Aurania Finds Lost City of Gold

Aurania and Metron Find Lost City of Gold in Ecuador

Aurania Resources Ltd. (TSXV: ARU) (OTCBQ: AUIAF) (FSE: 20Q) ("Aurania" of the "Company") is pleased to report that through a collaboration with Metron Incorporated ("Metron") of Reston, Virginia, USA, the "lost city" of Logroño de los Caballeros has been found in Ecuador. The site considered to be the ancient gold camp is not on Aurania's concession block, but is downstream, and is exclusively alluvial (placer) gold. No archaeology has been found. Aurania is now on the hunt to find Logroño's source of gold within its Lost Cities - Cutucu Project ("Project") in southeastern Ecuador. The location of Logroño, as inferred by Metron, is supported by a multitude of historical documents as well as geological information collected by Aurania and the increased presence of artisanal miners in the area. Logroño de los Caballeros was one of seven historic mining areas operating during the time of the Spanish conquistadors in the land that became Ecuador. Its geographic location and that of a second site, Sevilla del Oro, have been lost over time. Aurania's Project is partly based, and is named on the premise, that the two lost cities would be within Aurania's large concession package.

The Dow 36,000 Market

The Dow 36,000 market is setting investors up for destruction:

One of the unfortunate bits of financial illiteracy that Wall Street has pushed into the heads of investors is the idea that extreme valuations are “justified” by low interest rates. Now, it’s certainly true that, holding future cash flows constant, raising the price of an investment will lower the embedded rate of return, and vice versa. If you pay $32 today for $100 a decade from today, you can expect a 12% annual return. If you pay $82 for the same security, you can expect a 2% annual return. If you pay $100 today, you can expect nothing. So it’s clearly true that, holding future cash flows constant, a lower rate of return implies a higher level of valuation.

The reason the statement “low interest rates justify high valuations” contributes to financial illiteracy is that the statement has been learned entirely out of context of the arithmetic. As a result, investors seem to imagine that, as long as high valuations can be “justified,” stocks can be expected to provide historically normal rates of return in the future. Likewise, investors seem to have no concept that if interest rates are low because growth rates are low, no valuation premium is “justified” for stocks, because the lower growth is already sufficient to bring future stock returns down to levels that are commensurate with the low level of interest rates.

The truth is simple but uncomfortable. If interest rates are low and expected growth is held constant, higher valuations imply lower long-term returns. If interest rates are low because expected future growth is also low, higher valuations are not required. Long-term returns will be lower anyway. A valuation premium just makes future returns even worse.

Saying that extremely low interest rates “justify” extremely high stock valuations is identical to saying that extremely low future returns on bonds “justify” extremely low future returns on stocks. I don’t really think that’s something Wall Street cares to clarify when it tells investors that stock market valuations are “justified.”

How to Spot a Bubble

Do You Believe in Cycles?

Headlines from this weekend:

Reuters: A month after negative oil prices, U.S. crude contract expiry looms
Detroit News: Justice Department drafting Google antitrust lawsuit
Nikkei Asian Review: US pushes China decoupling, wiping billions off Apple and Boeing

China Crisis Repeating a Familiar Pattern For the Last Time

Special topic | Central Bank Discusses Exchange Rate Twice in One Day! Yi Gang: I am confident that RMB will continue to be a strong currency!

Back in 2014, I wrote The Logic of Strategy: Yuan Devaluation and the Road to Trade War after reading Luttwak's book on how to contain a rising China. Luttwak's book has proven prescient. Beyond the arguments in the book itself, it fit the template of my macroeconomic model for China. I anticipated a weaknening Chinese economy, followed by a credit crunch and currency devaluation. Whatever path was taken, it seemed the U.S. and China were headed for a political, military, economic and currency confrontation.

One of the main reasons I wrote this blog over the years was to provide an alternative view on China. The standard narrative was China taking over the world. The yuan would challenge the dollar for reserve currency status, China's private economy would boom, reform would unleash the talent of the Chinese people and eventually, the U.S. would be pushed out of the Pacific either willingly or unwillingly. Events took a very different turn, and the Western narrative on China even contradicted what Chinese officials were publicly saying in the daily papers. A theme that would return in Brexit and Trump, through to today. The mainstream/establishment thinking glued to its own narrative rather than observing the facts on the ground. Great volatility and profit was and is still available to those paying attention.

