MENLO PARK, CA—In recent remarks, President Joe Biden stated that we had always been at war with Eastasia. This had gone unmentioned by most of the press, but the New York Post wrote a story contradicting Biden’s remarks, giving evidence that until recently we had been allies of Eastasia. Facebook has now blocked this story from being shared on its platform.
Originally, Facebook gave no reason for blocking the story, but eventually, they released a statement saying their policy has always been to “defer to experts on who we are or have been at war with” and not let “dangerous misinformation be shared.”
“It’s dangerous to let false information out there,” explained Mark Zuckerberg to the press. “It’s also dangerous to let true information out there. Sometimes it’s just safer to clamp down on all information — especially from sources we don’t like.”
The New York Post spoke out against the ban, but we can’t quote them, as that would get us blocked on most platforms according to their new policies.
Just. Too. Funny.
Thought the jokes are starting to get real.
OK, that title was not exactly the Sermon on the Mount. But it is Matthew – seriously.
As much as the Sermon on the Mount, Matthew is also known for the “Matthew Effect”
The Matthew Effect of Accumulated Advantage is sometimes summarized by the adage “the rich get richer and the poor get poorer“. The concept is applicable to matters of fame or status, but may also be applied literally to cumulative advantage of economic capital.
Before getting into $COMP, let’s talk about Matthew a bit. He was an interesting guy.
In the beginning (so to speak – sorry, couldn’t resist that one), the Matthew Effect is about the inequality in the way scientists were recognized for their work. Norman Storer of Columbia University discovered that the inequality was common in a range of disciplines (see https://www.jstor.org/stable/10.7312/rign14948).
The term was actually coined by sociologist Robert K. Merton in 1968 and takes its name from the parable of the talents or minas in the biblical Gospel of Matthew. Merton credited his collaborator and wife, sociologist Harriet Zuckerman, as co-author of the concept of the Matthew effect.
In case your memory of Matthew is a bit, uhh, “rusty”, try this from his Chapter `2:
10The disciples approached him and said, “Why do you speak to them in parables?”
11 He said to them in reply, “Because knowledge of the mysteries of the kingdom of heaven has been granted to you, but to them it has not been granted.
12 To anyone who has, more will be given and he will grow rich; from anyone who has not, even what he has will be taken away.
13 This is why I speak to them in parables, because ‘they look but do not see and hear but do not listen or understand.’
14 Isaiah’s prophecy is fulfilled in them, which says: ‘You shall indeed hear but not understand, you shall indeed look but never see.
As a poet, Matthew has a lot to offer when you put him in context of his time. Recall Matthew wrote after “Mark” and before the more Greco “John” – he was writing somewhere between AD 80 and 90. Matthew stood on the margin between traditional and non-traditional Jewish values, and was clearly familiar with technical legal aspects of scripture being debated in his time.
I think of Matthew as having a bit of Tom Wolfe in his time.
Anyway, writing in a polished Semitic “synagogue Greek”, Matthew sources from the Gospel of Mark. He also draws from the hypothetical collection of sayings known as the Q source (material shared with Luke but not with Mark) and material unique to his own community, called the M source or “Special Matthew”.
And his story is heroic – Jesus as the Jewish “superhero” amidst Roman subjugation:
- the Messianic son of David
- the prophet who surpasses Moses
- the seed of Abraham that blesses all the nations
Real superhero stuff.
But I’m digressing – let’s get back on point.
The wisdom of Matthew is that you will see things right in front of you and still be clueless.
I can easily do that one – when I was a hockey referee some claimed I missed a lot “right in front of me.” But, again, I digress.
His Chapter 13 is part of the Third Narrative in which Matthew tells the Messiah story using a set of parables about truth and wisdom. Check him out.
Which brings us to the Matthew Effect – rich get richer, poor get poorer – a central tenet of econophysics.
Who else but a Monetary Politburo to drive a Matthew process, right?
Tim Knight (Slope of Hope) is witness to the Matthew Effect in markets. In his “Characterizing the Indexes””, Tim marks the $COMP’s ever-rising wedge: https://slopeofhope.com/2021/04/characterizing-the-indexes.html).
Check out $COMP – “The Dow Jones Composite, as is the habit of so many assets lately, hit yet another lifetime high. That wedge has tidily confined prices for over a year now.”
Kinda like those GDP reports PBOC prints month after month, year after year, celebrating the “glorious rise” of the socialist paradise otherwise known as the “Red Ponzi.”
Need to see more?
Sure – Tim lays them all out for you:
The NASDAQ Composite isn’t quite in lifetime high territory quite yet. It wouldn’t take much to do so, particularly with a tidal wave of earnings coming from huge tech firms next week and, even more so, the week after.
The more narrow NASDAQ 100 did, however, reach a lifetime high.
There are those two words again – – Lifetime High – – for the S&P 100. Optimism abounds! [My emphasis – not Tim’s]
Small caps, however, are still being left out in the cold (relatively speaking). This has been meandering for months now, with no clear direction and certainly no gusto, either bullish or bearish.
Rich get richer – poor get poorer
As you know, the H&S on the semiconductors got wrecked a couple of weeks ago, although it is still beneath its broken uptrend.
The charts above are pretty much just the past year or two, but I’ve deliberately selected a much longer period of the Dow Utilities, below, to illustrate what might be an important shift in trend.
Volatility, naturally, has been getting the life strangled out of it for many months, as we sink directly into the mid-teens.
