31, 2021, as compared to 28.0% for the same period of the prior fiscal year. See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin and non-GAAP gross margin of integrated solutions contracts. Selling expenses were $13.6 million for the three months ended December 31, 2021, representing an increase of $3.3 million, or 32.7%, compared to $10.3 million for the same period of the prior fiscal year, which was primarily due to the significant increase of sales scale. Selling expenses as a percentage of total revenues were 6.3% and 5.3% for the three months ended December 31, 2021 and 2020, respectively. General and administrative expenses were $26.0 million for the quarter ended December 31, 2021, representing an increase of $11.6 million or 80.3% compared to $14.4 million for the same quarter of the prior year, which was primarily due to a $7.3 million increase in credit losses and increased investments in strategic planning, internal management, compliance and corporate governance to improve the Company's core competitiveness. Share-based compensation expenses were $2.7 million and $0.8 million for the three months ended December 31, 2021 and 2020, respectively. General and administrative expenses as a percentage of total revenues were 12.0% and 7.4% for the three months ended December 31, 2021 and 2020, respectively.  Research and development expenses were $20.6 million for the three months ended December 31, 2021, representing an increase of $2.0 million, or 10.7%, compared to $18.6 million for the same period of the prior fiscal year, which was primarily due to increased investments in R&D, including the upgrading of mainstream products and new products developed to meet the needs of the digital infrastructure market, such as the new generation DCS Macs V7, smart factory and smart city rail. Research and development expenses as a percentage of total revenues were 9.5% and 9.5% for the three months ended December 31, 2021 and 2020, respectively. The VAT refunds and government subsidies were $5.9 million for three months ended December 31, 2021, as compared to $3.1 million for the same period in the prior fiscal year, representing a $2.8 million, or 90.5%, increase. The income tax expenses and the effective tax rate were $4.8 million and 13.7% for the three months ended December 31, 2021, respectively, as compared to $5.9 million and 15.9% for comparable period in the prior fiscal year, respectively. The effective tax rate fluctuates, as the Company's subsidiaries contributed different pre-tax income at different tax rates. Net income attributable to Hollysys was $30.1 million, representing a decrease of 4.1% from $31.4 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys, was $33.1 million or $0.54 per diluted share. See the section entitled "Non-GAAP Measures" for more information about non-GAAP net income attributable to Hollysys. Diluted earnings per share was $0.49 for the three months ended December 31, 2021, a decrease of 3.9% from $0.51 reported in the reported in the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.54 for the three months ended December 31, 2021, an increase of 1.9% from $0.53 reported in the comparable period in the prior fiscal year. These were calculated based on 61.7 million and 60.9 million diluted weighted average ordinary shares outstanding for the three months ended December 31, 2021 and 2020. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share. Contracts and Backlog Highlights Hollysys achieved $278.8 million of value of new contracts for the three months ended December 31, 2021. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $772.1 million as of December 31, 2021. The following table sets forth a breakdown of the value of new contracts achieved and backlog by segment. (In USD thousands, except for %) Value of new contracts achieved Backlog for the three months  ended December 31, ...Full story available on Benzinga.com.....»»

The Empire Of Lies Breaks Down: Ugly Truths The Deep State Wants To Keep Hidden Authored by John W. Whitehead & Nisha Whitehead via The Rutherford Institute, “The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.” - Albert Einstein America is breaking down. This breakdown - triggered by polarizing circus politics, media-fed mass hysteria, racism, classism, fascism, fear-mongering, political correctness, cultural sanitation, virtue signaling, a sense of hopelessness and powerlessness in the face of growing government corruption and brutality, a growing economic divide that has much of the population struggling to get by, and militarization and militainment (the selling of war and violence as entertainment) - is manifesting itself in madness, mayhem and an utter disregard for the very principles and liberties that have kept us out of the clutches of totalitarianism for so long. In New York City, for example, a 200-year-old statue of Thomas Jefferson holding the Declaration of Independence will be removed from the City Council’s chambers where it has presided since 1915. Despite Jefferson’s many significant accomplishments, without which we might not have the rights we do today, he will be banished for having been, like many of his day, a slaveowner. Curiously, that same brutal expectation of infallibility has yet to be applied to many other politically correct yet equally imperfect and fallible role models of the day. In Washington, DC, a tribunal of nine men and women spoke with one voice to affirm that the government and its henchmen can literally get away with murder and not be held accountable for their wrongdoing. The Supreme Court’s latest rulings are yet another painful lesson in compliance, a reminder that in the American police state, “we the people” are at the mercy of law enforcement officers who have almost absolute discretion to decide who is a threat, what constitutes resistance, and how harshly they can deal with the citizens they were appointed to ‘serve and protect.” All across the country, from California to Connecticut and every point in between, men and women who have worked faithfully and diligently at their jobs for years are being terminated for daring to believe that they have a right to bodily integrity; that they should not be forced, against their conscience or better judgment, to choose between individual liberty and economic survival; and that they—and not the government, or the FDA, or the CDC, or the Corporate State—have dominion over their bodies. Conveniently enough, this COVID-19 pandemic has created yet another double standard in how “we the people” navigate this country: while “we the middling classes” are subjected to vaccine mandates and denied even the right to be skeptical about the origins of the COVID virus, let alone the efficacy of the so-called cure, the government, corporations and pharmaceutical companies have been shielded from liability with blanket immunity laws that ensure we are little more than guinea pigs for their questionable experiments. And then in Pennsylvania, a man traveling on a commuter train harassed, assaulted and then raped a woman over the course of 40 minutes and more than two dozen train stops while fellow travelers, watching and filming the attack, did nothing. Not a single witness called 911. Not a single bystander intervened to help the woman. Despite the fact that the man was outnumbered and could have been overwhelmed by those on the train, no collective effort was made to ward off the attack. Only when it was too late, when the damage had been done and the train had pulled into its last stop, did police show up to intervene. There is an allegory here for what is happening to our country and its citizens, who have also been waylaid by a madman (the Deep State), stripped of their safety nets (their rights undermined and eroded), and savaged out in the open by a fiend (the American Police State and its many operatives—the courts, the legislatures and their various armies) that is devoid of humanity while those not in the immediate crosshairs watch safely from a distance without making a move to help. This is madness, yet there is a method to this madness. This is how freedom falls and tyranny rises. Remember, authoritarian regimes begin with incremental steps: overcriminalization, surveillance of innocent citizens, imprisonment for nonviolent—victimless—crimes, etc. Bit by bit, the citizenry finds its freedoms being curtailed and undermined for the sake of national security. And slowly the populace begins to submit. No one speaks up for those being targeted. No one resists these minor acts of oppression. No one recognizes the indoctrination into tyranny for what it is. Historically this failure to speak truth to power has resulted in whole populations being conditioned to tolerate unspoken cruelty toward their fellow human beings, a bystander syndrome in which people remain silent and disengaged—mere onlookers—in the face of abject horrors and injustice. Time has insulated us from the violence perpetrated by past regimes in their pursuit of power: the crucifixion and slaughter of innocents by the Romans, the torture of the Inquisition, the atrocities of the Nazis, the butchery of the Fascists, the bloodshed by the Communists, and the cold-blooded war machines run by the military industrial complex. We can disassociate from such violence. We can convince ourselves that we are somehow different from the victims of government abuse. We can continue to spout empty political rhetoric about how great America is, despite the evidence to the contrary. We can avoid responsibility for holding the government accountable. We can zip our lips and bind our hands and shut our eyes. In other words, we can continue to exist in a state of denial. Yet there is no denying the ugly, hard truths that become more evident with every passing day. The government is not our friend. Nor does it work for “we the people.” Our so-called government representatives do not actually represent us, the citizenry. We are now ruled by an oligarchic elite of governmental and corporate interests whose main interest is in perpetuating power and control. Republicans and Democrats like to act as if there’s a huge difference between them and their policies. However, they are not sworn enemies so much as they are partners in crime, united in a common goal, which is to maintain the status quo. The lesser of two evils is still evil. Some years ago, a newspaper headline asked the question: “What’s the difference between a politician and a psychopath?” The answer, then and now, remains the same: None. There is virtually no difference between psychopaths and politicians. More than terrorism, more than domestic extremism, more than gun violence and organized crime, the U.S. government has become a greater menace to the life, liberty and property of its citizens than any of the so-called dangers from which the government claims to protect us The government knows exactly which buttons to push in order to manipulate the populace and gain the public’s cooperation and compliance. If voting made any difference, they wouldn’t let us do it. America’s shadow government—which is comprised of unelected government bureaucrats, corporations, contractors, paper-pushers, and button-pushers who are actually calling the shots behind the scenes right now and operates beyond the reach of the Constitution with no real accountability to the citizenry—is the real reason why “we the people” have no control over our government. You no longer have to be poor, black or guilty to be treated like a criminal in America. All that is required is that you belong to the suspect class—that is, the citizenry—of the American police state. As a de facto member of this so-called criminal class, every U.S. citizen is now guilty until proven innocent. “We the people” are no longer shielded by the rule of law. By gradually whittling away at our freedoms—free speech, assembly, due process, privacy, etc.—the government has, in effect, liberated itself from its contractual agreement to respect our constitutional rights while resetting the calendar back to a time when we had no Bill of Rights to protect us from the long arm of the government. Private property means nothing if the government can take your home, car or money under the flimsiest of pretexts, whether it be asset forfeiture schemes, eminent domain or overdue property taxes. Likewise, private property means little at a time when SWAT teams and other government agents can invade your home, break down your doors, kill your dog, wound or kill you, damage your furnishings and terrorize your family.  We now find ourselves caught in the crosshairs of a showdown between the rights of the individual and the so-called “emergency” state, and “we the people” are losing. All of those freedoms we cherish—the ones enshrined in the Constitution, the ones that affirm our right to free speech and assembly, due process, privacy, bodily integrity, the right to not have police seize our property without a warrant, or search and detain us without probable cause—amount to nothing when the government and its agents are allowed to disregard those prohibitions on government overreach at will. If there is an absolute maxim by which the federal government seems to operate, it is that the American taxpayer always gets ripped off. Our freedoms—especially the Fourth Amendment—continue to be choked out by a prevailing view among government bureaucrats that they have the right to search, seize, strip, scan, spy on, probe, pat down, taser, and arrest any individual at any time and for the slightest provocation. Forced vaccinations, forced cavity searches, forced colonoscopies, forced blood draws, forced breath-alcohol tests, forced DNA extractions, forced eye scans, forced inclusion in biometric databases: these are just a few ways in which Americans continue to be reminded that we have no control over what happens to our bodies during an encounter with government officials. Finally, freedom is never free. There is always a price—always a sacrifice—that must be made in order to safeguard one’s freedoms. We cannot remain silent in the face of the government’s ongoing overreaches, power grabs, and crimes against humanity. Evil disguised as bureaucracy is still evil. Indeed, this is what Hannah Arendt referred to as the banality of evil. As I make clear in my book Battlefield America: The War on the American People and in its fictional counterpart The Erik Blair Diaries, such evil happens when bureaucrats (governmental and corporate) unquestioningly carry out orders that are immoral and inhumane; obey immoral instructions unthinkingly; march in lockstep with tyrants; mindlessly perpetuate acts of terror and inhumanity; and justify it all as just “doing one’s job.” Such evil prevails when good men and women do nothing. By doing nothing, by remaining silent, by being bystanders to injustice, hate and wrongdoing, good people become as guilty as the perpetrator. There’s a term for this phenomenon where people stand by, watch and do nothing—even when there is no risk to their safety—while some horrific act takes place (someone is mugged or raped or bullied or left to die): it’s called the bystander effect. It works the same whether you’re talking about kids watching bullies torment a fellow student on a playground, bystanders watching someone dying on a sidewalk, passengers on a train filming a fellow traveler be raped without intervening to help, or citizens remaining silent in the face of government atrocities. We need to stop being silent bystanders. It’s time to stand up for truth—for justice—for freedom—not just for ourselves but for all humanity. Tomorrow may be too late. Tyler Durden Thu, 10/21/2021 - 00:10.....»»

