Trend’s your friend until it ends.
And it looks like a trend just ended – specifically, the inflation (TIPS) – long-term Treasuries (TLT) ratio trend.
Time to reshuffle the deck to long-TIPS?
Inflation Breakout
Black Monday: October 19, 1987
Nothing was ever the same after that day.
From here, the Fed beginning a 34 year long suppression of interest rates at a level never seen before.
Global Macro Monitor tells the tale: https://global-macro-monitor.com/2021/10/18/black-monday-1987-inside-the-u-s-treasury-2/
The following exchange took place between President Reagan and reporters after the market close on Black Monday, October 19, 1987. Leaving to visit the First Lady in the hospital, President Reagan spoke just after the market lost over 20 percent of its value on the day.
Q: What about the market? Tomorrow will it go down again?
President Reagan: I don’t know. You tell me.Q: Is the market your fault?
President Reagan: Is it my fault? For what, taking cookies to my wife?Q: Reaganomics?
President Reagan: I just told you. Good Lord, we reduced the deficit over last year by $70 billion. And all the other things I’ve told you about the economy are as solid as I told you. So, no, I have no more knowledge of why it took place than you have.
Thirty-three years ago today, now infamously known as Black Monday, my grandfather, M. Peter McPherson, was Deputy Secretary of the U.S. Treasury and acting Secretary that day, while Treasury Secretary James Baker was in the air traveling to Europe. McPherson was the most senior Treasury official left in Washington to handle the crisis.
The stock market had already peaked in August after an almost 100 percent rally in the prior two years. By late August, the DJIA had gained 44 percent in a matter of seven months, raising concerns of an asset bubble, and had become very volatile as interest rates had been rising rapidly since bottoming in September of the prior year.
Similar to 1929, where the stock market peaked in early September, the markets had already begun to unravel, foreshadowing the record losses that would develop that Monday in October.
As the markets around the world began to crash, my grandfather convened with the U.S. Treasury’s Undersecretary of Domestic Finance and the Department Chief of Staff to discuss the government’s appropriate response. The Dow Jones eventually closed 508 points down, or a 22.61 percent, almost double the historic Crash of 1929, where the Dow fell 12.8 percent in one day.
Government Kicks Into Action
According to my grandfather, the situation demanded that his team put together a plan to calm the markets. The economy was doing fine, and there were no signs of recession. Real GDP growth came in at 3.5 percent in 1987.
Jitters about the U.S. trade deficit, rising interest rates, and the path of the U.S. dollar during the Plaza Accord are oft-cited as the fundamental reasons that triggered the crash, but nobody knows for sure. Trees don’t grow to the sky, and neither do markets. Stocks markets do what stocks markets do, keep their own schedule, and march to their own drummer.
The team’s conclusion at Treasury that day was the market was under severe strain for technical reasons and complicated by the new computerized program trading related to portfolio insurance. Nevertheless, the steep losses were causing significant dislocations in the financial markets.
Many large firms were under heavy liquidity pressure and were dangerously close to not making their margin calls and on the brink of failure.
My grandfather and his team placed a call to the then-new Federal Reserve Chairman, Alan Greenspan, only two months into the job, to encourage the issuance of a Fed statement that it would do whatever it takes to provide the liquidity to keep markets functioning.
It wasn’t the time to think about the policy’s broader economic implications, such as the potential moral hazard, as the plane was on fire and going down and desperately needed a rescue plan.
It was also clear Greenspan had been thinking along similar lines.
Fed officials drafted much longer statements for release, but Greenspan reasoned that a short, clear message would do the most to stabilize markets.
It is also important to point out that when Secretary Baker arrived in Europe late that day, he immediately began communicating with key finance ministers, such as those from Germany, Japan, France, and the UK to coordinate a global response to the financial crisis.
October 20
Greenspan issued his statement the next morning, October 20,
“The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.” – FRB
In typical Greenspan fashion, the statement was vague in methodology yet resolute in purpose.
The market opened down and continued falling, there were no buyers and it appeared, at one point, the global financial system was headed for a complete meltdown.
“Tuesday was the most dangerous day we had in 50 years,” says Felix Rohatyn, a general partner in Lazard Freres & Co. “I think we came within an hour” of a disintegration of the stock market, he says. “The fact we didn’t have a meltdown doesn’t mean we didn’t have a breakdown. – WSJ
Then at about 12:38 pm, with many stocks not trading and pressure growing to close the markets a miracle seemed to happen.
With the closing of the Big Board seemingly imminent and the market in disarray, with virtually all options and futures trading halted, something happened that some later described as a miracle: In the space of about five or six minutes, the Major Market Index futures contract, the only viable surrogate for the Dow Jones Industrial Average and the only major index still trading, staged the most powerful rally in its history. The MMI rose on the Chicago Board of Trade from a discount of nearly 60 points to a premium of about 12 points. Because each point represents about five in the industrial average, the rally was the equivalent of a lightning-like 360-point rise in the Dow. Some believe that this extraordinary move set the stage for the salvation of the world’s markets. – WSJ
The rest, as they say, is history.
My grandfather felt that the Treasury’s phone call contributed to Greenspan’s thinking and as he made the decision to issue a statement to calm the market. The statement was the most critical event in stabilizing the markets and preventing substantial economic damage to the U.S. and the global economy.
My grandfather spoke about how the simplicity of the message prevented speculation while instilling confidence. Not unlike ECB President Mario Draghi’s, “whatever it takes” July 2012 speech, which saved the Euro currency, the European banking system, and ultimately the European Union during their debt crisis in 2011-12.
The Birth Of Stock Market Moral Hazard
Some argue, including one of the regular authors on this website, the Fed’s response to Black Monday ushered in a new era of faux investor confidence and the moral hazard that the central bank will always backstop falling markets. Thus, forever distorting market risk and real price discovery and contributing to the current boom-bust asset market cycle the global economy now experiences and will be extremely difficult to reverse.
Global Macro Monitor (GMM) often argues, which is not necessarily my own opinion, what was supposed to be a one-off market intervention in 1987 has now become the norm, which monetary policymakers will find it impossible to extract itself from, ultimately resulting in a major market and economic dislocation. We shall see.
President Reagan’s Confidence And Sense of Calm
During the crisis, President Reagan, whose administration my grandfather served several key roles in, was an excellent communicator and never once conveyed a sense of panic in October 1987.
Though not having a financial background, President Reagan did have a degree in economics and understood the nature of markets and how they coveted a sense of calm and leadership from the government during such a crisis.
The following video is President Reagan speaking to the press at the White House on Black Monday as he is preparing to board Marine One to visit the First Lady in the hospital.
Skip to the dialogue, which starts 5:40 minutes in.
Note President Reagan’s incredibly calm demeanor and sense of confidence after the most massive stock market crash in U.S. history.
