Regime Change 2018: Credit Spreads

One of the charts I'm watching for a trend change (or not). BofA US Master High Yield Master II Option-Adjusted Spread
The ICE BofAML Option-Adjusted Spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond’s OAS, weighted by market capitalization. The ICE BofAML High Yield Master II OAS uses an index of bonds that are below investment grade (those rated BB or below).

A breakout from this channel would not signal a bear market immediately (it would have to nearly double for that), but it would mark a shift in the credit risk trend. The prior two bottoms were in 2011 and 2014, both came ahead of a sharp corrections in equities and debt.

Federal Reserve Bought Treasuries in March

The Fed is supposed to be rolling off ~$12 billion a month in Treasuries and ~$8 billion a month in MBS in March. In April, this increases to ~$18 billion and ~12 billion.

It bought treasuries in March, $641 million according to FRED. Total assets only fell $1.2 billion in March instead of ~$20 billion. It was down $26 billion in February and $29 billion in January, for a total of $56 billion in three months, which is on pace for the quarter. If the Fed frontloads its sales in April, we could see $40ish billion in assets sold as this quarter's total balance sheet reduction should be $90 billion.

The Q2 reductions are roughly 0.7 percent of the Fed's balance sheet each month. By December, at $50 billion monthly, the Fed will be reducing its balance sheet by 1.2 percent each month.
FRED: U.S. Treasury securities held by the Federal Reserve: All Maturities
The Fed's total assets only declined $1.2 billion.

What is Trump Afraid Of? China Answers: Made in China 2025

iFeng: 特朗普到底在怕什么?
What is the United States worried about?

According to public information, the United States imposes tariffs on China's products mainly in these major areas: high-speed rail equipment, aviation products, new energy vehicles, a new generation of information technology, industrial robots, agricultural machinery and equipment, new materials, bio-medicine, high-performance medical machinery Wait.

There are many types, but it can be summed up in one sentence: almost all involve the strategic tasks and priorities of "Made in China 2025". For example, a new generation of information technology, new materials, biomedicine, rail transportation equipment, large aircrafts, and so on.

In these areas, China has clear goals and plans. If all goes well, it means that by 2025 China will enter the top rank in these fields.

At present, the United States is still the leader.

Bai Ming, deputy director of the International Market Research Department of the Ministry of Commerce Research Institute, told the China News Agency that it was a through train. Trump imposed tariffs on China in 2018, apparently putting the roadblocks on the front.

"Fearful that China's industry will develop to a certain stage in the future, it will replace the dominant position of the United States in the international division of labor," said Bai Ming.

What is behind the status?

In the past, the United States has used its dominance in the international division of labor to obtain large excess profits and even supported the status of the US dollar.

China’s move in the manufacturing industry clearly caused Trump’s concern.

As a result, trade frictions between China and the US have frequently appeared.
Related background from January 2018: Top-level design of Made in China 2025 completed, ministry says
According to Miao, a group of key landmark programs and projects have been launched in areas such as manufacturing innovation, intelligent manufacturing and green manufacturing, and the country has climbed to a new level in building a manufacturing powerhouse.

On August 30, 2016, the Ministry of Industry and Information Technology (MIIT) announced China will set up around 40 national manufacturing innovation centers by 2025, according to Xinhua.

Miao said five national manufacturing innovation centers have been completed so far and 48 provincial manufacturing innovation centers have been nurtured, which has formed a manufacturing innovation system that takes the national innovation center as the core node and the provincial manufacturing innovation centers as important supplements.

In priority areas such as large aircraft, integrated circuit, new material, aircraft engine and gas turbine, 5G as well as new energy vehicles, positive results have also been achieved, Miao said.
Back to the iFeng article:
How does China-US trade friction end?

The U.S. proposal for the return of manufacturing industries not only reflects that the United States simply wants the return of manufacturing, but also reflects the United States’ desire to maintain its position in global politics, economy, and international affairs.

However, China is not the same poor China.

For China-US trade friction, China’s attitude is cautious and firm.
I didn't paste the parts that recite free trade talking points such as importing solar panels creates jobs. The issue isn't employment but the types of jobs and the supporting industries, research and development, that accompany high-tech manufacturing.
Bai Ming believes that China will not lose the bottom line when it comes to principles.

In other words, this is a game and negotiation process between the two parties.

At the same time, we must also see how the United States' deterrence against China compares with China's deterrence against the United States, its dependence on China, and its anti-dependence and strength.

Last time, China responded to the “232 Measures for Imports of Steel and Aluminum Products of the United States” and intended to impose tariffs on some products imported from the United States to balance losses.

In the face of the United States' tariff increase on China’s 60 billion U.S. dollars, what measures China will have? We are not aware of this.

However, it is certain that China will take all appropriate measures to firmly defend the interests of the country and the people.

The aforementioned report believes that China and the United States should transform themselves from globally competitive competitors into global winners, and truly create products from "Made in China" to "Made in China and the United States," creating a new situation for win-win development in manufacturing.
China wants to draw the United States into a dependent bilateral relationship. It wants to knock the United States off its perch as the premier global economic power. The people in charge on the United States have through malice or stupidity, chosen to give away the nation's advantage. Structural issues are in play that restrict policy maker choices. Good luck winning an election based on entitlement reform and slashing debt-fueled consumer. However, coupling mass unskilled immigration with a free trade policy that is premised on the need to obtain cheaper labor overseas destroy's a nation's middle class by crushing its wages.

As for a trade war, the key point missed by nearly everyone is that the calculation changes dramatically if we are talking about sovereignty and political power instead of economics. Even though a trade war could be long-term beneficial for the United States by forcing reforms that politicians will never vote for, it will have a short-term economic cost. There will be major disruptions even if there are winners (as happened with free trade, but condensed into a few years instead of forty). Those decrying Trump's actions on economic grounds are on shakier ground than they believe, but they are on relatively solid ground when it comes to disruption and risk. If all you care about is GDP, a strong case can be made against trade war. The higher your time preference, the stronger the argument.

If the issues at stake go beyond economics, the calculations change. We don't yet know how serious Trump is about confronting China. He might want a simple deal that lowers the trade deficit by $100 billion and then claims victory, but does nothing to reform the economy. But he might have advisers from the Pentagon who argue an economic recession is a small price to pay if it can cause a depression that sets China back a decade.
The stock market was not worried that the drop in international trade would tank the US economy. International trade was small as a percentage of the US economy, roughly 4% total. But, that 4% of international trade was servicing the accumulated lending that amounted to anywhere from 30-50% of the value of the entire US economy. The tariff meant that firms would not be able to service the money lent to them by Americans and, thus, lead to massive bond defaults.
Luttwak argued for reducing China's growth rate through restrictive trade policies in The Rise of China Vs The Logic of Strategy. China is vulnerable because of its monster debt growth that far exceeds the 1920s U.S. A major financial crisis was possible well before Trump took office. A modest level of tariffs that creates secondary and tertiary effects in the financial markets could be enough to push China into a serious slowdown.

Realtors See Steep Price Declines in Beijing

Caijing: 北京二手房价跌了20% 商住公寓成交量狂降九成多
According to statistics from the I love my family group's market research institute, in addition to areas where Huairou, Mentougou, Miyun, Yanqing, and the development zone had relatively few recent transactions, the price of second-hand houses in March 2018 fell by 8-30% compared with April 2017. Tongzhou District, the largest drop, reaching 29.1%.