Ken Griffin Says Chicago Violence Like "Afghanistan On A Good Day", Claims Crypto Is "Jihadist" Attack On The Dollar Move over Jamie Dimon. There's another American billionaire financier who appears to be quietly launching a post-business political career. Or at the very least, one could be forgiven for believing Citadel founder and CEO Ken Griffin's appearance Monday at the Chicago Club of Economics was one long stump speech. Griffin's hour-plus dialogue, which received extensive coverage from the financial press, comes at an interesting time. On the Internet, "conspiracy theorists" (according to Citadel) have continued to raise questions about possible collusion (or other wrongdoings) between Citadel and Robinhood (and one Robinhood exec in particular) before RH pulled the plug on January's meme stonk mania. Meanwhile, over at the SEC, Gary Gensler has said he's looking into regulating - or possibly eliminating or greatly restricting - the practice of 'Payment for Order Flow", whereby electronic retail brokerages like Robinhood sell their customers' orders to Citadel and other market makers (but primarily Citadel). Griffin spoke with Bloomberg's Erik Schatzker about a seemingly endless list of topics, offering imminently quotable lines and thoughtful takes on everything from crypto, to political corruption in Illinois and Chicago's slow decline into anarchy, President Biden's policies, the prospect of another Trump presidency, PFOF, crypto, and of course COVID. The dialogue started with a question on vaccination rates and meandered on from there. Here's a breakdown of what Griffin said by topic. COVID When it comes to containing COVID, Griffin believes that the US's battle against the virus was lost right at the beginning. "The country lost this battle in the first attack, when we weren’t willing to do what it took to shut down America, to truly contain Covid-19. And then to get back out of the seat, and we’ve all just paid a catastrophic price as a result." When it comes to vaccination rates, Griffin believes they have plateaued at an "unacceptably low level". The Fed According to Griffing "the Fed's in a really tough box." The Fed is in "no man's land", Griffin says, and as far as being its chairman, "it is a job I would not be so grateful to have". He also noted that inflationary pressures in the US are "really unsettling." What to do? "If i were Chairman Powell, i stay the course that I'm on as unnerving as that is. to see inflation running this hot is really unsettling." It was at this point that Griffin said something really interesting about the Fed and it's credibility. It's not often that you hear the people who actually run our financial system speak frankly about how it really works. But Griffin essentially said 'the quiet part out loud' when the discussion turned to the Fed's credibility, which we have argued time and again is already in tatters - especially in the aftermath of the pandemic. "And let's be clear right now we don't have price stability. Inflation is at 5% is the highest number people here have seen in their lifetimes," Griffin said. He added that the Fed's position that these pressures are "transitory" is really just "a big bet". But regardless of the course of inflation in the future, Griffin said that the more pressing issue is protecting the Fed from being tainted by the same ugly politics that afflict Capitol Hill. The whole point of a central bank is it's supposed to be independent from politics. Whether this is actually true or not, it's the appearance of neutrality that's necessary to maintain global confidence in the dollar. "We need to maintain the belief in the separation of the Fed from the halls of Washington for the sake of a strong dollar. If you're part of the financial community...you need to push back on that". Fiscal Stimulus Griffin slammed the post-COVID stimulus for being to expansive, and claimed all those benefits are still "disincentivizing lower-wage workers". China The first question Griffin was asked about China was whether he still opposes a "decoupling" between China and the US. According to Griffin, this "decoupling" is already happening. "I think in important ways we have already decoupled." But on a day where Biden's Trade Rep Katherine Tai essentially plagiarized President Trump's tough-on-China economic policies during a major speech, Griffin insisted that there will be drawbacks to what the US is doing - including limiting access to semiconductors and software, which has further motivated Beijing to develop their own. "By restricting Chinese access to semiconductors and American software we have pushed them into a national campaign to eliminate their dependence on the west...imagine a world where there are two totally independent software stacks." When it comes to the technology arms race, Griffin warned, the US is bound to lose. "They graduate about twice as many graduates as we do half of them have stem degrees. They're producing about 5x more talented engineers per annum. The belief that we will be technologically dominant...is naive." Once China surpasses American tech, "not only will they use it in the biggest market in the world which is their own market...but they'll push it to all their trading partners, the Brazils of the world..." Ultimately, "I can imagine a world where we have been divided...and I don't like thinking about that outcome. I can picture a world in 30 to 40 years where, in some sense we have divided the world up between east to west technologically,” Griffin said. TSMC Could Beijing's lust for better semis technology accelerate their takeover of Taiwan? The tiny rogue territory has somehow emerged as a global leader in chip technology and production thanks to TSMC. "They don't have the entire solution, they still buy equipment from around the world, but talk about a powerhouse...and going back to my point earlier, China views Taiwan as part of China, there's no way they will be technologically important against American in the next 20 years. They will get there eventually." The Rust Belt That's not to say there haven't been drawbacks to the US engagement with Beijing, and according to Griffin is the fact that China's advances in manufacturing and the state support allowing their companies to be more competitive helped contribute to the hollowing out of thousands of American factory towns. In retrospect, this was a necessary sacrifice to entice the Chinese to embrace first capitalism, and then democracy. But increasingly it looks like the CCP has no intention to ever loosen its monopoly on power, meaning all those sacrifices were for nothing. "To have the most populous country in the world becoming increasingly capitalistic our belief was that them becoming capitalist would inevitably lead to them becoming a democracy. when we wrote the rules of rht road for them, we did it with the objective of making that happen." "The challenge that we underestimated is how devastating this was going to be for small towns that had its only factory shut down. It wasn't how it was going to impact NYC, Chicago or LA but how it was going to impact a small town in upstate New York. That was a terrible policy miscalculation not done in bad faith...but we didn't have the trainin or relocation strategies to help people get back on their feet." Competition Griffin believes America is facing an identity crisis, and needs to get back to its "core values." And a big part of that is embracing "competition". Enough of this 'everybody gets a trophy' bs. "We need to get back to our core values if we're going to win. What does that mean? Children need to be taught the virtue of earned success. It can't be that every time a race is won, there's two gold medal winners. and earned success is so important to the psychological success of our country. When people know they've done a job well..." there's a sense of pride. The reason why 1 in 10 Americans is severely depressed is that "when life revolves around your instagram and facebook account not how well you do on the sports field, how well you do in class...you've lost your way in life." "We need to teach our children math and science and how to write and how to compete and how to enjoy success....because we need these children to lead this country in 20 years." Griffin also complained that the scientists who developed the COVID jabs weren't properly venereated. "Why haven't we brought the scientists from Pfizer and Moderna to the White House to recognize them for the accomplishment of developing a vaccine in a year. These people are the heroes of our lifetime..." "There are no people who are children are looking up to to say 'I wanna be like her'" Griffin said. Teachers Unions One of the biggest causes of the decay in the quality of public education, according to Griffin, are the teachers unions. He relayed how former Chicago mayor Rahm Emmanuel went to bat for the schools against the unions...and lost. That's why Chicago has one of the shortest school years, and shortest school days, in the country. "Our mayor went to bat to change that and got batted over the head by the teacher's union," he said. Biden Agenda Moving on to the subject of Biden's economic agenda, which is presently the subject of a Democratic civil war in Washington, Griffin said there was plenty in the bill he liked, but also plenty he opposed, starting with the price tag. "Let's just say thank God for Sen. Manchin," Griffin said. Debt Ceiling Griffin believes the responsibility for raising the debt ceiling lies with the Dems...whether or not that means falling back on reconciliation to bypass a GOP filibuster, or not. "We've played this game of chicken before...I hope somebody blinks before they go over the cliff. I do believe the Democrats have a responsibility....to push this forward." Payment for Order Flow Finally, the big one. Are hidden costs imposed by Citadel and other market makers via payment for order flow (PFOF) helping to line Griffin's pockets at the expense of retail traders? Of course not, he insisted. In fact, if you took away PFOF, Citadel would be just fine..."from the 100,000 feet view" at least, Griffin said. Even though the practice has been a major driver of profits at his firm, Griffin tried to frame PFOF as a nuisance cost, suggesting he would rather not have to "pay" for order flow at all. "Let us hope that we maintain the status quo. brokerage firms have a duty to secure the best price for their customers. That's the premise on which we compete that's the premise on which we win." Ultimately, losing PFoF would be "a huge loss" for traders who enjoy the lowest commissions in history right now (nothing), Griffin claimed, while adding that "let us hope that in Washington, they maintain the status quo." Ken Griffin discusses PFOF (1/2)#BanPFOF #KenGriffinLied pic.twitter.com/nprGSAzT1M — Antonio Martinez (@AntonioTheMexi) October 4, 2021 Ken Griffin discusses PFOF (2/2)#BanPFOF #KenGriffinLied pic.twitter.com/PwnVVNuex5 — Antonio Martinez (@AntonioTheMexi) October 4, 2021 Whatever the SEC decides regarding PFoF, "all i want to know are the rules of the road...If i have to drive on the left I'll drive on the left...just tell me to drive." Crypto While Griffin is certainly amused by crypto, he wishes all this energy could be channeled toward something that doesn't also inadvertently undermine the American financial system. Instead, Griffin sees crypto-mania as a "jihadist call"... Griffin Sees Crypto-Mania as ‘Jihadist Call’ Against the Dollar A mania which your Robinhood subsidiary is eagerly fanning... — zerohedge (@zerohedge) October 4, 2021 ...to attack and undermine the dollar. "I wish all this passion directed at crypto was redirected at making American stronger," adding that backing bitcoin over the dollar was a "Jihadist call". He also made a crack about how terribly energy inefficient bitcoin is, repeating a longstanding criticism. While he certainly has ethical objections to crypto, Griffin says he would absolutely let Citadel to get involved in the market if it's ever regulated. "If it were regulated, I would trade it because..it would be good to have a Tier 1 firm making prices." Chicago Griffin saved most of his anger for Gov. Pritzker and other Illinois elected officials. He started with a story of a conversation between him and Pritzker where Griffin claimed the governor refused to send in the National Guard to quell violence in the city because of the political optics. Since the last time Griffin spoke at the Economic Club in 2013, the City has gotten even worse. "Since the last time I spoke in 2013, 25,000 of my fellow Chicagoans have been shot. It is a disgrace that our governor will not insert himself into the challenge of addressing crime in our city. It won't look good to have men and women on corners on Michigan Avenue with assault weapons...well, if it would save the life of one child, I don't care. We need to try and start to take the state back inch by inch from people who put their politics first and the people second." On the subject of police, Griffin said: "We need our police officers to know that they are respected and welcomed as Americans." In fact, Griffin says Citadel has already started to dial back its presence in Chicago because of the safety issue before sharing an amusing crack about Chicago being more dangerous than Afghanistan. "We aren't as much in Chicago. It's becoming ever more difficult to have this as our global headquarters, a city that has so much violence. I mean Chicago is like Afghanistan on a good day. They tried to car jack the security detail that sits outside my apartment. It just shows you how deep crime runs in this city. There is nowhere you can feel safe walking home at 2130 at night. And it's really hard to recruit people to Chicago. When they read the headlines, theey know the facts. 20 years ago, this was a great place to raise a family...I could say that and be genuine...I can't give that speech today." As for New York City, Griffin warned that many of the same things he has seen in Chicago are starting to take place in New York City. Griffin added that Citadel's next big expansion will be office space in Miami, and that the company's time of remaining headquarter in Chicago will be measured in "years not decades". The Sun Belt Moving on from the Chicago discussion, Griffin believes that across the US, coastal blue states with high taxes will start to lose their economic edge to the Sun Belt, which has more business-friendly regulations. "Conditions are Better across the sun belt states, less regulation less taxes a workforce that's generally of the ethos of 'I'm here to earn it'. Northern cities still have a considerable advantage...those schools anchor our great northern cities. the south doesn't have that yet writ large. But as universities in the south continue to get better, you're going to see the balance of power shift from the north to the south as the ease of doing business in the south trumps the ease of hiring top employees in the north." Trump Finally, the big one. When it comes to President Trump, Griffin admits his economic policies were "pretty damn good." However, when asked about the prospect of another campaign in 2020, he said that "it's time for America to move on. The 4 years under president trump were so divisive it was not constructive for the country." He also said he was "appalled" by Trump's willingness to play identity politics. * * * Griffin's speech before the Chicago Club  the first major public appearance by Griffin since the "GameStopped" hearings back in Feb. Tyler Durden Mon, 10/04/2021 - 17:20.....»»