Living in Potemkin World
The Burning Platform: https://www.theburningplatform.com/2021/10/17/living-in-a-potemkin-world
“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.” ― George Orwell, 1984
“Don’t you see that the whole aim of Newspeak is to narrow the range of thought? In the end we shall make thoughtcrime literally impossible, because there will be no words in which to express it.” ― George Orwell, 1984
I never thought I would experience the dystopian “fictional” nightmare Orwell laid out in his 1949 novel. Seventy-two years later and his warning about a totalitarian society, where mass surveillance, repressive measures against dissenters, mind control through government indoctrination and propaganda designed to convince the masses lies are truth, fake is real and the narrative can be manipulated to achieve the desired outcome of those in power, have come to fruition.
Everything is fake. I don’t believe anything I’m told by the government, the media, medical “experts”, politicians, military leadership, bankers, corporate executives, religious leaders, financial professionals, and anyone selling themselves as an authority on any subject matter. We are truly living in times of mass deception, mass delusion, and mass willful ignorance.
The term Potemkin Village comes from stories of a phony movable village built by Grigory Potemkin in the late 1700’s to impress his former lover, Catherine II, during her journey to Crimea in 1787. He supposedly erected fake villages along the banks of the Dnieper River, as her vessel sailed by, to impress her with the progress he was making on her behalf. After she passed, he would have the village disassembled and then reassembled further along downstream.
I guess this was an early version of fake news, though I am sure there were also plenty of falsities and propaganda in the newspapers of the time. But, in our current day, oppressors have taken lies, falsities, miss-truths, and propaganda to heights never conceived by Edward Bernays, George Orwell or Joseph Stalin.
Any semblance of a Constitutional Republic given to us by Franklin and his courageous fellow revolutionaries has dissipated, as decades of delusion, debt, decadence, and degeneracy have sapped any trace of revolutionary spirit, desire for freedom, love of liberty, or aspirations of self-reliance and self-responsibility among the masses. When you step back and observe how we got to this point in history, you realize it wasn’t a mistake, but a plan by those who control the levers of power, with a goal of accumulating immense riches and total dominion over those they consider nothing more than disposable chess pieces in their game of building a new world order.
We are nothing more than parasites to these tyrannical power-hungry satanical fiends. They have proven they will use any means necessary to achieve their evil ends. The last two years have pulled back the curtain to reveal the oligarch globalist bloodsuckers who have been draining the lifeblood from our nation. The enemies have been exposed by their lies and misdeeds.
For most of the past century the ruling class has been able to implement their methodical pillaging operation utilizing Huxley’s “soft” dystopian methods versus Orwell’s “hard” dystopian techniques. Huxley, who at one time was Orwell’s French teacher in high school, wrote a letter to Orwell shortly after the publication of 1984 where he put forth his vision of the future:
“Within the next generation I believe that the world’s rulers will discover that infant conditioning and narco-hypnosis are more efficient, as instruments of government, than clubs and prisons, and that the lust for power can be just as completely satisfied by suggesting people into loving their servitude as by flogging and kicking them into obedience.”
As contemporaries, Huxley (Brave New World – 1931), Bernays (Propaganda – 1928), and Orwell (1984 – 1949) all agreed those wielding the power of government, whether seen or unseen, use propaganda techniques to mold the minds of the masses in ways conducive to keeping them in power. Huxley and Bernays believed people could be controlled through mind manipulation, materialism, entertainment, and pharmaceuticals. Orwell, in the wake of 65 million deaths in the space of seven years, and the Soviet totalitarianism in Russia, foresaw a future with a boot stomping on a human face forever.
From 1950 until 2000, Huxley and Bernays’ view held sway, as Americans were enthralled by consumption, sports, movies, technology, and the miracle of living far above their means through plentiful debt provided by Wall Street bankers and their Federal Reserve lackeys. We were so distracted by amusing ourselves, we allowed oligarchs and their highly compensated apparatchiks in government, the media, the military, and the corporate world to hijack and ransack our country for their enrichment.
Neil Postman in his 1985 book Amusing Ourselves to Death compares and contrasts Orwell and Huxley’s views of dystopian tyranny:
“What Orwell feared were those who would ban books. What Huxley feared was that there would be no reason to ban a book, for there would be no one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny “failed to take into account man’s almost infinite appetite for distractions.” In 1984, Huxley added, people are controlled by inflicting pain. In Brave New World, they are controlled by inflicting pleasure. In short, Orwell feared that what we hate will ruin us. Huxley feared that what we love will ruin us.”
Since 9/11 the tables have turned. The implementation of the pre-written Patriot Act and initiation of the surveillance state, as revealed by Snowden and Greenwald, has ushered in a new Orwellian era where a truncheon to the skull and boot on the face supplements the endless technological distractions and incessant propaganda spewed by the legacy media networks and rising social media censorship cabal.
There has clearly been a coalescing of the government, Surveillance state, media, military, Big Tech, Big Pharma, and Big Business to seize the power, control and wealth of the planet and put it in the hands of the few. The Build Back Better marketing campaign, with the goal of a new world order, controlled by oligarchs like Gates, Soros, Bezos, Schwab, Zuckerberg, and Bloomberg, is not a wild-eyed conspiracy theory. It is a work in progress.
The level of brazen dishonesty and blatant criminality among those who portray themselves as leaders and experts in our debauched society has reached astronomical levels over the last two years. There are no trustworthy politicians. No trustworthy corporate executives. No trustworthy military leaders. No trustworthy scientists or academics. They have all been captured and are financially beholden to those controlling the purse strings.
It’s always about the money and power that comes from having money. If you are paid handsomely to lie, you will lie. The truth is meaningless to those who seek power and control. Suppression of the truth is more financially rewarding to those seeking world domination. This entire engineered pandemic scheme has exposed this fact.
A virus, released accidentally or purposely from a Chinese bio-weapon lab, funded by Anthony Fauci, was weaponized and marketed as the greatest threat to mankind in world history, as a means to cover-up a financial system ready to implode, unseat a president through fraudulent mail-in ballots, enrich the wealthiest men on the planet, test how far totalitarian measures could be pushed, and roll out of an experimental gene altering therapy that may or may not be part of a bigger population culling operation promoted by Gates, Schwab and the rest of the Davos crowd. What we do know is this virus only kills very old, very sick, and very obese people. It’s a virus with the largest marketing campaign in world history, paid for with your tax dollars.
With a 99.7% survival rate, there should have never been lockdowns, school closures, mandatory masking, vaccine mandates, or elevating criminal mass murderers like Fauci to sainthood status. The elderly in nursing homes and hospitals should have been protected. Instead, they were slaughtered by Democrat governors putting infected patients into their midst.