"Daily Economic News" reporter found in the residential area of ​​Tangquan Yishu, Haidian District, a second-hand house with 160 square meters of three bedrooms and two living rooms, with a listing price of 16.9 million yuan. After a price adjustment, it finally ended on March 12 with 1570. Million price transactions, the owners straight down 1.2 million.

The above-mentioned intermediary officials frankly stated that Beijing's existing housing market is now back two years ago, and buyers are gradually taking the initiative in bargaining.


Crypto Carnage, Dash Completes H&S

Bitcoin is not at a new post-peak low, that's probably the only thing preventing a meltdown. Decred fell out of its channel, Ethereum broke below major support at $400, Litecoin is tumbling towards support and Monero is closing in on its support. If that giant H&S pattern on Dash holds, the target might as well be zero. For any crypto haters enjoying the slide, remember that cryptos have been leading the stock market with a ~6 week lead.

Banks Hike Mortgage Rates to 40pc Above Benchmark, Not The Top

iFeng: 个别银行利率将上浮40%!房贷利率仍未见顶
At present, the loan rates of the first suites of many banks in Beijing have increased by 15% to 25%, and the highest level has risen by 30%. The loan rates for the first mortgage loans of many banks in Wuhan have increased by 20%; the loan rates for the first suites in Nanjing have generally risen by 15%; Guangzhou, Dongguan, Foshan, and even Some banks have increased the loan interest rate for the first suite by 40%. In Tianjin, although many banks such as the Bank of Communications stated that the current mortgage rate of the first suite is only rising by 10% and the approval rate is fast, CITIC Bank still raises the loan interest rate for the first suite by 30%.

Although the commercial bank's change in the mortgage interest rate is self-issued, it has been officially recognized to some extent and is considered to be "in line with the requirements and trends of interest rate liberalization."
Where's the top? One economist sees 6.5 percent mortgages:
Huang Zhilong, director of the Center for Macroeconomic Research at Suning Financial Research Institute, believes that this is related to the hidden dangers of residents' debt risks. At the end of 2017, the balance of personal housing loans in China was as high as 21.9 trillion yuan, accounting for 70.2% of the total residential sector loan balance; the proportion of residents' debt as a share of GDP (that is, residents' leverage ratio) also rose sharply from 36.4% in 2015 to 48.3%. . The sharp rise in residents' leverage rate has forced the regulatory authorities to turn from encouraging to suppressing residents' leverage.

In January 2018, the China Banking Regulatory Commission (CBRC) clearly stated that efforts should be made to curb the leverage ratio of residents, focusing on controlling the excessive growth of residents' leverage ratio, cracking down on misappropriation of consumer loans and illegal overdraft of credit cards, and strictly controlling the inflow of personal loans into the stock and housing markets.

Huang Zhilong stated that the consideration of financial sustainability is also an important reason why banks are no longer strongly motivated to carry out mortgage loans. Industry insiders agree: “Even with financial product yields exceeding 5%, homeowners who have paid interest rates of 4.9% or below to homebuyers have become a loss-making business. As for the second-home mortgage rate, there is more space to go up.”

Historical data shows that the spread of bank deposits and loans business is maintained at about 1.5 percentage points in order to maintain financial sustainability without losing money. Judging from the two benchmarks of bank’s capital cost, the expected average annualized return on wealth management products in February reached a 31-month high of 4.91%. At the end of 2017, the interbank deposit interest rate also climbed to around 5%. Based on this calculation, to maintain a spread of around 1.5 percentage points, the mortgage interest rate may rise to around 6.5%.

Yin Yang Housing Transactions Going Away

iFeng: 楼市调控又放大招 二手房也买不起了?
The People's Bank of China Shenzhen Branch, the Shenzhen Banking Regulatory Bureau, and the Shenzhen Municipal Planning and Land Commission jointly issued notices stating that the commercial bank should use the online search contract and the number of sets of housing enquiries found in the real estate information system as the home loan business. According to the audit basis, the loan amount is determined based on the calculated value of the minimum value of the contracted record contract price and the housing appraisal price.

Reading is very garish, in short, the "yin and yang contract" phenomenon existing in housing transactions will be eliminated.

After all, how powerful is this policy? Will other cities in the country follow up with similar policies? Are people buying a house more expensive or cheaper?
Yin Yang contracts refer to buyers and sellers negotiating more than one price for a home. The transaction price, the official price reported to the government (which affects property taxes) and the appraisal price for the bank (which affects the size of the loan).
One is the transaction price , the so-called actual turnover.

One is the official signing price , because the signing price involves tax payment. Usually, people are willing to lower the price, which is generally lower than the transaction price.

There is also an appraisal price that involves the issue of bank loans. Usually, in order to get a higher loan amount, people are willing to increase the price, which is generally higher than the transaction price.
An example where the buyer raises the appraisal price so that the bank finances part of his down payment:
For example, if you want to buy a set of 2 million homes in Shenzhen, 30% down payment is 600,000 yuan, and normal bank loans are 1.4 million yuan.

In order to reduce the down payment, you say that the house price is 2.5 million yuan, and the bank will eventually evaluate it at 2.4 million yuan, and borrow 70% of this price, or 1.68 million yuan. In this way, the down payment is only 320,000 yuan, which is 280,000 yuan less.

Now, the government has decided to unify the three prices. The network signing price and the appraisal price will no longer be used by each other. The bank will determine the loan amount with the minimum price of the network sign-off price and the evaluation price.
The end result will be more leverage sucked out of real estate and a hit to the existing property market:
“ This is bad for the Shenzhen property market .” Yang Hongxu, vice president of the Yiju Research Institute, told the China-Singapore News Agency that the second-hand housing market in Shenzhen will cool down significantly, and the entire market will be in a downtrend.

He believes that there are more real estate speculators in Shenzhen and the leverage ratio is high. The implementation of the three-price integration will ease this situation.
Some analysts see this regulation spreading across China, but others note that Beijing and Shanghai may not need it:
Shenzhen is the vane of the national property market. The implementation of the three-price integration will be followed by other cities .

Hu Jinghui predicts that some cities that are not regulated in market transactions may follow suit.

Zhang Hongwei, director of the same strategy consulting and research department, holds the same view. He believes that the market does have non-standard problems. However, whether other cities follow suit will depend on the effect of cities such as Shenzhen.

Yang Hongxu believes that Beijing and Shanghai used high leverage to purchase homes less than Shenzhen, and they have already taken measures in regulating the yin and yang contracts, so there is no follow-up.
Volatility is coming out of China's housing market over the long-term. Volatility in short-term will be determined by how quickly speculators move their cash flow negative price depreciating houses and where the new equilibrium sits.


When the Speculation Ends: Beijing Home Sales Fall 96pc

Caijing: 北京商住房限购1年成交萎缩 商住签约环比跌94.6%
On March 27, it was a whole year since the Beijing “326” commercial housing restriction policy. According to data provided by the Centaline Property Research Center, only 3,589 sets of commercial and residential apartments were signed within one year of commercial and residential purchase restriction policies, which was 67013 sets of one year before and after the regulation, a drop of 94.6%.

