Palladium Signals Top at $3200

Right before markets finally realized coronavirus was a problem, there were assets signaling the market was stretched. One was palladium. Palladium's Pendulum: A Third Top in Time and Price? Adding to the running theme of a 2000-like top, the chart of palladium bears some resemblence to the 1998-2000 version. Palladium would hit resistance at $3200 an ounce.
Maybe this time is different and inflation is only geting started. Plenty of charts such as tech stocks, for example, have blown through resistance. But if not, the market is getting close to its top.

Powell Stumbles on Fed Exit

Powell realizes when they tried to exit, they got 2018, so he changes his answer to "the last crisis."


I took profit on MU puts yesterday picked up a similar exposure with AMD for less capital.


Housing Regulations Favor Under 35s in Hefei

iFeng: 没想到,连买房资格也卡在了35岁?央媒发声:是抑炒房还是甩包袱
Every city has a different definition of a buyer who just needs a house. Hefei's regulations are: no house and no real estate transfer record, compliance with the purchase restriction policy, 2 consecutive years of social security payment and under 35 years of age.

...The Hefei Housing Security and Real Estate Administration replied that with regard to the question of the age of buyers who just need a home, as reported by netizens, the Hefei Real Estate Regulation New Deal did not exclude the eligibility of buyers over the age of 35. For those over the age of 35 who are eligible to buy a house, they can Participate in the purchase of houses by lottery for ordinary buyers.

Specifically, the netizen who consulted is more than 35 years old, and he can still buy real estate that does not require lottery sales. And in the real estate that needs lottery sales, he can still participate in lottery purchases for the remaining 70% of the housing that just needs 30%.

You can buy a house if you're over 35, but you'll be restricted to a smaller 30-percent pie of lottery housing.
This policy is to effectively protect young people, especially young people who just need it, and prevent more people, especially speculators, from participating in the competition for 30% of the houses that just need to guarantee lottery sales. 35 years old is one of the four thresholds just needed, not the threshold for buying a house in Hefei, and there is no age discrimination.

According to China News, the city housing security and Housing Authority staff said, "the New Deal did not exclude qualified buyers for more than 35 years of age of buyers, but favorable policies just need buyers under the age of 35 must meet the conditions, more than 35 years of age Of home buyers also have the opportunity to participate in lottery purchases."

In addition, it is a condition stipulated by the current New Deal for those who just need to buy a house to be under the age of 35. Regarding whether there will be adjustments to the subsequent policies, the staff said that the policy cannot remain unchanged. The relevant departments of Hefei will make adjustments in accordance with market development and actual conditions.

To sum up, there is no such thing as a person over the age of 35 who is not eligible to buy a house in Hefei. This policy in Hefei just reflects the precise implementation of policies, fully taking into account the actual situation of different groups, and insisting that the house is used for living, not for speculation. The positioning of the new real estate policy will give better play to the regulatory role of the new real estate policy.

The optimistic take is China is getting serious about policies favor younger workers. Although it isn't mentioned, it's possible fertility is related, since family formation is delayed by high home prices. The pessimistic take is that as always, credit drives housing specualtion, and these types of more excessive rules usually come near the end of a bubble within the larger bubble, when regulators get extreme in the face of ever rising prices.

USG Inflating Slower Than in 2008

My view right now is that the 2022 will cut the legs out from spending plans the same way the 2010 election did. Assuming private credit growth doesn't pick up, the only hope for the inflation case is accelerating (in percentage terms) government deficits.

Inflation or Another 2008 2011

Here is another chart that simplifies the inflation-deflation/disinflation debate. This is the price of corn. It exploded higher in 2008 and 2011. Both times were the result of inflationary policies in the past. Same today! If corn goes up, then we've entered a new inflationary period. If corn (and other ags with similar charts) fails again, nope.
The best chart for the inflationists is still lumber. If corn moved like lumber in a sustained hot inflation, it should double or triple from here.
The best chart for deflation/disinflation is still TOTLL. Here I've indexed it to February 12, 2020.


Hyperbear Lives

VIX was pounded on Friday. Could go either way, but if it goes up...


haven't touched that support-now resistance line. Docusign failed right at it.


Turkey and the West Still Diverging

Way back in 2015 I posted Geopolitical Forecasting Through Technical Analysis: Is Turkey About to Destabilize the Middle East?. The main premise was simple: does a very alrge bearish pattern portend negative geopolitical events? I argued yes, and since then it's been filling in the dots.