A brief and truncated history of China's post-2008 economy

The yuan devalued in 2008, as covered in this post from 2013: Chinese Yuan Could Devalue 50% Or More (the title was a think piece, not a target). Instead of letting the market take its course, China did what it got accolades for doing in 1997: it did not join in the broader wave of currency depreciation. As a result, it may have helped arrest the 2008 downturn. The Chinese markets, emerging markets and many commodities would bottom in November 2011 (certainly on a relative basis). The U.S. economy experienced a shallow recession. And along with central bank action across the globe, the world's economy returned to a slow path of growth. Or not, depending on if you adjust for debt. Either way, the bill is coming due.

China never experienced healthy growth out of the crisis. It launched major infrastructure projects such as the national high-speed rail and citywide subway systems. It is possible to walk to most, if not all, major Chinese cities by taking a subway to the train station. However, this growth ended in 2011 and came with a run-up in debt. The stimulus was 40 percent of GDP in 2008 and was force fed through banks. Distortions were all over the place (such as SOEs borrowing at low rates from banks and loan-sharking at double-digit interest to private developers). The country experienced a real estate downturn as stimulus faded in 2011. In January, the real estate market was smoking. The WSJ ran an article titled: Real Estate Rage Erupts in Hangzhou. The rage was a fight breaking out among people trying to buy new apartments. By September, a new form of rage was setting in. Home buyers in Shanghai angry at massive price drops, smash offices

August 2011 was a volatile time for global markets. Europe's sovereign debt crisis was in full swing, the U.S. Congress was threatening to enforce a hard debt limit, one that would have terminated the U.S. government's ability to spend beyond its means. Gold would peak later that year. Emerging markets failed at their 2007 high. The global impulse created by central banks and China stimulus was over. There were hints that yuan depreciation could follow: Chinese yuan depreciation coming soon? By December, banks were selling dollars to halt the yuan's relatively minor slide: Devaluing the renminbi. It was a little late as devaluation pressure lifted by spring, but in July, investors were still shell shocked: Chinese hoard dollars. A credit growth cycle was underway though, one that wouldn't end until 2014.

As for the acute crisis, China saw falling real estate prices from June to Decemeber, with some currency depreciation into the early second quarter.

In 2014, China stimulus ran out. Resource investors and companies ignored the Chinese government's repeated warnings that there would be no repeat of the 2008 stimulus. The big blog post for that year was China Real Estate Rage Is Back; Ghost Cities Everywhere; Offshore Yuan Plunges; Talk of Falling Real Estate Prices Across China. By October, it was Liaoning Sounds Warning on Chinese Economy. The real estate development model looked busted. Local governments relied on real estate for GDP growth as traditional commodity-related industries went into recession. There was a real threat of the entire country tipping into recession should the decline in real estate be repeated elsewhere. Credit guarantees were blowing up left and right. Trust and bond defaults shook the notion that the government would always step in to prevent any default. Globally, the U.S. dollar bottomed in June and began a major bull market that appears unfinished. In November, crude oil began a plunge that would not end until 14 months later. Emerging markets would fail at their 2007 for a second time.

China would not escape with modest currency depreciation this time. In August 2015, it allowed the yuan to find its market price, far lower than the high of 6.04 in late 2013. The currency impact of this round would last until early 2017, with USDCNY touching 6.96 and threatening to break 7.00. It would cost China $1 trillion of its reserves. Global equity prices wouldn't bottom until early 2016 along with commodity prices. Bonds would peak around the time of the U.K.'s Brexit vote. The dollar would spike following President Trump's election. The crisis was acute for China, natural resources and currency markets.

This was also the point at which China ran out of political room. Eventually, the U.S. dollar was always going to break under the stress of the global economy. It was becoming too large for the Federal Reserve to control. It likely reached that point sometime in the early 2000s with China's entry into the WTO. At some point, America was going to say no more. Moreover, as China ran up its debt-to-GDP, the risk that the currency would devalue was rising. How unfortunate would it be if at the moment China needed to devalue most, the United States was ready to launch a trade and currency war?