Zhang Dawei, chief analyst of Centaline Property, said in an interview with a reporter from the Securities Daily that from the data of the past year, it can be seen that the overall market has been completely frozen. In fact, in addition to the obvious cooling of the trading market, commercial and residential land markets have also experienced significant fevers. The specific performance is that the number of commercial land parcels sold after the restriction of commercial and residential purchases has been significantly reduced. At the same time, the flow phenomenon that has not existed for many years has reappeared. In addition, from the average price point of view, the average price reduction of second-hand housing prices in the commercial and residential market has exceeded 30%, and some second-hand housing prices have fallen by more than 40%.

"Generally speaking, after Beijing introduced a strict historical commercial-restrictive purchase restriction policy, the overheated commercial and residential market has been hit very hard." Zhang Dawei said.

... Overall, the transaction volume of newly built commercial housing in the 50 typical cities in the first, second and third tiers dropped by 35%, 30% and 22% year-on-year, respectively. It is expected that there will be no significant improvement in the national property market in March.
From one year ago, Caixin: Beijing Tightens Controls on Commercial Housing in Capital
The Beijing municipal government, struggling to control a housing bubble, has strengthened curbs on property purchases by closing a loophole that allowed offices to be converted into residential apartments.

Authorities announced on Sunday that effective immediately, commercial buildings — mainly offices and shops — cannot be turned into homes for individual buyers without government authorization. In addition, only legally registered public institutions, companies and other social organizations will be able to buy units in such developments.

...Known as “altered-use properties,” these apartments come with land-use rights of 40 to 50 years, less than the 70 years given to normal residential housing. As the buildings were officially registered as commercial property, they had no natural-gas supply and they also carried higher electricity and property management charges.

They were also a target for speculators. Real-estate agent Centaline Property estimates that 60% to 70% of buyers were investors, with only about 30% of demand coming from people planning to live in the apartments themselves.

Cryptos Lead Stock Market And They All Point Lower

Speculative excess this cycle wasn't concentrated in cryptocurrencies, but because it is a relatively small, unregulated market, the excesses were spectacular. The charts are now pointing to serious trouble though as the prior trend fades. I think these charts are negative for stocks, negative for "shitcoins" that may go extinct, but there's nothing on these charts that is negative for cryptocurrencies in the long-term other than a possible drop below mining costs. As long as Bitcoin has a positive price, and if it is a 4-digit number, it is wildly successful. As for mining costs, this will rise and fall with hashing power, so if mining costs are higher than the price, then as with other cyclical mining industries, some will scale back operations, perhaps by not investing in the latest equipment. Proof-of-work coins are the most vulnerable to a potential drop in miner support, as are coins with hashing power controlled by a smaller number of miners.

On to the charts.

First up is Bitcoin (BTC).The blue channel at the top of the chart starts one year ago. Bitcoin stayed in the channel until it broke out in December on its final run towards $20,000. It has now broken below this channel and needs to retake $9,000 to get back into it. The next support is from the old channel from 2015 and it has an upper target below $5,000.

Ethereum (ETH). Already approaching major support near $400, after that support maybe around $150-$200 range.

Litecoin (LTC). Major support near $100.

Monero (XMR). Monero stayed in its channel for two years and even had a regular stair-step pattern (cup and handle). It is now out of its channel. I suspect this will hold up well because it is a useful coin due to its privacy.

Decred (DCR). Decred has a nice chart even if its in a downtrend. It's stayed in its channel and will follow the market lower. Major support around $22.

Ardor (ARDR). Already below support, this one could return to a penny.

Basic Attention Token (BAT). This one has support from Brave browser, probably not going to zero, but not a lot of price support if there's panic selling. If someone wants to put in a lot of stink bids on various coins, this would be one of the smaller ones to consider.

BitConnect. The future of many S-coins.

Bitcoin Cash (BCH). At support, possibly headed to $300 or lower.

Dash (DASH). This chart looks ugly. If I go strictly by the chart, maybe it bottoms at $100, maybe $10.

The rest:


Facebook In Deep Trouble

Many people believe Facebook and possibly Google and/or Amazon are listening in to conversations and targeting online ads based on what they hear. This story below is now the top headline at the Drudge Report. Either it will be confirmde or Facebook will have to divulge far more about what it does, and if other companies such as Google are involved, the fallout will rock Silicon Valley and the stock market for months to come.

PJ Media: Cambridge Analytica Whistleblower: Facebook Able to Listen to You at Home and Work
MP Damian Collins, who chaired the committee, asked Wyle whether Facebook has the ability to listen to what people are talking about in order to better target them with ads.

"There's been various speculation about the fact that Facebook can, through the Facebook app on your smartphone, listen in to what people are talking about and discussing and using that to prioritize the advertising as well," Collins said. "Other people would say, no, they don't think it's possible. It's just that the Facebook system is just so good at predicting what you're interested in that it can guess." He asked for Wylie's thoughts on the possibility.
Discussing the ability to listen in on users: Cambridge Analytica whistleblower Christopher Wylie appears before MPs

Growing Signs of Distress in the Market

I would be surprised if a recession kicked off now, but between China and the central banks, there's definitely a disinflationary wind blowing since late 2017 it will continue into 2019. It looks like the technology sector is giving up leadership as social media comes under scrutiny from the public and government, the hope of driverless cars is shattered, cryptocurrency prices prepare to return to Earth and tech valuations and inflows mean revert. Whether this signals a stock market top or merely a changing of the guard in the bull market remains to be seen, but I expect at least something similar to 2015-2016 before all is said and done if only because of China.

I wonder if we might be closer to a downturn than the market expects, with market participants starting to sell liquid assets, but in a slightly different fashion, as we are still in a very low yield environment. They might have started liquidating some very expensive government bonds between end of 2017 and beginning of 2018, but, after a certain level of yields was reached, moved into selling short-dated corporate paper. If this trend in low beta corporate paper selling should continue (which is a big if), together with a continuation of the increase in T-bills yields (driven also by an increase in issuance and higher Fed rates), it could create pressure at funding level. This would potentially translate (at a certain point) to a shortage in Dollar funding, which could theoretically be supportive for USD itself (like in 2008, with the USD bouncing only after Bear Stearns at the beginning of the year), which would be in line with the view of a potential tactical bounce.

I think one of the scenarios the market is not pricing is that the Fed might have already tightened (or it is very close to) financial conditions too much, but other elements may have hidden this, especially in 2017 (i.e. Chinese liquidity injections). Something like what I tried to explain above might be one of the canaries in the coal mine. I understand it is a bit of a far-fetched hypothesis, but I would appreciate any thoughts or feedback, especially those that go contrary to my view.
While on the subject of a potential recession, there's also the 1962 analog that saw stocks drop 25 percent from mid-March through the end of May. The economy experienced a recession in 1960-61 and the stock market drop froze hiring for several months. A dip in economic activity today would push GDP growth below 2 percent and possibly below 1 percent.
My spidey-sense isn't tingling as in late 2015 when credit spreads widened near their 2011 highs and importantly, to a level associated with bear markets and and recessions, but there is elevated risk of a significant market decline. The Dow Transports missed triggering a Dow Theory sell signal intraday by 1 point before rallying at the close.