Safe and effective early treatment with ivermectin and hydroxychloroquine would have saved hundreds of thousands of lives, but the corrupt medical “experts” were bribed by Big Pharma to push these untested, ineffective, dangerous vaccines on a fearful public with promises of a cure. More lies. The “vaccines” do not keep you from catching covid, spreading covid, being hospitalized with covid, or dying from covid. In other words, it is a complete and utter failure.
When you then see Fauci, Biden, Walensky and their Hollywood marketing machine demanding vaccine mandates and vaccine passports to entitle you to basic human rights, you realize this has never been about your health or the good of society. This dementia ridden joke, play acting as president, is doing the bidding of the invisible government, as documented by Bernays, in implementing a social credit system styled after the communist China totalitarians they admire.
The un-vaxxed will soon be treated like the Uyghurs in China, placed in internment camps until we see the light, unless we start to fight back NOW. The WEF cadre of captured politicians positioned in countries across the planet have been activated to implement the Build Back Better plot to achieve their goal of a new world order controlled by tyrannical oligarchs and their highly compensated bureaucrat servants.
They have been testing their totalitarian methods in countries with smaller populations (New Zealand, Australia) to see how far they can push their citizens before they push back. When the protests begin to get violent, they back off and pretend to reduce restrictions, then re-institute the lockdowns and restraints on freedom after hyping some new variant. As Bernays claimed, those in control of society know how to psychologically manipulate and mold the minds of the masses through the use of fear, greed, rewards, pain, threats and lies.
We have entered one of the most dangerous periods in world history, as this engineered crisis is being commandeered by sociopathic totalitarians to implement their warped demented plans to destroy the existing societal structures and economic systems in order to build back better under a centralized communistic authoritarian techno-gulag configuration designed to benefit the few at the top, while keeping a boot on the face of humanity forever. When you understand their end goal, much of the seemingly incomprehensible decisions being made by Biden and his handlers come into clearer focus.
It is difficult to step back and try to observe the current state of affairs in an impartial manner when those manipulating the narrative are intent on creating conflict, emotional reactions, anger, and outrage. Pitting us against each other and distracted by daily concocted outrage porn spewed by the completely captured corporate media outlets, allows the oligarchy (billionaires, bankers, politicians, mega-corps, Deep State) to continue their plunder and pillage crusade unhindered and undetected.
They are counting on their decades long social indoctrination program, known as the public school system, to keep the masses from thinking, questioning, or recognizing they are being screwed over the people they believe are looking out for their best interests.
Not only are the dark forces currently ruling the earth not telling the truth, but they have a far greater power in keeping silent about the truth and suppressing it when it rears its ugly head. The truth would set us free, so it is vital for the totalitarian propagandists to keep it from being heard or seen by the masses. Huxley realized during the last Fourth Turning that if you controlled the narrative and suppressed the truth, you could influence opinion much more effectively.
“Great is truth, but still greater, from a practical point of view, is silence about truth. By simply not mentioning certain subjects… totalitarian propagandists have influenced opinion much more effectively than they could have by the most eloquent denunciations.” – Aldous Huxley
The current batch of autocratic techno-propagandists have tools which make this truth suppression far easier than it was in the 1930’s and 1940’s. With six mega-corporations dominating the mainstream media outlets, they easily coordinate their messaging and can jointly ignore anything which undermines their predetermined narrative. The examples of ignoring, silencing, or censoring the truth over the last two years could fill hundreds of pages, but a few examples will suffice to make the point.
In September 2019, the financial system began to shudder and quake, with overnight repo rates of 10% indicating tremendous strain. The MSM kept silent as the Fed reversed their tightening and resumed QE to infinity. The press has never questioned the trillions created out of thin air by the Fed to prop up this debt bloated carcass, even as the economy surpassed the GDP before this engineered scamdemic. Why doesn’t 60 Minutes do an expose on why the Fed continues to keep interest rates at 0% when inflation is raging in excess of 10%? Complete silence on issues which hurt the average person the most.
The entire Russiagate Deep State coup against Trump was built on lies, misinformation and suppression of facts by the compliant co-conspirators in the media. Obama, Hillary, Comey, Biden, Brennan, Clapper and a myriad of other traitorous filth conspired against a sitting president and the media kept silent about the facts. The most blatant example of a complete cover-up of the truth by the MSM and the Silicon Valley social media censorship police was, and still is, crackhead Hunter Biden’s laptop during the final days of the presidential campaign.
There is unequivocal proof Hunter Biden and the Big Guy were shaking down foreign governments for cash, influence peddling, and threatening foreign leaders who dared to look into their slimy traitorous dealings. All of the left-wing media outlets either ignored the story or called it Russian disinformation, because they had to get Biden elected. Twitter and Facebook censored and banned anyone putting forth the facts of this story. Then issued fake apologies afterward.
But that was just the beginning. The halt to vote tabulations in the middle of the night in all the swing states, with Trump significantly ahead, was not reported by the press. Fake stories about burst pipes were promulgated. Vote counting irregularities and truckloads of missing ballots didn’t happen if the media didn’t say they happened. Video surveillance of fake ballots being added to the counts was not shown by the media outlets.
The Washington Post and NY Times just applied the same language about conspiracy theories and the most secure election ever to override the substantial factual evidence showing massive voter fraud in the key swing states. Whenever evidence was presented on social media platforms, the person was banned, and their evidence disappeared. Zuckerberg needed to make sure the $420,000 he spent to swing the election to Biden was not wasted. By not reporting on the Arizona audit results, the huge irregularities found never happened. Right?
Since the installation of Trojan Horse Joe, the level of silence, suppression and censorship of the truth has reached new heights. Of course, the worst attack on democracy since Pearl Harbor, and far worse than 9/11, was the armed selfie insurrection of January 6, during which no one was armed except the black cop who murdered an unarmed white woman. The media, who gleefully exposes every detail of a cop’s life when they immobilize a drug addled black criminal resisting arrest who died of an overdose, seemed completely uninterested in even trying to identify the cop who murdered Ashli Babbitt.
Silence benefited Biden as they spun the false narrative about the Capitol being attacked and Capitol police being murdered. Pelosi and her sidekicks “Shit My Pants” Nadler, “Crying” Chuck Schumer, “Fartman” “Fang Fang Banging” Swallwell, and “Bug Eyes” Schiff tried their darndest to elevate this milling about by idiots dressed in buffalo regale, FBI plants, and ANTIFA CNN correspondents to an insurrection, but were laughed at and ridiculed by anyone with eyes. Only the couple thousand people in the country, who still watch MSNBC and CNN, believed them.
These boobs, along with their FBI “undercover” domestic terrorists, were further discredited and ridiculed when they attempted to lure normal Americans into another trap at the J6 rally but failed miserably. These are the same people trying to make you believe the border is secure, and hundreds of thousands of third world parasites are not being shipped into swing states across the country. Just pretend it isn’t happening, don’t report on the invasion, and in the minds of the ignorant masses, it isn’t happening.
