2020-02-20

It's Happening: Secession Heats Up Across the West

Secession is a subset of the nationalism wave.

In As Goes California, So Goes the Nation, I discussed how social mood would increase the amount of secessionist sentiment:
Secession is coming. Secession at the state level will slow the push for national secession, but the creation of more states will turn America into even smaller and separate identities that will make the nation as a whole more ungovernable. However, in terms of social mood, these movements have to strike at the right moment and if there is enough state secession, it could suck the energy out of the secession movement as social mood then improves. If these movements fail, there will be an organized national effort that will likely erupt when the U.S. suffers a fundamental economic crisis, perhaps with the U.S. dollar at stake. When such a fundamental crisis erupts, anything goes.
Secession demands will erupt at whatever level of government allows it. Let states break apart into smaller states and they will remain united. Think Catalonia in Spain and Scotland in the UK, both of whom want to stay within the EU. A similar trend is seen in the U.S. where parts of states want to declare independence or merge with a neighbor: Secession fever spikes in five states as conservatives seek to escape blue rule
“Oregon is controlled by the northwest portion of the state, Portland to Eugene. That’s urban land, and their decisions are not really representing rural Oregon,” said Mike McCarter, president of Move Oregon’s Border for a Greater Idaho. “They have their agenda and they’re moving forward with it, and they’re not listening to us.”
The U.S. does not have a good argument against secession. The State Department supports most secession movements around the world. It has intervened militarily to defend secessionists, most controversially in Kosovo. As U.S. power wanes, it will fall victim to its own promotion of self-determination. Both political parties have secessionist tendencies. Democrats have "sanctuary cities" that ignore federal immigration law. Many states ignore drug laws. Republican areas have created "second amendment sanctuaries" in anticipation of future gun control legislation. Any attempt to centralize power and pass "one-size fits all" legislation will spark constitutional crises. Diversity has exacerbated secessionist sentiment. Diversity will explode in the next two generations as whites become a minority in the USA.

Additionally, should the U.S. dollar eventually loses its reserve status, the federal government's ability to use the purse will weaken. Depending on how things shake out, it's possible areas such as Silicon Valley or the oil patch from Texas to North Dakota and Alaska, or the breadbasket, will become the main source of government funding as happened in Canada.

National Post: Nearly 80 per cent of Albertans think the country is in the midst of a unity crisis: poll
One-third of Canadians think Alberta is the greatest threat to national unity, while 50 per cent say it is Quebec. Twenty-three per cent of Canadians expect that Quebec will separate in the next decade, while 19 per cent of Canadians think Alberta will secede in that time.

The most troublesome numbers for Prime Minister Justin Trudeau’s government may be that in both Alberta and Saskatchewan 78 per cent believe that Ottawa has “lost touch with average people” from the two provinces.
Alberta could join the U.S. and touch off a crisis there. It could declare independence and break Canada into pieces. It could spark secession movements in natural resource U.S. states who could form a continental power from Alaska to Texas. Many possibilities open up once "the red line" is crossed.

Government becomes more robust as power moves to the local areas and more fragile as power flows to the increasingly unstable center (the root of diversity is div, division, divide). If the government doesn't allow local control or reformation of states, secessionists will escalate their demands to the national level and threaten the larger union.

Finally, it cannot be stressed enough that social mood will determine whether this secession wave becomes an historical oddity like Western Canadian threats to secede in the 1970s, Quebec and Scotland's failures, or whether it completes like Brexit. What is different this time is that these are the good times. Social mood is relatively positive. Prior secession waves peaked with negative social mood, high unemployment, historically low stock prices, high inflation, and positive demographic forces. Western Canada is already threatening secession, but the economy could see a downturn far worse than the 1970s. U.S. states want to break apart, but record high stock prices and a strong dollar has not added the bitter economic fights that come out when spending gets cut. Demographic forces will turn highly negative with aging and increasing diversity. Inflation could soar, stock prices could tumble, unemployment could climb. Consider what would happen to the Canadian currency if Alberta was seriously moving towards independence. It could accelerate the very forces that will push the movement to victory. These secession movements have years and perhaps decades to grow, with underlying societal forces likely to work in their favor.

It seems impossible today, but remember how many people thought Brexit and President Trump were impossible only hours before they happened.




2020-02-19

The Path to USDJPY 175

USDJPY has moved out of a triangle pattern. If this move holds and establishes a bull trend, the next target is 125.