Lastly, the final bastion of bearish possibilities – – the last ursine creature standing – – is the oil sector.
Let me add one more diagram driving all of this – the mark of the “beast” – err, I mean the Monetary Politburo.
“To anyone who has, more will be given and he will grow rich; from anyone who has not, even what he has will be taken away.” Matthew 13:12.
And our Federal Reserve will certainly see to that.
Wisdom, kids – straight from the Holy Spirit.
Chris Hamilton of Econimica shared two graphs reproduced above that summarize all we need to know about macro trends (see https://econimica.blogspot.com/2021/04/ever-fewer-people-need-ever-more.html).
You don’t need the usual “talking head” on Squawk Box, or “insights” from some economist to explain the role of “economic slack”.
It’s simple physics: wage-generating population (and, households), and money stock. All there is.
- The top graph plots the “wage earning” US population (15-64 yrs) in blue which appears to have peaked within the last year or two, and is now in decline.
- Meanwhile, note the M2 in red (USD in circulation) going ballistic and reaching escape velocity.
Not clear enough?
OK, then consider the second graph reporting YoY changes in population and money supply.
Simply put – declining wage earning population (leg down) with accelerating if not spiking money supply (leg up).
Get it now?
And guess what happens next?
On 9 April 2021 the Turkish government stated that it had received notification from the U.S. that two warships would enter the Black Sea on 14-15 April. NTV reported that Roosevelt would be one of the ships while USS Donald Cook (DDG-75) would be the other.
Also in the Black Sea right now are units of the Russian Navy performing live fire drills:
In live fire drills, warships deploy weapons from various platforms into restricted areas where specific targets are positioned.
The problem is missiles and torpedoes have a nasty tendency to malfunction from time to time, such as acquiring other radar or sonar contacts that might be close by, and diverting their trajectory. Seen that happen more than a few times.
Contacts such as Roosevelt or Donald Cook.
Some 35 years ago, two US Navy warships had a “run-in” with Russian Navy in the Black Sea in disputed territorial waters (https://wydaily.com/local-history/2021/03/24/our-historic-home-the-ramming-of-uss-yorktown-cg-48/).
At about 5 PM ET on April 14, the US Navy notified the Turkish government Roosevelt and Donald Cook would not transit into the Black Sea (https://wtvbam.com/2021/04/14/u-s-cancels-warships-deployment-to-black-sea-turkish-diplomatic-sources/).
Sounds like a grown-up finally got through to the Sock Puppet’s handlers.
This Administration is about as incompetent as it comes.
Members of the US Congress are exempt from the laws that ban insider trading. But House of Representatives rules may consider congressional insider trading unethical.
Unless your name is Pelosi.
A 2004 study found that stock sales and purchases by Senators outperformed the market by 12.3% per year. Peter Schweizer points out several examples of insider trading by members of Congress, including action taken by Spencer Bachus following a private, behind-the-doors meeting on the evening of September 18, 2008 when Hank Paulson and Ben Bernanke informed members of Congress about the issues due to the financial crisis of 2007–2008, Bachus then shorted stocks the next morning and cashed in his profits within a week. Also attending the same meeting were Senator Dick Durbin and John Boehner; the same day (trade effective the next day), Durbin sold mutual-fund shares worth $42,696, and reinvested it all with Warren Buffett. Also the same day (trade effective the next day), Congressman Boehner cashed out of an equity mutual fund.
In May 2007, a bill entitled the Stop Trading on Congressional Knowledge Act, or STOCK Act was introduced that would hold congressional and federal employees liable for stock trades they made using information they gained through their jobs and also regulate analysts or political intelligence firms that research government activities. The STOCK Act was enacted on April 4, 2012.
With that backdrop, here’s Mish on the “Pelosi Payday;” https://www.thestreet.com/mishtalk/economics/nancy-pelosis-husband-uses-call-options-to-buy-microsoft-ahead-of-big-govt-contract
Nancy Pelosi’s Husband Buys Microsoft Ahead of Big Govt Contract
Nancy Pelosi’s husband made an excellent Microsoft stock market trade. Let’s check out the details.
Purchase of Stock Via Call Options
Barron’s reports Nancy Pelosi’s Husband Bought Roblox, Microsoft Stock
Speaker Nancy Pelosi’s husband just disclosed he bought Roblox stock the day it went public, and acquired Microsoft stock through options.
The Barron’s article is behind a paywall. Fox News also reports the same thing: Pelosi’s Husband Bought $10M in Microsoft Shares Through Options.
House Speaker Nancy Pelosi’s husband purchased millions of dollars worth of Microsoft (MSFT) and Roblox (RBLX) shares last month, new financial disclosures form reveal.
Paul Pelosi exercised call options and paid $1.95 million to buy 15,000 shares of Microsoft at a strike price of $130 on March 19, according to an April 9th filing with the House clerk. That same day, Pelosi, who owns and operates a California venture capital investment and consulting firm, paid $1.4 million for 10,000 shares valued at $140 apiece.
Since Pelosi made the purchase, Microsoft share prices have climbed from about $230 to roughly $255 – an increase of close to 11% – after the company secured a lucrative government contract worth nearly $22 billion to supply U.S. Army combat troops with augmented reality headsets. The deal was announced on March 31.
Extremely Bad Looking
Comments by Krystal and Saagar
- This is an extremely bad look at the very least. And at worst, it’s outright corrupt.
- It has the appearance of using insider knowledge of where the US government is headed.