In Part Two of this article, I will document the never-ending blizzard of lies used to create enough fear and panic in the world from this pandemic of ignorance to initiate the globalist Great Reset agenda and how we need to fight back now before it is too late.
Econophysics2020:
“Unlimited power in the hands of limited people always leads to cruelty.”
― Aleksandr Solzhenitsyn, “The Gulag Archipelago 1918-1956“
Insurrection!!!!
We need a 10-15 Commission!!!
Where are trigger-happy Capitol Cops when they are most needed?
Call up the National Guard!!!
Deploy the barbed wire fence.
Lock em’ up in solitary!!!
Not since 9-11 and the Civil War!!!
God save the Republic!!!!
The woke storm DC: Dozens of ‘extreme’ climate change activists dubbed ‘People vs Fossil Fuels’ barge into Interior Department, leaving ‘multiple cops and security’ injured in scenes reminiscent of Jan. 6 Capitol riots
- Police clashed with dozens of protestors who forced their way inside the Interior Department on Thursday
- Demonstrators held five days of protests in DC calling for Biden to end all fossil fuel projects
- Multiple security officers were injured and 55 demonstrators were arrested at the Interior Department
- Activists forced their way in to hold a sit-in, which critics claimed was reminiscent of January 6 riot
- The protest was part of ‘a historic surge of Indigenous resistance’, activists said
- Footage captured protestors who made it inside the Department of the Interior who linked arms for sit-in
By GINA MARTINEZ FOR DAILYMAIL.COM and ASSOCIATED PRESS
PUBLISHED: 03:17 EDT, 16 October 2021 | UPDATED: 11:17 EDT, 16 October 2021
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Dozens of climate activists have been arrested after they clashed with police in Washington DC and forced their way into the Interior Department building in scenes that some have called reminiscent of the US Capitol riot.
An Interior Department spokeswoman said a group of demonstrators rushed the lobby on Thursday, injuring multiple security officers, at least of whom was taken to a nearby hospital.
Police and protesters clashed outside the building, and officers used Tasers and batons against several unarmed protesters, representatives for the activist group said. The group said 55 participants were arrested.
The dramatic scenes came during five days of demonstrations in the capital organized by a Native American climate group calling itself ‘People vs Fossil Fuels’, which is demanding that President Joe Biden cease approvals for fossil fuel infrastructure and lead a renewable energy transformation.
Footage shared by Washington Post reporter Ellie Silverman shows protestors pushing their way into the Interior Department, while chanting ‘sign the treaty’ and ‘protect the water’.
An overwhelmed officer appears to flash his taser at the angry crowd gathered at the entrance to the federal building.
Scroll Down For Video:
Another video shows one protestor try to climb into the building through the door while the crowd cheers in support.
Footage also captured protestors who made it inside the Department of the Interior, who were linked arm and arm for a sit-in protest while officers look on.
Conservative critics quickly compared the scenes to those of January 6, when thousands of Donald Trump’s loyalists stormed the US Capitol.
Andy Ngô, a conservative commentator who frequently criticizes left-wing demonstrations, called the climate demonstrators ‘extreme’ and tweeted that it was ‘a scene reminiscent of Jan. 6.’
Interior Secretary Deb Haaland was traveling Thursday and was not in the building during the chaotic protest.
Haaland, a member of the Laguna Pueblo tribe in New Mexico, is the first Native American Interior secretary.
‘Interior Department leadership believes strongly in respecting and upholding the right to free speech and peaceful protest,” Melissa Schwartz, a spokeswoman for Haaland, said in a statement.
‘Centering the voices of lawful protesters is and will continue to be an important foundation of our democracy. It is also our obligation to keep everyone safe. We will continue to do everything we can to de-escalate the situation while honoring First Amendment rights.”
She said protesters who were arrested were taken in for booking.
The protest was part of ‘a historic surge of Indigenous resistance’ in the nation’s capital that started on Monday, Indigenous Peoples’ Day, outside the White House, said Jennifer Falcon, a spokeswoman for the Indigenous Environmental Network.
More than 100 people were arrested as protesters linked arms and sat along the White House fence line to call on the Biden administration to do more to combat climate change and ban fossil fuels.
Demonstrators defaced the Andrew Jackson statue at the center of Lafayette Park across the street from the White House was defaced with the words ‘Expect Us’ – part of a rallying cry used by Indigenous people who have been fighting against fossil fuel pipelines.
Jackson, a slave-owning president, infamously forced Cherokees and many other Native Americans on deadly marches out of their southern homelands.
Protesters also climbed a flagpole outside the Army Corps of Engineers office, demanding a stop to Line 3, an oil pipeline upgrade that was recently completed in Minnesota. The pipeline will bring tar sands oil from Canada to Wisconsin.
Falcon said in an interview that her group has no formal role in that protest, which she said was led by ‘autonomous, frontline leaders’ and ‘water protectors.”
The protests continued on Friday as Indigenous groups and other environmental activists marched to the Capitol.
Nearly 80 people were arrested on the fifth day of the ‘People vs. Fossil Fuels’ protest. That brings the total arrested during the week to more than 600, organizers said.
Under a banner declaring ‘We did not vote for fossil fuels,’ activists pressed Biden to stop approving new pipelines and other fossil fuel projects and declare a climate emergency.
Demonstrators urged members of Congress to ‘listen to the people’ who sent them to Washington and take urgent action to phase out fossil fuels that contribute to global warming.
Capitol Police said 78 people were arrested on obstruction or crowding charges. Three of those arrested also were charged with assault on a police officer.
Speakers said Biden was not following through on his promises to act on climate change.
‘It’s ridiculous. He promised, just like they’ve done in the past, “We’ll talk about it, we’ll bring it to the table.” Where’s our seat?’ asked Isabelle Knife, 22, a member of the Yankton Sioux tribe of South Dakota.
‘We haven’t had a seat. We haven’t been heard,’ Knife said. ‘It takes youth to be on the frontlines. It takes us to put our bodies on the line.’
White House press secretary Jen Psaki said the administration was ‘listening to advocates and people who have been elevating the issue of climate for decades.´´
Environmental activists ‘have important voices, and they´ve put climate on the front of the agenda when it wasn´t 10 years and 20 years ago,´´ Psaki said Thursday.
She encouraged activists and anyone who supports action on climate change to look at Biden´s proposals in a bipartisan infrastructure bill and a larger Democratic-only plan to address social and environmental issues.
‘He’s trying to push across the finish line … an enormous investment and commitment to addressing the climate crisis,’ Psaki said. ‘That´s in his legislative agenda that´s currently working its way through Congress now.’
‘It doesn’t mean his climate commitment ends once he signs this into law; it just means that’s what our focus is on now, and it will have a dramatic, important impact,’ she added.
What Next?