Futures Reverse Overnight Plunge As European Banks Stabilize From Historic Rout US equity futures, global markets and European bank stocks have stabilized, rebounding off worst levels which saw Europe's brand new banking megagiant UBS plunge as much as 16% before recouping most of the losses... ... as investors digested UBS’s agreement to buy Credit Suisse as well as central bank moves to boost dollar liquidity in an effort to restore confidence in the global financial system. Futures contracts on the S&P 500 were little changed at 7:30 a.m. ET after tumbling 1% earlier. The Stoxx Europe 600 index was modestly higher, with banks and financial services still the sharpest fallers. UBS shares sank as much as 16%, while Credit Suisse sank 60%. European bank stocks pared losses with the Stoxx Europe 600 Banks Index down less than 1%, after after dropping as much as 6%. A gauge of Asian shares fell by more than 1%. In premarket trading, First Republic Bank was poised to extend last week’s record loss as the US lender’s shares plunged 19% after S&P cut its credit rating again. Wells Fargo and Citigroup trimmed US premarket declines. Gold-mining stocks rallied in premarket trading on Monday, after a $3.2 billion deal between UBS and troubled lender Credit Suisse failed to calm nerves in the banking industry, knocking risk appetite. Newmont, the biggest US-listed gold miner, gains as much as 2.6%; Harmony Gold Mining +5.6%, Gold Fields +2.2%, New Gold +3.4%, Wheaton Precious Metals +1.5%, First Majestic Silver +2%, Pan American Silver +0.7%. The price of gold rose above $2,000 an ounce for the first time in a year amid safe-haven appeal. Here are some other notable premarket movers: Cryptocurrency-exposed stocks rise after Bitcoin extended its gains for a fifth consecutive session, with the digital asset reaching levels not seen in about nine months. Marathon Digital (MARA US) +5.6%, Riot Platforms (RIOT US) +8% and Coinbase (COIN US) +4.2% Energy stocks decline as investors’ concern about the banking system spur broad risk aversion and drag crude prices lower. Exxon Mobil (XOM US) slid 1.3%, Chevron (CVX US) -1.1%, Occidental Petroleum (OXY US) -1.1%. For those who were lucky enough to be away from their computers this weekend, this is what you missed: Credit Suisse shareholders will receive 1 share in UBS (UBSN SW) for 22.48 shares in Credit Suisse which reflects a merger consideration of CHF 3bln and that FINMA determined that Credit Suisse’s additional tier 1 capital in the aggregate nominal amount of around CHF 16bln will be written off. Credit Suisse also told staff in a memo that the details of the transaction are being worked through and no disruption to client services is expected, while it told staff there will be no changes to payroll arrangements and bonuses will still be paid on March 24th. UBS said the company will suspend share buybacks and that they did not initiate the discussions but believe the transaction is financially attractive to UBS shareholders and are planning to de-risk and downsize Credit Suisse’s investment banking operations. UBS also noted its strategy is unchanged in US and APAC and said that Credit Suisse is quite complementary to the wealth business in Southeast Asia. Furthermore, Colm Kelleher will be Chairman and Ralph Hamers will be Group CEO of the combined entity, while the transaction is not subject to shareholder approval and there is a material adverse change clause on the Credit Suisse deal. SNB said it is providing substantial liquidity assistance to support the UBS takeover of Credit Suisse and the takeover was made possible with the support of the Swiss federal government, FINMA and SNB, while it added that both banks have unrestricted access to the SNB’s existing facilities. There were also comments from the Swiss Finance Minister that this is a commercial solution and not a bailout, while she noted the cost of bankruptcy to the Swiss economy would have been huge. ECB said it welcomes the swift actions and decisions taken by Swiss authorities and noted that the Euro area banking sector is resilient with strong capital and liquidity positions. ECB’s Lagarde also stated that the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed. BoE said it welcomes the comprehensive actions by the Swiss authorities to merge UBS and Credit Suisse, while it has been engaging with international counterparts throughout preparations for the announcement. Furthermore, it stated that the UK banking system remains safe and sound and is well-capitalised and funded. Fed Chairman Powell and US Treasury Secretary Yellen said they welcome the announcements by Swiss authorities to support financial stability and noted the capital and liquidity positions of the US banking system are strong and US financial system resilience is strong. Furthermore, they have been in close contact with international counterparts to support their implementation. At least two major banks in Europe are examining scenarios of contagion potentially spreading across Europe’s banking sector and looking to the Fed and ECB to step in with stronger signals of support, according to Reuters citing executives with knowledge of the deliberations. Banking stocks and bonds plummeted after UBS Group sealed a state-backed takeover of troubled peer Credit Suisse, a deal that was shoved down Credit Suisse investors' throats - literally - in an attempt to restore confidence in a battered sector. The Federal Reserve and five other central banks announced coordinated action on Sunday to boost liquidity in US dollar swap arrangements. The Fed’s next policy decision is due later this week, with market attention on whether it may slow or pause interest-rate hikes. UBS emerged as Switzerland’s one and only global bank, a risky bet that makes the Swiss economy more dependent on a single lender. Credit Suisse told staff its wealth assets are operationally separate from UBS for now, but once they merged clients might want to consider moving some assets to another bank if concentration was a concern. The rudest shock in the rushed deal was reserved for the holders of Credit Suisse's riskiest tranche of bonds. UBS is salvaging the most value from the wreckage, says Breakingviews columnist Liam Proud. Hedge fund managers and other large investors believe it is far too soon to call an all-clear on turmoil in the global financial sector. Amid the endless turmoil, the KBW Bank Index plunged 28% over the past two weeks, with financials rattled by concerns over Credit Suisse as well the recent failures of Silicon Valley Bank and two other US lenders. Gains in tech stocks have helped support the overall market, however, as investors look for a safe haven. "The turmoil still has at least a couple of days to play out, and only the Fed can come in and calm that,” Chris Beauchamp, chief market analyst at IG Group Holdings Plc, said on Bloomberg Television. He expects the US central bank to hike rates by 25 basis points as a pause would be interpreted by markets as a sign that the stress in banks is bigger than initially thought. “Assuming these banking stresses do not evolve into something more serious, the European Central Bank and the Fed may perceive that they are at or near their objectives with current policy,” said Brad Tank, chief investment officer for fixed income at Neuberger Berman. “The Fed, in particular, is further along in its tightening cycle and should have more flexibility to pause — and markets are indeed pricing for 2023 fed funds rate cuts once again.” Meanwhile, one day after he revealed his shock that stocks remain resilient and just under 4,000 despite calling for a crah for the past 3 months, Morgan Stanley’s Michael Wilson said the stress in the banking system marks what’s likely to be the beginning of a painful and “vicious” end to the bear market in US stocks, adding that the risk of a credit crunch has increased materially. The S&P 500 will remain unattractive until equity risk premium climbs to as high as 400 basis points from the current 230 level, according to the bearish strategist who two weeks ago flip-flopped briefly to bullish before getting rugpulled by the banking crisis. European stocks are higher after reversing the negative knee-jerk reaction to the terms of the UBS takeover of Credit Suisse. The Stoxx 600 is up 0.6% as gains in utilities, miners and consumer products outweigh declines in bank stocks.  European oil stocks declined as investors’ concern about the potential for a global banking crisis spur broad risk aversion and drag crude prices lower. The Stoxx Europe 600 Energy index slid 1%; among oil majors, Shell declined 1.5%, TotalEnergies -1.3%, and BP -0.6%. Smaller producers also dropped with Harbour Energy falling 5.7% and Tullow Oil -7.7%. Here are the biggest European movers: UBS shares drop as much as 16%, the most in eight years, after a government-brokered deal for it to buy rival Credit Suisse prompted a slew of downgrades Deutsche Bank declines 11%, ING -9.6%, Commerzbank -9.6%, Standard Chartered -8.7%, BNP Paribas -9% following UBS’s agreement to buy Credit Suisse El.En shares slide as much as 9.6% after Berenberg downgrades the laser- equipment maker to hold from buy, saying the company has a “tough year ahead” JM AB falls as much as 7.7% after DNB Markets gave the Swedish construction and building management company its sole sell rating in reinstated coverage Centamin shares rise as much as 6.6%, Endeavour Mining up as much as 7.2% and Fresnillo rises as much as 4.1% as gold gains owing to haven demand amid banking concerns Earlier in the session, Asian stocks declined as the UBS takeunder failed to quell investor concerns about the health of the global financial system.  The MSCI Asia Pacific Index fell as much as 1.4%, reversing most of its gain from Friday, with tech and financial names among the biggest drags. Hong Kong gauges led losses in the region as financial stocks including HSBC and AIA Group fell due to worries over risky bond exposures.  While the takeover of Credit Suisse is seen to reduce the immediate systemic risk for the banking sector, investors are worried over further repercussions from its bonds. Traders are also focused on the Federal Reserve’s rate decision later this week. “Even with the rescue plans over the weekend, it is hard to predict what will happen in the near future,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. “The measures to restore confidence in banks and to tame inflation go in opposite directions, and the dilemma is reducing risk appetite in the stock market.” China’s onshore equity benchmark erased earlier gains even after its central bank unexpectedly cut the reserve requirement ratio late Friday.  The PBOC’s announcement timing “seems to fall in line with recent global banking jitters, which suggests that the PBOC is on high alert to provide any cushion against any knock-on impact from recent turmoil,” said Jun Rong Yeap, market strategist at IG Asia In FX, the Bloomberg Dollar Spot Index steadied, erasing a decline of as much as 0.2% earlier while the Japanese yen is the best performer among the G-10’s. The New Zealand dollar is the weakest. Australia and New Zealand’s currencies flipped to losses amid souring risk sentiment. “Traders are looking for haven assets again with bank stocks falling, and worries about CoCo bonds gaining momentum,” Mingze Wu, a foreign exchange trader at StoneX Group, said of contingent convertible bonds. “The insistence of the Swiss National Bank to make the UBS-Credit Suisse deal happen suggests the rot was deeper and greater than they might have thought, and the dollar is an obvious beneficiary of this rush to safety” In rates, the nervous start to the trading week prompted a flight to safety, with German and UK government bonds rallying. 2-year TSY yield fell as much as 21bps to 3.63%, while its 10- year peer slid to as low as 3.29%, the lowest since September; traders bet on 15bps of Fed hikes this week but eased tightening beyond by as much as 12bps, pricing 105bps of cuts from the peak in May through to year-end. Bund futures are off their best levels but still in the green with 10-year yields down 4bps while two-year yields fall 8bps. In commodities, oil prices fell again with West Texas Intermediate briefly plunging below $65 a barrel, as escalating investor concerns about a global banking crisis eroded appetite for risk assets including commodities. Gold steadied, after rising above $2,000 an ounce for the first time in a year. Bitcoin remains bid and has extended comfortably above the USD 28k handle for the first time since June, though is yet to convincingly breach USD 28.5k to the upside. There is nothing scheduled on the macro calendar today but there will be plenty of bank related newsflow. Market Snapshot S&P 500 futures down 0.1% to 3,943.50 MXAP down 1.1% to 155.86 MXAPJ down 1.4% to 498.89 Nikkei down 1.4% to 26,945.67 Topix down 1.5% to 1,929.30 Hang Seng Index down 2.7% to 19,000.71 Shanghai Composite down 0.5% to 3,234.91 Sensex down 1.3% to 57,214.31 Australia S&P/ASX 200 down 1.4% to 6,898.51 Kospi down 0.7% to 2,379.20 STOXX Europe 600 up 0.6% to 438 German 10Y yield little changed at 1.95% Euro down 0.3% to $1.0641 Brent Futures down 3.8% to $70.18/bbl Gold spot up 0.8% to $2,005.59 U.S. Dollar Index up 0.17% to 103.88 Top Overnight News from Bloomberg The Federal Reserve and five other central banks announced coordinated action Sunday to boost liquidity in US dollar swap arrangements, the latest effort by policymakers to ease growing strains in the global financial system. UBS Group AG shares slumped Monday as investors digested the news of its historic acquisition of rival Credit Suisse Group AG and began to assess the job of integrating the troubled Swiss lender. The riskiest bonds of European lenders are plunging after holders of Credit Suisse Group AG’s contingent convertible securities suffered a historic loss as part of its takeover by UBS Group AG. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were on the back foot amid ongoing banking sector jitters despite the announcement that UBS will take over Credit Suisse in an emergency rescue valued at CHF 3bln which would wipe out CHF 16bln of additional tier 1 bonds. ASX 200 extended its retreat from a recent break beneath 7,000 with declines led by weakness in the energy, real estate,  consumer and financial sectors, although gold miners were boosted after last week’s climb in the precious metal. Nikkei 225 was pressured amid the banking sector woes and after the BoJ’s Summary of Opinions provided little in the way of new information whereby it reiterated that the BoJ must patiently maintain monetary easing. Hang Seng and Shanghai Comp. were varied with Hong Kong underperforming on broad weakness across sectors, while the mainland was kept afloat for most of the session after Friday’s surprise RRR cut by the PBoC in an effort to boost liquidity and support the economy, but opted to maintain its benchmark lending rates. Top Asian News PBoC 1-Year Loan Prime Rate (Mar) 3.65% vs. Exp. 3.65% (Prev. 3.65%); 5-Year Loan Prime Rate (Mar) 4.30% vs. Exp. 4.30% (Prev. 4.30%) PBoC warned the collapse of Silicon Valley Bank shows rapid monetary policy shifts in developed economies are having a hazardous impact on financial stability, according to Bloomberg citing comments from Deputy Governor Xuan. PBoC adviser Cai said China needs household stimulus to boost the recovery and noted that residents' incomes have not grown well in the past few years, so the recovery in consumption is not enough to support economic growth, according to Caijing. Russian President Putin said he expects total trade volume with China to exceed USD 200bln this year and it is important to increase the share of trade with China conducted in national currencies, according to Reuters. WHO advisers urged China to release all information related to the origin of the COVID-19 pandemic after new findings were briefly shared on an international database to track pathogens, while they recommended researchers in China investigate upstream sources of animals and animal products present in the Huanan Market before January 1st 2020, according to Reuters. BoJ Summary of Opinions from the March meeting stated that the BoJ must patiently maintain monetary easing until the price target is achieved and the BoJ must scrutinise without any preset idea the state of market function but must maintain easy policy at present. Furthermore, it stated the BoJ must focus on the risk of losing the chance to meet the price target with a premature policy shift, rather than the risk of being too late in shifting policy and must be mindful of the risk inflation may overshoot expectations. European bourses are mixed/flat, as marked banking-led pressure has eased throughout the morning following the initial reaction to the UBS-Credit Suisse merger. On this, Credit Suisse and UBS opened lower by over 60% and 8% respectively, but have since eased off lows with the broader SX7P index now ~2% lower vs downside of over 5% at worst. On the merger, attention is on Credit Suisse's AT1 bonds being written off; a detail which pressured such bonds in APAC trade, with HSBC for instance a notable initial laggard on this. Since, we have seen European regulators reiterate  that CET instruments are the first to absorb losses, with AT1 only required after their full use. Stateside, futures are in similar proximity to the unchanged mark given the above as participants await updates around  First Republic and look ahead to the FOMC. Top European News BoE's plans to revamp bank capital rules risk a 25% reduction in lending to small businesses which threatens jobs and economic growth, according to a study by consultants Oxera cited by FT. PoliticsHomes' Payne reminds that DUP MPs meet today to discuss their stance on Wednesday's Windsor Framework vote, expected to announce their stance on Tuesday. Moody’s affirmed Greece at Ba3; Outlook revised to Positive from Stable and affirmed Luxembourg at AAA; Outlook Stable, while S&P affirmed Belgium at AA; Outlook Stable. FX The DXY has struggled to benefit from the subdued start to the session, with the index near the mid-point of 103.68-103.96 parameters for much of the morning. Given the tone, the JPY is the standout outperformer with USD/JPY down to 130.55 vs 132.64 peak; though, given the relative pickup in equity performance USD/JPY is now holding above 131.00. Despite the subdued risk tone, CHF is the underperformer as the market's focus remains on Credit Suisse/UBS; USD/CHF above 0.93 and EUR/CHF above 0.99. Given their high-beta status, the Antipodeans are also faring poorly with RBA minutes and Kiwi trade data scheduled ahead. Elsewhere, peers are comparably more contained with EUR/USD holding above 1.0650 and Cable near 1.22. PBoC set USD/CNY mid-point at 6.8694 vs exp. 6.8701 (prev. 6.9052) Fixed Income EGBs and USTs are benefitting from marked haven demand, with Bunds over 140.00 and USTs nearing 117.00 at best, though the benchmarks have eased from highs as equity sentiment improves. Specifically, Bunds soared to a 140.30 peak vs 137.10 low, but have since pulled back to just below 140.00 as the associated 10yr yield slipped to a 1.92% intraday low. Stateside, USTs are similar in both direction and magnitude with yields lower across the curve and action more pronounced in the short-end currently; as it stands, market pricing via Reuters is leaning towards the Fed leaving rates unchanged on Wednesday, with around a 40% chance of a 25bp hike implied. Commodities WTI and Brent are lower intraday given the broader risk tone and while they are off lows, are yet to stage a 'recovery' akin to that seen in equities; currently, the benchmarks are lower by circa. USD 2/bbl just above USD 64.12/bbl and USD 70.12/bbl respective lows. Spot gold surpassed USD 2000/oz, but failed to hang onto the level as the DXY makes its way back into positive territory and broader sentiment improves slightly while base metals are moving with equity sentiment and as such are turning incrementally firmer on the session. Iraq’s Oil Minister said his country is committed to OPEC’s agreed production rates and obliged some oil companies' operations in the south to cut production to come in line with OPEC’s agreed rates, while it was also reported that Iraq and OPEC stressed the importance to coordinate to stabilise prices, according to Reuters. Iran set April Iranian light crude oil price to Asia at Oman/Dubai plus USD 2.50/bbl, according to Reuters. India plans to extend export restrictions on diesel and gasoline beyond March 31st, according to Reuters sources. TotalEnergies (TTE FP) said 34% of operational staff at its refineries and depots conducted a strike on Sunday morning in protest against the government’s move to raise the retirement age by two years, according to Reuters. Kuwait Oil Company declares a state of emergency re. an oil spill located in west Kuwait; production unaffected. Geopolitics Russian President Putin visited Crimea on the 9th anniversary of its annexation from Ukraine and also visited Mariupol in the occupied Donetsk region of Ukraine, while he also met with the top command of Russia’s military operation in Ukraine at the Rostov-on-Don command post in southern Russia, according to Reuters. Russian President Putin said the visit by Chinese President Xi confirms the special character of the Russian-Chinese partnership and Russia is pinning big hopes on the visit, while he added Russia is expecting a powerful impulse to relations and that relations are at their highest ever point. Putin also said there are no limits or forbidden subjects in relations with China and he is grateful for China’s balanced line on events in Ukraine, as well as welcomes China’s willingness to play a constructive role in solving the Ukrainian crisis. Furthermore, Putin said that they are worried about dangerous actions that could undermine global nuclear security and Russia is open to a diplomatic settlement of the Ukraine crisis but rejects ultimatums, according to Reuters. Chinese President Xi said China has always taken an objective and impartial position on the situation in Ukraine and has made efforts to promote reconciliation and peace negotiations, according to Rossiiskaya Gazeta. ICC judge issued an arrest warrant for Russian President Putin over alleged war crimes related to ‘unlawful deportation’ of Ukrainian children, according to The Guardian. It was also reported that German Chancellor Scholz said ICC is an important institution that has been given a mandate through international treaties and noted that nobody is above the law which is becoming clear now, according to Reuters. Ukrainian President Zelensky’s Chief of Staff and several top security officials including the Defence Minister held a call with US counterparts to discuss military aid for Ukraine, according to Reuters. Ukrainian Infrastructure Minister said the Black Sea grain deal has been extended for 120 days which is longer than the 60-day touted by Russia, while a UN spokesman confirmed the extension of the export deal but didn’t specify the length of the renewal, according to Reuters. EU foreign policy chief Borrell said an agreement was reached on ways to implement an EU-backed deal on normalising ties between Serbia and Kosovo, while he added that the sides agreed to implement their respective obligations in good faith. Saudi Arabia’s King Salman invited Iranian President Raisi to visit Riyadh, while it was also reported that Iran’s Foreign Minister agreed to hold a meeting at the foreign minister level with Saudi Arabia and said that Iran has declared a readiness to reopen embassies. In other news, Iraq and Iran signed a deal to tighten their border security. South Korea said that North Korea fired a short-range ballistic missile off the east coast into the sea on Sunday which flew 800km before hitting a target and is a clear violation of the UN Security Council resolution. In relevant news, G7 foreign ministers said they regret inaction by the UN Security Council regarding North Korea’s missile tests and that the March 16th ICBM launch undermines international peace, according to Reuters. North Korea confirmed it conducted exercises aimed at improving tactical nuclear capability on March 18th-19th and said the US and South Korea are expanding joint military drills aimed at North Korea involving US nuclear assets and its exercises are meant to send strong warnings against US and South Korea. Furthermore, North Korean leader Kim said the country should be ready to conduct nuclear attacks at any time in a deterrence of war, according to KCNA. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap This weekend felt like being transported back into 2007-2008 in many respects with a race-against-time deal between UBS and Credit Suisse being put together in full view of the market. The most remarkable thing about yesterday was the huge swings in Credit Suisse AT1s on a Sunday. Clips of the $17.3bn of outstanding CS AT1 bonds seemed to trade at both ends of a mid-20s to around 70c range as the outline of the UBS deal filtered through. It was eventually a shock that the AT1s were zeroed in the deal even as UBS eventually bought CS for $3.3bn, a firmly positive number. This was however less than half what they were worth at the close on Friday and down 99% from their peak pre-GFC. The decisions to wipe out AT1 bondholders is going to be the biggest issue medium and longer-term for the European banking sector, especially when the company was bought with a positive value yesterday. It's hard to argue with the morals of it but it will likely increase the cost of capital for banks which could lead to an additional tightening of lending conditions. So that c.$17bn of debt destruction could eventually be worth multiples of that to the wider European economy and in other regions too. Selected Asian AT1 securities are trading around 5-10% down as we type and HSBC equity is around -6% in Hong Kong so this serves as a benchmark for the European banking open. The good news at the macro level is that the CS situation has been dealt with and there are no obvious European next shoes to drop at this stage. CS had been decoupled from the rest of the continents' banking sector for months now and therefore was by far and away the weakest link when the US regional banking woes began less than 2 weeks ago. So the market has now got to balance the reduction of systemic risk with the likely higher cost of some forms of bank capital. There will also be nervousness as to how easy it was to change laws and market conventions in order to get this deal done. Some risk premium will surely be factored in to the cost of capital for the sector now. Meanwhile, in a coordinated global response, the Fed in a statement along with five other central banks - including the BOE, the BOJ, the ECB and the SNB - last night announced that they would enhance dollar swap lines i.e., to increase the frequency of swap line agreements from weekly to daily, beginning March 20 and will continue “at least” through the end of next month. In doing so, the central banks indicated that the move would serve as an “important backstop” amid financial market unease, thereby helping to keep credit flowing to households and businesses. Overall, Asian equity markets have started the week on a weaker footing with the Hang Seng (-2.56%) leading losses across the region, with the Nikkei (-1.01%) and the KOSPI (-0.46%) also dipping in early trade. Elsewhere, stocks in mainland China are bucking the regional negative trend with the CSI (+0.12%) and the Shanghai Composite (+0.12%) both trading slightly higher. Note their was a 25bps RRR cut on Friday. Outside of Asia, US stock futures tied to the S&P 500 (+0.12%) and NASDAQ 100 (+0.23%) are relatively flat which helps after the weekend news but then again as you'll see from the weekly review at the end the S&P 500 was higher last week in the face of incredible turmoil elsewhere. Meanwhile, yields on 10yr US Treasuries are stable while 2yr yields (+2.92bps) briefly touched 4% before sliding back to 3.87% as we go to press. Moving forward, it's hard not to have sympathy for the Fed this week. Any criticism of their policy should probably be more directed to the actions of 2020-2021 for keeping policy excessively too loose as government spending, money supply and inflation was surging. Today they are in a catch-22 position where the excesses of those days (and earlier) are now unravelling while inflation is still way above target. Their rate decision on Wednesday will be the undoubted non-banking related highlight of the week but we will also have the BoE meeting (Thursday), UK CPI (Wednesday), Japan CPI (Thursday), flash global PMIs (Friday) which might capture a small amount of the turmoil period, and importantly Chinese President Xi Jinping will be in Moscow from today to Wednesday. After the FOMC, it will be the BoE's turn on Thursday to decide on rates. Our UK economists preview the meeting here and expect a final +25bps hike as well as likely dovish forward