- Access to that knowledge if you are Speaker of the House you may have special insights in order to profit massively off of your stock trades.
- Nancy Pelosi is already a very wealthy woman.
- Why are members of Congress allowed to trade stock while they are holding public office?
- We covered this on the Republican side at the beginning of Covid.
- Even the appearance of this is so disgusting.
Nancy Pelosi Wealth
Nancy Pelosi in the 7th Richest Person in Congress.
Question of the Day
Q: How did Nancy Pelosi become so wealthy?
A: You tell me. Any guesses?
Legal For Congress, Not You
Here are recent Pelosi Insider Moves. The list shows the Microsoft call options.https://9ec5fb687175892dabd8b8ac3310a062.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
And here is a list of Senate Transactions you may be interested in.
If you had knowledge of this deal and made a similar trade, then got caught, you would be fined, lose all your profits, and potentially be thrown into jail.
The February US trade deficit was up 4.8% to a record $71.1 billion as Americans snap up imports with credit cards and Federal handouts.
Such is what happens when the Federal Government goes deeper into debt to create money to distribute to American citizens, permanent residents and foreign nationals illegally in the US.
Recall the February US money supply (M2) was up 27.12% YoY.
How is it possible to print and export wealth in exchange for stuff? Only with an elastic currency that can inflate at any price to hit the “ask” – even at 27% per year.
Before elastic currencies and the central banks that inflate, international trade was settled in gold. When a country began running out of gold, they either needed to mine more or print less.
Such is the Corrupt Sock Puppet Administration. Party like it’s 1929. Or maybe 1939. Whatever.
Which also creates record-breaking shipping surging into US ports.
Container Shipping Had Its Best Quarter in History Last Year. 2021 Could Be Even Better
By Mike Wackett (The Loadstar) –
Ocean carriers enjoyed their best quarter in container shipping history in the final three months of 2020, but are expected to have significantly topped that record in the first quarter of this year.
According to New York-based Blue Alpha Capital, fourth-quarter net earnings for the 11 carriers that report their financials came in at $5.8bn, but assuming that the non-reporting operators, such as MSC, achieved similar results, based on the average for the 11 lines the consultancy estimated the cumulative net profit for the period was a staggering $9bn.
For the full-year, Blue Alpha Capital calculated a combined net profit of $10.2bn for reporting carriers and an estimated $15.8bn net for all the top-ranked lines.
To put the 2020 earnings into context, they are more than double the total circa-$7bn of profit ocean carriers produced in the previous five years – with several carriers having racked up year-on-year losses during that period.
Moreover, the 2020 result is a complete reversal of the outlook for the industry before the pandemic.
“The final result for 2020 is a far cry from some of the doomsday predictions made mid-year, with fears the industry might post a collective net loss of up to $10bn,” said Alphaliner.
Analysing the performance of the three main Taiwanese carriers, Evergreen, Yang Ming and Wan Hai, as an example of the turnaround, Alphaliner noted that the lines had “profited from soaring transpacific rates and the added rate impact of box shortages”.
Evergreen posted a net profit of $853m for 2020, while Yang Ming and Wan Hai recorded profits of $420m and $396m, respectively.
Alphaliner also noted that the trio had reversed a breakeven at Evergreen and loss at Yang Ming, while Wan Hai tripled its net result last year.
Meanwhile, Blue Alpha Capital founder John McCown traced the liner industry’s turnaround to an unforeseen over-correction of capacity by carriers on many tradelanes at the start of the pandemic.
“Carriers took immediate and aggressive action to reduce capacity by blanking sailings,” he said, adding that the industry consolidation in the form of the alliances had “made this logistically easier to accomplish”.
He said: “As it turned out, that was an over-correction in many lanes that resulted in demand exceeding capacity.
“The $64m question remains whether the industry has embarked on a new trajectory for its results, based on new capacity management skills, or whether it will revert to its historical mean performance,” he added.
Nevertheless, with massive spot rate hikes now complemented by much higher contract rates, carriers look set fair for even greater profits for the first two quarters of the year, at least, if not for the whole of 2021.
Indeed, China’s Cosco Shipping has advised its first-quarter profit will exceed $2bn, and The Loadstar understands that two European-based carriers will shortly alert shareholders to a much-improved outlook for the half-year.The Loadstar is known at the highest levels of logistics and supply chain management as one of the best sources of influential analysis and commentary.
Since the installation of “Sock Puppet Joe” as President, we’ve seen no small amount of ecalating national suicide – open borders and subsidizing illegal immigration, criminalization of opponents to the oligarchy, and destruction of key American industries.
Why not some foreign adventures?
As reported by Dave DeCamp in AntiWar.com, American intervention in the Minsk Agreement picked up with the Corrupt Joe Administration: https://news.antiwar.com/2021/04/07/us-delivers-military-cargo-to-ukraine-as-it-hypes-russian-military-movements/
US Delivers Military Cargo to Ukraine as it Hypes Russian Military Movements
Deliveries were made on March 25th, April 2nd, and April 4tth.
While hyping the movement of Russian troops near the border with Ukraine, the US has delivered multiple military shipments to Kyiv.
A Newsweek report that cited local media said that over the past two weeks, the US had made three military cargo deliveries to Ukraine. On March 25th, 350 tonnes of cargo was delivered by ship to the Black Sea port city of Odessa in southern Ukraine. Included in the delivery were 35 Humvees.
