This would be the inverse of what has transpired over the past year. VIX would have to rise to about 220 to hit that target.

Pharma Taking Downers

Pharma is cheap relative to the overall market, and also hitting relative lows versus the healthcare sector. XPH is a mid cap pharma ETF, IHE a large cap.

The Next Great Short: Peru?

There's a good chance Peru will vote for a change in June. Pedro Castillo leads 42-31 in the first batch of run-off polls ahead of the June 6 election. The guy is all over the map in his public comments, but he consistently sounds like an amalgam of traditional leftist economics and traditional rightist social policy.

Jacobin: With Pedro Castillo, Peru Has a Chance to Vanquish Fujimorismo

The Western press laels him as far-left. He definitely has some traditionally left-wing economic views, but he seems more like a nationalist than a socialist.

The fact that Castillo has issued incendiary statements about the need to dissolve Congress and eliminate the Peruvian Constitutional Court — two unpopular public institutions — further inflames concerns that the current front-runner is a frenzied authoritarian.

But it is important to situate Pedro Castillo’s rhetoric and positions in the context of his background. He first came to prominence in 2017 as the leader of a nationwide rank-and-file teacher strike demanding funds for education and improved wages. The dramatic action, against the neoliberal education reform measures of President Pedro Pablo Kuczynski, proved to be one of the most significant in recent times — particularly noteworthy considering the lingering effects of Fujimori’s efforts to bring all trade union activity to heel. In retrospect, the 2017 strike can be read as part of a wave of building social momentum that eventually erupted in anti-neoliberal protests last December.

From 2005 to 2017 Castillo was affiliated with Perú Posible, a centrist catchall party led by the former president Alejandro Toledo. In 2017 he joined his current party, Perú Libre. Perú Libre proudly claims to be a Marxist-Leninist formation and essentially proposes a conventional left-wing program centered around increased spending on education and health services, the nationalization of key extractive sectors, and a host of anti-corruption measures like salary limits for congressional members. The party belongs to the São Paulo Forum along with organizations like Brazil’s Workers’ Party and Argentina’s Peronist coalition Frente de Todos.

The real sticking point for large parts of the Peruvian left has to do with Castillo’s pronounced social conservatism. Their distrust, however, needs to be placed in its right context.

Fondly referred to by supporters as the candidate for “deep Peru,” the country’s provincial interior has been the source of some strange political ventures in recent history. These include Antauro Humala’s Ethnocacerist movement, a purportedly Marxist-Leninist organization that advocates for military conflict with neighboring Chile and promotes an ethnically based vision of Peruvian nationalism based on Quechua supremacy.

The fact that Castillo has openly claimed that, if elected, he will release Humala from prison — currently serving a sentence for leading the 2000 military revolt against Fujimori — has raised eyebrows. As has Castillo’s embrace of anti-immigrant — specifically anti-Venezuelan — rhetoric.

Castillo opposes the legalization of abortion, same-sex marriage, and policies promoting gender equality — a stance unremarkable on its face given those same positions, in one form or another, are common to many of the region’s progressive leaders.

But Peru is also, along with Brazil, one of the Latin American countries where religious fundamentalism has made the biggest inroads into national politics. Rafael López Aliaga of the Popular Renewal party almost made it into the second round by branding himself the “Peruvian Bolsonaro,” and Peru is home base for the “Con mi hijo no te metas” campaign, a continent-wide propaganda movement that incites hatred against women and the LGBT community.

The Agricultural People’s Front of Peru (FREPAP) failed to cross the 5 percent threshold required to win congressional seats, but the bizarre millenarian cult promoting Christian theocracy and indigenous supremacy remains an important political player.

Unlike other segments of the Left in the country, Castillo hasn’t shown a willingness to critique these formations.

Maybe he's a nationalist socialist? Whatever he is, the Western press is setting him up as a far-leftists. That will be bearish for Peruvian assets and the Peruvian sol should he win. My pick for a play is Credicorp (BAP).

Who Cares If It Is a Black Cat or a White Cat, As Long As It Has Babies?