So here we are – ~150 pts below the 50 dma with what could be a sideways wedge forming.
No mans land.
If the market is going to recover, it needs a decisive move up over the 50-dma.
And so we wait
Bonds Away!
The US bond market may be closed, but it was fully open in China, and locals took advantage of this fact to do one thing: sell.
In the aftermath of our viral post “”Catastrophic” Property Sales Mean China’s Worst Case Scenario Is Now In Play“, China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its third round of (offshore) bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines.
Having already suffered the fastest drop on record, Chinese junk bond markets – where property developer issuers dominate – were routed once again as fears about fast-spreading contagion in the $5 trillion sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment. Meanwhile, China Evergrande Group’s offshore bondholders still had not received interest payment by a Monday deadline Asia time, Reuters reported citing sources.
But while Evergrande’s default is now just semantics, and one week after Fantasia shocked bondholders with a surprise announcement it too would stuff creditors just weeks after it had said its liquidity was fine, which sent its bond plunging from par to 74 cents in seconds…
… other signs of stress included smaller rival Modern Land asking investors to push back by three months a $250 million bond payment due on Oct. 25 in part “to avoid any potential payment default.” This was not expected, and Modern Land’s April 2023 bond plunged more than 50% to 30 cents on the day.
Elsewhere, Xinyuan Real Estate proposed paying just 5% of principal on a note due Oct. 15 and swapping that debt for bonds due 2023. Fitch Ratings called the move a distressed debt exchange while downgrading the firm to C. At least the two companies are relatively small: Modern Land and Xinyuan have $1.35 billion and $760 million of dollar bonds outstanding, respectively, according to data compiled by Bloomberg. In comparison, Evergrande has $19.2 billion.
Among the declines for high-yield issuers, China Aoyuan Group’s 6.35% note due 2024 dropped 13.2 cents on the dollar to 57.5 cents; Sunac’s 6.5% dollar bond due 2026 declined 9.4 cents to 57.9 cents, leaving both poised to close at the lowest-ever levels.
Kaisa Group, which was the first Chinese property developer to default back in 2015, also saw some of its bonds slump to less than half their face value while supposedly “safe” names such as R&F Properties, and Greenland Holdings, which both have prestige projects in global cities like London, were also widely sold.
Yields on Chinese junk-rated dollar bonds surged 291 basis points to 17.54% last week, the highest level in about a decade, according to a Bloomberg index.
ZeroHedge: https://www.zerohedge.com/markets/its-disastrous-day-all-hell-breaks-loose-chinas-bond-markets
And just to add insult to injury, China’s10-year government bond futures declined to a three-month low as the central bank’s latest liquidity draining weakened expectations of fresh monetary policy easing. Futures contracts on 10-year notes fall 0.4% to 99.14, the lowest level since July 12. 10-year sovereign bond yields rose 5bps, the biggest gains in two months, to 2.96%.
“It’s a disastrous day,” Clarence Tam, fixed income PM at Avenue Asset Management in Hong Kong, told Reuters, highlighting how even some supposedly safer “investment grade” firms had now seen 20% wiped off their bonds. “We think it’s driven by global fund outflow …. Fundamentally, we are worried the mortgage management onshore hits the developers’ cash flow hard,” he added, referring to concerns people could stop putting deposits down on new homes.
In other words, the dynamic we discussed over the weekend in which we explained why “China’s Worst Case Scenario Is Now In Play” is spreading from the biggest rotten apples – i.e., Evergrande, Fantasia – to collapsing confidence in the property sector, to credits that until now were seen as healthy and immune from a property implosion. In short, the bursting of the US housing bubble has moved to China, and yes – that culminated with the original Lehman moment.
Meanwhile, JPMorgan analysts highlighted how international investors were now demanding the highest ever premium to buy or hold ‘junk’-rated Chinese debt. There is now a whopping 1,200 basis point difference between the bank’s closely-followed JACI China high yield index and a similar index of investment grade AA-rated local Chinese market bonds, known as “onshore” bonds. The option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index (.MERACYC) is also at its widest ever.
“Evergrande’s contagion risk is now spreading across other issuers and sectors,” JPMorgan’s analysts said, demonstrating a rare talent for observing the obvious.
And while today may have been “disastrous” it could get far, far worse if the market loses faith that Beijing will bail out the bond market.
“We believe policymakers have zero tolerance for systemic risk to emerge and are aiming to maintain a stable property market, and policy support could be forthcoming if the deterioration in property activity levels worsen,” said Goldman head of Asia Credit Kenneth Ho.
Overnight we saw the first sign of such an implicit support in Harbin, the capital of northeastern Heilongjiang province, which became one of the first cities in China to announce measures to support property developers and their projects. According to a report on a website run by Harbin Daily, the city will offer as much as 100,000 yuan home-purchase subsidy to “talents” that meet certain requirements. The city would also make more existing homes eligible for housing provident fund loans to buyers; the moves are aimed at promoting stable and healthy development of the city’s property market, according to the document.
The cash-strapped property developer’s troubles and contagion worries have sent shockwaves across global markets and the firm has already missed payments on dollar bonds, worth a combined $131 million, that were due on Sept. 23 and Sept. 29.
While China’s property sector turmoil has so far been contained to the bond market, tensions amid offshore bonds could soon create headaches for the country’s equity traders, according to Gilbert Wong, head of Asia quantitative research at Morgan Stanley. High-yield credit spreads over comparable Treasuries are the widest on record — at about 1,866 basis points on an option-adjusted basis, data compiled by Bloomberg as of Friday show. But a measure of stock volatility has actually fallen so far this month.
Still, the pair has shown a close relationship in recent years, which suggests their divergence may not last. In the end, a crash in the stock market, where hundreds of millions of Chinese residents are invested, may be just the kick Beijing needs to wake it out of its no bailout stupor.
Peak Ponzi: Domino Theory
Evergrande:
Companies like Evergrande. Junk companies borrowing USDs at 20%+ comprising ~35 “significant” companies representing 12.5% of the current market cap of the Red Ponzi property sector has already lost some $500 billion to date.
These companies develop and sell the 85% of homes bought as investment property – speculators – facing to be a serious revaluation of home prices in China, as many of these homes are empty and are out of the price range for new homebuyers.
Source: Financial Times
Minsheng Bank. Lost over half of its market cap over the last few months and currently facing a default probabiltiy of ~20%.
Ping An. Insurer with a bit of toxic waste on the balance sheet starting witha property company called China Fortune Land. The investment portfolio is leveraged 10X, and the CEO and company are under regulatory investigations. Wealth management products sold to millions. Ping An is systemically important with dollar bonds spreads widening 40 bps last week.
Equity Market. $300 billion worth of margin loans – a lot of tinder waiting for a margin call.
And so, here we sit with global energy prices spiking throwing some deadweight into the mix.