On April 2nd, a US Air Force C-17A Globemaster III military transport aircraft flew to Kyiv from a US base in Germany. On April 4th, another C-17A Globemaster III landed in the western city of Lviv. It’s not clear what the planes were carrying, but the C-17A Globemaster IIIs can transport up to 102 troops and 77 tons of cargo.
Since the US-backed coup in Kyiv in 2014 that sparked the fighting in the eastern Donbas region, the US has provided Ukraine with more than $2 billion in military aid. The Pentagon recently announced a new $125 million package for Ukraine that includes armed patrol boats, and another $150 million is expected to be provided sometime this year.
The news of the military deliveries come as tensions in the region are skyrocketing. Ukrainian President Volodymr Zelensky is calling for Ukraine to become a full-fledged member of NATO and is traveling to the conflict zone in Donbas on Thursday.
J. Hawk at Southfront weighs in with his assessment of a “Donbass-2021”: https://southfront.org/the-donbass-war-of-2021/
Ever since assuming office, the Biden Administration has been probing countries it designated as America’s enemies for weaknesses through a variety of provocations. So far this approach has not had any successes. China plainly told Biden’s SecState Blinken to go packing, Iran is showing no eagerness to kowtow to Washington under new management, and Russia itself has stayed the course, brushing off verbal attacks and promising either in-kind or asymmetrical responses to any new chicaneries from Washington or Brussels.
That does not mean that Washington has acknowledged defeat. Unwilling to concede, it is liable to escalate a crisis situation elsewhere. Since Navalny’s perennial “poisonings”, “hunger strikes”, and “leg pains” have not had the desired effect on Western governments and his life and health are moreover quite secure in a Russian prison, so the prospect of a new war in Eastern Ukraine is back on the agenda, and the opponents of Nord Stream 2 now have two things to pray for: Aleksey Navalny’s death and a Russia-Ukraine war.
Zelensky on the Spot
The Russian government has made it clear on numerous occasions that it is adhering to the Minsk Agreements, will not abandon the Donbass, but at the same time will not escalate the situation out of the desire to minimize the damage to all concerned. In practical terms it means a continuation of “coercive diplomacy”. Russian military force will be used only if Ukraine attempts to create facts on the ground through offensive action. For that reason it is unlikely in the extreme that Russia will be the one to escalate first. It is worth remembering that both the summer 2014 campaign and the winter 2014/15 campaign were initiated by Kiev which first sent troops and bombers to suppress the then-peaceful protests against the Maidan and referenda to secede, and then to hope to quickly resolve the stalemate. Both operations ended in failure through the efforts of the hastily assembled and armed militias of the breakaway republics, with some “Northern Wind” military support that decimated Ukrainian forces.
Poroshenko survived the disasters that shredded the Ukrainian military thanks to the alliances he’s made with the nationalists while preparing for the Maidan. Zelensky’s position is considerably weaker and more vulnerable to the consequences of a military defeat. Having been elected on a promise to end the war in the Donbass, he has already badly disappointed his supporters on that score. But his transformation into a warhawk, perhaps best characterized by his awkward appearances on the front lines wearing an ill-fitting helmet and a remarkably short armor vest, has not earned him even grudging respect from the nationalists and neo-Nazis on whose shoulders much of Ukraine’s war effort rests. While Poroshenko could get out of many a tight spot with his “Cynical Baderite” jacket, Zelensky is now a very lonely person in Kiev, a hostage to the decisions of Ukraine’s National Security and Defense Council whose decisions he automatically signs, in contrast with Poroshenko who often simply ignored them.
In practice it means that Zelensky might be in process of being a scapegoat for Ukraine’s all-but-inevitable defeat at the hands of Russian forces hastening to aid the republics in the event of Ukraine’s military scoring early victories. Blackmail might be playing a role in Zelensky’s calculus too. There were persistent reports in March of an imminent release of a documentary implicating Zelensky’s office in the failure of Ukrainian intelligence operation to lure Wagner associates to Ukraine in order to imprison and try them. At the same time, if Zelensky sends his military to a defeat, his reputation will be gravely damaged, possibly to the point of forcing him to resign and even endangering his life. His nervous activity of the first week of April, including a total non-sequitur of a visit to NATO headquarters in order to plead for Ukraine’s quick admission to the alliance, is indicative of a man in a tight spot with no easy ways out.
Resistible Force Meets Immovable Object
Zelensky might be in a less anxious mood if he had a reliable military instrument to wield. The Ukrainian Armed Forces are not that instrument. While the Russian military entered 2014 rather unprepared for the prospect of high-intensity land warfare thanks to the Serdyukov reforms that made the brigade the main tactical unit, since that time much lost ground has been recovered through the reactivation of several divisions and armies, such as the First Guards Tank Army, and modernization of Land Forces’ equipment. Russia’s military today is a considerably more impressive force than it was seven years ago.