guidance amid concerns over overtightening risks. The decision will follow a host of UK inflation data released on Wednesday. Also on Thursday markets may follow the SNB meeting more closely than usual following this week's turmoil around Credit Suisse. Aside from several monetary policy decisions, there will also be a plenty of central bank speakers, especially from the ECB, including President Lagarde (twice), following last week's +50bps hike. In the US, aside from the PMIs investors will also get durable goods orders (DB forecast -0.5% vs -4.5% in January) on Friday and a host of regional Fed indicators throughout the week to gauge economic sentiment. Housing market data including existing home sales (tomorrow) and new home sales (Thursday) are also due. Over in Europe, other key data will include the PPI (today) and the ZEW survey (tomorrow) for Germany, Eurozone consumer confidence on Thursday and UK consumer confidence and retail sales on Friday. Moving on to Japan, the key release will be the CPI report on Thursday. Our Chief Japan Economist (full preview of the week ahead here) expects government subsidies for electricity and gas to weigh on core CPI inflation (3.2% vs +4.2% in January) but core-core CPI ex. energy to pick up 3.4% (3.2%) but reach its peak for the cycle. Looking back on a tumultuous last week now. On Friday, with market volatility already elevated from the growing concerns around the global financial system the preliminary University of Michigan sentiment survey dropped -4.6pts to 63.4. That was just the second monthly drop since last June, and the lowest reading since December. The declines pre-dated the SVB collapse. If one wanted to find a positive in the report inflation expectations were lower with 5-10yr expectations down to 2.8% (2.9% expected), while the 1yr inflation expectation was 3.8% (4.1% expected). That’s the lowest 1yr expectations have been since April 2021. That was just the last link in a chain of market moving events last week that repriced Fed futures across the curve. Expectations for a 25bps hike at the March meeting is now at just 60% with a 15.0bp hike priced in. That is down -18.3bps on the week and -4.2bps on Friday, as well as -27.8bps since Powell’s testimony before the Senate Banking Committee the week before last. At the same time, the expected terminal rate ended the week at 4.794% by the May meeting after starting the week at 5.285% at the June meeting and being as high as 5.691% at the September meeting on the prior Wednesday before the SVB news broke. Futures are also now pricing in nearly -96bps of rate cuts by year-end after starting the week with -40bps of cuts priced. 10yr Treasury yields fell back another -14.8bps on Friday and -27.0bps over the course of the week to their lowest level since early-February at 3.429%. The 2yr yield saw a much bigger move, coming down -74.9bps last week (-32.0bps on Friday) to their lowest level since September 2022. On this side of the pond, 10yr bund yields fell back -40.0bps (-18.2bps on Friday) last week to 2.108%, its lowest point since the first week of February. The 2yr bund yield fell by -71bps last week (-22.0bps Friday) in its most significant weekly down move since September 1992. While sovereign bonds outperformed last week, US equities whipsawed with a large amount of dispersion. Even though the S&P 500 closed the five days higher, US banks continued to selloff with the KBW bank index down -14.55% last week (-5.25% Friday), with major banks like JPM (-5.87%), BofA (-8.09%), Citi (-8.46%), and GS (-7.26%) outperforming while the regional bank ETF KRE was down -14.30% last week. With CS seeing pressure from a lack of depositor and investor confidence, the SNB offered the Swiss bank a 50bn franc credit line. However this was not enough to stop the stock from ending the week -25.48% lower (-8.01% Friday), while European Banks at large were down -13.40% (-2.72% Friday) leaving the index up just +1.2% YTD. The STOXX 600 was down -3.85% week-on-week (-1.21% on Friday), whilst the CAC and DAX fell -4.09% (-1.43% on Friday) and -4.28% (-1.33% on Friday) respectively. With risk markets selling off, credit spreads widened significantly on the week once again. The Euro Crossover HY CDS index was +66.7bps wider (+18.8bps wider Friday) and EUR IG CDS +18.1bps wider on the week (+3.8bps Friday). EUR HY CDS is now +18.9bps wider YTD, with EUR IG +9.9bps wider since the start of the year. US credit also significantly widened again as the US HY CDS index was +31.6bps wider (+26.8bps Friday) with IG +4.8bps wider following a +5.1bps move on Friday. The weekly widening has left USD HY CDS +45.7bps wider YTD, while US IG CDS was +5.8bps wider YTD. Finally in commodities, industrial inputs sold off as recession fears rose. Brent crude fell back -11.85% (-2.32% on Friday) and WTI was down -12.96% (-2.36% on Friday), meanwhile European natural gas futures reversed the prior week’s significant rally with energy prices falling -18.92% week-on-week (-3.35%). Copper was down -3.26% (+0.72% Friday) while the overall Bloomberg Commodity index was down -1.87% (-0.16% Friday). With the risk-off tone throughout markets, Gold was a notable outperformer with the precious metal up +6.48% on the week (+3.63% Friday) in its best weekly performance since Covid to close at its highest level in a year at $1989/oz. Tyler Durden Mon, 03/20/2023 - 08:03.....»»

Despite aligning himself with Ukraine-skeptical Republicans, Mills' company has sold weapons to Ukraine and other foreign governments. Rep. Cory Mills.Tom Williams/CQ-Roll Call, Inc via Getty Images Mills arrived in Congress with grenades and cast himself as a champion of local law enforcement and munitions manufacturer. An Insider review found that his company has sold to foreign governments, including a $228 million dollar contract. Mills has refused to publicly disclose his foreign dealings or even confirm who owns the company. Cory Mills landed in Congress like a grenade.Literally: At the start of this term, the freshman Republican from Florida handed out 40 mm grenades stamped with a GOP elephant to congressional colleagues."I am eager to get to work with you on behalf of the American people," he wrote in an accompanying note.The grenades were inert. But the stunt was in line with the type of guns-blazing, America-first rhetoric that Mills, an arms dealer, decorated Army combat veteran, and former military contractor, deployed during his campaign in Florida's 7th congressional district.—Morgan Phillips (@_phillipsmorgan) January 26, 2023Mills, a co-founder of munitions manufacturer and security contractor Pacem Solutions, positioned himself as a defender of police departments under attack from the "woke" Biden administration. In a 2022 campaign ad, Mills said he "backs the blue" and bragged that his company sold the tear gas police used to suppress recent racial justice and abortion-rights protests. What Mills didn't advertise was Pacem's munitions contracts with foreign governments. Instead, Mills has refused to publicly disclose his connections and dealings with powers abroad while at the same time sitting on two committees overseeing foreign affairs and military spending — as well as wielding the power to vote on foreign arms deals.An Insider examination of his business dealings, though, found that Pacem has had deep ties to foreign governments and is struggling financially.Pacem has repeatedly courted munitions deals with foreign governments over the course of its nearly decade-long existence. A Saudi government-affiliated national security expo promoted Pacem as one of its featured vendors in 2019, with Mills's face posted across the event's social media pages. Pacem also exhibited in Abu Dhabi that same year, at one of the largest weapons shows in the world. A representative for Mills refused to disclose all of the countries Pacem has sold munitions to. But Insider was able to identify multiple foreign buyers. In one major contract from 2015, Pacem and a partner U.K. munitions firm inked a $228 million arms deal with Iraq. Mills confirmed that deal, saying it was facilitated by the U.S. Department of Defense and wasn't entirely paid out. A member of the Iraqi security forces carries his weapon in the center of Fallujah, Iraq, in 2016, after ISIS was pushed from the city.Reuters/Thaier Al-SudaniPacem has sold munitions to Ukraine and Colombia in recent years, according to three sources familiar with the matter, though it's unclear if those sales are continuing.A spokesperson for Mills did not respond to repeated requests for a full accounting of the congressman's foreign dealings through Pacem. The company's chief legal officer Joseph Schmitz said all of Pacem's foreign munitions sales are approved by the Department of State.Although Mills told Insider he has divested from the company, he and his wife are still listed as executive chairs on the websites of Pacem Solutions and its subsidiary Pacem Defense. Schmitz refused to tell Insider who owned the company, but said Mills is no longer the owner. Mills's influence over American military spending while having ties to a munitions company poses the potential for conflicts of interest, an ethics watchdog said."It's an obvious conflict of interest, a no-brainer to anyone with common sense," said Don Sherman, the senior vice president of Citizens for Responsibility and Ethics in Washington, a left-leaning nonprofit advocating for government ethics reform. Schmitz said that Mills's ties to Pacem are "being vetted" by the House Ethics Committee. "Everything is above-board," he told Insider. The ethics committee's general counsel declined to confirm whether it is currently working to resolve Mills's relationship with Pacem.Pacem's troubled historyAn explosion ripped through the humid air of a small Florida panhandle town mid-morning on September 14, 2018. Employees at Amtec Less-Lethal Systems, a riot control munitions manufacturer in Perry, Florida, had been assembling flash-bang strips. The blast, which federal workplace safety inspectors indicated was possibly caused by static electricity leaping onto explosive powder, immediately killed one worker and injured another so severely that he died the next week. One month later, Pacem Defense bought the business for $10 million. The explosion loomed over the start of Pacem's ownership of the facility. Repercussions from the incident have contributed to a slew of financial troubles dragging Pacem down. Mills's involvement in the defense and munitions world evolved out of his years in the armed forces and work as a private military contractor. He served in the US Army from 1999 to 2003, according to his discharge paperwork. During that time he was sent to Kosovo and Iraq, and was awarded the Bronze Star.Mills later spent four years as a military contractor for Dyncorp, where he worked in Iraq and Afghanistan, according to his LinkedIn profile. On the campaign trail and in media interviews he has described being "blown up twice" while on assignment there. He subsequently worked for federal contractors Chemonics International and Pax Mondial Ltd., before striking out on his own.In 2014, Mills and his wife Rana Al Saadi, an Iraqi refugee who came to the US in 2008, founded Pacem. Mills described Pacem to Insider as a "turnkey solution," which encompasses global threat analysis, security services contracting, weapons sales, and training.The company appeared intent on quickly establishing a global footprint in the years after its founding. Pacem "delivered millions of defense products around the world to some of the most challenging regions," including explosive cartridges for use in grenade launchers, according to a press release it issued in 2018. Early archived copies of Pacem Solutions's website mention work with international development groups like USAID and showed pictures from Ukraine, Pakistan, and Iraq, among other places. Another archived page showed Pacem with offices in Kabul, Baghdad and Islamabad.But since the acquisition of Amtec, Pacem appears to have lost value. Pacem Solutions and Pacem Defense are together now worth anywhere between $10 million down to just $2 million, according to a financial disclosure Mills filed in January – equal to or less than the price Pacem paid for Amtec alone.  The Amtec explosion, which workplace safety inspectors concluded was caused by inadequate safety controls, cost Pacem. Mills said the explosion, which occurred before Pacem acquired the company, underscored the need for a thorough intervention into Amtec's processes and facilities. Pacem poured at least $2 million into facility upgrades, Mills told a local news outlet, including improvements related to the explosion."We bought it knowing the company had issues, then we had our engineers redesign certain products that were not working well," Mills told Insider. Financially, COVID also "slowed things down tremendously," he added. In a statement, Mills's spokesperson also said Pacem didn't lay off any employees and gave small raises during the pandemic.Pacem is also loaded with debt: It owes $48 million to a Canadian lender, nearly five times the company's highest potential valuation. Mills said the loan is funding research and development.There are additional issues that have dogged the company. In the past two years, the munitions plant has been forced to shut down twice for failing to pay workers' compensation insurance premiums, according to Florida's Department of Workers Compensation. Schmitz, Pacem's chief legal officer, confirmed the shutdowns but claimed the missed worker's compensation payments were an accidental oversight. Money woes aren't Pacem's only problem. In December 2020, the company blew up or burned several boxes of hazardous waste, according to two people familiar with the incident and a report from the Florida Department of Environmental Protection. The agency cited Pacem for improper storage and disposal of the waste.Schmitz, the company's chief legal officer, told Insider that Pacem self-reported the incident and that it wasn't a "big deal," with "no environmental impact."International arms traderMills's congressional campaign played up Pacem's contracts with local law enforcement, claiming that the "liberal media is crying" about the company supplying tear gas that was used against racial justice protesters. These local law enforcement contracts represent the bulk of Pacem's client volume, Mills told Insider.But a review of Pacem's contracts suggests its dealings with law enforcement are relatively small-dollar. The company sold roughly $1.3 million worth of tear gas to police departments between 2018 and mid-2021, it reported to a congressional oversight committee. The company sells other products to police departments, like flash bangs, that Congress didn't ask about.The size of those hundreds of tear-gas transactions pales in comparison to just one foreign arms deal identified by Insider.  