Ball. Court. Germany: how do you like those 2000EURs/month heating bills?
Gold, Goats, and Guns: https://tomluongo.me/2021/10/06/european-energy-crisis-gas-you-think-burning/
The European Gas Crisis keeps hitting new high after new high as gas prices around the world go ballistic. While this isn’t just a European problem, if you read the MSM, that’s all they seem to care about.
You know, it snows in Japan as well folks, and China.
Prices keep skyrocketing in Europe because there is no shortage of idiocy at the top of the European power structure. The confluence of the pressurizing of Nordstream 2 with the release of the “Pandora Papers” and the beginnings of German coalition talks just after the beginning of Q4 should have everyone’s Spidey-Sense shutting down like your adrenals do after a long period of self-inflicted stress.
And honestly, whose adrenals aren’t on the verge of collapse after eighteen months of ‘flatten the curve,’ ‘follow the science,’ and ‘just roll over to the Communism, already, you disgusting plebe!’ that we’ve been going through.
I guess that’s yet another thing we have to try and factor into our analysis of what collapse is the most imminent?
Because when you put this gas crisis in Europe into its proper context it should be clear where the battle lines are being drawn as the extreme pressure cooker of today’s geopolitical landscape forces everyone off the sidelines and into the fray.
On the one hand we have natural gas prices in Europe approaching coffin corner. On the other we have Russia browning out gas deliveries to Europe. China is experiencing major energy shortages and the entirety of the coal delivery network around the world is buckling.
These are facts. There are more I could list but let’s stay focused here.
The thing that makes no sense, seemingly, is that no one has an answer why these facts exist in the first place.
Because all anyone official ever wants to do is blame the sneaky Russians to avoid their own responsibility for this.
Finally, after a couple of weeks of this howling, Russian President Vladimir Putin addressed the issue from their side.
I suggest strongly you read his remarks carefully. Because in there you’ll find a couple of ‘facts’ which make this entire crisis in Europe seem like yet another staged ‘false flag’ for political gain. Ready?
The two middle points are the ones the no one want to report on but are the key to the understanding of this.
Europe is engaged in a game of idiotic brinksmanship with its people and the capital markets over gas supplies. They do this to construct a narrative and distort markets for political benefit.
When the reality is that this entire ‘crisis’ is a manufactured one because of their unwillingness to bow to the forces their policies have unleashed.
Gas prices in Europe are this way because of Europe’s own mistakes in trying to remake its economy (Putin Point #4).
Moreover, Putin also urged Gazprom, as a gesture of good faith despite his misgivings, to ship gas through Ukraine even though it would be better to turn on other capacity.
“Gazprom believes that it is economically more viable, it would even be more profitable to pay a fine to Ukraine, but to increase the volume of pumping through new systems precisely because of the circumstances that I mentioned – there is more pressure in the pipe, less CO2 emissions into the atmosphere. Everything is cheaper, around 3 billion a year. But I ask you not to do this,” the President said.
Does this sound like the mustache-twirling tyrant that’s portrayed in the odious British, US and German media?
Of course not. Now, I’m not accusing Putin of being an angel here or anything, he’s throwing scraps back to people who have put themselves in a position to starve and freeze to death, both literally and politically.
The goal here is to highlight just how moronic the EU’s stance on energy has become, to finally to break up the logjam.
He’s happy to see Gazprom (and possibly Rosneft if need be) sell all Europeans as much gas as it can supply and they demand, but only on terms that benefit everyone, supplier and demander. As I’ve talked about in previous blog posts, the EU thinks they have a monopsony on Russian gas and because of this can dictate terms to them.
This is patently untrue, and Gazprom shifting around supplies for a few days here and there proves that point dramatically. Like Jay Powell draining the world of eurodollars with just five basis points, Putin and Gazprom can expose the the extent of Eurocrat mendacity with just a few days of slowing gas exports.
That’s why this brinksmanship over gas supplies and electricity prices isn’t aimed at the Russians, who clearly have other customers for their gas, but with the people of Europe themselves and the capital markets structured around one-sigma price volatility. They are now extremely vulnerable even if things begin to return to normal.
The Russian Bogey Man is simply the cover story for what is a much deeper and, frankly, much more disturbing game.
So, while Zerohedge is correct about gas supply brown outs in Europe it’s only partly for reasons abundantly clear to even first-year geopolitical analysts:
Flows dropped as Gazprom has booked only about a third of the gas transit capacity it was offered for October via the Yamal-Europe pipeline and no extra transit capacity via Ukraine.
Gazprom declined to comment. It has repeatedly said it was supplying customers with gas in full compliance with existing contracts and said additional supplies could be provided once the newly built Nord Stream 2 gas pipeline was launched.
Ball. Court. Germany.
Yes, Germany needs Nordstream 2. Hell, Europe needs Nordstream 3 if these Davos ninnies are wrong about Climate Change, which they are.
Germany is the country caught in the middle of this titanic battle for the future of the world and Davos is the group creating this false flag to force a shift in sentiment negatively towards Russia.
That’s what’s driving this current crisis, one that, I think, is now threatening the future of the European Union itself. If those are the stakes, then eventually someone will finally do the right thing. Putin just offered the smallest of olive branches. Now let’s see if the European Commission has three collective brain cells to rub together and figure out how to save face (and their backsides).
Beating up and demeaning your neighbor is not a winning strategy, nor is it a path to lower prices and stable markets. At some point they, in this case the Russians, realize the situation is exactly what it looks like from the outside, war. And, Putin is finally treating the EU commissars as enemy combatants because that’s who they are.
That’s why his comments were structured to put the onus of the crisis back on Europe’s leadership rather than blaming the people keeping the lights on.
Whenever things like this happen Capitalism is always blamed. But, it’s always Commie vandals like the EU Commission who created the problem, either deliberately with dumb things like the Third Gas Directive or malinvestment of capital which leaves the world vulnerable to a hot summer in Asia.
And this is the essential point no one wants to confront. The EU picked this fight purely for political purposes because they have an agenda — energy instability for political benefit — but it has come back to bite them in the ass.
Because, as I said, the markets are so tight it takes only a small shift in sentiment to see the prices of things with inelastic demand, like energy, rise dramatically with a marginal shift in either supply, demand or, in this case, both.
Russia doesn’t act this ‘by the book’ at this moment in time without a plan. Treating the EU like the enemies they are is the strategic play. Whining about it in the media only accentuates their weakness and lack of leverage.
My friends at Mittdolcino.com are positively despondent because they see this power play for how it affects Italy, which is that it will carve the country up into pieces over divergent needs for inflation and deflation between it and Germany since one of these two countries need to exit the Euro-zone.
There’s no way this massive ‘drop’ in Russian supplies to the EU occurs without a longer-term strategic plan by the Russians. Putin has made it clear he is fully fed up with EU shenanigans and this is the time for him to put the most pressure imaginable on Brussels to break the EU into tiny pieces.