ZH: Biden About To Declare US Recognition Of Armenian Genocide, Enraging Turkey

It's long been a Turkish 'red line' for which all the country's recent modern leaders have reacted fiercely at the mere suggestion, and which only thirty countries in the world officially acknowledge. It's being widely reported that President Joe Biden is preparing to declare the formal US recognition of the Armenian genocide, which was the mass systematic killing of over one million Armenians in Asia Minor from 1915-1917 at the end of the Ottoman Empire. Hundreds of thousands of Greek and Assyrian Christians were also slaughtered in the name of achieving 'Turkification'.

According to CNN on Thursday, "Two people familiar with the decision said the President was expected to make the declaration as part of an official statement on Remembrance Day, which falls on Saturday. Both said it was possible he would change his mind before then, and issue a statement merely recognizing the event without describing it as genocide."

Turkey is a great example of one of the main themes of this blog, that beng social mood and how negative mood exposes all the faultlines between peoples. The United States is entering a low level race war as diversity's problems are exposed. Turkey and the West have multiple fault lines ranging from religion to geopolitical goals. Kemalist Turkey made sense as a U.S. ally against the Soviet Union. Islamizing Turkey doesn't make much sense as an ally against radical Islamd, particularly when it ends up supporting ISIS. Of course, depending on who is in power in the U.S., supoprting ISIS might be seen as a good thing. President Trump seemed to flirt with the idea of siding with Russia and Assad against terrorists though, and without the false Russiagate narrative and the fake chemical attack blamed on Assad, it's possible Trump would have radically altered U.S. foreign policy vis-a-vis Russia and the Middle East at least on one problem. He would not have done too much given his support for Israel and the latter's support for radical Islamic groups that are "the enemy of my enemy."

Additionally, Turkey has also angered the U.S. by buying Russian weapons systems. It seems like no matter which way the West goes, Turkey finds itself in conflict. I still expect it will eventually be expelled or voluntarily leave Western organizations such as NATO. Economic troubles, including the fallout from rapid monetary expansion, has battered the currency. Turkey's revolving door of central bank chiefs whipsaws markets. Flight from the Turkish lira has led it to take action against Bitcoin. It doesn't say that is the reason, nor did China when it banned cyrptocurency exchanges amid downward pressure on the yuan and worries over capital flight.

As for the chart, the Turkey ETF emains in a downtend. When viewed in context with USDTRY, it takes on a bearish aura.


It's Happening Again: Inflated Property Values Will Take Down Real Estate Pyramid Scheme

Overall,” they write, “actual net operating income falls short of underwritten income by 5% or more in 28% of loans.” This was just the average, however: Some originators — including an unusual company called Ladder Capital as well as the Swiss bank UBS, Goldman Sachs, Citigroup, and Morgan Stanley — were significantly worse, “having more than 35% of their loans exhibiting 5% or greater income overstatement.” The below graph from the paper illustrates just how prevalent this issue is with some of Wall Street’s biggest names:
The paper explains that the authors are “interested in studying intentional income overstatement.” In an interview, Priest said that “we find that the direct inflation of past financials is common practice in the industry” and “our tests demonstrate that this really doesn’t seem to be a pattern that’s driven by coincidence. … It’s hard to argue that these originators are just naive,” making innocent mistakes.
This is a typical fraud. In China, money would change hands with the party desiring a higher vauation compensating the other. Often there would be two prices, one reported to the government for taxes and the other to the bank for a loan.
Flynn’s whistleblower complaint filed with the SEC states that he has identified “about $150 billion in inflated CMBS” issued since 2013 by banks such as Wells Fargo and Deutsche Bank and the “shadow bank” Ladder Capital.

But it’s easiest to understand what seems to be happening in the CMBS market by looking at a single trust.

Take one called “LCCM 2017 LC26,” which Flynn has examined in fine-grain detail. What he’s found appears similar to the residential mortgage trusts of the 2000s, with some newfangled twists.

LCCM 2017 LC26 consists of 57 commercial real estate loans bundled together, with a total unpaid principal balance of $625 million. LCCM stands for Ladder Capital Commercial Mortgage Securities, the trust depositor. 2017 is the year the trust was created. LC stands for Ladder Capital Finance, the trust’s sponsor and mortgage loan seller. 26 means it’s the 26th in a series.

...Flynn then looked at two key financial metrics for each loan: the property’s net operating income, or NOI, and net cash flow, or NCF. In the world of commercial mortgages, a property’s NOI and NCF hold a significance similar to a borrower’s income for residential mortgages. The higher the numbers, the more creditworthy you are, allowing you to borrow more at lower interest rates.

The previous trust’s servicers had reported the NOI and NCF. Then when Ladder Capital packaged them into a new trust, Ladder also reported the NOI and NCF. But the numbers didn’t match.