In 2015, Pacem, in partnership with UK weapons dealer Chemring, signed a contract with the Iraqi government worth $228 million. The deal would have represented nearly 2.5% of the country's entire military expenditures that year, according to data from the Stockholm International Peace Research Institute, which tracks military spending. A Marine Corps Lance corporal carries 40 mm grenades of the type manufactured by Pacem.Cpl. Victoria Ross/US Department of DefensePacem never received the full value of the contract, Mills said, which was intended to provide "certain types of support in launching counteroffensives against ISIS to drive them out of Iraq," he said. ISIS was pushed out of key Iraqi cities before the contract was supposed to close, according to Mills. In 2016, an Iraqi auditing agency raised questions about whether it had overpaid for Pacem's services. Iraq's interior ministry "accepted the pricing and the specs supplied by the company for the product, without forming a technical committee, or asking any of the official trusted consultants to write up specs and details of pricing that are up to date before moving forward to the contract procedure," Iraq's Federal Board of Supreme Audit wrote. Mills said the contracting process was above-board and overseen in part by the U.S. Department of Defense.Pacem's overseas presence extends past the Iraq deal. The company has an office in Dubai, and in 2015 also had offices in Islamabad and Kabul, according to an archived version of Pacem's website. Mills's wife, Rana, who is described on Pacem's website as the company's executive chairwoman, is the CEO of another Dubai-based company, Abdeen DMCC, according to her LinkedIn page. It's not clear what Abdeen does, and Rana did not respond to questions about Pacem's ownership or Abdeen DMCC.On its website, Pacem says it is "registered" to "legally work" in Afghanistan, Pakistan, Kurdistan, Iraq, Ukraine, Kenya, Somaliland, Nigeria, the Democratic Republic of Congo, Brazil, Malaysia, and Dubai. Pacem appeared at the 2019 Saudi National Security and Risk Prevention Expo, an arms and defense sales convention, and the same year was an exhibitor at IDEX, a massive five-day weapons show in Abu Dhabi.In addition to selling munitions to Ukraine and Colombia, Pacem's rubber bullets also ended up in Hong Kong. Police, acting to quell pro-democracy protests in 2019 against Beijing's growing control over the territory, fired Pacem's "rubber rocket" munitions against demonstrators, according to the Miami New Times. Pacem appears to have invested in the Amtec facility at least in part to manufacture weapons for sale abroad, not at home. Mills wrote to a federal regulator in 2019 that he had upgraded Pacem's munitions plant in order to "manufacture a new energetic product that will serve our allies around the world."Before Pacem bought Amtec, Amtec had delivered on contracts for ammunition worth about $5.6 million with federal agencies, including the Defense Department and Bureau of Prisons. Since the acquisition closed in 2018, Pacem has only delivered $314,110 worth of munitions and consulting services to the U.S. government, according to a federal contracting database. Some federal contracts are classified and may not be disclosed.In Congress, Mills sits on the House Foreign Affairs and Armed Services committees, which oversee military spending and foreign weapons sales. Mills's oversight role "could have a huge impact on his business, his competitors writ large," Sherman said. But as it stands, there is no requirement for him to reveal the extent of his dealings with foreign governments. The arms dealer in CongressMills leaned heavily on his endorsement from former president Donald Trump during his congressional campaign. Echoing Trump's election denial and anti-immigrant views, he voiced support for a temporary ban on immigration to the United States and told the Orlando Sentinel that he didn't view the Biden administration as legitimate. In Congress, Mills has sought to position himself as someone who understands American involvement in foreign conflicts from the ground up and align himself with Republicans who are skeptical of US military involvement abroad. He has excoriated the Biden administration for what he's described as its botched withdrawal from Afghanistan, and opposed additional American aid to Ukraine.Before he was even sworn in, Mills appeared alongside Reps. Marjorie Taylor Greene and Matt Gaetz at a December 2022 press conference touting a resolution to audit US funding for the war in Ukraine."We should not go around thinking that we're always the world's police, and have the answers," Mills said at the press conference, warning of the potential for "nuclear escalation" in Ukraine and an "axis of evil" between Russia, China and Iran.Mills also recently voted for an ill-fated resolution sponsored by Gaetz that would've ordered President Biden to withdraw US troops from Syria, joining a coalition of intervention-skeptical Republicans and progressives.He's also waded into the culture wars, introducing a bill aimed at preventing the supposed distribution of sexual material in schools.But so far, months into his freshman term, he's still best known for his grenades.Read the original article on Business Insider.....»»

The Biden Administration threatened a nationwide ban on the video-sharing app unless its Chinese owners promised to sell their stake in the company The contentious debate over TikTok’s future reached a new peak on Wednesday after the Biden Administration threatened a nationwide ban on the popular video-sharing app unless its Chinese owner promised to sell its stake in the company, TikTok confirmed to TIME. The recent divestiture demand was first reported by the Wall Street Journal. The apparent ultimatum by the Committee on Foreign Investment in the U.S. (CFIUS) marks a major escalation by White House officials in the long-running negotiations between the company’s Beijing-headquartered owner ByteDance and federal officials who say that TikTok’s link to China poses a potential national security threat. [time-brightcove not-tgx=”true”] Why does the U.S. want to ban TikTok? Since its launch in 2016, the app has grown in popularity to over 1 billion active users, including more than 100 million in the U.S. But its growth comes with concerns from federal officials and security experts that China’s Communist Party (CCP) could have unlimited access to sensitive data the company collects on Americans. As a Chinese company, ByteDance is subject to a national security law that requires it to turn over data to Chinese authorities on request. “The biggest issue is that users are largely unaware of the true risks of foreign governments using their user data,” says Anton Dahbura, executive director of Johns Hopkins University Information Security Institute. “People would be shocked about how our trails of breadcrumbs from our mobile devices and other platforms can be used in different ways that can be a threat to national security.” The push to ban TikTok in the U.S. is largely led by Republican lawmakers in Congress who are concerned ByteDance could be using user data to track browsing history and location and potentially drive misinformation efforts. Texas Republican Representative Michael McCaul, who is a member of the House Foreign Affairs Committee that sponsored the TikTok ban bill, has said, “Anyone with TikTok downloaded on their device has given the CCP a backdoor to all their personal information. It’s a spy balloon into their phone.” More Democrats, who have not been as vocal about advancing these security measures in the past, are beginning to show their support publicly. TikTok, however, is adamant that the CFIUS’s divestiture demand will not address security concerns. “If protecting national security is the objective, divestment doesn’t solve the problem: a change in ownership would not impose any new restrictions on data flows or access,” a TikTok spokesperson said in a statement to TIME. “The best way to address concerns about national security is with the transparent, U.S.-based protection of U.S. user data and systems, with robust third-party monitoring, vetting, and verification, which we are already implementing.” With political pressure mounting, TikTok CEO Shou Zi Che is set to testify next week on Capitol Hill, where lawmakers from both parties are expected to grill him over the perceived security risks presented by the app. Which countries have already banned TikTok? Several countries have already made the move to cut some level of ties with the platform. In 2020, India imposed a ban against several Chinese-owned apps, including TikTok and WeChat, due to privacy and security concerns amid ongoing tensions at the China-India border. Pakistan has temporarily banned TikTok at least four times, citing concerns that the app promotes immoral content. Afghanistan’s Taliban government banned the app in 2022 for “leading youth astray.” Meanwhile, a number of governments, including Canada, the U.S. and Taiwan, have moved to restrict access to the app on government-issued devices. On Thursday, the U.K. became the latest country to ban TikTok from government devices. What does this mean for TikTok users? Users of the platform are concerned over what a potential ban could mean for them, particularly for the content creators who earn a living from TikTok’s Creator Fund payments and brand endorsements. Top earners on the platform can make up to $250,000 for a sponsored post, according to Forbes. “So who’s gonna tell the Biden administration that some of us have built our literal careers on TikTok and if it gets banned we will actually have nothing?” tweeted one user. So who’s gonna tell the Biden administration that some of us have built our literal careers on TikTok and if it gets banned we will actually have nothing? 🙃 — SpiritualiTEA (@Spirituali__tea) March 16, 2023 With uncertainty over the app’s future, TikTokers have been sharing their grievances on the platform. “Well guys it’s been fun, but it looks like it’s over for us. We’ve learned a lot. We’ve laughed. We’ve cried,” one user says in jest in a video with more than 100,000 views. The video’s top comment reads, “See y’all on VPN Tok,” one of countless comments from users suggesting they’ll attempt to get around a potential ban by using a virtual private network to access the app. @loloverruled 👋🏻 ♬ Danny Boy – The Oh! Sullivans A ban on TikTok could open the door for other companies, such as Meta’s Instagram, to fill the video-sharing void. In October, Twitter CEO Elon Musk said he was thinking about bringing back Vine, the short-form video app that was discontinued in 2019. Will divestment make TikTok more secure? TikTok has been in negotiations with CFIUS about national security requirements for more than two years. Chew, TikTok’s CEO, told the Wall Street Journal on Thursday that a sale of the company won’t solve the American national security concerns over the app. Instead, the social media platform says it has pledged to spend $1.5 billion to safeguard U.S. user data and content from Chinese government access or influence. The plan involves hiring U.S.-based Oracle Corp. to store user data. “I do welcome feedback on what other risk we are talking about that is not addressed by this,” Chew said. “So far I haven’t heard anything that cannot actually be solved by this.” Christopher Goodney—Bloomberg/Getty ImagesShouzi Chew, chief executive officer of TikTok Inc., during an interview at the TikTok office in New York, U.S., on Thursday, Feb. 17, 2022. TikTok has also said that 60% of ByteDance shares are owned by global investors, including the American investment giants BlackRock, General Atlantic and Sequoia. (Like most startups, however, ByteDance’s founders hold a controlling stake in the company.) Chew confirmed to the Journal that ByteDance has been actively thinking about a public offering of TikTok, but added that “there’s no concrete plan right now.” The debate over TikTok’s ownership has turned into a significant flashpoint in the U.S.-China conflict, creating a major challenge for the Biden Administration as it grapples with the new reality of an internet dominated by non-American companies. “It’s not clear to me that the sale itself would do very much,” says Harry Broadman, a former CFIUS official. “But this is opening up a larger debate about what methods will the U.S. government take to safeguard so-called personal information of U.S. citizens. The TikTok issue is a bellwether for that conversation.” “Divestiture is but one path, one instrument that might be used,” Broadman adds. “It’s the obvious option, but the question is: Is that sufficient?” Last week, the White House endorsed a bipartisan bill that would grant the Commerce Department broad authority to ban or limit TikTok and other apps rooted in foreign countries, though efforts to ban a social media platform used by more than 100 million Americans could be challenged under the First Amendment. China’s Foreign Ministry spokesperson Wang Wenbin told reporters on Thursday that the U.S. has yet to provide evidence that TikTok threatens its national security and was using the excuse of data security to abuse its power to suppress foreign countries. “The U.S. should stop spreading disinformation about data security, stop suppressing the relevant company, and provide an open, fair and non-discriminatory environment for foreign businesses to invest and operate in the U.S.,” Wang said. Broadman, who served on CFIUS, said the committee is likely looking at several other options in addition to requiring TikTok’s parent company to sell its ownership stake in the app. One option, he says, is to give TikTok approval for its “Project Texas” plan, which would subject the app to closer government oversight than any U.S. social media company has ever faced. The plan involves hiring U.S.-government-approved employees and board members to run what would be a U.S.-based subsidiary of TikTok. “The question for CFIUS now is whether their decision sets a precedent for the next case that comes before them, whether it’s from China or another country,” Broadman says......»»