Meanwhile Ukraine’s armed forces stagnated. Unmodernized T-64 remains its most numerous main battle tank while production of light armored vehicles proceeds at a trickle. Considering that artillery has been the most active arm in the years of static warfare along the line of separation, Ukraine’s “god of war” remains in poor shape and is suffering from ammunition shortage. In the last decade, Ukraine has suffered seven major ammunition depot explosions, in addition to the tremendous expenditure of munitions during the 2014 and 2015 battles and the occasional escalations of shelling since. Since Ukraine is a failing state that cannot even maintain its crumbling civilian infrastructure, it is little wonder that it has failed to establish domestic munitions manufacture. It did receive some supplies of weapons and munitions from NATO member states which have stores of Soviet-pattern weapons themselves, most notably Bulgaria, but little in the way of heavy artillery munitions. Since Ukraine also does not manufacture artillery pieces, specifically the technology-intensive barrels, for either its tanks or howitzers, the existing artillery park is being gradually used up, and every shell fired not only diminishes existing reserves but also adds to the wear and tear of the artillery pieces. An effort to provide cheap indirect fire capabilities by procuring 120mm “Molot” mortars manufactured in a factory owned by Poroshenko did not live up to expectations. There have been several cases of these mortars bursting during live fire exercises, with dire consequences for their crews. And if a simple technology of a mortar cannot be mastered by Ukraine’s defense industry, what success can it have attempting more challenging tasks?
Nor is the human factor any better. To borrow Wellington’s characterization of his own soldiers, UAF rank and file are “scum of the earth, enlisted to drink.” Military service remains highly unpopular and attracts only those who cannot find lucrative employment in the civilian economy—or abroad. Draft evasion and bribery of military recruitment officials is widespread, leading the Rada to drastically increase penalties for such activities to include lengthy prison terms. Even if such measures do not result in an exodus of able-bodied males out of the country, they are hardly likely to fill the ranks with motivated recruits. In the first week of April 2021 alone, Ukrainian forces have lost on average one soldier a day to non-combat causes, which included alcohol and drug overdoses, careless handling of weapons, suicide, and murder. The single greatest killer of Ukrainian soldiers, however, are their own minefields, which have killed 57 soldiers and injured 126 between July 27, 2020 (the beginning of the last ceasefire) and April 3, 2021, a statistic indicating a very low level of training and discipline.
Units themselves remain understrength. Some of the brigades are short of 60% of enlisted personnel and 30% of officers. Troops’ low morale translated into not only irregular and erratic training but also into poor equipment maintenance habits. An inspection of the 59th Brigade whose results fell into the hands of Novorossia intelligence services revealed that as of March 2020, some 60% of the brigade’s heavy weapons and vehicles were either greatly behind their maintenance schedule or were altogether unserviceable. The brigade has not held any maneuvers because the fuel supplies delivered to its logistics units never made it to the actual tactical subunits, suggesting theft by brigade’s leadership.
For all of the above reasons, a Ukrainian military operation, even a limited one, seems unlikely in the immediate future. The very visible Ukrainian troop movements meant that no element of surprise could be achieved. The aim appears to have been to relocate sizable formations to the Donbass so as to provide them with an ability to launch a quick, almost no-warning attack in the future, after Novorossia’s vigilance has been dulled by months of alerts and provocations.
Unless other events intervene, the period of greatest danger will be the Cossack Mace exercise held during the summer of 2021. The aim of the exercise which will take place under British leadership is to practice repelling a “Russian invasion” and then launching an offensive to secure the Ukraine-Russia border which would mean the end of Novorossia.
The fact of British leadership is particularly worrisome, since that country seems to have undertaken the task of “dirty tricks” on Washington’s behalf. In this instance, the “dirty trick” could be using the exercise to rehearse invasion of the Donbass immediately prior to its execution or, equally plausibly, the exercise itself might turn into an invasion. Foreign command of the invasion would be consistent with the Ukrainian trend of slipping under direct control by Western powers, and reminiscent of the role of the Military Professional Resources Incorporated (MPRI) in the planning and execution of Croatia’s Operation Storm in 1995.
One can’t even rule out direct British participation in such an operation, since a British-supported Ukrainian offensive against Novorossia forces would not be an offensive against Russia. The Defence Review released in March 2021 stated that the British Army would stand up four so-called “ranger regiments”, or battalion-sized formations whose aim would be to train “indigenous forces” and, if need be, actually go to battle with them in order to pursue British interests as part of the “Global Britain” project. An addition of professional British soldiers, in conjunction with British planning and execution of the operation, would provide a morale boost to the UAF and increase the chances of at least moderate success. Once embedded within Ukrainian forces, British troops would also serve as a deterrent against a direct Russian intervention.
An Ounce of Prevention
It may well be that the sudden Russian troop movements, the reinforcement of Crimea, and even Belarus’ deployment to the border of Ukraine, indicate contingency planning to launch an enveloping counteroffensive that would trap Ukrainian forces in a giant cauldron between the Dnepr River and Novorossia itself. At the very least, their presence forces Ukraine to divert forces away from its offensive grouping on the Donbass toward the border with Russia and even Belarus. It is also possible that the snap deployment was intended to pre-empt Ukraine’s increasingly obvious moves to mount an offensive during the summer, an offensive with direct foreign military employment. Russia’s pre-emption may also include a changed status of the Donbass. President Putin’s declaration that the rights of 600,000 holders of Russian passports in Novorossia has become a priority for him. An official recognition of Novorossia, combined with the placement of a Russian peacekeeper force, would stop the Ukrainian offensive dead in its tracks and moreover render any British participation unsustainable, though at certain diplomatic cost due to the withdrawal from the Minsk Agreements it would entail. The forceful Russian response has already had the effect of knocking not only Ukraine but, judging by the panicky demands for Russia to “explain” its troop movements, all of NATO. It communicated that under no circumstances will Ukraine enjoy tactical, operational, or strategic surprise. Now the question is whether Russia and major European powers can craft a diplomatic solution that will allow Zelensky to back down in a face-saving manner, thus ending the danger of war against the Donbass.