For instance, one of the loans in LCCM 2017 LC26 was for $14.1 million to refinance the mortgage on an office building in Wilmington, Delaware. The building was 160,500 square feet, all of which was leased by Verizon.

According to the old trust, the building’s NOI for 2016 was $1,285,465. But according to LCCM 2017 LC26, the building’s NOI for 2016 was $1,717,350 — 33.6 percent higher.

According to the old trust, the building’s NCF for 2016 was $1,273,427. But according to LCCM 2017 LC26, the building’s NCF for 2016 was $1,717,350, or 34.9 percent higher.

By Flynn’s calculations, as of April 2019, the 13 anomalous loans had, in aggregate, total inflated NOIs of $2.5 million and NCFs of $3.85 million.

This makes them look much like the loans of the housing bubble. Flynn alleges in his SEC complaint that companies like Ladder Capital have an incentive to exaggerate a business’ income. As Flynn explains in his memo, Ladder “takes profits and fees from originating, arranging, and selling the loans into CMBS trusts, and then selling the securities.”

...Flynn also alleges in the complaint that changes in names and addresses when loans are moved out of old trusts and into new ones are not an accident but suggestive of deliberate obfuscation. “The correlation of name and address changes with inflated numbers,” he says, “is something like 95 percent.”

...This, Flynn contends in his memo, could allow Ladder Capital to make money coming and going. First, Ladder subsidiaries would get the fees for originating and packaging the loans. Next, the seemingly exaggerated NOI and NCF numbers for the 13 problem loans push down the interest rates for the entire trust, including Ladder Capital’s loans to itself.

That’s where Dollar General comes in. Because Ladder Capital is paying the trust a lower interest rate on its mortgages than it would be if the cash flow and income numbers had not been increased, its monthly loan services costs for its properties logically must be lower. And if that lower cost is then translated into a cheaper rent for the tenant — in this case Dollar General, though the logic would apply generally — that means the store’s overall costs would go down significantly, especially compared to other retailers operating in the same areas.

Housing Boom Without Mortgages

This supports the idea that urbanites moving to suburban and rural homes are simultaneously reducing their debt levels. Also, if this trend doesn't reverse, the economic recovery and housing boom are running out of time.

The Age of Illusion

WSJ: How a Physicist Became a Climate Truth Teller
“I’ve been building models and watching others build models for 45 years,” he says. Climate models “are not to the standard you would trust your life to or even your trillions of dollars to.” Younger scientists in particular lose sight of the difference between reality and simulation: “They have grown up with the models. They don’t have the kind of mathematical or physical intuition you get when you have to do things by pencil and paper.”
Many people will read this as an article about climate change, but I think it gets to a much deeper problem in society: people cannot discern fact from fiction, reality from narrative, truth from lies. I grew up with the Internet so I can't say if anything has changed with respect to older people. Maybe they were always this gullible about everything. Many people didn't know the truth, but for the most part I'd chalk that up to being uninformed. Today, many people are still uninformed, but it turns out most information is spread by peer groups on the Internet. It's not that people will believe what the official sources tell them, it's that they'll believe whatever their peers think. One group believes regime sources, be it government or mainstream media. Another group thinks everything from those sources is fake. Some people investigate further, but most people do not.

The most delusional about reality are the more educated, aka credentialed. They "trust the science" even when the science is observably wrong or strongly refuted by well-sourced skeptics or challenged by credible theories. Evolution, dark matter, string theory, and now coronavirus/vaccines, the official story has holes punched in it, but to question the truth is to question what in their minds is reality. Police shootings, system racism, whihte privilege, the list goes on. Is it not surprising that people who get emotional about scientific theories such as evolution would also have trouble when it comes to crime statistics?

The ruling class lost their minds over Trump for a few reasons, but two of his biggest sins were centerd on the regime's concept of truth. First, most of what people perceive as real in politics is fake. Russiagate was fake from the start, only fools or ignorant (in the most neutral sense of not knowing) people believed it. Anyone who was awake during the Cold War knows how absurd it sounded from the get go, particularly when there was also a Presidential candidate in 2016, Bernie Sanders, who had literal ties to Soviet Russia. Two, people will believe anything. The panic over "conspiracy theories" and Trump's "lies" (mostly exaggerations) wasn't because the ruling class and media care about the truth. Rather, lies beat lies. If we let the old "World Weekly News" take over NBC and run Batboy stories at 6pm, half the country would believe in Batboy.