China reversed course on sociaist economics 40 years ago under Deng. While they retain an authoritarian system withh heavy regulation and government interference (central plannig), in many ways China is less sociaist than nearly all Western societies. They stuck with Marxist propaganda on many cultural and social issues though, what in the West is sometimes referred to as Cultural Marxism, Wokeness and progressivism. China froze after the Cultural Revolution though. In the West, it never stopped developing. It has morphed into the abolition of women's sports via transgenderism, hyper tribalism, Wokeness, critical race theory, etc. The Marxist concept of equality expressed in male-female relations, racial and ethnic conflicts, family life, and so on s still hehaded towards the only equlaity on Earth: death. China stared death in the face in the 1960s and will not go back. After 40 years of reversing Marxist economists, China now appears ready to throw the rest out.

For many years, I've pointed out China cannot hope to reverse its fertility decline for two main reasons. One is their economic program of urbanization. Urban fertililty rates are lower than rural fertility rates. Moving people into the cities lowers fertility. The other is feminism and cultural concepts. Although the West would eventually become more "Marxist" than the communist countries and critcize China over issues such as women's rights, under Mao women achieved full "equality" as producers of GDP in the economy before Westerrn feminism "liberated" women from their homes and moved them into cubicles. China and the West both placed a premium on economic production over traditional institutions such as the family. China had explicit fertility policies under Mao, followed by the One Child policy. Yet China discovered a far more powerful form of birth control: capitalism mixed with feminism. As a result, China's fertility rate has been converging with lower East Asian fertility rates. All their policy atttemps have failed because they cannot overcome these fundamental forces. It appears China might be having another Deng moment though.

WSJ: China Stresses Family Values as More Women Put Off Marriage, Childbirth

In recent days, more than a dozen accounts used by women’s-rights groups were deleted from the Weibo social-media platform as well as cultural-discussion site Douban.com.

The deletions came as China awaits the results of a once-a-decade census, which had been expected by early April but have yet to be released. Demographers expect the data to show a sharp drop in births in 2020, the fourth straight decline following a brief rise in 2016, the first year after the one-child policy was lifted.

“What are they afraid of?” asks one user in reference to the deleted accounts. “Are they afraid of more women waking up? Are they panicking when seeing the fertility rates and marriage rates?”

Neither Douban nor Weibo responded to requests for comment. Weibo said in a post on its verified official account that some accounts were taken down because they were “related to illegal or hurtful information.” It didn’t elaborate. A spokeswoman for China’s National Statistics Bureau said in a Friday briefing that the agency needed additional time on the census because there was more data to process than in previous ones.

This is amazing when one considers China claims in crushed Xinjiang terrorist threats by applying the opposite policies. The West claims China engaged in genocidal policies, while China says it spread Western-style feminism and progressivism. That China now pushes an opposite policy for the Han population would be evidence of oppressive behavior by the Chinese government...if Western governments weren't applying China's Xinjiang policies at home and abroad. Of note, the U.S. is pushing the same policies in Afghanistan as China claims it did in Xinjiang, and the opposition to the U.S. troop withdrawal cites issues such as women's rights. I'm not excusing any oppressive behavior by China's government, such as claims of forced sterilization. What is clear, however, is that part of China's policy was indoctrinating Uighur women in exactly the same manner as American schoolchildren are indoctrinated by the government, schools, media and many cultural institutions. And now China is turning 180 degrees on those policies and promoting more traditional family life. In addition to taking down feminism, China is making it harder to get divorced:
In recent days, Chinese internet users complained about the difficult divorce process after news spread of a Hunan province court that rejected a woman’s divorce request four times. The woman, Ning Shunhua, expressed frustration in an interview that the court wouldn’t consider evidence that her husband had beaten her. The Hengyang County People’s Court said on its Weibo account it was processing a fifth request and had rejected previous ones because Ms. Ning hadn’t provided enough evidence and her husband had pleaded with her multiple times for forgiveness.
Russia has already moved towards tradition and religion as part of its nationalist revival. In the past, I've noted China has an Achilles heel because it remains nominally Marxist and socialist. It is difficult for it to reject ideas that grew out of socialism and Marxism. Clearly, they have started down the path. If they continue, they will have to replace Western socialism and Marxism with traditional Chinese ideas, or create new native cultural concepts.