British “ranger regiments” and “greyzone warfare”
Use of NATO forces directly vs. unrecognized republics is no the same as use of NATO forces against Russia. Recognition by Russia would, on the other hand, create an additional layer of deterrence, though associated with risks for Russia.
If LPR/DPR are formally recognized by the Russian Federation which then spreads the umbrella of “extended deterrence” which, it should be noted, is backed by a potent nuclear arsenal. It would also mean Russia’s formal rejection of Minsk Agreements and of the Normandy Four format, creating a legal limbo fraught with unpredictability. NATO countries which committed themselves to preserving Ukraine’s “sovereignty and integrity” could hardly be expected to ratify this move.
Major minelaying operations by Ukrainian forces, which may be part of the offensive preparations. The greater the extent and intensity of mines on a certain sector of the front, the greater the ability to concentrate forces on other sectors—suggesting that whichever sectors of the front are not seeing a minelaying operations are being reserved as corridors for future assault, making them eligible for DPR/LPR defensive minelaying.
While we are on the subject of “British Ranger Regiments”, recall that crucial role of local air superiority. That means both USAF and USN (i.e., carrier strike groups or CSGs).
Also worth keeping in mind is the location of Marine Expeditionary Units. General positions are reported weekly by the US Naval Institute (https://news.usni.org/2021/04/05/usni-news-fleet-and-marine-tracker-april-5-2021).
We see the Eisenhower CSG in the Red Sea with Carrier Air Wing 3 aboard USS Dwight D. Eisenhower.
Approaching the European coast is the Iwo Jima Amphibious Ready Group and the 24th Marine Expeditionary Unit.
Wasp-class amphibious assault ship USS Iwo Jima (LHD-7), Harpers Ferry-class dock landing ship USS Carter Hall (LSD-50) and amphibious transport dock USS San Antonio (LPD-17) make up the ARG. Embarked detachments for the Iwo Jima ARG include Amphibious Squadron Four, Fleet Surgical Team (FST) Six, Helicopter Sea Combat Squadron (HSC) 26, Tactical Air Control Squadron (TACRON) 21, Naval Beach Group (NBG) Two, Beach Master Unit (BMU) Two, Assault Craft Unit (ACU) Two and Four, and Sailors from Amphibious Construction Battalion (ACB) Two.
The 24th MEU, which is headquartered at Marine Corps Base Camp Lejeune, N.C., consists of a ground combat element, Battalion Landing Team (BLT) 1/8, a logistics combat element, Combat Logistics Battalion (CLB) 24, and an aviation combat element, Medium Tilt-Rotor Squadron (VMM) 162 Reinforced. The 24th MEU also includes a Light Armored Reconnaissance detachment.
The 24th MEU is big enough to seize a beach or a port, or hold off an armored brigade – not big enough to conduct larger offensive operations.
While the Eisenhower CSG sits in the Red Sea, we have an announcement by Turkey’s foreign minister that it granted permission for US warships to use the Bosporus and Dardanelles straits to enter the Black Sea at a moment tensions with Russia over Ukraine. Given it revealed the initial notification was two weeks ago, a pair of American warships are expected imminently to enter the Black Sea.
The foreign ministry said in a statement while referencing the treaty that regulates passage through the straits: “A notice was sent to us 15 days ago via diplomatic channels that two U.S. warships would pass to the Black Sea in line with the Montreux Convention. The ships will remain in the Black Sea until May 4.“
Importantly, all of this comes just days after Ukraine’s president Volodymyr Zelensky personally urged NATO to immediately expand its Black Sea presence. He had said in a phone call with NATO Secretary-General Jens Stoltenberg, “Such a permanent presence should be a powerful deterrent to Russia, which continues the large-scale militarization of the region and hinders merchant shipping,” the president’s press service indicated in a readout.
But Russia’s Defense Ministry on Thursday announced naval maneuvers of its own, confirming that it’s moving more than 10 navy vessels from the Caspian Sea to the Black Sea in order to conduct naval exercises.
With the rival naval build-up on the Kremlin and Ukraine’s doorstep, and with the mutual amassing of troops on either side of the border… what could go wrong?
Tim Knight (Slope of Hope) on “Cruisin for a Bruisin”: https://slopeofhope.com/2021/04/cruising-for-a-bruising-4.html
I believe the entire cruise industry has topped out; each of these three cruise giants have stalled beneath years of overhead supply and, I believe, are sailing into treacherous waters:
"Tubes one and two, fire when matched!"
Robert Gore teaches some great truths in his “Everything I Know About Business I Learned From The Godfather.”
I grew up in that neighborhood so I never needed to read Gore. I got it every day. Bodies dumped in allies, Grazy Joey Gallo, Colombo. I lived within 200 feet of Don Carlo Gambino’s house. Very generous to all the kids visiting for trick or treat. Safest block in Brooklyn.
One of my favorite movies is “Margin Call.” Jeremy Irons plays John Tuld who runs an investment bank who suddenly finds itself sitting on illiquid assets far in excess of their risk capital.
Tuld has some great quotes as risk management briefs the executive committee, including “There are three ways to make a living in this business. Be first, be smarter, or cheat.” Knowing they need to exit ahead of market recognition of the bottom falling, Tuld plans to exit his positions ahead of everyone else.
Navesink offers a great summary of the Archegos debacle: https://navesinkinternational.com/2021/04/04/archegos-the-questions-nobody-asks/?utm_source=mailpoet&utm_medium=email&utm_campaign=Navesink-International-April-2021.