Starting in mid-2015 and again in early 2016, China launched yet another round of credit stimulus following the implosion of the stock market bubble. Much of the stimulus would flow into real estate. By June 2016, Reform Can Wait: 4 Trillion Stimulus All Over Again as SOEs Pour into Land Market and also Ministry of Finance Owned Cinda Real Estate Becomes Land King. The government tried kicking SOEs out, but in February 2017, I posted SOEs Ordered Out of Land Market, Again

In October 2017, the green light for a national deleveraging is given by the National Congress. 19th National Congress: Deleveraging Will Have No Negative Effect on GDP

In summer of 2018, there was a report showing a speculative takeover in housing, beyond anything seen previously. Speculators Take Over Chinese Housing MarketBy September 2018, Fresh Reports of Real Estate Rage Signal Turn in Chinese Housing Market. China's economy has been slowing into 2019. Baoshang Bank failed and the Bank of Jinzhou needed a bailout, tying the story back to Liaoning 5 years earlier as laid out in China Credit Growth and Risk of Financial Crisis

China's stock market would decline in 2018 along with the rest of the world. Emerging markets experienced a failed breakout and fell below their 2007 high for a third time. They would recover this level in early 2019. They failed for a fourth time today, August 5, 2019.

The yuan has started depreciating again and broke the all-important former "line in the sand" of USDCNY 7.00. A simple overlay of prior events suggests the currency could depreciate for another 12 to 18 months, and that's if the magnitude is similar. As I recently discussed, the prior downturn saw trusts and a few bonds default. This time a bank has failed and another required a bailout. There is a trade war threatening even greater U.S. dollar pressure than the market alone creates. China has now been named a currency manipulator. Events have moved full circle back to the Logic of Strategy.

Whichever path is chosen, the economic and geostrategic paths will line up. An economic crisis in China will add the economic component to the emerging geostrategic China policy. A geostrategic decision to confront China economically would set in motion an economic crisis that would propel the strategy forward since China would respond in kind. The decision to halt rare earth exports to Japan and the widespread anti-Japanese riots of recent years already show how China will respond. A major confrontation from the U.S. would require an even larger policy response. Luttwak lays out some possible policy choices, starting with small ones such as banning technology transfers in a limited area such a military or telecom. I fully expect that were a Chinese crisis and devaluation to accompany another recession in the United States, the push for tariffs would find a bipartisan majority in the House and Senate.

Yuan devaluation is inevitable as soon as China enters a serious financial crisis. If the government refused to devalue, the nation would go through a 1930s style deflationary Great Depression. China is unlikely to allow the market to take the yuan lower in a panic collapse like a replay of 1997. At some point, it would announce a large devaluation designed to end the selling and the crisis. This will be called a political act in the United States (those who understand the economics will nonetheless spot the political opportunity) and the political push for protectionist policies will be too attractive to be ignored. The United States will retaliate with sanctions and the world will follow. This will put even more pressure on the Chinese economy and lead to a massive rise in nationalist sentiment (either that or anti-CCP sentiment, so expect the CCP to redirect it into nationalism). A chill wind will blow across the Pacific that will last a generation or more.

I was wrong about the 2014 crisis turning into a major global downturn. Whether central bankers arrested it or not, it terminated in early 2016. The signs of a 1937 event were there, but there was not follow through. I'm always open to the possibility I could be wrong again, but I don't think the next cycle will be similar. If I'm right, I believe we have arrived at the base camp of Everest. What I've written about over the past 8 years or so, had led up to the moment. The preparation is done. The main event is here. If I'm wrong, then I'm wrong about how it ends because I don't expect another stimulus out of China. It's too late, the political, economic and financial situation around the world won't allow for another coordinated kick of the can. We are crossing the event horizon into a new future for China, the United States, and the world order.

The Long Goodbye

This blog was started with the intention of writing about Chinese stocks, believe it or not. It turned into a meta joke over time as that is one of the least discussed topics on the blog. Perhaps there is another couple of years of activity on this subject, but I sense the end is beginning for this blog. It will finally be time to get a new address (maybe on a whole new planet) and a new topic that is years in the making. Already, my long portfolio is increasingly filled with junior gold and cryptocurrency miners. In the end, the biggest emerging markets of the next 10 to 20 years might be right at home.

Trade War Lessons from Ancient China

Ancient Chinese history provides a lesson about bubble, malinvestment and trade wars. A legend called 种桑误国 describes how minister Guan Zhong of Qi conquered the neighboring countries. It says the minister ordered everyone to wear silk, but forbid the domestic production of silk (no planting of mulberry trees). All farmland was to be used for food production. The price of silk soared and the neighboring countries planted many mulberry trees and shifted into silk production. They became wealthy exporting silk. Then Guan Zhong ordered all of the ministers to stop wearing silk and cut off food exports. Faced with starvation, people fled to Qi. In this way, Qi easily conquered its neighbors.