More broadly, if China continues on this path, it is setting up a far greater confrontation with the West and within the West. The United States already cites policies on feminism and homosexuality as partial justification for its violent escalation with Russia. Now China will join them. As for the implications for Americans, I have believed from the outset that the Russiagate lie, as false as it was, did contain a kernel of truth. Many Americans, many Christians, also disagree with USG's cultural and moral framework. From the view of someone in the American ruling class, Russia, traditional Americans, Christians and now the CCP (I chuckle at the thought of it, yet there it is) are starting to look similar. Perhaps there was a reason the Russia was the nation selected for Russiagate, beyond simply being a geopolitical enemy. Perhaps the ruling class was already lumping U.S. citizens who opposed them together with foreign governments that oppose them. If this is true, then then more USG labels its domestic opponents terrorists and white supremacists, and the more Russia and China promote social policies in line with the terrorists and white supremacists, the more the ruling class will behave like an isolated and paranoid tyrant.

In conclusion, while many reports will look at the surface issue of what's going on in China, this news goes to the heart of modern socities, American empire, domestic political conflict and fundamental questions of Western civilization.

Micron Still Sliding

teh semiconductor has about 1 percent to go before filling a gap. Still downside room for MU even if this is a short-term move. A drop below the gap, similar to what MU did this morning, would open up a bigger reversal.

Regional Bank Follow Up

I posted this on March 19: Regional Bank Charts. Many of them have reversed, but remain near major resistance lines. The regional bank ETF remains on the cusp of a bullish breakout.


Inflation Versus Deflation

The last post covered the main case for another deflationary event in the financial markets and broader economy. I lean towards this argument because I think it remains the more likely scenario. Going back to 2008, the only thing the deflationists were reliably wrong on was stock market forecasts. On the flip side, the only thing inflationists really got right was the nominal price of stocks. Commodities imploded, interest rates kept reaching new lows, nominal economic growth, let alone real growth, remained stubbornly low.

Having said that, inflation can start at any moment. Investors must be prepared for either outcome because deflation happens fast within this framework. Declines are increasing in both size and speed. I fear a probable scenario is a crash like in 1987 because absent a crash, dip buyers keep coming into the market. Perhpas a multi-day crash that sucks in dip buyers and kills speculation for years. Wipe out the leveraged players (including those holding derivatives and options) and thereby prevent dip buying.

ZH:The Inflation Or Disinflation Debate Continues

One takeaway from the discussion is the debate between inflation and deflation/disinflation is inherently uncertain. Not only are the assumptions behind each case credibly at risk of being invalidated, but the narratives behind each case are also inherently unpredictable.

As a result, it doesn’t make much sense to “win” the argument by figuring out whether inflation or deflation will prevail. For example, if you believe inflation will stay, are you willing to bet everything that financial asset values are well supported and can’t get revalued much lower? Because if asset values collapse, there will be a massive deflation.

By the same token, if you believe in deflation, are you willing to bet everything that when the crap hits the fan, that rules limiting the Fed’s actions won’t suddenly become much more optional? Because if that happens, inflation will jump quickly.

Some on the inflation side still don't see the failure of QE and its disinflationary nature, but for the most part, the debate between inflation and deflation is one of timing. How many crashes will it take before the central banks or governments of the world throw all caution to the wind? Nobody has the answer. All I can say is that as of April 2021, there are familiar signs of an inflationary burst running out of steam. If it plays out as it did in 2011, 2014-2016, 2018 and 2020, the result will be an intense asset price implosion followed by a burst of inflation. The deflationary endgame is that markets ignore all central bank efforts. Asset prices plunge no matter what happeens. This will turn into the inflationary endgame because governments will "do someting" too late. At the bottom of a deflationary panic, the market is cleared and ready for explosive rebound growth. Adding more fuel ignites inflation. The non-deflation endgame is that central banks and governments go overboard earlier.