How? It’s again, all about Germany.
When Nordstream 2 was announced and I was writing Gold Stock Advisor for Newsmax in 2013 I talked then about how the difference between how gold was accounted for between the ECB and the Fed. That put Germany squarely in the middle between the U.S. on one side and Russia on the other.
Russia and China still hadn’t signed the big deal for the Power of Siberia pipeline at the time. They are now working on Power of Siberia 2, which will open up the massive mineral deposits in Mongolia. So, even then, in my naïve way of seeing the world as a first-year geopolitical analyst, I understood that Russia’s foreign policy had to be focused on getting Germany to side with them versus the U.S.
The political establishment in Germany was never going to let that happen because under Obama Davos was running the operation to cleave Ukraine from Russia. To date, both have been partially successful. Both Ukraine and Germany are being torn apart from within as domestic leadership bows to internationals forces forcing them to pursue policies which go completely against their countries’ wishes and best interests.
So, now, fast forward to today. The day after the German elections brings a mess but with a highly likely outcome that the SPD will ally with the Greens and the FDP. With Christian Lidner (FDP) as Finance Minister (at least temporarily) we would have a German government at war with itself.
As Alex Mercouris brought up after I left the chat with Crypto Rich last week, the Greens are fracturing over the Russia issue. Part of them wants a restoration of good Russian relations, the other are neocon/Davos infiltrators trying to constantly move the goalposts on both Climate Change and geopolitics.
The SPD are pure Davos scum so expect nothing good from them. This is why I think Putin ‘shut off the taps’ the day after the election. Like everyone else, he can see what Davos is doing and doesn’t like it. So, in order for him to make his point he does exactly what he should: stop trading with those who have unofficially declared war on Russia and push the political scene in Germany to a breaking point.
Because here’s where this goes. Germany needs to either control the purse strings of the EU or it needs to leave the euro-zone and be independent of the sinking ship. Putin realizes that the best way to achieve this is to pour gasoline on a raging firestorm in the energy markets (oh, the humanity of the puns!) and remind German voters just who is truly responsible for their €2000/month electricity bills.
It’s not Putin. It’s Berlin. So, Berlin needs to sign off on Nordstream 2 and then ram it down the EU Commission’s throat. And they better do it soon because Winter is Coming, after all.
And they just voted for more of this while Merkel, who has been the biggest obstacle to AfD’s inclusion in any government, is leaving the scene. The CDU leadership got whacked across the board. Most of the big names will not be in the Bundestag this time around, so the party will be doing a lot of self-reflection and could finally become relevant again.
Inflation of the type Putin is ‘forcing’ on Europeans today is the type a country only recovers from with a political inversion. This is why today we’re seeing surprise rate hikes from Poland, for example. It’s why Serbia is begging Russia to increase gas supplies there and Hungary signed a 15-year deal to secure its energy future.
While there is no appetite for a political inversion in Germany today after last week’s vote, there will be in about 3 months if coalition talks stall. Because the ECB under Christine Lagarde cannot raise rates but is powerless to stop them rising ultimately if the market senses that there is no political leadership capable of reining it in.
That ship sailed a few months ago after the Fed called Lagarde’s hawkish bluff and actively drained more than $1 trillion from overseas dollar markets and just increased the capacity to drain even more, without tapering QE.
Now let’s go back to the Fed and Wall St. If there is a real backlash within some areas of the U.S. ‘big money’ against Davos which is showing up as Fed monetary policy, per my consistent analysis of the situation and events playing out to support it, then they are tacitly coordinating with Putin to give Germany what it wants, an excuse to leave the euro and conduct independent trade and energy policy.
Think about it. On the one hand the Fed is drying up dollars. On the other Putin is spiking energy prices making it impossible for Germany to fight inflation within the EU. On the third hand, China is cracking down on property speculation domestically, kicking out the foreign NGOs and reminding foreign investors that the rules in China are not the same as they are in the West.
You can and will lose all your money if you invest behind the Great Wall, as so many Evergrande bondholders just found out.
Now let’s square the entire circle. If Europe’s energy crisis is a constructed false flag event to spook capital, encourage speculators and effect political change, then can’t you make the same arguments for the concurrent fight on Capitol Hill regarding the Democrats, the debt ceiling and the spending bills?
Senate Majority Leader Mitch McConnell has been adamant that the Democrats do not need any help in passing a debt ceiling resolution. They can do it any time they want to. But, the Democrats won’t do this? Why? They are manufacturing a narrative that there is crisis on the horizon — default on U.S. bond payments.
This is the one outcome no investor wants to contemplate. So, the Democrats, like the Europeans, are arguing against themselves in order to blackmail the world into giving them their cookie or they will hold their breath until they collapse global markets.
Let me repeat. There is no debt ceiling crisis. There is no U.S. default crisis. There is only a bunch of Mafiosi on Capitol Hill doing what they’ve been told to do while purposefully scaring everyone into believing there is a crisis when none exists.
Do I have to invoke a classic Who song to make my point?https://www.youtube.com/embed/BfrUQA2tb6M?version=3&rel=1&showsearch=0&showinfo=1&iv_load_policy=1&fs=1&hl=en-US&autohide=2&wmode=transparent
What’s the goal? Chaos and the continued undermining of faith in politics, capital markets, energy production and seizing supply chains as we approach the winter in the Northern Hemisphere where susceptibility to pesky things like the flu, the latest iteration of COVID-9/11 and blatant political bullshit swells like a boil on the back of a government bureaucrat blocking a permit for some basic, but eminently important thing.
That Putin came out and told the world he’s ready to work with Europe to do his part alleviating the energy supply problems in Europe I’ve not heard one encouraging word from those that would benefit from this the most.
Their silence is deafening.
And that brings me back to Germany where, unless this gets resolved quickly, the most likely downstream outcome is Germany leaving the euro, reinstitute the Deutsche Mark, watch it fall vs. the dollar in the near term but outcompete the euro.
With the euro in freefall after a disastrous Q3 close and German Bunds getting prepared for their next big sell-off, perhaps, maybe, for the first time in a long time, the markets are beginning to wake up from their central bank induced SOMA injections and get real with the possibilities that forces are now aligned to do the unthinkable, break up the EU.
But that only happens with a political inversion where the CDU/CSU ally with AfD and the FDP to form a real government after the current parties can’t form a coalition or any three-way coalition formed fails as inflation crushes the German middle class.
If the AfD were smart now they would be blaming all of this on Merkel’s moronic energy policy. Now we’re seeing calls for delaying shutting down Germany’s nuclear reactors. They can’t import enough coal to feed the plants. BASF has shut down ammonia production, so food production is threatened.
There is no Agenda 2030 on the horizon if Germans freeze to death in their homes or get decimated by COVID-9/11 because they can’t afford to heat their homes.