In sum, signs of distress are piling up. VIX blew out in February. Technology is being taken down in March. I give the bears the benefit of the doubt on funding stress because this is Year 10 of a deflationary/disinflationary depression punctuated by outright deflation in 2011 and 2015-16. The Hong Kong dollar is still on the verge of hitting the peg limit and forcing HKMA intervention. I do not know if this signals immediate trouble, but I strongly suspect there will be trouble in 12 to 18 months at the most.


Better Than Tariffs: Buy Carbon Credits

If China and/or the U.S. wanted to shift production out of Europe, they could do worse than buying carbon credits.

Bloomberg: Europe's $38 Billion Carbon Market Is Finally Doing Its Job
Higher carbon prices drive up the cost of using hard coal and lignite to run power plants. It’s one of the mechanisms the 28-nation European Union is using to move industry away from the most polluting fuels and reaching the goals for curbing climate change set out in the 2015 Paris Agreement.

“Climate policy will drive accelerating coal phase-outs in the next few years,” said Phil MacDonald, an analyst at Sandbag, an environmental research group.

Jan Kresnik, a portfolio manager at broker Belektron, said prices of 30 euros a ton or more “could be reachable.” BNEF estimates it will reach 32 euros by 2023.

...Some of the biggest energy users remain concerned about the upward drift in prices. Steelmakers especially blame the carbon market for reducing their competitiveness. At Britain’s EEF group representing manufacturers, Roz Bulleid, who is head of climate policy, supports emissions trading but says her members are “increasingly jaded” about the impact.

“The original intention to deliver emissions reductions at least cost has been replaced by a focus on achieving a certain carbon price,” Bulleid said. “There are a number of overlapping policies in this area muddying investment signals. Overseas competitors are not facing the same policy costs.”
iPath® Global Carbon ETN

PPI Deflation For March

Prices are down almost across the board through the March 20 NBS report. Market prices swooned in the ensuing days. PPI increased 0.3 percent in March 2017, a decline this month would take the year-on-year PPI down near 3 percent, down from 6.9 percent six months earlier.

NBS: 流通领域重要生产资料市场价格变动情况(2018年3月11日-20日)

Decred Orderly Decline, ETH to $400, XMR to $150

Looks like a test of support is coming up. Litecoin could be at risk here because it is well off support and has held up better until now. Monero and Ethereum look set to test support. Decred remains orderly in its channel.

Bitcoin Falling Out of Channel Again

Bitcoin is back below support today. It could re-establish itself into a new pattern, but for now I expect it will fall back into the 2015-2017 channel below. If it takes time making its way lower, the range on that channel will be above $3000 at the bottom and above $5000 at the top. This is a major drop from prior levels, but this is still an extremely bullish channel and positive for Bitcoin and cryptocurrencies in general. I do not think a bottom will occur until many "shitcoins" are out of existence.

China Wins Round One of Trade Dispute

ZH: US, China Said To Near Deal To Avert "Tit-For-Tat" Trade War
And although nothing has been finalized, Liu has assured Mnuchin that China would cave on several US demands, including allowing foreign investment in Chinese securities firms and offering to buy more semiconductors from US semiconductor firms, the FT reported. There's also been talks that China could loosen restrictions on foreign investment in manufacturing, telecom, medical and education.
Wall Street and Beijing win again if this is the bulk of a final deal, since it will do very little to boost U.S. employment or protect strategic industries in the U.S.

This part explains how things may play out moving forward:
It's also unclear how Washington might react to Beijing’s proposal that Chinese firms buy more semiconductors from the US because that would disadvantage South Korea and Taiwan, two of the US's most important allies in the region.

"The US would basically be stealing from their surpluses with China," one person said.

In an interview with Chinese media published Monday, Li Keqiang emphasized that there was no point in a trade war between the US and China, and that the two sides would come to a reasonable solution.
In a zero sum game (a global economy barely growing), one solution to a trade dispute is to shift your deficit away from weak countries and towards strong countries. Additionally, if you know your Chinese history, they are drawing the United States into a dependent bilateral relationship which China will eventually come to dominate.


Dow Bond Ratio Resembles 1987 and 1998 Equity Market Corrections

Back on February 3 I posted End of Rally or End of Bull: Is It 1987, 1994, 1997, 1998, 2000, 2007 or 2014? it was fortuitous timing since the market plunged on Monday February 5 with the implosion of short volatility products. The post wasn't a very short-term call though, instead it was a long-term look at a severely overbought market relative to bonds or severely oversold bond market, or some combination in between.

Now that stocks have fallen for roughly two months the extreme overbought condition of stocks has evaporated. The two historical periods with similarly extreme overbought conditions are 1987 and 1998. A 1987 analog would result in a rapid stock market decline in a very short period of time. The 1987 analog itself lines up very well with 1929. Whether a crash would more resemble 1929 or 1987 would only be known in the future based on whether the economy rebounded quickly or sank into a deeper depression.

The 1998 analog calls for a swift 20 percent correction led by technology shares, but then a melt-up rally over the next 18 months to the final top. The are some similarities between that late 1990s market and today. Technology has been leading the market by a wide margin, technology flows dominate the market, and there's substantial under performance in consumer staples if not yet a stealth bear market. A major difference may be the Federal Reserve. It slashed rates heading into 1999 for fear of the "Y2K bug" and that money poured into Internet stocks. This time it is tightening and a 20 percent decline in some sectors may not be enough for it to reverse course. A similar melt-up in stocks seems unlikely then, but a less eye-popping final bull high may yet follow (and perhaps a new multi-year high in yields) if this analog holds up.

Chinese Cities Tighten Real Estate Regulations After Nat'l Congress

iFeng: 两会后多城收紧楼市调控政策,专家:具有风向标意义
On March 20th, the 1st session of the 13th National People's Congress closed. After the "two sessions" adjustment and adjustment of the property market will not relax, a short period of three days, including Dalian, Anhui Fuyang and other places have introduced property market control policies to promote the steady and healthy development of the real estate market.

...During the two sessions, the Ministry of Housing and Construction Minister Wang Menghui said in response to a reporter’s question that the real estate market as a whole remained stable. The next step will be to implement the spirit of the Nineteenth Congress, insisting that “the house is used to live, not used to fry” to speed up housing Institutional reforms and the construction of long-term real estate mechanisms to maintain a stable and healthy development of the real estate market. Including the goal of adhering to regulation and control, it will not waver and will not relax, and will maintain the continuity and stability of the policy. Further consolidate the main responsibilities of local governments. Accelerate the establishment of a housing system that provides multi-subject supply, multi-channel protection, and rent-purchase. Establish and improve a differentiated regulatory policy system. Establish and improve real estate statistics and market monitoring and early warning mechanisms to better improve the accuracy of regulation. Strengthen the supervision of the real estate market, and severely crack down on violations of laws and regulations by real estate companies and intermediary agencies.

Collapse Narratives Return

As social mood turns at the bear market peak and heads towards a new low, the collapse narratives will intensify. The big question is whether they are correct, rather than popular due to current mood. If you believe a grand super cycle top is underway (Prechter), or you read Tainter (see this presentation), or you read Turchin, or Strauss & Howe, or Roman history, there are a lot of collapse narratives all pointing in the same direction.