The legend may have grown from a real event, the war with Hengshan.

In the record of Guanzi Chapter 84, Duke of Huan wanted to restrain the threat from State of Hengshan（衡山国）and asked Guan for solution. State of Hengshan was famous for its weapon production. Guan then ordered officials to buy arms from State of Hengshan in large quantities. After ten months, worrying that the price will continuously grow up, State of Yan, State of Dai and later State of Qin followed up the buying. The price then jumped sharply and, as a result, almost all household in State of Hengshan switched to make weapons instead of farming. One year later, Guan ordered officials to buy rice from State of Zhao, at a price more than three times higher than normal. By seeing the potential huge profit, State of Hengshan sold its rice inventory to officials from State of Qi. Afterwards, Guan suddenly ordered State of Qi's army to invade State of Hengshan. With selling out of weapon and rice, State of Hengshan soon surrendered.

Trade wars are often thought of in terms of kinetic wars. Both sides take losses, each side fights using direct attacks such as blocking trade. A more thorough form of economic destruction requires a long setup using passive strategies. Guan Zhong was a Machiavellian Austrian economist. He wasted money on weapons and rice to draw the enemy into unproductive economic activities. Right until the military invasion, the Fake News of ancient China might have written untold articles about the stupidity of Guan Zhong and the wealthy rising economic power of Hengshan.

Who is Qi today? Both China and the USA cause more economic destruction internally with debt-fueled housing and financial bubbles. Longer-term, both countries are their own worst enemy. In the short-term, a straight comparison of the trade relationship argues for the USA. China is more fragile not simply because trade is a larger share of GDP, but because it is dependent on U.S. demand. Chinese factories do not make goods for Chinese consumers. They serve U.S. customers. The immediate impact of a full-blown trade war in the USA is empty shelves at Wal-Mart and changing consumption patterns. The immediate impact in China is unemployment and factory closures. (If China had a credible currency and debt market alternative, it might qualify as Qi because it could pull the plug on the dollar. But it doesn't, not yet and probably not for at least 10 years.) President Trump has inelegantly described this situation as America having already lost the trade war. The more perspicacious Steve Bannon understands America's "weaknesses" leave it in a momentary position of strength. Steve Bannon even channels Guan Zhong: We Can Take the Whole Thing Down, Total Victory for USA

A more subtle lesson from Guan Zhong is the power of consumption. Trade wars are focused on production, but it is through consumption (yin) that victory was achieved in part because everyone focuses on production (yang). The consumer has the greater soft power because the producer serves the consumer.The people of the United States have made much of China into an extension of the U.S. economy because those factories operate to serve U.S. customers. China's chief representative if WTO accession negotiations understands this deeper truth. He argues China should increase its imports because that is what made America so powerful.

iFeng: 龙永图：美国为什么那么牛？因为它是全球最大的进口国

Why is the United States so powerful? Think about it, come out one - it is the world's largest importer!

As the chief representative of China's WTO accession negotiations, Long Yongtu judged the significant contribution of imports to the US economy. He believes that the importing country has largely determined the price and determined the market. This is "the dream of all of us who engage in foreign trade." Therefore, the entrepreneurs and the government are called upon to give greater attention to imports . Just as President Xi’s positive import increase to the Boao Forum is an important measure for our new opening up, we should do this in accordance with the requirements of President Xi!

Under the global economic situation, our global trading system is still “cutting and chaos”, what should we do? The United States has repeatedly threatened to "retreat the group" and Long Yongtu said, "I hope it will not be retired, and don't be afraid of it." Why is the United States "bullish"? How can China, as the world's second largest economy, be invincible in global trade?

...So what kind of policy choices can we make based on such a chaotic and very complicated global trading system? What should we do in China? Long Yongtu proposed two options for this:

First, continue to support the global system represented by the World Trade Organization and the threat of US withdrawal from the WTO. Take a positive attitude: I hope it doesn't quit, and don't be afraid to quit it.

Second, on the basis of continuing to support the WTO global system, we will participate more actively in global regional trade arrangements. One of the most important things is how to speed up regional trade negotiations in Asia.