The Deflation Case in April 2021

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. -Ludwig Von Mises
My view on inflation/deflation right now: there aren't enough signs of inflation breaking out yet. Many prices are higher, but there are supply-chain and coronavirus issues working their way through the economy. The best factor for inflation I see right now is home construction and lumber prices because hoome buying is a conduit for sustained inflation of credit. The other is the potential for unending deficit spending in Washington, with the caveat that political opposition is growing and it only takes on Democrat Senator to end it. Additionally, Japan did infrastructure stimulus in the 1990s and 2000s and it didn't work. They built bridges and roads to nowhere, all to little effect. Finally, much of the infrastructure bill (I have heard as much as 90 peprcent of it) is welfare spending that will have zero long-term impact. a reversal in globalization would be positive for inflation, but the Biden administration is, on net, undoing inflationary Trump policies.

Intermediate-term: what do you call autumn 2018, September 2019 (when the Fed restarted QE via the repo market) and March 2020? I see deflationary outbreaks whenever policy makers stop increasing stimulus or quantitative easing because the fundamental problem is lack of borrowing. The credit bubble never popped and it gets bigger every time they prevent it from popping. We are stuck at the edge of the credit black hole, forever being pulled by the gravity of unrepayable credit, kept out by timely burst of inflationary activity that then increases the gravitational pull of the black hole. We can quibble over March 2020, but things started going poorly for markets in September 2019.

Long-term: see Mises. The end is always a deflationary collapse. Weimar ended in deflationary collapse. Zimbabwe collapsed. Venezuela has collapsed. Inflation requires sustained and rising credit and money growth. Without it, financial assets deflate. Once hyperinflation begins, the currency itself ceases to function and the economy decomposes. At the apex, everyone is a speculator. In Weimar Germany, you did well holding gold from the start, but the specualtors who made fortunes were the ones who timed the market and sold everything before the new currency was introduced. At the peak of hyperinflation, cash was the best investment again. Nominal prices will go higher in hyperinflation, but at the end, the real price of many assets will be less than when the inflation started because the economy will be destroyed, while many goods and services will cost more because their supply will be reduced by the hyperinflation (or currency devaluation). Credit inflation is also very old, going back to the early 1970s. This isn't an inflation that has suddenly appeared, it is the final endgame at the end. I fully expect the currency will be destroyed in the end, but the question is how do we get there? The evidence tells me another deflationary panic is likely.

The main case for deflation and eventual currency destruction is that the economy is still trapped in the post-2008 environment. Massive debt and aging demographics are powerful headwinds. Central banks and governments are still unwilling to take the steps required because the steps required are explicit currency destruction. That is the price to get inflation: you have to be so cavalier and open about your intentions, that you take the blame for it. I don't think the Federal Reserve will ever do it intentionally. USG might be willing to do it in a panic worse than March 2020. They did pump in March 2020 and in September 2008. Perhaps MMT-theories have convinced some that inflation is impossible, but right now even they need a panic to get enough votes in the Senate.

In April 2021, the market is still in the eye of the stimulus hurricane. Twelve-month CPI should peak in May 2021. Going back to February 2020, inflation isn't very high now. Inflationists rightly point out that inflation starts small. It could keep rising, and then the Fed will be in trouble much sooner than expected. The deflationists also have a strong case in the eye of the storm: what if all that simulus is nowhere near enough? What if the economy is far worse than people realize? Here's the eurodollar curve. Back in 2013, people expected more inflation and higher interest rates 5 years out than they do today. If you expect inflation, you can make a fortune betting against the market.