A US TikTok ban may be coming if the company's Chinese owners don't sell their stake in the company. The Biden administration is calling on TikTok's owners to sell their stake in the company, the WSJ said.Getty Images The US is threatening TikTok's Chinese owners with a US ban if they don't sell their stakes, according to the WSJ. TikTok has responded saying the forced sale won't address the perceived national security risk. TikTok is considering splitting from ByteDance as a last resort, Bloomberg said. The Biden administration is threatening TikTok's Chinese owners with a potential US ban of the app if they don't sell their ownership stakes in the company, The Wall Street Journal reported Wednesday, citing people familiar with the matter. The demand was recently made by the Committee on Foreign Investment in the US, also known as Cfius, the Journal noted based on the same people's comments. The call on TikTok reflects a notable shift by the Biden administration, which has come under criticism from Republicans for not taking a strong enough stance against the national security threat posed by platform, the Journal noted. TikTok is owned by Beijing-based ByteDance. Approximately 60% of the company's shares are owned by global investors, 20% of its shares owned by its employees, and another 20% of the company's shares belong to the owners — though the owners' shares carry outsized voting rights, the Journal said citing information from TikTok's executives. A spokesperson for TikTok told Insider by email, "If protecting national security is the objective, divestment doesn't solve the problem: a change in ownership would not impose any new restrictions on data flows or access. The best way to address concerns about national security is with the transparent, U.S.-based protection of U.S. user data and systems, with robust third-party monitoring, vetting, and verification, which we are already implementing."Still, TikTok's leadership is considering splitting from ByteDance to work around the national security concerns, Bloomberg reported. The divestiture would be the company's last resort; TikTok would likely only take up the option if its existing proposal is rejected by national security officials, Bloomberg said. The ongoing war against TikTokThe Biden administration's current proposal is the latest escalation in an ongoing push against TikTok in the US. Officials worry that the company's Chinese leadership will facilitate ways for China to spy on or manipulate Americans. Insider reported that House Foreign Affairs Committee Chair Michael McCaul compared TikTok to a spy balloon that sends sensitive data to the "mothership in Beijing" in February when he introduced a bill that would require the White House to ban TikTok or any app that may be subject to the influence of China. US officials are also worried that TikTok's parent company, ByteDance, could be forced to give the Chinese Communist Party access to US user data through China's National Intelligence Law, Insider reported.Last year, TikTok agreed to implement several changes proposed by Cfius to address concerns from US officials under a plan called Project Texas, Bloomberg reported. The proposed plan includes appointing a three-person government approved oversight board and bringing software company, Oracle, to host US data and review TikTok's software, Bloomberg said. In December, the Senate voted to ban TikTok on government devices, and several states have since introduced full or partial bans of the app. Universities have also made moves to ban TikTok. Stronger data privacy laws could be an alternativeThe national security discussion around TikTok may end up weeding out other fast-growing Chinese tech companies like Shein and Temu and could even affect American companies with footing in China, Insider reported. And there's also the potential that China could retaliate against the US for going after one of its prized companies, Insider said. One alternative might be to enact stronger data privacy laws in the U.S."We need to continue pursuing more secure technical standards and encryption," Milton Mueller, a cybersecurity program director at the Georgia Institute of Technology and coauthor of an Internet Governance Project report on TikTok and national security, previously told Insider. "That kind of security is something that I think both gives the users of the internet control without undermining the basic functioning of the internet and the globalization of the internet."  Read the original article on Business Insider.....»»

TikTok has become a scapegoat in the US-China tech war. Experts say the current policy proposals could blow back on companies like Shein and Apple. TikTok has become a convenient scapegoat in the US-China tech war.Arif Qazi / Insider TikTok has become a main character in the US-China tech war. US politicians from both parties are looking for ways to ban the app or curtail its influence. But attacks on TikTok are a distraction from the bigger task of safeguarding data for all Americans. When the US last month spotted a Chinese surveillance balloon hovering about 66,000 feet over Billings, Montana, politicians and pundits alike used the opportunity to call out another China boogeyman: TikTok."A big Chinese balloon in the sky and millions of Chinese TikTok balloons on our phones. Let's shut them all down," Republican Sen. Mitt Romney of Utah tweeted.House Foreign Affairs Committee Chair Michael McCaul similarly likened TikTok to a spy balloon that sends sensitive data to the "mothership in Beijing" when he introduced in February a bill that would require the White House to ban TikTok or any app that may be subject to the influence of China.A few years after its arrival in the US, TikTok has become a main character in the US-China tech war. The short-video app is a common talking point for US politicians in both parties looking to stake a position on China. The Biden administration and the Committee on Foreign Investment in the US, referred to as CFIUS, are demanding that TikTok's Chinese owners sell stakes in its app as a condition for operating in the US, The Wall Street Journal reported Wednesday. But the TikTok-focused attacks are also sparking policy proposals that could have serious consequences for companies caught up in the ongoing competition between the US and China, policy experts told Insider. Draft bills to ban TikTok — like McCaul's DATA Act and a more recent bill from Sens. Mark Warner and John Thune — tend to be written broadly in a manner that could end up shutting out a wide array of foreign-owned tech companies, such as fast-growing e-commerce apps Shein and Temu.The proposed bills in Congress could even affect some American companies with business functions in China, said Jenna Leventoff, a senior policy counsel at the ACLU, who coauthored a letter opposing McCaul's bill."This could apply to other large companies, like possibly Apple," Leventoff told Insider. "Apple has a lot of its technology made in China. The President or future administration could block Americans from doing business or using apps from a number of entities in China."Apple works closely with Taiwanese manufacturer Foxconn in China to make iPhones and other products in the city of Zhengzhou, though the company has recently been looking to move some production out of the country, The Wall Street Journal reported.China could also retaliate against US companies in tech or other sectors should the US go after one of its rising stars."The US habitually politicizes technology and trade issues and uses them as a tool and weapon in the name of national security," a spokesperson for the Chinese Foreign Ministry said on March 6. "Such practice violates the principles of market economy and fair competition. China will closely follow relevant developments."An alternative path for lawmakers looking to protect Americans from foreign-owned apps would be to enact stricter data privacy laws for all companies operating in the US, experts told Insider. But US tech companies that rely on data collection for advertising sales or other business practices have fought to curb such regulations."The US is way behind most other industrialized nations in terms of creating sweeping data privacy regulation," said Aram Sinnreich, a communications professor at American University and coauthor of the forthcoming book "The Secret Life of Data.""A lot of that is because of the countless millions of dollars that get spent by big tech firms like Amazon and Meta and Google lobbying the US government to allow those businesses to continue their data-extractive business models," he said.Why TikTok has become the center of anti-China rhetoricTikTok is a particularly effective scapegoat in Washington's anti-China rhetoric because it evokes an emotional response for many Americans. The app is integrated into many aspects of US culture, particularly for young people, sparking fears that China could wield it to influence the next generation of Americans."TikTok is a news-and-views type of site shaping opinions and helping others shape opinions," said Leland Miller, the CEO of the economic-research firm China Beige Book. "Nothing is bigger than TikTok and more important for a young cohort than TikTok is."TikTok CEO Shou Zi Chew is scheduled to testify before Congress in March.Matt McClain/The Washington Post/Getty Images.Outside of its cultural influence, officials are worried that TikTok's Beijing-based parent ByteDance could be compelled to give the Chinese Communist Party access to US user data via its National Intelligence Law.TikTok has hurt its own cause when it comes to its reputation around data privacy. For example, the company misrepresented how US user data was managed and then its parent company monitored the locations of reporters who exposed its practices.But it is also scrutinized more closely than other apps with China-based owners.Temu and Shein, for example, have shot up to the top of the Apple App Store this year, grabbing top 10 spots in Apple's ranking in recent weeks. Both platforms, like TikTok, collect data, such as a user's name, phone number, IP address, and geolocation, from US customers as part of their day-to-day operations.Yet, DC politicians haven't sounded the alarm about user data protections for either app, or spoken about how a TikTok ban could impact them.Stronger privacy laws are a way out, but could face pushback from Big TechLawmakers could protect American users and avoid outright bans of foreign-owned apps by enacting stricter data privacy laws at home, experts and policy advocates told Insider."It's a national embarrassment that we don't have a basic data privacy law in the United States," said Evan Greer, director at the tech activism organization Fight For The Future, which launched a petition opposing a TikTok ban. "Every day that lawmakers waste hand wringing about TikTok is another day that we don't have a national privacy law in the United States."Some officials, including Sens. Ron Wyden and Jon Ossoff, have acknowledged that legislation focused on TikTok is a distraction from the larger issue of safeguarding Americans' data across all apps. Still, efforts by members of Congress to pass federal legislation around data privacy, such as the American Data Privacy and Protection Act, have faced an uphill battle.Cutting off access to certain user data-tracking tools has been harmful to the businesses of US tech platforms in the past. Apple's 2021 user privacy changes stunted ad revenue at Facebook and Snapchat-maker Snap, for example.But blocking companies from gathering private information from users could also be a more effective path to protecting Americans while maintaining an avenue for Chinese companies to participate in the global economy."We need to continue pursuing more secure technical standards and encryption," said Milton Mueller, program director of the Masters of Science in Cybersecurity Policy program at the Georgia Institute of Technology and coauthor of an Internet Governance Project report on TikTok and national security. "That kind of security is something that I think both gives the users of the internet control without undermining the basic functioning of the internet and the globalization of the internet."This story has been updated to include a report from The Wall Street Journal that the Biden administration and CFIUS are demanding a divestment from TikTok's Chinese owners.Read the original article on Business Insider.....»»