For our trade policy, we should pay equal attention to both exports and imports, and we should increase our efforts to increase imports.

Lou Jiwei takes an opposite approach from Guan Zhong, proposing a yang strategy instead of yin:
Caixin: Chinese official: Beijing should target goods needed by US

Speaking Sunday at an economics forum, Lou said Beijing should disrupt supply chains of American companies that rely on China's vast manufacturing industries, the website Sina.com reported.

China's "counterattack strategy needs to restrict exports to the United States as well as (imports of) U.S. goods," Lou was paraphrased as saying.

"Only knowing the pain of fighting will stop the war and cause (the United States) to negotiate seriously," said Lou.

Lou was finance minister through 2016 and serves as chairman of China's 1.9 trillion yuan ($290 billion) National Social Security Fund, which manages assets of government pension plans. He is a former chairman of China's sovereign wealth fund, the China Investment Corp.

Lou Jiwei's approach plays into Trump's hands. As long as the U.S. is willing to accept the pain, it would accelerate the movement of supply chains out of China and into politically secure jurisdictions. The genius of Guan Zhong was in appearing weak and making the enemy believe he was strong (and rich). China has been running a strategy similar to Guan Zhong for 20 years, mainly because the United States was being looted by its financial and political establishment. That regime is losing power and China isn't sure what to do. It has been courting its old Wall Street allies, but their power has waned.

NYTimes: As Trump’s Trade War Mounts, China’s Wall Street Allies Lose Clout

When President Bill Clinton deliberated whether he should loosen trade barriers against China, Wall Street helped plead Beijing’s case.

When Presidents George W. Bush and Barack Obama talked tough about labeling China as a currency manipulator, Wall Street urged restraint — and both presidents backed down.

Today, China is hoping that Wall Street will once again use its political heft to soothe tempers in Washington. But as President Trump ratchets up the trade war with Beijing, Wall Street’s words are falling on deaf ears.

Senior Wall Street executives met in Beijing on Sunday with current and former Chinese officials and bankers at a hastily organized session to find ways to strengthen financial ties between the United States and China. On Monday, the group — which included executives from Goldman Sachs Group, Morgan Stanley and the Blackstone Group, the private equity firm, among others — planned to meet with Vice President Wang Qishan, the right hand man of Xi Jinping, the country’s leader.

As I wrote back in 2014:

The protectionists are ever so slowly gaining the upper hand thanks in part to negative social mood. 2008-2009 will probably mark the peak moment for Wall Street and the Treasury Department, even though there is as yet no sign of it in Washington. Changes can be seen in the form of issues such as immigration, which has turned the grassroots of the conservative movement against the Chamber of Commerce and large corporations (due to an attack initiated by the latter against the former). This has pushed the Overton window of acceptable debate among conservatives who can now take shots at big business. There is also the growing libertarian faction pulled together by Ron Paul that supports his son, Rand Paul, that consistently attacks the Federal Reserve and Wall Street. Put it together and it is not hard to envision an anti-Wall Street, pro-manufacturing political consensus emerging. This will cut across party lines, with manufacturing unions pulling in Democratic support if there are specific bills to vote on.

The alliance grows stronger by the day.

If China wants things to "return to normal" it needs Trump gone and populism ended. Then it can get back to the old strategy with Wall Street as its witting partner and Washington its unwitting partner. Next best is getting back to its grand strategy: lulling the world into a slumber as it peacefully rises. China's Made in 2025 initiative and military expansion in the South China Sea came too early. A renewed focus on economic development is needed.

What can China do to mollify Trump? The CCP doesn't want an open the economy, it has been ratcheting up its control. It would have already granted its own citizens greater economic freedom if this was an acceptable solution. Thus, the only politically acceptable option that will get China back on its long-term track is greatly increased imports. And if they study Guan Zhong, they would know that's the best way to fight an economic war.

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.

Western Elites Shocked as CCP Acts in Self-Interest

Global Times: Observers say China needs consistent leadership as CPC proposes removing presidential term limit

"Especially in the period from 2020 to 2035, which is a crucial stage for China to basically realize socialist modernization, China and the CPC need a stable, strong and consistent leadership. So removal of the section of the clause about the presidency in the Constitution is serving the most important and fundamental national interest and the Party's historic mission," Su said.