It goes deeper though. Older investors sohuld have noticed by now how younger investors have a total detachment from reality. The exclamation point on this for me was the GameStop (GME) short squeeze. I saw there were $1000 price targets and considered them crazy, but not impossible. A short-squeeze takes on a life of its own in the final phase. After investigating a little, however, I found there were investors who thought $1000 was a sustainable target, as in GME could go that high and stay there. Circling back into cryptocurrency, one starts to see an unhinged herd that is rolling through the markets driving prices without any concept for underlying value. This always happens during speculative periods, but my sense is younger investors have no concept of fundamental value. Back during the dotcom era there were absurd forecasts used as justifications for current valuations. Today, there are no justifications. If an investment has a cool meme, the price has no ceiling.

This gets back to more fundamental questions about the ruling class and core concepts such as science. One comparison I've made since 2008 is that climate models are similar to Wall Street's housing models that predicted home prices wouldn't decline nationwide. Neither was based on reality. Climate models are a shadow of the actual climate. Many models cannot hope to be accurate because they lack inputs. Last month, I posted an article by someone who is not a climate skeptic, but is someone who thinks warming isn't being driven by CO2. The Earth itself is a likely source of warming oceans, which explains why the oceans are warming faster than the rest of the climate. Last month, I also posted a study that eliminates dark matter.

In a prior age, busting holes in old theories would be celebrated. Science was celebrated precisely because it was constantly falsifying things as untrue. Today however, people become unnerved by learning. Scientists behave like authioritarian political commisars who attack honest skepticism and dissident theories. The truth creates a crisis. In politics and now science, independent voices that challenge or make their own truth claims incite panic. Censorship intensifies. Why? My hunch is because people have abandoned religion. As Chesterton put it: "When men choose not to believe in God, they do not thereafter believe in nothing, they then become capable of believing in anything." For myself, I've become an advocate for having the Bible taught as an educational standard. Not necessarily because I believe it is true, though I do, but because if people are going to believe in something, might as well make it something with a provable track record of success. More importantly, and here's where I'll slip in a theological argument, is that the Bible teaches that there is objective Truth. Christian societies like the ones that existed before this modern world made incredible advancements in science. What's more, Jesus Christ claimed to be the Truth. A weak argument would be that believing in any objective truth, real or not, creates a soceity that believes in truth. The strong argument is that if Christ was lying, Christian societies would be untruthful. That they were not is a strong argument in favor of the divinity of Christ. Finally, while less educated Christians can be fooled by lies, in my experience, they are among the least likely to believe lies. If they do believe lies, they tend to be less serious ones like foolish conspiracy theories that don't impact daily life. For example, Creationists who believe God made the world literally six days, at least come up with scientifically-based theories when then scientific record disagrees with their theory. They can still be biologists and physicists, despite being literalist Creationists. Climate change believers have as much faith in climate models as Creationists have in a literal interpretation of the Bible, but the Creationists deal better with the holes in their theories because they can retreat to Faith. A hole in their theory doesn't dent their Faith. Climate model believers and others who worship science have no fallback. Holes in scientific theories shake their faith and destroy the core of their belief system. Pushing further, many people treat science as a religion. And even as a religion, it has become a superstition, an inferior religion as compared to the world's major ones. Most people cannot live under a philosophy of science that is constantly disproving reality. Religion provides a sound footing. Those who worship science instead develop faith in unproven theories such as evolution. They listen to scientists on topics such as coronavirus in the same exact way religious observers listen to priests on questions of theology.

In conclusion, I believe we may already be in a "new" Dark Ages. New in quotes because the Dark Ages has been debunked. Most of the West lives in an illusion because it cannot discern truth from fiction. Ideas such as systemic racism are provably false. If you dig into data and have an ojective concept of justice, you can make the case that whites and Asians are the most oppressed people in the United States. Yet society is falling apart because no one can refute this lie. The markets are unhinged because value is dead. Value investors have no currency in a world where people cannot estimate the value of company. The West was crippled by the coronavirus and spread lies about the virus itself, despite the fact that almost everything known about it in January is still true. The only thing is, you'd have to read Chinese news sources to get the truth, or stick with anonymous Twitter accounts that retweet dissident science from banned sources.

The most important thing to teach a child, along with teaching them how to learn, is to teach them that Jesus Christ is the Son of God. That the Bible is the Word of God, not literal, but as spoken through the prophets in the Old Testament, and by Jesus Christ in the New. Whether they choose to have faith is up to them, but they should be taught this alongside the classical philosophers because this is the best way to build a solid foundation. The world is adrift in a sea lies and even though rocks of truth are all around them, they cannot discern the rocks from the water. Those who know to stand on firm ground will have an absolute advantage on the competition. They will also be the only hope for preserving Western Civilization.



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 is still headed towards the only equality 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 criticize China over issues such as women's rights, under Mao women achieved full "equality" as producers of GDP in the economy before Western 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.