Financial Sense: Peak Civilization
Two millennia after the battle of Teutoburg, we can see how useless it was that confrontation in the woods soaked with rain. A few years later, the Roman general Germanicus, nephew of Emperor Tiberius, went back to Teutoburg with no less than eight legions. He defeated the Germans, recovered the standards of the defeated legions, and buried the bodies of the Roman dead. Arminius, the German leader who had defeated Varus, suffered a great loss of prestige and, eventually, he was killed by his own people. But all that changed nothing. The Roman Empire had exhausted its resources and couldn't expand any more. Germanicus couldn't conquer Germany any more than Varus could bring back his legions from the realm of the dead.

Civilizations and empires, in the end, are just ripples in the ocean of time. They come and go, leaving little except carved stones proclaiming their eternal greatness. But, from the human viewpoint, Empires are vast and long standing and, for some of us, worth fighting for or against. But those who fought in Teutoburg couldn't change the course of history, nor can we. All that we can say - today as at the time of the battle of Teutoburg - is that we are going towards a future world that we can only dimly perceive. If we could see clearly where we are going, maybe we wouldn't like to go there; but we are going anyway. In the end, perhaps it was Emperor Marcus Aurelius who had seen the future most clearly:

Nature which governs the whole will soon change all things which thou seest, and out of their substance will make other things, and again other things from the substance of them, in order that the world may be ever new.

Marcus Aurelius Verus - "Meditations" ca. 167 A.D.
It is difficult to know the right path, but it is possible to understand the wrong path from history. Complexity, centralization and inefficiency must be ruthlessly destroyed. An example comes in healthcare and education. If you look at spending and outcomes in those two industries, there is one clear step that would improve overall efficiency in the U.S.: slash spending. The marginal return on education and healthcare spending is negative and has been for 30 years or more. It doesn't matter what you do with the smaller sum of money, it could be wasted in the existing system or the cuts might trigger new efficiencies, but by reducing spending, resources are conserved.

Complexity destroyed retirement. Before social security, many people prepared for old age by having at least two children, in the expectation that they would care for their parents in old age. A government run system is complex and individuals do not see the need for youth to support them. Some might argue that you can save and invest if you have no children, but how would that work if everyone did the same thing? There's no one to sell financial assets to in the future. Boomers are in trouble because of low fertility rates, in addition to the fact that Millennials are more interested in cryptocurrencies and are so debt burdened that they cannot afford marriage, families and homes. Comfortable Boomer retirement could disappear starting tomorrow if the 1987 and 1929 market analogs hold up. If they manage to avoid a financial decline, they will leaves ashes in their wake.

Complexity is destroying the West, but recognizing that fact is close to impossible because the society is built on complexity, those institutions that are least needed are the most powerful and revered. Staving off collapse requires a "pre-collapse" retrenchment of economic, military and political power. The very symbols of American power, such as the wealth of Wall Street, the powerful military and ever growing Washington bureaucracy (reflected in the wealth around Northern Virginia) is a sign of American collapse. When Rome collapsed, the standard of living in many parts of the former empire went up, not down, because the farmers and hinterlands were no longer financing an empire.


Bitcoin and Monero at Major Trendline Support/Resistance

Bitcoin is at support, Monero at resistance. Litecoin and Ethereum are far above key, but major support levels. Decred is marching down its descending channel in an orderly fashion.

China Still Smarter Than America

Lou Jiwei says China will hit soybeans first, then cars and then planes. He also says the U.S. dollar must stop being the sole reserve currency. The U.S. will have a trade deficit if it issues the reserve currency and this results in a large trade deficit with China because it is highly competitive. If China wasn't competitive, then other nations would have larger deficits with the U.S. and the total would be similarly large. I have said here before that the U.S. cannot finance the next global boom because it will require eye-popping trade deficits as the Indian economy grows to where China was a decade ago.

iFeng: 楼继伟称应先打美国大豆汽车飞机 美诺奖得主:Agree!
Lou Jiwei quipped Road, he believes that China's Ministry of Commerce is still relatively weak in response measures, "If I want to fight, I must first hit the soybeans, and then hit the car, and then hit the plane."

.. It should be emphasized that the trade deficit between China and the United States is not a matter between China and the United States. It is not a deficit between China and the United States and it is a deficit in other countries because it If it is a world currency, it will inevitably have a fiscal deficit. Under current account deficits, it will bring economic vulnerability and it will conflict with others. Who is this deficit from? It does not come from China but from other people. Because China's competitiveness is strong, it mainly comes from China. For the United States to think clearly, China must also make it clear that our two countries do not need to fight. Of course, now it is already playing. I think that the measures taken by the Ministry of Commerce of the People's Republic of China are still relatively weak and have not hit him where it hurts. If I want to be in the government, I may hit the soybeans first, then hit the car and then fly the plane. The Europeans will not be happy. We will not allow others to take advantage of it. In the end, everyone talks about the need for improvement in China. In fact, it is important that he is a businessman. Therefore, everyone can talk together after playing a dozen. Actually, China’s policy on the introduction of technology is not incapable of improvement. Our direction has been very clear. The list of national treatment plus negatives is very clear and we should follow this direction. Moreover, this system was tested in six free trade zones and then pushed to the whole country. I know he did this for mid-term elections. Didn’t we finish the mid-term elections when he hit him?
Tariffs are an appropriate response to the out of control trade deficit if ending the dollar as sole reserve currency is off the table. Whether that is a good solution or it breaks the global financial system, it gets to a good result in the end. The battle over the trade deficit also should be understood as a domestic political battle between Washington and Wall Street on one side, and Main Street and manufacturing on the other. Trump is extremely hated in part because he is the first Main Street power in Washington in at least 30 years. He is threatening to blow up Wall Street and Washington's world.


Ministry of Tech Releases Unicorn Company List That Includes Fraudsters and Loan Sharks

Sina: 科技部认证独角兽:点融网创始人任董事公司涉嫌诈骗
Recently, the unicorn became a hot word for the A-share market. Not only did the major exchanges throw out olive branches, the investment banking circle and the financial circle also looked forward to the introduction of the New Deal. The popularity of the A-share market was even more pronounced. The release of unicorns by the Ministry of Science and Technology itself is a good thing, but from this list, people can not help but find a few problems, so that investors are scared of a cold sweat.

...I. Lending Po scored 107.7 billion U.S. dollars to advance the top 10 unicorns

Borrowing loan, domestic P2P network loan platform. The business model is "acquaintance borrowing", no need to borrow money, platform users only need to lend money according to their familiarity and trust to the borrower. Lending treasure not only has a high overdue management fee, but its collection system is also "very deep." Naked bargaining, violence and intimidation ... to remove the spread model, acquaintances and risk control, lending Po's collection mode has also been questioned. It is reported that after the borrowers on the lending platform are overdue, they face multiple lenders such as lenders, lending and loan collection agencies or lending treasurers. If the company with such a prominent problem takes the fast track of A shares, it will inevitably affect the purity of the unicorn return.

  In addition to borrowing money, the unicorns announced also include Renren Credit, Microfinance, Point Fusion, and such small loan companies. Recently, the founder of the financial network was involved in the fraud storm.

...Point Ronghua founder Guo Yuhang or 220 people involved in the vortex was deceived more than 30 million

  According to the list of unicorns issued by the Ministry of Science and Technology, Point FusionNet has a valuation of US$1 billion, but the company’s founders have recently been involved in a fraudulent storm.