Unlike “John Tuld”, Archegos wasn’t first to the exit. Nor was CS.
There has been a lot of press articles on the Archegos blow-up already, but many important questions have still not been asked.
The factual background
- Archegos Capital Management is a family office, which manages the money of Sung Kook “Bill” Hwang since 2013. Hwang is a “Tiger Cub”, a former PM/Analyst from famous Tiger Management. Hwang was managing $500m of his own money, which he earned through his role as a portfolio manager in the previous decade.
- Hwang started as a stock Salesman in early 90’s at Hyundai Securities. After a legal battle which started in 2009, Hwang and his firm Tiger Asia Management pleaded guilty in 2012 to insider trading & stock manipulation charges. They settled $44m with the SEC and HKD 45m with the HK Securities and Futures Commission.
- Archegos is actually the new name of his old company Tiger Asia Management. The firm is based in New York, since Hwang was banned from trading in Hong-Kong in 2014, as well as other Asian markets in which he specialized.
- Archegos held large concentrated bets in a few companies, notably ViacomCBS, Discovery, Baidu, Tencent and Vipshop.
- Besides his own stock positions (already large), he also held stocks synthetically through swaps at prime brokers.
- The primes didn’t know of the extent of his other prime relations and how large the positions were. The overall position was not $10bn, but more than $50bn – rumored to reach $100 bn.
- The list of affected primes is increasing. Only JP and Deutsche seem to have escaped that wreckage. JP, because they refused to offer services to Archegos, and Deutsche, because they were quick to offload positions.
- His large direct and synthetic acquisitions pushed the stocks up, often becoming one of the largest shareholders, just with regular stock ownership.
- It is speculated that Hwang accepted, if not bet, on the stock rise since momentum traders would have to follow-up and purchase more shares. The stock would also attract activist retail traders (think “a new Gamestop!”)
- ViacomCBS notably went up 300% in early 2021, surely thanks to its well-delivered online movie platform Paramount+, but surely also thanks to Hwang’s purchases.
- Unfortunately, late on March 22nd, ViacomCBS announced a $3 bn stock and convertible bond sale to cash in on its $100 stock price. The stock dropped 10% on the open.
- Analysts announced stock downgrades. The stock loses another $20 in the next few days.
- On March 25th, some of the prime brokers called Archegos on margin, or at least to sell some stocks to free capital and meet the margin call. Hwang adamantly refused. A posteriori, we can guess that he would never have freed enough capital, and that the stock sale would have generated more margin call, starting a snowball effect.
- The primes talked to each other that day. Credit Suisse wanted to give him a few days. Goldman and Morgan Stanley seized the collateral instead.
- On Friday, March 26th, and maybe during the weekend as well, Goldman sold $3.3bn of ViacomCBS collateral via block sales before the open. Deutsche quickly unwound $4bn of shares, notably to Marshall Wace. Morgan Stanley and Wells Fargo followed. The stock ended the day around $45, down ~50% from its top.
- On Monday, Zurich time, Credit Suisse announced that it faces a “highly significant loss”. Its share fell 21%. The rumor mill indicates $4-5 bn of losses. The firm, which recently took losses for the Luckin Coffee fraud, the Greensill Capital collapse, as well as a laundry list of other compliance issues, is now considering exiting its CRO and its investment bank head (respectively Lara Warner and Brian Chin). Closer to home for the shareholders, Credit Suisse has a CHF1.5 bn ($1.6bn) share buy-back in progress, and it is now at risk.
- Nomura announced a $2bn loss. The stock barely moved.
- JP Morgan estimates there is $10bn of loss spread between Wall Street banks.
The questions everybody asks
Archegos was estimated to have $10 bn of capital at the time of the events.
Note: by comparison, in 2007, Lehman’s leverage was 31, while its large mortgage securities portfolio made it highly susceptible to the deteriorating market conditions. On March 17, 2008, due to concerns that Lehman would be the next Wall Street firm to fail following Bear Stearns’ near-collapse, its shares plummeted nearly 48%. They subsequently pulled off a capital raise, and boosted its liquidity pool to an estimated $45 billion, decreased gross assets by $147 billion, reduced its exposure to residential and commercial mortgages by 20%, and cut down leverage from a factor of 32 to about 25. By September 2008, they were down to $1 billion.
Back to the Archegos story.
- At the time of its wreck, the fund was rumored to have 50-100bn of exposure through swaps. That would be a 5x – 10x leverage on an indicated capital of $10 bn. That level of leverage is rarely offered by primes. Only the biggest, most diversified and excellent risk manager hedge funds like Citadel or Millennium are offered that type of leverage. A concentrated stock picker would be offered probably around 2x, at best 3x.
- The reason Archegos was able to gain such high leverage, was because the primes didn’t know of the existence of so many other prime brokers (8?) supporting Archegos… in the same trades! There is here a structural issue at the confluence of confidentiality and leverage.
- Hwang had a checkered past. He was caught manipulating stocks, and trading on insider information. He was a persona non grata in Asia. Why was he offered so much leverage in the US? We all know that primes prefer big famous PMs to smaller less-known PMs, but there are some risk-management issues to be learned here.
- The fact that a fund was able to leverage so much – and costing so much to Wall Street – by hiding its multiple swaps is a glaring fault from a risk-management perspective.
- The world of prime brokerage and swap trading is competitive, and banks do not disclose to each other how much leverage they extend to their clients (or even which clients they have).