Total loans and leases (TOTLL) includes mortgages, credit cards, business loans. If there is inflation coming, you take out as much debt as possible as fast as possible and convert it into real assets. As with the eurodollar curve, there's no sign of a change from the prior 12-year trend.
Of course the year-on-year comparison is going to be negative here given the spike last March and April, but even going back to pre-pandemic TOTLL, growth is only on par with the prior years. That is to say, pandemic-related lending only returned the economy to trend. It's at a lower level though, with a "credit gap" of about $200 billion. If tehre wasn't a pandemic, but instead normal economic activity, there would be at least $200 billion more in credit. Lending is weak because the eocnomy hasn't reopened yet or because the economy is in really bad shape and all the stimulus thus far hasn't ignited a real boom yet. Here's TOTLL with trendlines. The blue line is the trend in place back in 2014 and it confirms what the eurodollar futures curve shows: people were more optimistic/more willing to borrow in 2014. Then there was the "Trump boom" that is the 2018 trend. TOTLL has a $200 billion credit gap from that 2018 trend and $400 billion below the 2014 trend. To put that into perspective, credit growth is runnning around $300 to $400 billion annually at the moment. The highest single-year increase was $644 billion in 2006, which at the time was around 10 percent growth. The U.S. economy is a long-way from resembling an economy experiencing a high level of credit inflation outside of government borrowing.
I continue to believe gold will win because when the next crash inevitably comes, there


Another First Pour Moving

First mentioned here. Update charts here.

China Increases Gold Import Quotas

China has been under strict capital control, including for gold. While China is not opening its capital account and behaving more like it expects another wave of global disinlation is coming, it is making hay while the Sun is shining. In this case, the Sun being USG emissions of Federal Reserve notes flowing straight ointo China's shores.

Reuters: China opens its borders to multi-billion dollar gold imports - sources

The People's Bank of China (PBOC), the nation's central bank, controls how much gold enters China through a system of quotas given to commercial banks. It usually allows enough metal in to satisfy local demand but sometimes restricts the flow.

In recent weeks it has given permission for large amounts of bullion to enter, the sources said.

"We had no quotas for a while. Now we are getting them ... the most since 2019," said a source at one of the banks moving gold into China.

Around 150 tonnes of gold worth $8.5 billion at current prices is likely to be shipped, four sources said. Two of the sources said the bullion would be shipped in April. Two others said it would reach China over April and May.

No quotas for awhile because the Chinese yuan is in such a precarious position that importing gold is a risk. Is this the start of a new era or another temporary respite as seen leading into 2011, 2014, 2018 and 2020?

China Credit Growth Resumes Long-Term Slowdown

There's no attempt at a reset in China. They are right back to the slowing trend. M2 slowed to 9.4 percent growth yoy. It fell below this level in late 2017 and stayed there until the pandemic. March is a relative strong month for credit and April saw M2 decline in the 2018 and 2019. A return to trend would pull M2 could back below 9 percent.
As I prediced last month, TSF sank a full percentage point in March, to 12.3 percent growth yoy. TSF is still above the stall speed of around 10 percent.


BSV Cascading Bases

Similar to many gold and commodity producer charts, BSV has a nice base that if completed, points to an even nicer gain. Relative to BTC, it also sports what some miner charts have: the cascading (fractal) bases. The completion of one base begets a larger base, and a larger, etc. Above $370 (assuming BTC is $62,000) a series of breakouts could take the coin to $4000, again assuming BTC holds around the $62,000 area. If BSVUSD clears $400 it similarly completes a base with a target above $750, which going back to BSVBTC triggers another breakout level.

In a commodity producer, this type of move would play out over years. With crypto, time is compressed as phase changes come quickly. BSV is not a speculative coin though. Many exchanges do not allow BSV because they consider it a "scam" coin trying to ride on the Bitcoin name. I hold it because I see BSV as the full expression of Bitcoin's potential. I'm probably more excited about BSV in 2021, than I was about what became BTC in 2010, becase developers are close to showing the full potential of the technology.