In a two-stage development plan of China, drawn up by President Xi Jinping, who is also general secretary of the CPC Central Committee, the first stage is "from 2020 to 2035" which is "to see that socialist modernization is basically realized"; and the second stage from "2035 to the middle of the 21st century," China will develop "into a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful."

Chinese reform efforts were thwarted by various party factions, local governments and the risk of triggering a major financial crisis or recession. All of those risks could generate political risk.

SCMP: China will scrap limit on presidential term, meaning Xi Jinping can stay on

“Trump, Brexit, the rise of the extreme right and left again in polities throughout the democratic world … made domestic Chinese politics even more fixated on stability and on avoiding any kind of uncertainty and risk,” Brown said. “Xi is the symbolic figure at the centre of this, the person whose leadership everything hangs on.”

Xi has the power now. Whether he reforms or uses it to retrench CCP control over the economy is anyone's guess. If the former, then this is part of China's long path of reform. If the latter, then it will eventually cause an economic setback.

China's political decision doesn't look out of place from a historic viewpoint. Mao had no term limits. The reform era was launched by Deng and instituted term limits. But if a party based on equality is to maintain political control, it must eventually devolve into dictatorship, or in the case of China, secure it. The other path is loss of control, eventually leading to a chaotic period and then dictatorship. China chose stability, again.

Sima Qian in Modern Mandarin

Sima Qian’s Records of the Grand Historian 史記 in the Mandarin Vernacular

Chinese Roots in Egypt?

FP: Does Chinese Civilization Come From Ancient Egypt?

He also cited several ancient Chinese classics, at one point quoting historian Sima Qian’s description of the topography of the Xia empire — traditionally regarded as China’s founding dynasty, dating from 2070 to 1600 B.C. “Northwards the stream is divided and becomes the nine rivers,” wrote Sima Qian in his first century historiography, the Records of the Grand Historian. “Reunited, it forms the opposing river and flows into the sea.”

In other words, “the stream” in question wasn’t China’s famed Yellow River, which flows from west to east. “There is only one major river in the world which flows northwards. Which one is it?” the professor asked. “The Nile,” someone replied. Sun then showed a map of the famed Egyptian river and its delta — with nine of its distributaries flowing into the Mediterranean. This author, a researcher at the same institute, watched as audience members broke into smiles and murmurs, intrigued that these ancient Chinese texts seemed to better agree with the geography of Egypt than that of China.

Adjust Your Time Scale

ZH: "We've Never Had A Shock To The System Like This" - Global Selloff Accelerates On Brexit, Italy, "Unknown" Fears

“Everyone is trying to react to a situation we’ve never been in before,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London. “We’ve had shocks to the system before, but we haven’t had one like this. And we won’t know the answers for a long time.”

When I read headlines at ZeroHedge, I assume the writer is levered 10:1, then the headlines go from hyperbole to quite accurate. This quote is a case in point. The world has seen this many times over, even recently in Europe. Germany reunified in the 1990s, Czechoslovakia broke into two states. What has never happened before, outside of empires and war, is an attempt to unify Europe under one government and one currency. That this also happened at the tail end of an unprecedented credit inflation, amid a major demographic transition that threatened the stability of the welfare state, is unprecedented.

The expansion of wealth and credit does have precedent throughout human history. The Chinese have a saying for it: 富不过三代. Wealth does not pass the third generation. An unrelated theory of generations finds a similar pattern in history: The Fourth Turning. The amount of leverage involved this time, with Japanese and Swiss bonds out 40 and 50 years at negative yields, that is unprecedented. The room for error and shocks is vanishingly small, which is why people panic over formerly inconsequential economic and political events. That the established powers react in panic over these events shows they have no plan for what comes next. Their only plan, like the central bank in China trying to prop up the yuan, is to manage the decline. If at any moment they lose control, they may never get it back. In that political and economic context, one can understand the panic over Brexit.

Chinese Revisionism

Who controls the past controls the future; who controls the present controls the past. Orwell invented the slogan for Ingsoc, but it has been standard operating procedure for thousands of years of Chinese history.