This will crush France and Macron, overthrow Davos at the mid-terms here in the states and break the European Union in the process.
Germany is the lynchpin to the entire Davos edifice. Without a compliant and beaten Germany there is no further Great Reset. A Germany that breaks from the euro becomes a Germany that realigns with Russia and Eastern Europe. It’s a Germany no longer hell bent on internal European mercantilism and the establishment of the Fourth Reich through the EUSSR.
The German people keep asking for that policy to end but aren’t given the options by their leadership to make that happen. Then again, they keep giving their leadership just enough power to forestall their having to make a real decision. That decision is coming at them, fast.
As it is everyone across the West in various guises.
So, as as Powell under extreme pressure to go full MMT retard with five little basis points, Putin, with a few million BTUs of gas, is forcing open fault lines in the aristocracy that thinks it deserves to run the world. Together, if they simply sit back and continue to do nothing, can bring down the whole rotten edifice.
Fed End Game or “Ending the Game of Fed”
US debt is currently ~$29 trillion – up ~$6 trillion in 2 years.
All signs are Joe “10% for the Big Guy” intneds to double that rate this year even as supply chains are incapable of handing the modest economic growth to date.
No surprise, the 14% inflation we’re seeing (yes – it’s 14%) is where the dough is flowing.
That is, the ~$1 trillion/year yield suppression QE purchases by the Fed.
In 2018, rates broke to the upside and were doused.
However, this time, we have a constrained supply chain, Europe spinning out, Russia’s worsening food inflation and the prospect for the world’s largest wheat exporter to cap exports, and China running at low speed.
Commodity futures? Well, cotton’s price surge comes amid new concerns about the quantity and quality of the crops in top producers India and the US as harvest approaches. A pop in cotton import demand by China also undergirds the bullish tone.
Check out TLT (iShares 20 Plus Year Treasury Bond ETF) crumbling away as the world realizes lending money to a failing nation isn’t a great idea.
Higher interest rates, higher inflation, and a plunging Fed reputation?
The trend’s your friend until it ends.
And with rates, it might be end game.
Just remember who is “in charge” and where he is laser-focused:
Coal for Christmas – China’s Supply Chain in Crisis
Human Terrain: https://fortisanalysis.substack.com/p/coal-for-christmas
In mid-April 2021, I began receiving reports from sources in China and the United States that certain regions in China had begun to experience ongoing power disruptions at their warehouses and manufacturing facilities. Most notable of these was in south China’s Guangdong megaregion, where in June operations at the Taishan Nuclear Power Plant had become disrupted by a small number of faulty claddings for the fuel rods, ultimately forcing state-owned General Nuclear Power Group to shut down Unit 1 (there are two units) for maintenance and repair. Concurrently, available power imported to the Guangdong region from Yunnan province’s considerable hydroelectric capacity was reduced due to drier-than-expected weather throughout the spring.
Taken together, some estimates are that total power available to the region fell by as much as 15% by June. In response, officials began quietly rationing power to factories, cutting business operation days by 1 or 2 days depending on the facilities’ power requirements.
In recent weeks, however, officials have begun a much more aggressive rationing program (Figure 1), with factories in much of Guangdong now seeing only 1-2 days per week of power use allowed. Similar situations are reportedly occurring in Jiangsu, Hubei, and Fujian provinces, all major manufacturing regions. As just one example, one of my US-based import customers has reported that a key supplier in Jiangsu is down to a single day per week of power availability. Limited-but-expanded power rationing is also occurring in Zhejiang, Shandong, Liaoning, and other important heavy industrial, chemical, and energy-product hubs.
Figure 1 – Chinese Province Power Rationing Regime – Courtesy of The Lantau Group
The primary causes of power disruptions are the aforementioned reduced availability of hydroelectric power in much of southern China, as well as limited supplies of coal due to the ongoing China/Australia trade dispute. The latter cause is expected to be more sustained in impact, as the year-long embargo by China on Australian thermal coal has depleted China’s strategic reserves and caused commercial and residential prices to rapidly spike. China imports about 10% of its annual thermal coal needs; of this, Australia was close to 70% of the total prior to the mid-2020 embargo. It is expected that China will be forced to drop the embargo ahead of the fourth quarter, but this is not certain. Reopening its markets to Australian coal imports would be an important stabilizing step for China’s manufacturing base, but would nonetheless take weeks or even months to ramp back up to normal output.
If China does not capitulate on the importation of Australian coal and cannot close the gap with imports from Brazil, South Africa, and the US, the southern region will continue to see constrained power availability, reducing export volumes especially from Shenzhen’s ports, Hong Kong, and Xiamen, as well as Tianjin, Dalian, and Qingdao in the north. We would expect in this scenario to see these ports be utilized by ocean carriers for more transshipments out of Southeast Asia or central China, while export-focused capacity shifts to Ningbo and Shanghai, as well as alleviating significant congestion pressure at Kaohsiung and Busan. Freight rates are anticipated by some maritime industry players to soften somewhat, though a bullish case for barely-reduced rates could be made that a very large backlog of existing cargo and ongoing delays at US and European ports will keep volumes at a high level through Lunar New Year at least, with a strong likelihood of continuing through the ILWU negotiations.
Looking at 2022, any significant level of ongoing power disruptions will begin to cause fractures in China’s economy, particularly in the finance and heavy manufacturing sectors as well as within the population. Such fissures have in the past led to increased belligerence by China against neighboring and regional countries, which could have unexpected disruptive effects on maritime and air traffic in the Far East. With regard to which sectors of the economic base will receive favored treatment for any surplus power, heavy manufacturing (auto, shipbuilding, infrastructure), high technology, energy (renewable and traditional), petrochemicals, medical, and metal processing will likely be protected first. These are considered critical industries in China due to the PLA’s direct investments into these sectors (as well as the in-kind benefits to China’s military industrial complex), with industries such as homegoods, consumer electronics, and garments receiving the least support. This will in particular impact retailers in the US and Europe who are already falling short on inventory, and were hoping for a strong late-year push to close the earnings year on a high note.
More broadly, it should be expected that the continuity and consistency that China-based supply chains have historically enjoyed will be diminished in the short- to intermediate-term. Fortis expects that Xi will tip China’s dual-circulation economic strategy in favor of protecting domestic consumers, particularly to offset the political instability introduced by energy and food price increases. We can also reasonably expect to see internal enemies of the CCP and PLA be targeted for power rationing, or even villainized as over-users of precious energy resources at the expense of the civilian population. In closing, the energy disruptions in China are but one more canary in the coal mine indicating accelerating catastrophic failure cascades, further consolidation of internal power by Xi and the CCP, and an ongoing bifurcation of geopolitical spheres between China and the US.
Dum spiro spero,
Econophysics2020 