  According to China and P2P insider information, Guo Yuhang, the founder of Point Fusion Network (registered red envelope), was involved in the fraud vortex. Shanghai Jintong Advertising Co., Ltd., who was the director, suddenly complained by more than 220 investors that it was The company's "paid for you" went as low as tens of thousands of dollars and as much as several million dollars.

  In January 2016, Guo Honghang, the founder of DotRay.com, began serving as a director of Shanghai Jintong Advertising Co., Ltd. Obviously, Guo Yanghang, who was a lawyer, could not be unaware of “pay for you”. The fact that the business does not comply with regulatory regulations.

What A Depression Looks Like

Depressed people don't get out of bed. Similarly, a depressed society doesn't go out shopping, but instead stays home to shop online. There are other major factors at work such as technology and central bank policies propping up asset prices, but if technology and inflated asset prices occur during an economic recovery, people go out and shop. We'd see a decline in retail, but not a collapse. This is a depression and right now we are near a peak in post-2008 economic activity. The bottom is still ahead.

ZH: Starbucks Chairman: "We Took A Walk On Madison Avenue. It Reminded Me Of The Financial Crisis In 2008"
Now, as a result of what we're witnessing, we're also seeing something else and that is, there is a proliferation around the country right now of empty storefronts. We took a walk in New York two weeks ago from 59th street to 79th on Madison Avenue, and we lost count of how many empty storefronts there were in Manhattan. It reminded me of the cataclysmic financial crisis in 2008. But what's happening is very simple, the rent structures for the last 5 to 10 years, have been rising at historic rates and retailers do not have the amount of customers they had during these last 5 to 10 years and could no longer economically survive.

So they're closing stores and as a result of this, I can promise you just like I predicted in 2014 that rents are coming down and landlords are going to have to get religion, or else their stores are going to stay empty. And we're already beginning to see a different level of reception in terms of what we believe the cost of occupancy should be. And this is going to bode extremely well, specifically for us. We're adding almost 700 new Starbucks stores a year. And so we are going to take full advantage of the economic reality of this situation. And as we go forward two, three, four, five years out even though labor is going up in terms of cost of labor, we believe rents are going down and the economic model of Starbucks is going to be enhanced as a result of this macro situation. And we're just at the beginning of this trend.

Dalian Announces Buying Restrictions

Caijing: 大连宣布3月22日起执行房产限购政策 本市户籍2套以上限购
If households with household registration status in the city have 2 or more houses in Zhongshan District, Xigang District, Shahekou District, Ganjingzi District and Gaoxin Industrial Zone, the houses for sale in the restricted areas shall be suspended. Non-municipal households can purchase one set of housing in the restricted area. When purchasing a house, they must provide continuous payment of personal income tax or social insurance certificates for 12 months or more.

China Signals Negotiations With Retaliation In Name Only

Far too often international relations are filtered through the prism of diplomatic relations instead of through domestic propaganda. In the case of trade, one of the more remarkable strengths of President Trump that goes almost wholly ignored by his critics, is that he goes out of his way to explain the enemies of the American people are America's "elites," not foreign powers (it would mess up the narrative of calling him a racist xenophobe). China along with other trading powers did very well thanks to several factors, among them free trade ideology divorced from reality, development theory from World War II (helping Japan and Germany recover to strengthen them against communism became strengthen China and then ??? and then democracy) and Wall Street's capture of the Treasury and State Department to the detriment of manufacturing and domestic labor (free movement of capital overseas along with mass immigration of unskilled labor). In this case, the shift in trade policy in the United States is far more, if not nearly entirely, about realigning domestic economic and political power. With respect to foreign nations, it is about solving the negative effects caused by the U.S. dollar's reserve currency status, a topic that is still off the table for now.

China's response indicates it doesn't see a trade war brewing, yet.

CNBC: China responds to Trump tariffs with proposed list of 128 US products to target
China's commerce ministry proposed a list of 128 U.S. products as potential retaliation targets, according to a statement on its website posted Friday morning.

The U.S. goods, which had an import value of $3 billion in 2017, include wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol, and ginseng, the ministry said. Those products could see a 15 percent duty, while a 25 percent tariff could be imposed on U.S. pork and recycled aluminium goods, according to the statement.
Some of those goods may see no dent in sales because they tend towards the luxury end of the consumer spectrum. It's possible sales could increase for that reason. Overall though, this is not retaliation at all, but propaganda for the domestic audience. China hasn't escalated with retaliation. The takeaway: negotiations are ongoing.

Full list of goods (in Chinese) at iFeng: 中国反击:拟对美国约30亿美元产品加征关税(附清单)


China Says U.S. Violates WTO Rules

iFeng: 商务部:美方违反世贸规则,敦促纠正违规措施
According to the CCTV news client on March 22, on March 21, Geneva time, the WTO announced the report of the Panel of Experts issued by China against the US anti-subsidy measures (DS437) and ruled that all 11 counter-subsidy measures involving the US violated the WTO. rule. The spokesperson of the Ministry of Commerce made a statement on this.

Both the original panel of experts and the appellate body in this case have ruled that the US counter-subsidy measures in violation of the WTO rules violate the rules of the WTO and require the US to correct its violations. However, the United States still ignores multilateral rules and continues to follow irregularities in the implementation of the WTO ruling. The ruling of the executive panel of experts demonstrated once again that the U.S. side violated WTO rules and repeatedly abused trade remedy measures, which seriously damaged the fairness and impartiality of the international trade environment and weakened the stability of the multilateral trading system.

China has consistently respected multilateral trade rules and opposes the abuse of trade remedy measures. China's enforcement of the lawsuit is to safeguard its own legitimate rights and interests, but also to safeguard the authority of the multilateral trading system and the seriousness of the rules.

The US counter-subsidy measures involved in the case have repeatedly been violated by the WTO and violated multilateral rules. China urges the US to take immediate and effective action to correct wrong practices in the investigation of countervailing subsidies against China and provide Chinese companies with a fair and stable international trade environment.

Broken Windows: 80pc of Home Sales in Some Cities Driven By Demolition

iFeng: 房企利润全面爆发,三四线城市支撑力能否持续?
This is another year of financial reporting. For most real estate companies, bright results have brought good mood. From the companies that have published financial reports, the outbreak of profits has become the mainstream. For example, the net profit of Newtown Holdings has increased by nearly 100% year-on-year, and Agile's net profit has increased by more than 150%. In the view of the industry, the most direct reason for the explosion of net profit is the increase in sales. Active land reserves and rapid turnover have contributed to the increase in sales of housing enterprises.

Centaline Property Research Center statistics show that in more than 20 housing enterprises that have published annual reports, in addition to the partially transformed small and medium-sized housing enterprises, the profits of mainstream real estate companies have fully erupted, and more than 80% of firms' profits have risen significantly in 2017.
The smaller cities have driven the growth:
After experiencing the blaze in 2017, can housing enterprises maintain their momentum in 2018? In this regard, all parties have different interpretations. From the performance targets released by housing companies, they still seem to have confidence. Xuhui, for example, set itself a target of RMB 140 billion in 2018; Jianye’s goal was to rush into the RMB 100 billion camp in three years; and Sunac proposed that the target of sales revenue in 2018 be RMB 700 billion, with a growth rate of 93%.

In this regard, Yan Yuejin pointed out that the concentration of the real estate industry continues to increase, which also prompted the housing enterprises have to do their best to sprint, because once they slow down, they will be left behind by other companies, the living space will be squeezed, so for the majority In terms of housing prices, 2018 is still a hard year.