Guardian: China’s memory manipulators

What does this tell us about a country? Optimists feel a sense of dynamism – here, at last, is a country getting on with things while the rest of the world stagnates or plods forward. This is always said with amazement and awe. The apex of this era of wonder came shortly before the 2008 Olympics, when the western media tripped over itself trying to trot out the most effusive praise for China’s rise/transformation/rejuvenation – pick your cliche. Typical was a New York Times architectural critic, who raved upon arrival in Beijing in 2008 about “the inescapable feeling that you’re passing through a portal to another world, one whose fierce embrace of change has left western nations in the dust” and concluded that “one wonders if the west will ever catch up”.

Other emotions are more ambiguous. The bluntest I have experienced is this: a country that has so completely obliterated and then recreated its past – can it be trusted? What eats at a country, or a people, or a civilisation, so much that it remains profoundly uncomfortable with its history? History is lauded in China. Ordinary people will tell you every chance they get that they have 5,000 years of culture: wuqiannian de wenhua. And for the government, it is the benchmark for legitimacy in the present. But it is also a beast that lurks in the shadows.

Bronze Age Wrecking Sea People: Luwians?

Previously I posted on the book 1177 B.C. – The Year Civilization Collapsed. See: If You Want to Read About Collapse, Read The Good Stuff

A new article discusses the mysterious Sea Peoples who destroyed the Hittites and the Egyptians, and speculates they were the opposite side in the Trojan War.

New Scientist: World War Zero brought down mystery civilisation of ‘sea people’

We know from Hittite texts that the Luwian kingdoms sometimes formed coalitions powerful enough to attack the Hittite empire. Zangger thinks that 3200 years ago the Luwians did just that and destroyed the Hittite Empire (see map, above).

Shortly after the demise of the Hittites, Egyptian texts document an attack force they termed the “Sea People”. Zangger says it makes sense to view these Sea People as the Luwians, continuing their campaign for wealth and power and, in the process, weakening and destabilising the Egyptian New Kingdom.

The Mycenaeans, perhaps anticipating an attack on their territory, formed a grand coalition of their own, says Zangger. They sailed across the Aegean and attacked the Luwians, bringing down their civilisation and destroying its key cities like Troy – events immortalised in Homer’s Iliad.

On returning to Greece, however, and in the sudden absence of any other threat, Zangger believes the Mycenaeans squabbled and fell into civil war – events hinted at in Homer’s Odyssey. Their civilisation was the last in the area to collapse.

Zangger says that only such a sequence of events fits with the evidence documented in ancient texts across the eastern Mediterranean, and also explains why the archaeological record shows that almost every large city in the region was destroyed in warfare at the end of the Bronze Age. He sets out his ideas in a new book, and on a website that launches in English today.

Korean Pop Stars Brought To Tears Over WWII History Flub

Pop group AOA has been blasted by the Korean public for failing to recognize a hero from WWII: AOA's Seolhyun, Jimin Controversy Continues Amid Comeback; History Professor Defends AOA Members

In the May 10 episode of the show, Seolhyun and Jimin were asked to match the photos and names of several important historical figures, which include Abraham Lincoln, Yi Sun Sin and many more.

However, the pair could not recognize Ahn Jung Geun, who is considered a hero and one of the most important Korean historical figures. He fought for Korean independence during the Japanese occupation and also became known for assassinating Japanese statesman and former Resident-General of Korea, Ito Hirobumi, reported Soompi.

Since then, Seolhyun and Jimin have received numerous criticism from Korean netizens, not only for not being able to recogniz Ahn Jung Geun, but also for allegedly calling him "Kinddokkang," which is apparently what he was called by the Japanese.

You can see the same mob mentality in any nation, but the target indicates potential future events. The East Asians are gearing up for international war with Japan, while the West is gearing up for civil war.

The Rise of Legalism

NI: China's Legalist Revival

Her study amounts to a cogent call for cultural realism, a realism that entails an effort to understand the political cultures of our allies and adversaries and how those cultures might influence their internal and external behavior. This is a vital enterprise now as Western political ideas have been largely discredited, or at least are in significant decline, in much of Asia, the Middle East and Africa. The response has been a resurgence of ancient, indigenous political ideas and movements now redefined in modern terms. The cataclysmic rise of political Islam in the Middle East is clear to all. Equally consequential over the long term are an emerging national Hinduism in India and the reassertion of Great Russian power in Moscow and Eastern Europe.

In East Asia, the major question is China. There are many factions in the Chinese political debate: New Left intellectuals, neo-Maoists, Westernized reformist liberals, nationalists and militarists. There is also a great deal of talk of a “New Confucianism” promoted in Chinese official discourse as a form of soft authoritarianism that emphasizes harmony, stability, benevolence and avoidance of conflict.

