2018-01-19

Here Comes the Russia Rope-A-Dope; Confidence in US Media Will Collapse

The rumors in DC are that the entire Russia investigation is a fabrication made possible by FBI and DoJ, and possibly Obama administration officials re-purposing laws designed for stopping foreign terrorists to spy on their American political enemies. With the full collusion of sympathetic media who refused to investigate and instead acted as propaganda mouthpieces for the regime. It will be the greatest scandal in American history by a long-shot if true. Officials at the highest levels of government effectively made a coup attempt. This is how Hollywood portrays the American government at its most villainous in movies.

ZH: "Explosive", "Shocking" And "Alarming" FISA Memo Set To Rock DC, "End Mueller Investigation"
A source close to the matter tells Fox News that "the memo details the Intelligence Committee's oversight work for the FBI and Justice, including the controversy over unmasking and FISA surveillance." An educated guess by anyone who's been paying attention for the last year leads to the obvious conclusion that the report reveals extensive abuse of power and highly illegal collusion between the Obama administration, the FBI, the DOJ and the Clinton Campaign against Donald Trump and his team during and after the 2016 presidential election.
If this is confirmed, confidence in the U.S. media will collapse because the remaining people who trust the media will turn on it. Democrat turnout in the mid-term election could collapse if its shown that members of the Democrat Party are the real villains. Republicans would likely gain a lot seats in the mid-term elections as Democrat turnout falls and voters look to clean out the "deep state." President Trump will consolidate power and push forward with trade protectionism among other policy goals.

More broadly, periods of negative social mood need a scapegoat. If there's a bear market in stocks this year or next, if the economy goes into recession, President Trump is most likely to take the blame. If this story breaks around the same time, then it could blow economic woes off the front page. Without this scandal Trump might be Hoover. With it, he could end up the most powerful president since FDR.

Chinese Buying or Not of UST Doesn't Matter

Carnegie: Why China Likely Won’t Buy Fewer U.S. Treasury Bonds
Even if Beijing forced institutions like the People’s Bank of China to purchase fewer U.S. government bonds, such a step cannot credibly be seen as meaningful retaliation against rising trade protectionism in the United States. As I have tried to show, Beijing’s decision would either have no impact at all on the U.S. balance of payments, or it would have a positive impact. It would have almost no impact on U.S. interest rates, except to the extent perhaps of a slight narrowing of credit spreads to balance a slight increase in riskless rates.
Pettis lays out several scenarios, a great antidote to a lot of nonsense in the financial media. Whether China is buying or selling UST because of fundamental economic factors is important, but if they make a political policy decision to not accumulate USTs with dollar inflows, it doesn't mean what most people think it means.

More broadly, too much "pop" analysis only focuses on one possible direction when it comes to China, the USA and the dollar. As I was saying here years ago, if China is selling USTs to prop up the yuan, it will be dollar positive. And that was exactly as it happened from 2014-2016.

A lot of "common widsom" analysis ignores the difference between a lack of buyers and motivated sellers. Most bull markets end because buying power exhausts, not because people decided it was time to sell. Volume declines before the price turns. U.S. trade deficits rise and fall with economic activity for structural reasons. "Make America Great Again" pro-U.S. manufacturing President Trump has sent the U.S. trade deficit near its post-2007 high because economic activity picked up. Even if he's able to structurally reform the economy through trade policy and deregulation, in the short-term the deficit is tied to economic activity. A rising dollar also typically coincides with global weakness and the value of imports declines.

Rising U.S. imports of oil and Chinese goods fuel demand for dollar assets. If U.S. oil production rises and trade policy reduces trade, the overall demand for Treasuries falls along with a falling outflow of dollars. Increased economic activity in the U.S. lifts U.S. tax receipts, inflation and interest rates. If the global economy is expanding as this happens, credit growth will move overseas and some of that credit will flow into U.S. assets, pushing up the exchange rate of the U.S. dollar.

Where's The Wage Growth?

Financial services.
Overall wage growth:

Yuan Breaks 6.40

CNY looks like EUR because it's all about USD.