- In a world with low interest rates, the client-facing synthetic equity business is valuable. It is mathematically market risk-free (no VaR, only credit risk), while real money (institutionals and family offices) are considered very safe credit-wise. It is also profitable, with probably 20-40 bp margin, posted against a highly leverageable balance sheet.
- Building prime brokerage activities is not cheap – systems, staff, compliance, support functions, etc, require top dollars. Banks have heavily invested in the activity, because prime brokerage becomes highly profitable when it reaches a critical mass of large hedge funds and family offices.
- As a result, banks are bending over backward to attract and keep these top clients. This explains why Archegos was able to bend the rules and acquire extra leverage.
- The Archegos situation is also a problem from a regulatory perspective.
- There are no disclosure requirements for family offices, which are neither banks (heavily regulated) nor hedge funds (lightly and recently regulated). [Family offices are investment vehicles for a single investor. Because a 401(k) also fulfills that definition, a minimum of $100m in assets is usually considered as a minimum. If there are probably 50k individuals with that wealth, and 5-10k are managing their wealth themselves in a family office.]
- Family and multi-family offices are now managing an estimated $6 trillion in assets. For comparison, the ETF business is now around $7.5 tn, and it is highly regulated and closely monitored.
- Now, there is plenty of criticism already about the source of the wealth from wealthy families, or how they (mis-)manage their wealth, or how they influence the world… Some of these questions deserve to be asked if there is some wrongdoing. But I think also that people are entitled to some privacy. If Bill Gates wants to invest into farm land or Coca-Cola, that is his absolute right and none of our business. Which means regulating family office and private wealth like other asset managers is probably over-the-top.
The questions nobody asks
Now, there are inconsistencies in the currently available information. Here are some of the questions which needs to be asked:
- If Hwang started with $500m, where do the $10bn come from? Archegos is said to be a single-family office, and therefore has no other investors.
- So, Archegos would have leveraged $500m into $10 bn of assets by trading stocks on margin. A 20x leverage? Unlikely.
- Archegos accumulated gains from $500m to $10bn. A 20x gain over six years cannot happen unless you are highly leveraged. And if you are highly leveraged, the losses can be as fast as the gains.
- Or a combination of both.
- Anyhow, it is obvious that Archegos was highly leveraged.
- And if you have any doubt, that leverage would have shown in the Sharpe and volatility monitoring executed by the primes.
- We do not know the origin of the $10 bn he was indicated as managing. Was he managing money from other investors in his family office? If he was, he may be swimming with concrete shoes sooner than later.
- We have no true idea of Archegos positions. Right now, we only hear rumors on positions and leverages. JP says there is $10 bn of losses between the various PBs. Where is that information coming from?
- Hwang has managed a hedge fund. He knows the difference between long-only and long-short. Was he really long only, without market hedge, with his own money? Was he instead shorting stocks against his known longs, in a relative value play?
- The $50bn would be the gross capital, aka 2x $25 bn. That reduces the leverage by as much. But we haven’t heard of any short wins/losses.
- Also, even $25bn of S&P futures creates a lot of margin calls when the S&P goes from 2,500 to 4,000+…
- The prime-brokers would have had a conversation on March 25th to decide between themselves what to do with the Archegos situation. Such a conversation between primes is hard to believe:
- They are bound by confidentiality requirements. They simply are not allowed to discuss their clients’ positions to anybody (but regulators).
- The PM would have had to agree to the call, if not be present on the call. Why would Hwang have agreed to that call?
- Prime brokers talking between themselves of the overleverage? Credit Suisse asking for time? That’s not how it works. As soon as the PBs would have realized the extent of the leverage from the conversation, they would immediately have started liquidating the positions. The first one to rush to the door has a chance of making it alive. The 3rd or the 5th does not. It is unlikely they would discuss such a coordinated action, because they know that the other brokers were not going to respect the rule.
- How is it possible that PBs would have lent billions based on Archegos STATED (not deposited) AUM? Primes lend based on the money deposited on their account. If Archegos say that it is worth $10bn, but deposits only $1bn, a prime would only leverage the $1bn, not the $10 bn. So how could we reach $50 or $100bn of TRS?
- I have never met Hwang. Some of my contacts have. He doesn’t appear to be a perfect angel. Prime brokers are market professionals who have seen a lot, and they know how to read between the lines. He may be a messianic and charismatic presence (large charity donations, an openly strong God-believer, running bible groups…), but the insider trader and the rule bender are also visible. Settling $50+m with the top regulators for criminal charges is no small feat. How would so many prime brokers leverage someone with such a history and such a dubious character?
- Also, primes do not decide, but calculate, the allowed leverage. They take into account the type of risks (concentration, availability of information…). They use complicated formula and processes. It would be a major faux-pas to over-ride those processes, aka senior management involvement.
- Did the prime brokers really not know that he was building large positions through swaps? Maybe Hwang had good insider information and he was avoiding regulatory scrutiny by using swaps? If the brokers knew, then willful blindness could be another word to describe this situation.
- Could it be, that primes got additional information about Archegos that has not been disclosed yet, say an investigative letter from authorities for instance, and decided to unwind the positions for that reason?
IMO, we do not have enough information at this stage to truly understand what happened. In other words, the SEC needs to open an investigation… if it has not started already.
This investigation will be private, but some statements will surely follow in the months and years to come…
Clearly, somebody needs to explain where the $10 billion came from in words simple enough a golden retriever can understand.