Upon reaching 125m USDJPY hits resistance. A break above that level would complete a well-formed inverse head-and-shoulders. That would have a target of 175.

A move of this magnitude would be ~60 percent advance in USD or ~40 percent devaluation of the yen.

Gold is confirming a "deflationary" interpretation here as it rallies along with USD, a break from it's very long-term correlation with JPY.

If gold moves through $1600 and DXY through 100 and both moves hold, the "fiat burns from the periphery to the core" scenario I've discussed here for many years is in play. The broad trade-weighted USD (currency weights: EUR 18.7 percent, CAD 18.5 percent, CNY 12.4 percent, MXN 11.3 percent, JPY 9.1 percent; total 70 percent) points to a 30 percent rally if its basing pattern completes with a bullish breakout.

Coronavirus Burning Out in China, Still Accelerating Outside of China

The focus should be on the rest of the world now. China still matters for economic reasons, but the pandemic will widen if case growth continues on the current trajectory.

Palladium Clock Adds a Tick and a Tock

This weekend I discussed the potential for a melt-up top in palladium with a run towards the $3000 to $3150 area. I didn't expect it would take off right away, as the prior tops in 1980 and 2001 took 2 months and 12 months, respectively. Yet begin immediately it did, with palladium jumping 8.8 percent on Tuesday. Palladium has rallied again as of Wednesday morning. It is off the high for the day, but from the intraday high of $2842.50, the $3150 target is slightly more than 10 percent away. Palladium could top as early as this week.

The 1980 top came at the end of a major commodities bull market and the 2001 top came at the end of a major equities bull market, and this top is coming in the midst of an historic bull market in equities and bonds.

2020-02-18

Chinese Developers Self-Rescue With Price Cuts

Chinese developers under pressure from the coronavirus slowdown will self-rescue by attracting customer cash. If the market doesn't return to normal in March, expect aggressive price cutting across the industry.

iFeng: 房企促销“自救”:目前唯一能撬动客户的只有降价
Zhang Dawei said that if the epidemic could be eased in February, the pressure on housing companies would be relatively manageable. Once the epidemic spreads to March, due to the pressure of debt due and the cash flow of sales sharply reduced, some real estate enterprises, especially those with high leverage and expensive capital, would be unable to carry it, and the enterprises must save themselves.

Yan Yuejin, research director of the Think Tank Center of the E-House Research Institute, said that Evergrande's approach has inspired other housing companies and proactively provided preferential housing conditions to occupy the market. It is expected that the following major real estate companies will follow up, grabbing customers through price reductions and preferential promotions is the key content.
Sales are off amid the coronavirus shutdown:
Behind the big sales promotion is the grim situation that housing companies face in the first quarter.

On January 26, the China Real Estate Industry Association issued an initiative to effectively prevent the spread of the new crown pneumonia epidemic, and advocated that real estate development enterprises temporarily suspend sales activities at the sales office and resume after the epidemic. Previously, the competent units or industry associations in Ganzhou, Chengdu and other places issued a document requesting that the sales office be closed during the epidemic prevention period.

The list of "Top 100 Real Estate Companies in China in Sales in January 2020" released by Kererui shows that in January 2020, the sales thresholds of each of the top 100 real estate companies in the list decreased year-on-year. As of the end of January, the threshold for the sales of TOP50 real estate companies was 2.53 billion yuan, a maximum of 27.5%; the threshold for the sales of TOP100 real estate companies decreased by 19.1% year-on-year to 900 million yuan. From the situation of the top five housing companies, sales of Vanke and Country Garden increased by 16.1% and 0.12% year-on-year, respectively. Sales of Evergrande, China Shipping, and Sunac fell by 5.7%, 20%, and 22.6% respectively in January.

At present, more than 20 provinces (autonomous regions and municipalities) have suspended the opening of sales offices, stopped construction sites, and suspended intermediary stores. Zhang Dawei said that the epidemic situation has not eased and the market is unstable. It is estimated that from late January to February, the transaction volume of the national real estate market fell by more than 80%.
Evergrande has already fired the first shot.