Although housing prices are full of energy, the property market environment in 2018 will also be different from 2017. Judging from the control policy, on March 19th, Minister of Housing and Urban Development Wang Menghui emphasized once again that the regulation and control targets were unwavering and that efforts were not relaxed, and expressed that it would maintain the continuity and stability of the policies, and in particular, further consolidate the main responsibilities of local governments. .

In addition, the sustainability of the support of third- and fourth-tier cities remains to be seen. The Chain Home Research Institute believes that the third- and fourth-tier cities face problems such as population outflow and aging, and the long-term power to support the real estate market is insufficient. Research shows that the wave of transactions in the third and fourth-tier property market is mainly composed of just-needed, improved and demolished real estate. Among them, some urban local relocatees accounted for more than 80% of transactions. This shows that subsequent transactions in these cities will be difficult to maintain highs. At the same time, as local pressures for destocking are reduced and support policies can continue, even if they persist, market demand will have been effectively released in the early stages, and market demand will inevitably decline.
That bold portion is talking about intracity relocation, as in 80 percent of transactions involved people moving into new homes because the government demolished their old homes.

Chinese Cities Flooding Market With Land Sales

iFeng: 中国50大城市年内土地出让收入同比涨60% 溢价率走低
With the continuous push of the overall push of the hot cities like Hangzhou and Zhengzhou this year, the Chinese land market still shows a tendency of unabated activity around the Spring Festival.

The data released by Centaline Property Research Center on the 21st showed that since the beginning of this year, the total land sales revenue of the 50 cities with the most active land transactions reached 776.08 billion yuan (RMB, the same below), up 60.2% from 484.35 billion yuan in the same period of last year. .

During the year, the three cities with the highest revenue from land sales were: Hangzhou, Beijing and Suzhou. Among them, Hangzhou's land sales revenue reached 65.4 billion yuan, up 285% year-on-year; Beijing reached 57.3 billion yuan, up 353% year-on-year; Suzhou was 50.6 billion yuan, up 153% year-on-year.

In addition, 24 cities in Wuhan, Fuzhou, Guangzhou, Zhengzhou, Chongqing, Jinan, and Tianjin have more than 10 billion yuan in land sales income.
Premiums are coming down with the increased supply, and Beijing has seen multiple failed auctions in recent months.
It is worth noting that although land transactions are still active, however, affected by regulation, the premium rate of land transactions in hot-street cities continues to decline. Zhang Dawei, chief analyst of Centaline Property, pointed out that the premium rate of land transactions in many hot cities is about 10%, which is obviously lower than the average of 30% in the past two years.

Statistical data released by the Kerr Research Center also reflect similar trends. According to Wu Jialu, an analyst at the Krishna Research Center, in February this year, the land market continued to fall due to the impact of the Spring Festival holiday and most of the cities had fewer parcels of land for sale, but some cities rushed to consolidate more land before the end of the year, such as Shanghai, Land transactions in February in Xi'an and Wuhan were all active. In addition, from the perspective of supply, many hot-spot cities have entered the rhythm of land supply in the new year in late February.

Nationalists Rising: Tax Cuts for Immigration Reductions in Australia?

Update: One Nation got very little for its vote. One Nation rolls on tax cuts for a tummy tickle

Originally post from March 18.

The Liberals want corporate tax cuts, but Australia's One Nation party says no more tax cuts for business and they hold the balance in the Senate.
Macrobusiness: The One Nation/Coalition deal that could rock Aussie politics
The upside for ON and the Coalition in this deal very obvious:

it would hand Pauline Hanson a spectacular win, consolidating her support;

but it would also position the Coalition right along side her, recapturing some big slice of ON preferences, without them having to get their hands dirty;

moreover, it would deliver a gigantic wedge to the Labor reform agenda as it handed the Coalition a housing affordability platform, a stronger wages platform, a growth platform, a fairness platform and the upper hand in environmental values, as well as strategic policy. Plus it would preserve negative gearing for the faithful.

Everything that Labor is campaigning on would come under extreme stress and every reform loser become a natural Coalition voter.


America Will Have Identity Politics Until It Breaks Up

Bozeman Daily Chronicle: Democratic, Republican voter bases are more different than ever, study finds
The Democrats have changed the most, as the mix of voters who support them has grown less white, less religious, more college-educated, younger and more liberal over the past decade, according to the study by the nonpartisan Pew Research Center.

Republican voters, by contrast, more closely reflect the demographics of an earlier, mostly white, Christian America. In one regard, the party’s voters have actually stepped slightly back in time — Republicans are less likely today than a decade ago to be college graduates, Pew found. That’s a striking fact in a country that has steadily grown more college-educated.

“Republicans have not changed as the country has changed,” said Carroll Doherty, Pew’s director of political research.
The victory of identity politics is due to diversity. White Americans increasingly view themselves as a distinct cultural, ethnic and religious group, just as African-Americans, Hispanics and Asians do. Identity politics couldn't exist in a non-diverse America because both sides shared culture, ethnicity and religion. Identity politics made no sense when Democrat party was mostly white, but those white Democrats are not only old, but also getting defeated as minorities have enough power to elect their own people in Democrat primaries. The left's (and some of the center-right's) response to the rise of identity on the right is to call those whites even more racist. Which only serves to reinforce identity politics. It is a self-reinforcing cycle that is accelerating. Social mood is trending negative, meaning Americans will be looking for more ways to fight each other in the years ahead.


USDHKD Keeps Rising Towards 7.85

Why the Facebook Plunge Matters for Stock Investors

Tech sector inflows. Look at how much money has been pouring into technology in 2017 and 2018.
Look at how much the SPDR Technology sector ETF (XLK) has outpeformed the S&P 500 Index (SPY) (ratio chart).
Prior spikes in technology stocks have led to sharp reversals and a lot of investors rushed into technology stocks at all-time high prices.

Framework for Social Credit System Already Exists in USA

A lot of people rightly fear China's social credit system, not because they care what happens in China, but because creating a similar system anywhere in the world is relatively easy. The only places where it wouldn't work is places where physical cash and anonymous transactions still dominate the economy. It is hard to imagine how a system like China's won't come to the West though, unless there is a determined public effort to ban it or a strong enough private force to get around it.

Even though there's no system yet in the West, there's already the framework for it in place. In the wake of the Charlottesville protests last summer, many technology companies shut off right-wing websites including PayPal and domain registration companies. Some of those cut off were involved in the protests or had direct ties, others were vaguely connected and some had nothing to do with them at all.
A few days ago, Dr Jennifer Roback Morse, a frequent contributor to MercatorNet, learned that credit card donations to her organisation, the Ruth Institute, had been cut off. Vanco Payment Solutions – “unlock the power of generosity” -- sent her a curt note saying that it was a hate group.

The “hate group” label had been pasted on the Ruth Institute by the Southern Poverty Law Center (SPLC), probably because it has opposed same-sex marriage. But the job of the Ruth Institute is healing the effects of family breakdown, not denigrating homosexuals. This appears to be another sign of LGBT corporate tyranny: if you don’t agree with us, get lost.
There's no practical difference between China's "once untrustworthy, always restricted" system run by the government, and a U.S. version of "once right-wing, always restricted" run by private companies in conjunction with political groups like the SPLC. (In some ways the private system is more insidious in the West because many people think, "It's a private company, they can do what they want." If the Trump or Obama administration announced a social credit system, it would be soundly rejected by a vast majority of Americans.) The main difference in the United States is that people can build alternative companies and systems. The rise of cryptocurrencies accelerated in the wake of PayPal's moves because it became clear that even payment companies could become political weapons.