Recent trends in Chinese politics, however, argue for a new look at an ancient political philosophy that has never been far from the center of Chinese political thought and practice—Legalism.

Debt Is Still The Problem

Worth watching for a refresher on debt, the failure of QE and modern banking.

Fractal Nature of Empires?

You may have heard of Strauss–Howe generational theory. They believe that every four generations marks a cycle and then repeats. The "fourth turning," usually marks a crisis: the American Revolution, the Civil War, and WWII, and today.

The Chinese have a saying "wealth does not pass the third generation." This is essentially the same argument, except focused on family fortunes.

Today, I came across this: The Fate of Empires

The empires Glubb studied had a lifespan of about ten human generations, or two hundred and fifty years, despite changing factors such as technology.

What's interesting about the 10 generations is that it almost lines up as the four generation model scaled up.

Japan's new earthquake solution; Beware of brain eating ameobas; Bad news for Indian casino developers

Company seeks to solve Japan’s earthquake woes by levitating homes

1. A sensor detects the rumblings of an earthquake.

2. Within .5 to 1 second an air tank pushes air in-between an artificial foundation and the actual structure of the home, lifting it as high as 3cm off the ground.

3. While the earth below violently shakes, the levitating home quietly and patiently waits, returning back to the ground once the tectonic plates have settled.

CDC Issues Warning About Nasal Washes

But Fornof says not to use tap water. It’s because of a brain-eating amoeba called Naegleria fowleri. It’s common in warm rivers and lakes, but if it travels up the nose to the brain it’s usually deadly.

New evidence suggests Stone Age hunters from Europe discovered America

A remarkable series of several dozen European-style stone tools, dating back between 19,000 and 26,000 years, have been discovered at six locations along the US east coast. Three of the sites are on the Delmarva Peninsular in Maryland, discovered by archaeologist Dr Darrin Lowery of the University of Delaware. One is in Pennsylvania and another in Virginia. A sixth was discovered by scallop-dredging fishermen on the seabed 60 miles from the Virginian coast on what, in prehistoric times, would have been dry land.

The new discoveries are among the most important archaeological breakthroughs for several decades - and are set to add substantially to our understanding of humanity's spread around the globe.

Chinese Economic History

Joining some pioneer studies on Chinese firms, this research compares China's experience with that of the West, and then rejects a unique Chinese pattern. As it shows in the story, Chinese entrepreneurs possessed the same entrepreneurs' instinct as their Western counterparts, and they would respond to similar problems related to new social, political, economic, and technological situations with some similar innovations in managerial arrangements. However, unlike some early studies, my dissertation suggests a linear path of institutional development of this particular enterprise. It is a path from small to big, from personal to contractual, and from traditional to modern.19 Eventually a "jituan" or Chinese business group appeared in 1940s with a multidivisional structure under the control of a central office. As my narrative will show, the creation of a "jituan" was a response to a series of business crises the enterprise faced in 1930s and 1940s. Many of institutional innovations started as an expedient arrangement targeting one temporary problem, and were maintained after the particular crisis was relieved. Ironically, this new business institution was hardly influenced by the newly-enforced Chinese company law or the efforts of early-twentieth-century reformers, two topics that have been well studied to understand China's modern business development.20 In fact, according to the company law, "jituan" was not even a legally recognized form of business organization. Again, entrepreneurship is emphasized as the main driving force for the institutional development of this industrial enterprise.

One point illustrates why history is critical:

After Deng Xiaoping's Southern tour of 1992, China started to promote a socialist market economy, in which the state-owned enterprises were gradually transformed into a revised version of Modern Corporation. To offer the theoretical guide for this new transition, Chinese scholars turned to look at the business practice both in the West and in the past. A considerable amount of studies on company history was produced during this period. One of the major agenda of these researches was to justify the reform policy by discovering the similar "capitalist" practices in indigenous Chinese businesses---so the new reform would appear ideologically more "Chinese" and less "capitalistic." In late 1990s, when the economic reform was deepened and the privatization movement has already started, economic historians in China had little ideological confusion left. Influenced by Chinese economists, who borrowed institutional economics from the West, they continued to study the history of Chinese enterprises but with a new interest in their institutional development.

Link.