SCMP: China Evergrande slashes prices of new flats by a quarter as coronavirus leaves developers struggling with plunging house sales
China Evergrande, the country’s third biggest builder by value, said it will kick off a one-and-a-half-month campaign offering discounts of up to 25 per cent at all of its projects across the country.
The company, chaired by China’s third-richest person, Xu Jiayin, said in a statement that “to cope with the changes of the new period, Evergrande will offer special big discounts at all of our projects, starting from February 18.”

2020-02-17

China BigTech Fully Implements Social Credit Infrastructure to Fight Coronavirus

Chinese Internet giants are using the social credit infrastructure to fight coronavirus.

Nasdaq: China seeks help of national tech giants to track coronavirus with QR codes
On Wednesday, Alipay, the payment app operated by Alibaba's financial division Ant Financial, released a feature in collaboration with the government that assigns a coloured QR code representing the health of residents in Hangzhou.

Users in the city fill out an online form reporting their ID number, whether they have travelled outside Hangzhou recently, and any symptoms they might have that suggest an illness, such as fever or a heavy cough.

After filling out the questionnaire, users receive a colour-based QR-code, a type of barcode, on their mobile phones indicating their health status.

Users with a red code are instructed to remain quarantined for 14 days and provide regular check-ins via DingTalk, a workplace chat app also run by Alibaba.

Users with a yellow code are instructed to stay inside for 7 days, while users with a green code may travel freely.
The system is currently fragmented by city.
Caixin: 浙江率先破解复工难 杭州以报备代替审批
When applying for a health code on Alipay, the reporter found that the data including the recent address, whereabouts, history of contact, and current health status came from the user's initiative to declare. At present, the health code data of various cities and counties in Zhejiang are not interlinked and need to be separated.

...From 00:00 on February 17th, Hangzhou's public transportation and road passenger transportation have been fully resumed. Both the driver and the driver need to use the health green code to register and activate the QR code on the taxi. Passengers are required to cooperate with the scan code to ensure the driver and driver information. Truly traceable.
Anyone think this system will go away after coronavirus? The next phase will be removing cash from the economy such that it is impossible to engage in economic activity without a QR-code or similar account.

Rest of World Seeing Rise in Coronavirus Cases

China's numbers suggest it has a handle on the virus. Case growth has fallen into the single-digits and stayed there. Whether that's true or not will be clear in another week. I'm skeptical of the assumption that China is lying about the total number of cases and the growth. It's very likely they're under counting the total number of infected because it's impossible to accurately count potentially millions of infections. The case numbers can only be modeled. However, as long as case growth is under control, they can begin restarting normal work schedules. Getting the latter wrong will be a grave mistake because infecting a workplace restarts the 14-day quarantine. They risk shutting down the economy for half of March and more likely all of March because the public will lose confidence if there are setbacks.

Meanwhile, there are few controls in the rest of the world and case growth has re-accelerated into the double-digits. Cases will double every 6 to 8 days at current rates.

Chinese Finally Heading Back to Work, HK Shows Need for Preparedness

Caixin: China Factories Stand Ready to Go, But Where Are the Workers?
But despite reopening, resuming full production remained difficult due to staffing issues. Of the companies surveyed, only 21.8% said they had enough staff to run a full production line. Respondents cited Covid-19 related travel restrictions and a mandatory 14-day quarantine period for returning workers as the two biggest factors keeping their shops understaffed. When asked what their biggest challenge would be over the next two to four weeks, 41% cited lack of staff as their top concern, ahead of logistics, which was the next top concern for 30% of respondents.

...Global electronics giant Foxconn, which employs an army of more than 400,000 on the Chinese mainland, is struggling to fill its factory floors after officially resuming operations on Monday. A broader survey of American companies in China released the same day showed that more than three-quarters also have insufficient staff to run a full production line.
If workers are being quarantined for 14 days and the holiday ended a week ago, a return to something approaching normal levels of economic activity should begin next Monday.

Traffic congestion remains lower than normal, but it picked up significantly on Monday in Shanghai and Beijing.

Meanwhile in Hong Kong, there are daily fights for toilet paper and rice.

Caixin: Opinion: Why Hong Kongers Are Getting Robbed for Toilet Paper
Fighting for rice and toilet paper in supermarkets continues every day in one of the world’s greatest financial centers, not to mention the hoarding of face masks and disinfectant. You would not expect to see these scenes in such a global city, shocking observers on the Chinese mainland and overseas as Hong Kongers panic more than those in the heart of the epidemic.
Early panic is called prepping. Late panic is called hoarding.