More broadly, political fracturing and "secession" are already happening in America, but it's taking place first in the economic sphere. As social mood trends negative there will be increased conflict, not less. Even though it won't be by the hand of government (yet), there will be increasing levels of censorship and authoritarian controls placed on users by private companies. This will come in two forms. One will be a "fair" censorship system that targets behavior. It might stray into some actual censorship or merely try to deal with bad behavior caused by rising negative mood. Amazon is actually a good example of the latter with their targeting of fake book reviews. The other will be "unfair" censorship that relies on political advocacy group definitions of "hate speech" or internal systems mostly likely dominated by left-of-center people in Silicon Valley. Authoritarians drift into whatever system allows them social control. Now that systems targeting user behavior exist, any company without strict policies on how they are used will eventually be subverted by political ideologies with penchant for thought control.

Endgame for Facebook?

Update: FTC Probing Facebook for Use of Personal Data, Source Says
Under the 2011 settlement, Facebook agreed to get user consent for certain changes to privacy settings as part of a settlement of federal charges that it deceived consumers and forced them to share more personal information than they intended. That complaint arose after the company changed some user settings without notifying its customers, according to an FTC statement at the time.

Spokesmen for Facebook and the FTC didn’t immediately respond to requests for comment.

If the FTC finds Facebook violated terms of the consent decree, it has the power to fine the company thousands of dollars a day per violation.
50 million violations.

During the 2012 campaign, the media praised President Obama's social media strategy. It was part of an overall youth narrative, while the Romney campaign, representing older voters, was using outdated methods. That was all true to a degree, but what has now been revealed is the Obama team (or any consultants they hired) didn't need to scrape data from Facebook (FB) like Cambridge Analytica. Facebook opened up all their data to them.

IJR: Ex-Obama Campaign Director Drops Bombshell Claim on Facebook: 'They Were on Our Side'
A former Obama campaign official is claiming that Facebook knowingly allowed them to mine massive amounts of Facebook data — more than they would’ve allowed someone else to do — because they were supportive of the campaign.

In a Sunday tweet thread, Carol Davidsen, former director of integration and media analytics for Obama for America, said the 2012 campaign led Facebook to “suck out the whole social graph” and target potential voters. They would then use that data to do things like append their email lists.
ZH: Obama's Former Campaign Director Makes Bombshell Claim: Facebook Was "On Our Side"
Cambridge Analytica bought data harvested using a personality app called "thisisyourdigitallife," created by two psychology professors. When CA was asked to stop and delete all of the harvested data, they did - however Facebook banned Cambridge Analytics and their parent company SCL after an anonymous source which Facebook won't disclose reported that not all of the data had been deleted.

So the 2012 Obama campaign was scraping data from Facebook, got caught, and was specifically told they were allowed to do things "they wouldn't have allowed someone else to do because they were on our side."

Davidsen then tweeted "I am also 100% positive that Facebook activity recruits and staffs people that are on the other side."
What other side?
Turns out one of the two founding directors of Global Science Research (GSR), which sold the data to Cambridge Analytics, is employed by Facebook!

...And as the broader public has merely scratched the surface of the tangled webs politicized social media platforms weave, Facebook's Chief Security Officer has already decided to get the hell out of dodge. One can only imagine what some real digging would unveil.
Facebook is between 5 and 7 percent of many technology and Internet funds, including the S&P 500 technology sector and the Nasdaq 100, and the tracking ETF (QQQ).


$2 Trillion Fine for Facebook

The media may have wrecked Facebook (FB) in its zeal to find some dirt on Donald Trump. There was no "hack" of Facebook in the sense of breaching data servers, all Cambridge Analytica did was figure out how to obtain the publicly exposed data. It exposed reality to hundreds of millions of clueless users who don't realize their Facebook data is insecure.

Endgadget: Facebook may have broken FTC deal in Cambridge Analytica incident
Facebook, for its part, said that it "reject[s] any suggestion" that it violated the consent decree. It maintained that it "respected" users' privacy settings.

If the FTC did find violations, Facebook could be on the hook for some very hefty fines -- albeit fines that aren't likely to be as hefty as possible. The decree asks for fines as large as $40,000 per person, but that would amount to roughly $2 trillion. Regulators like the FTC historically push for fines they know companies can pay, which would suggest fines that are 'just' in the billion-dollar range. Given that there are already multiple American and European investigations underway, any financial penalty would be just one piece of a larger puzzle.
Only last week there was a flaw that exposed partial payment data from user accounts.

Security Week: Facebook Flaws Exposed Friend Lists, Payment Card Data
Facebook users can prevent others from seeing their friends, but the vulnerability discovered by Franjković could have been exploited to obtain this information regardless of the targeted user’s privacy settings.

GraphQL is an open source data query language designed by Facebook for its mobile applications. GraphQL queries can only be used for Facebook’s own applications—only whitelisted query IDs are allowed—and they require an access token.

Franjković discovered that he could use the client token from the Facebook app for Android, and he could bypass the whitelist by sending a request containing a “doc_id” parameter instead of “query_id.”
The list of things he obtained with this query:
first 6 card digits (BIN), identifies the bank that issued the card

last 4 digits

expiry month and year

card type

cardholder first name

zip code and country
Social media through the mid-2010s was a peak social mood industry. Users still willingly give tons of personal information that is exposed to the public, including anyone who might want to use it. Platforms such as Facebook also aren't walled. Friends, family and acquaintances are all lumped together. This is a peak social mood format because at peak mood people are more open and outgoing, all the way through political arrangements (the euro launched right as mood peaked in the year 2000). As social mood turned more negative, conflict increased on social media, particularly on open platforms such as Facebook. (One interesting data point to chart would be the number of blocks/mutes per user on social meia, I suspect the chart might look similar to Bitcoin over the past couple of years.) In response, Twitter, Facebook and others are regularly banning users for content because users upset with content were leaving. Advertisers getting blow-back because their ad appearing next to objectionable content (objectionable being whatever might get a few dozen people on social media worked up about) also complained. Now users are leaving because of censorship, exacerbated by a clear political bias in what gets deemed to be abusive content.

Back to Big Tech and social media: the tide is turning against these firms. The public is growing weary of their power and the potential for abuse. The Internet was supposed to be a decentralized and open technology connecting the world, but a handful of companies sit at the crossroads and control what content is seen by users. The companies themselves are turning authoritarian in their control, another sign of increasingly negative social mood. Social media is suffering because its users are fracturing along with the culture and media. There is no longer a "mainstream" in America. When people are pushed together on social media in a time of negative mood, it increases tensions. These companies are almost in a no win situation, the only way out may be to do as consumer companies do and segment their customers with multiple brands. Otherwise, they can't win. Censorship free, open platforms causes users to quit. Censorship causes users to quit. An angry public will increasingly call for regulation of the industry.

The outlook for big social media is negative unless it can successfully fracture its market and appeal to all users. Otherwise, it will break apart as it becomes hated by everyone.