Coinbase and other fintech companies associated with BTC are shadows of the current financial system. BTC is marketed and memed as digital gold. A store of value, decentralized, transferrable across time and space. What BSV aims for is the original aim of Bitcoin, to turn even the smallest bits of information into money. It's sort of like imagining a bank as the place to store physical dollars coming out of the gold standard world, versus the potential for new financial products and derivatives. BSV can change the way people organize, search and exchange information. Where people think of BTC like a digital gold bar, BSV is more like air. At this moment it is accumulated by those speculating on the network itself and developers building on it, but if successful, the price will be high not because people want to hold it like a gold bar, but because it would be like air is to the ecosystem. Whether you have more or less of it would depend on your level of activity. This demand will drive the price, rather than price leading demand as in speculative markets. You can see some of its potential on Twetch, which allows for quick posting of information to the blockchain and is developing an NFT marketplace. Canonic is publishing books directly to consumer. The even bigger market potential is in more fundamental "information supply" such as search engines and advertising, along with eliminating spam information by driving out of the marketplace by imposing cost barriers. Beyond that are all sorts of digital interactions you pay for today, such as streaming music and cloud storage, plus all sorts of new markets that can be created by very low transaction costs.

USDJPY Below Trendline

EURUSD also spiked back above former resistance.


Barn Door Not Closed Yet

The horse may be running soon though. No Horsing Around

Will Peru Follow Venezuela? USDPEN to 5 If Yes

Presidential election upsets rock Ecuador and Peru
Defying expectations, voters in Ecuador's presidential election opted on Sunday for a conservative ex-banker, Guillermo Lasso, over a protege of leftist former President Rafael Correa.

On Sunday in Peru, Pedro Castillo, a far-left candidate who was eighth in the presidential polls just a few weeks ago, finished first in the unofficial results with around 19% of the vote.

USDPEN is ready to run if Peru goes socialist. Nice reversal setup in SCCO too, which looks far more robust if there's a threat of nationalization. Lots of potential losers in the mining sector.

More to the point, if I have to make a geopolitical forecast based on technical analysis, the chart of USDPEN says they're going socialist.

China Bad Asset Manager Is a Bad Asset

How can a company go bankrupt when everyone who goes bankrupt, gets bailed out and it buys the assets of those bankrupt companies?

Zerohedge: "This Is A Fatal Event": China's Bond Market Hammered After Huarong Bankruptcy Rumors

As Bloomberg reports, growing panic over the financial health of one of China’s largest bad-debt managers spilled into the broader market, as traders circulated a Caixin report that openly considered the worst-case scenario for the company. Specifically, in a commentary dated Monday, Ling Huawei, managing editor of Caixin Media and Caixin Weekly, discussed the possibility of a China Huarong bankruptcy.

Not helping was the latest pileup by rating agencies, with both Moody’s and Fitch saying Tuesday they will review their ratings of Huarong - an investment grade credit for now - for a potential downgrade, following a similar announcement from rival S&P Global Ratings last week.

...“Market speculation of a restructuring with haircuts for Huarong International bondholders is heavily damaging investor sentiment,” said Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore. “The continued silence of Chinese authorities on the predicament of a strategic state-owned institution as large as Huarong is also worrisome, as investors had anticipated at least a modicum of reassurance.”

Sure enough, in typical Chinese style contagion, the Huargon selloff spread to other high-yield Chinese dollar notes on Tuesday, with some property bonds falling by a record. Asia’s investment-grade dollar debt spreads widened as much as 3 basis points, while a gauge of Asia credit risk widened for a seventh straight day, set for the longest rising streak since 2018.

This has neve led to the type of systemic risk that is possible within China's expansive credit bubble, thus what is more interesting to ponder is...why now? Why would anyone go bankrupt in the middle of a rising tide of credit...unless the tide is already going out?

Of note, the chart on Huarong stock doesn't look as bad as the news suggests, in fact it looks like the opposite given the context.

The Cow Did Not Jump Over the All-Time High

The Death Throws of a Credit Bubble


A New Bull Market

Except the pandemic panic was over so quickly there is baerly a decline in margin on the quarterly chart.

Gracelife Church Goes Underground in Canada

Whatever the West is now, it is not Christian. The governments of Canada and the USA have become the enemy of the majority populations. Occupation governments tend not to last very long.