No Petrodollar If No Oil Imports

WSJ: U.S. Oil Output Expected to Surpass Saudi Arabia, Rivaling Russia for Top Spot
Surging U.S. crude oil production this year is expected to surpass output in Saudi Arabia and rival that of Russia, the world’s two largest oil producers, the International Energy Agency said Friday.

Boosted by a resurgent shale industry, U.S. crude production will likely climb above 10 million barrels a day in 2018, an all-time high not seen since 1970, the agency said in its closely watched monthly oil market report. The IEA raised its outlook for U.S. crude supply this year by 260,000 barrels a day, to a record 10.4 million barrels a day, largely a result of the recent rally in crude prices.

CASS Sees Single Digit Home Prices Increase in 2018

iFeng: 预计2018年商品房价涨3.7% 住宅涨4.2%
hinese Academy of Sciences Research Center forecast released the "2018 Chinese real estate industry trends Outlook" forecast. The report predicts that in real estate prices, it is expected 2018 commercial housing sales price for 8122 yuan / square meter, an increase of 3.7%, an increase over 2017 by about 1.0 percentage points, the average residential sales price rose 4.2% compared with 2017, an increase of compared with 2017 decreased by about 1.3 percentage points.

2017 in the presence of downward pressure on the economy, influenced by short-term control policies, the housing needs of first-tier cities and some second-tier cities have been effectively curbed, market price stabilization in some areas prices have come down, market transactions and third tier cities more active. 2018 macroeconomic still many uncertainties, the real estate market is still in a down cycle, the interaction of many factors that influence the development trend of China's real estate market.

Marriott Freezes Social Media Accounts Around World on China Ban

The Verge: Marriott says it chose to stop posting on social media after China ban
Marriott International’s social media accounts across Instagram, Facebook, and Twitter have been dark since China accused the company of breaking a cybersecurity law and advertisement law on January 11th. The accounts have resumed posting within the past few hours, one week after they stopped.

The Shanghai government had shut down Marriott’s Chinese website and mobile app for a week as punishment for a Mandarin-language survey sent to customers that listed Tibet, Taiwan, Hong Kong, and Macau as separate countries, as reported by Reuters. There was backlash from the Chinese public as well. Marriott’s Instagram posts from a week ago are littered with comments like “get out of China” and “remember!people’s republic of china!only one!marriott hotels roll out of china!”
This isn't too different from how every company and individual are treated in the age of social media. The main difference is China focuses the outrage using state power. If everyone on Twitter gets outraged because a commercial is X, the company can fold or not. It probably won't hurt to fight in the long-run, although the company could become a permanent target of mob justice. It must use it as a marketing strategy once was is chosen (free advertising). Maybe "banned in China" might work with some products and services, or perhaps for someone with political ambition. Otherwise, individuals and companies can't go to war with China. Either they do and say as China tells them, or they leave the country. (Long time the past the time foreigners were made of sterner stuff, at least if they were British.)

As with the Twitter mobs (and Google employees) in America, this action by China comes from a position of weakness, not strength. Speaking a taboo thought is threatening because it's mostly backed by threats, not reality. In this case, China can claim Taiwan, but cannot be certain of enforcing its position. Tibet is more secure, but popular global opinion and NGO infiltration could make problems that China doesn't want. On the other hand, China is relatively secure otherwise. If you want to say Taiwan is a country and have no Chinese operations and don't export to China, they probably won't hound you. Whereas if you violate taboos in America, you must be destroyed because if people don't believe enforced orthodoxy, the whole house of cards comes crashing down. If James Damore said Taiwan is a country in China, they'd send him back to America. But if he says men and women are different in Silicon Valley, he must be blacklisted everywhere.

Finally, wait until nationalism kicks up a notch in the rest of the world and Twitter mobs are combined with state power. There has already been a football war, perhaps there will one day be a kinetic Twiiter war when social mood trends negative again.

2018-01-18

Defacto Secession in America

The authority of the federal government is collapsing. This isn't going to stop when administrations change. The right will find laws to ignore such as abortion and gun control too.

SacBee: ‘We will prosecute’ employers who help immigration sweeps, California AG says
The state’s top cop issued a warning to California employers Thursday that businesses face legal repercussions, including fines up to $10,000, if they assist federal immigration authorities with a potential widespread immigration crackdown.