Tucker Carlson Unbound: Setting Fire To The Uniparty Authored by Frank Miele via The Epoch Times (emphasis ours), In my last column, I compared Fox News host Tucker Carlson to the CBS journalist Edward R. Murrow, who used his reporting in the 1950s to change the course of history. For that comparison I apologize. It is now apparent that Carlson far exceeds Murrow in his courage, his thoughtfulness, and his stubborn refusal to accede to pressure. Let’s get this straight. Murrow was a brilliant journalist, but his reputation as a dedicated war correspondent during the Battle of Britain also made him a beloved figure to his fellow reporters and to the politicians whom he covered. Thus, when he stood up against the bullying tactics of Sen. Joseph McCarthy, Murrow knew he could count on the support of CBS, other journalists, and even senators who had been the target of McCarthy’s blind rage. In a very real sense, it was McCarthy’s own character flaws that brought him down, to the detriment of his anti-Communist crusade, which had accurately identified the very real threat of Soviet sympathizers who had infiltrated the federal government. Murrow was just the catalyst, and he was lauded for his efforts. On the other hand, Tucker Carlson’s decision last week to air previously unseen video of the Jan. 6, 2021, confrontation between protesters and Capitol Police put his own career at risk and has made him the subject of bipartisan scorn. Some even speculate that he was silently punished by his bosses at Fox News, but Carlson doesn’t seem worried about being fired, and the condemnation he has received from both the majority leader and minority leader of the Senate has only emboldened him. It will probably take years to fully understand the importance of Carlson’s challenge of the “official Washington” narrative of Jan. 6 as a “deadly insurrection,” but Carlson wasted no time last Monday in laying out the framework of his complete rejection of the “accepted truth” pushed by the Biden Department of Justice, the House Select Committee on January 6, and the mainstream media. Only a tiny fraction of the thousands of hours of surveillance video released to Carlson by House Speaker Kevin McCarthy was shown last week on “Tucker Carlson Tonight,” but you only need a small pin to burst a large balloon, and by the time the week was over, all the president’s men couldn’t put the Humpty-Dumpty story of a “Trump-surrection” back together again. “The images you will see were recorded 26 months ago today on January 6, 2021,” Carlson began. “Until now, politicians have kept this tape hidden from the public. There is no legitimate justification for that and there never has been.” The powers that be would have you believe that Carlson had jeopardized national security by playing the tapes – probably 30 minutes out of the 41,000 hours. Now, it is true the tapes provided some interesting counterbalance to the non-stop harassment of Trump supporters that has taken place for the past two years, but if truth be told, the evidence on the tapes was much less significant than the reaction to them. What you really want to know now is, if 30 minutes of video has the Uniparty crowd so scared, what else are they hiding? I think much more than the video, the Censorship-Industrial Complex (as journalist Matt Taibbi has accurately tabbed it) wants to shut down any information or even belief that goes counter to the official narrative, and that’s where Carlson got so deep under their skin that they were willing to rip themselves to shreds in an effort to get at him. Everything Carlson said about Jan. 6 for three days last week was a threat to their power, and he knew it. “The protesters were angry. They believed the election they had just voted in was unfairly conducted. They were right. In retrospect, it is clear the 2020 election was a grave betrayal of American democracy.” He didn’t go beyond that in explaining the illegitimacy of the election, but he didn’t have to. The “it is clear” speaks volumes to those who haven’t bought into the official narrative that the 2020 election was “the most secure” in the nation’s history. Yeah, it was secure if you don’t believe the Supreme Courts of Pennsylvania and Wisconsin that election law was violated en masse in those states. It was secure if you don’t have any concern about billionaire Mark Zuckerberg spending hundreds of millions of dollars to gain access to voter rolls and ensure that likely Biden voters were goosed to get their butts out of the chair and their ballots in the drop boxes. It was secure if you don’t care about Twitter and Facebook colluding with the federal government to make sure that Hunter Biden’s incriminating laptop was falsely painted as Russian disinformation in the weeks leading up to the election. Although Democrats and the rest of “official Washington” claim the election was secure, they spent zero hours proving that case. Instead, they seized on the disruptions on Jan. 6 as the real threat to democracy and gave their clients in the lapdog media the spectacle of the select committee’s show trial. What is most hurtful to the Democrats and RINOs who wrote the narrative is that their two years of work propping up the infrastructure of a “deadly insurrection” was undone in less than 60 minutes by Carlson, who didn’t deny that violence had been done on Jan. 6, but committed the unforgivable sin of putting it in perspective. Thus, where the Jan. 6 committee saw the worst attack on our democracy since the Civil War, Tucker Carlson showed pictures of protesters walking in the door of the Capitol and milling around, as he said, like sightseers. No matter how many times Carlson said he was not excusing any violence, the proponents of the “deadly insurrection” narrative claimed that showing non-violent protesters was an affront to their efforts to demonize Trump voters as terrorists. And, of course, they were right to worry. But it wasn’t just the images by themselves that overturned the official narrative; it was the muscular words of Carlson as he held to account not just the select committee, but also congressional leaders, Capitol Police, and the Department of Justice. This was a rarely seen J’accuse moment in which the system’s irresponsible scapegoating of the Deplorables was held up to the light. “Committee members lied about what they saw,” Carlson said, “and then hid the evidence from the public as well as from Jan. 6 criminal defendants and their lawyers. That is unforgivable.” The most important video came in four specific batches, each of which puts a dent in the official story. As explained by Carlson, they were as follows: – Shots of Jacob Chansley (the QAnon Shaman) being escorted through the Capitol by a number of police and never being arrested or prevented from moving about freely. As Carlson points out, the video raises questions about whether the Department of Justice violated Chansley’s rights to a fair trial because he was denied potentially exculpatory evidence. The video plainly raises questions about whether Chansley was an intruder or a guest in the Capitol. Carlson questioned whether similar footage could have assisted many others charged with Jan. 6 crimes by showing that the “deadly insurrection” was nothing of the kind. – Shots of Capitol Police Officer Brian Sicknick apparently waving protesters out of the building, raising serious questions about the honesty of the many media and political figures who claimed Sicknick’s death was caused by the protesters. In the footage, Sicknick appears to be unharmed and wearing a helmet some time after he was reportedly murdered by having his head bashed in with a fire extinguisher. Sicknick died the next day as a result of a stroke caused by blood clots at the base of his brain. The medical examiner found no external or internal injuries and ruled that Sicknick died of natural causes. – Shots of Ray Epps, the mysterious figure who urged protesters to “go IN to the Capitol” both the night before and the day of the mob scene. Epps testified before the Jan. 6 committee that he left the riot prior to texting his nephew that he had “orchestrated” the attack, but Carlson found footage of Epps a half hour later still in the middle of the mob, although suspiciously not following his own insistent advice to enter the Capitol. Carlson and others have questioned whether Epps was a federal agent or informant who was provoking the attack as part of a political scheme to create chaos. At the very least, it appears that Epps should be charged with lying to Congress, and if a serious investigation is ever done by anyone other than Tucker Carlson, we should try to find out why the man who said he “orchestrated” the Jan. 6 attack was never charged with any crime. – Shots of Sen. Josh Hawley exiting the Capitol under the direction of the Capitol Police. In some ways, this footage is the most damning example of the purely partisan political nature of the Jan. 6 committee. Video of Hawley, who had been one of the leaders of the movement to challenge the 2020 election due to irregularities in six or more states, was shown to a national audience for comic effect as it appeared that the senator was being entirely selfish as he fled from the protesters. The effect of watching Hawley running across a Capitol hallway like a shooting gallery rabbit was so humorous that it was put on a loop for the national TV audience to get a good chuckle. Hawley was held up for ridicule by late-night comedians and cable TV “news” hosts. But when Carlson pulled the full video, he discovered that the Capitol Police had ushered dozens of senators and staff out of the building at high speed for their own protection. Hawley, as it turned out, was one of the last to leave, and not the coward he was portrayed to be. Nothing better illustrated the Jan. 6 select committee’s “narrative building” exercise than this attempt to humiliate a U.S. senator who made the mistake of “running” as a Republican. As Carlson noted at one point, “By controlling the images you were allowed to view from January 6, they controlled how the public understood that day. They could lie about what happened and you would never know the difference. Those lies had a purpose. They created a pretext for a federal crackdown on opponents of the Uniparty in Washington.” It is that crackdown which has occupied the Biden administration, the FBI, and much of Congress for the last two years. Can the heroic resistance of one TV journalist turn those efforts around and restore a sense of justice to the land of the free? I’ll believe it when I see it, but in the meantime it’s nice to have someone to root for. Frank Miele, the retired editor of the Daily Inter Lake in Kalispell, Mont., is a columnist for RealClearPolitics. His newest book, “What Matters Most: God, Country, Family and Friends,” is available from his Amazon author page. Visit him at HeartlandDiaryUSA.com or follow him on Facebook @HeartlandDiaryUSA or on Twitter or Gettr @HeartlandDiary. Tyler Durden Mon, 03/13/2023 - 16:25.....»»

US Special Ops Wants To Use Deepfakes To Conduct 'Propaganda And Deception' Campaigns US Special Operations Command (SOCOM) wants to use deepfake videos to conduct propaganda and deception campaigns online, according to federal contracting documents reviewed by The Intercept. While the U.S. government routinely warns against the risk of deepfakes and is openly working to build tools to counter them, the document from Special Operations Command, or SOCOM, represents a nearly unprecedented instance of the American government — or any government — openly signaling its desire to use the highly controversial technology offensively. SOCOM’s next generation propaganda aspirations are outlined in a procurement document that lists capabilities it’s seeking for the near future and soliciting pitches from outside parties that believe they’re able to build them. -The Intercept The plans also include hacking internet-connected devices to spy on foreign populations and assess their susceptibility to propaganda. The document describes it as a "next generation capability to ‘takeover’ Internet of Things (loT) devices for collect [sic] data and information from local populaces to enable breakdown of what messaging might be popular and accepted through sifting of data once received," and that the ability to eavesdrop on propaganda targets "would enable MISO to craft and promote messages that may be more readily received by local populace." "When it comes to disinformation, the Pentagon should not be fighting fire with fire," said Brookings Institution head of AI and Emerging Technology Initiative, Chris Meserole. "At a time when digital propaganda is on the rise globally, the U.S. should be doing everything it can to strengthen democracy by building support for shared notions of truth and reality. Deepfakes do the opposite. By casting doubt on the credibility of all content and information, whether real or synthetic, they ultimately erode the foundation of democracy itself." "If deepfakes are going to be leveraged for targeted military and intelligence operations, then their use needs to be subject to review and oversight," he added. In addition to deepfakes and hacking, SOCOM's Directorate of Science and Technology laid out a wish list of next-generation toys to equip the modern commando and enable them to more effectively hunt and kill targets using lasers, holographs, robots and other high-tech hardware. Last October they updated this wish list with a new section; "Advanced technologies for use in Military Information Support Operations (MISO)," aka propaganda and deception, which encompass "influence operations, digital deception, communication disruption, and disinformation campaigns at the tactical edge and operational levels." SOCOM also wants "a next generation capability to collect disparate data through public and open source information streams such as social media, local media, etc. to enable MISO to craft and direct influence operations." Though Special Operations Command has for years coordinated foreign “influence operations,” these deception campaigns have come under renewed scrutiny. In December, The Intercept reported that SOCOM had convinced Twitter, in violation of its internal policies, to permit a network of sham accounts that spread phony news items of dubious accuracy, including a claim that the Iranian government was stealing the organs of Afghan civilians. Though the Twitter-based propaganda offensive didn’t use deepfakes, researchers found that Pentagon contractors employed machine learning-generated avatars to lend the fake accounts a degree of realism. Provocatively, the updated capability document reveals that SOCOM wants to boost these internet deception efforts with the use of “next generation” deepfake videos, an increasingly effective method of generating lifelike digital video forgeries using machine learning. Special forces would use this faked footage to “generate messages and influence operations via non-traditional channels,” the document adds. -The Intercept This, after the US has spent years warning against the potential national security threat posed by deepfakes, which could have a 'destabilizing effect' on civilian populations. Do as we say, not as we do? Tyler Durden Fri, 03/10/2023 - 16:40.....»»

Chinese tech firms like TikTok are already under increased scrutiny from US lawmakers, over concerns that data collected might be used by the CCP. Chinese leader Xi Jinping.NOEL CELIS/AFP via Getty Images Chinese leader Xi Jinping wants China's army to work more closely with local tech giants. Xi ordered the military to focus on collaborations with tech companies to boost China's defenses. Chinese tech firms are already facing intense scrutiny in the US over their ties to the CCP. Chinese leader Xi Jinping wants China's military to collaborate more closely with local tech giants to boost the country's defenses."It is necessary to deepen the collaborative innovation of science and technology, and build, manage, and use national laboratories well," Xi said on Wednesday. He was speaking at a meeting with delegates from the People's Liberation Army and the country's armed police, per state-linked media outlet Renmin Daily.Xi's statements come as China's two major legislative bodies meet this week to discuss government restructuring and Beijing's plans for the next five years.In his speech to the army's top brass and police leaders, Xi repeatedly called for an "integrated national strategic system.""To consolidate and improve the integrated national strategic system and capabilities, the key is to work hard on integration to maximize national strategic capabilities," he said.Xi's administration has since 2017 been developing its capacity for "military-civil fusion." This is a drive to make China's armed forces the most advanced in the world, by giving it the freedom to work with civilian research and commercial entities.In a 2020 memo about "military-civil fusion," the US State Department said that one of the Chinese government's chief aims is to develop artificial intelligence for military use. Other key technologies being researched in China include quantum computing, aerospace, big data, 5G, and advanced nuclear technology, the memo said.The State Department's memo also called the program an "aggressive" national strategy and warned that it "exploited" joint research institutions and private firms to build China's military."In a clandestine and non-transparent manner, the CCP is acquiring the intellectual property, key research, and technological advancements of the world's citizens, researchers, scholars, and private industry in order to advance military aims," reads the memo.Chinese tech companies are already under intense scrutiny in the USXi's emphasis on forging closer ties between the Chinese military and civilian tech companies comes amid intense scrutiny from the US government on how Chinese tech giants are using the data they harvest. Huawei, Hikvision, and Dahua are among the Chinese tech firms blacklisted by the US.Members of Congress are also pushing to ban TikTok, a popular social media platform owned by the Chinese company ByteDance, over security concerns.Xi's comments on Wednesday come at a particularly tense moment in US-China relations. In February, the Pentagon shot down what it said was a Chinese spy balloon and two other unidentified objects over the US. China called the response an overreaction and said it would take unspecified "countermeasures" against the US.Secretary of State Antony Blinken later said the US believes China is considering supplying lethal aid to Russia in its invasion of Ukraine. China has refuted Blinken's statements.Chinese Foreign Minister Qin Gang on Wednesday issued an aggressive warning to the US, speaking of "conflict and confrontation" if the US "does not hit the brake, but continues to speed down the wrong path.""Such competition is a reckless gamble, with the stakes being the fundamental interests of the two peoples and even the future of humanity," he said.Xi on Monday also accused the US of trying to suppress China's growth. "Western countries led by the United States have implemented all-round containment, encirclement, and suppression of China, which has brought unprecedented grave challenges to our nation's development," he said, per state media outlet Xinhua.The Chinese Embassy in Washington, D.C., did not immediately respond to Insider's request for comment. Read the original article on Business Insider.....»»