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Dems’ Senate Worries Mount As Arizona Race Now A Dead Heat

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Dems’ Senate Worries Mount As Arizona Race Now A Dead Heat

Though it was once widely projected as a Democratic Party “hold,” the Arizona Senate seat occupied by Mark Kelly is now in serious jeopardy, as the latest polls show him in a virtual tie with GOP challenger Blake Masters.  

In early September, Kelly led the RealClearPolitics poll average by 6 points. Now, despite being outspent by Democrats– and abandoned by Mitch McConnell’s super PAC — Masters is within just 2.5 points. 

However, given pollsters’ well-established tendency to undercount GOP support, the race is likely even tighter than that. In the 2020 election, the RealClearPolitics average ended up overstating Biden’s support in Arizona by 3.7%.

Applying that adjustment puts Masters ahead by aggregate 1.2%. Note, however, that 2020 Arizona Senate polls were even farther off the mark, overstating Democratic strength by 6.5%

Blake Masters (left) and Mark Kelly (AP Photo/Ross D. Franklin)

The polling trend has some Democratic political operatives sounding anonymous alarms:  

“We believe this is a race that’s within a point in either direction, and there’s still a good chance that we would lose,” a person close to the Kelly campaign tells Politico. “And it’s important people understand that.”

As observed in other tight Senate races — like Nevada’s, where another Democratic-held seat is in great danger of flipping — previously undecided Arizona voters are swinging toward the Republican down the stretch. That’s especially true of a particular demographic, reports Politico

One of the biggest shifts seen since this summer is older voters moving to Masters, said Chuck Coughlin, CEO of HighGround. Just after the Aug. 2 primary — a bitter Republican contest — voters 65 and older “were all over the map,” Coughlin said. In the firm’s most recent poll, many of those voters were committed to the GOP, which is consistent with historic precedent.

Over the same period, former NASA astronaut Kelly’s lead among women has been slashed in half, from 20 to 10 points. Men favor Masters by 10. 

The strength of feisty Republican gubernatorial candidate Kari Lake may also provide a tailwind for Masters. “Between Lake’s rise in popularity and the woeful economic news lately, Blake is seeing his best chance to win just as voting is under way,” Arizona GOP strategist Barrett Marson tells The Wall Street Journal

Surging prices are weighing on Democratic candidates everywhere, and perhaps especially so in Arizona: Phoenix had the country’s highest inflation rate in September.  

The Masters comeback is happening despite his being outspent by a two-to-one factor since the start of October. As his chances of victory become more apparent, though, Republican spending is now rising sharply. Over the last week, the GOP bought $3.2 million in ads compared to $2.7 million for the Democrats. 

Back when his prospects looked dim, Senate Majority Leader Mitch McConnell’s Senate Leadership Fund super PAC cancelled $18 million of planned ads in Arizona. However, PACs associated with Donald Trump and with billionaire Peter Thiel have picked up some of the slack. Masters, a venture capitalist, was previously chief operating officer of Thiel’s investment firm and president of the Thiel Foundation.   

The difference in the candidates’ own campaign fundraising is jarring: Incumbent Kelly has a seven-fold lead, having raised more than $73 million, compared to under $10 million raised by Masters. 

Despite that, Democrats find themselves with a vulnerable new front in their defense of their 50-seat-plus-the-vice-president hold on the Senate. As Democratic consultant Roy Herrera tells Politico“There’s a very narrow path to victory for Democrats in Arizona.” It’s getting narrower by the day. 

Tyler Durden
Sun, 10/23/2022 – 18:05

How Bernanke Broke The World

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How Bernanke Broke The World

Authored by Porter Stansberry  via Porter & Company,

  • THE BIGGEST BUBBLE IN HISTORY DEFLATES

  • YOUR STANDARD OF LIVING IS GOING TO FALL IN HALF

Soon, you’ll wake up to hear reports on CNBC and Twitter about ATM machines not working across the country.

JPMorgan Chase CEO Jamie Dimon will appear on CNBC, to explain that for the good of the country, his bank and all the other banks in the country are buying long-dated Treasury bonds. And, to protect America, it’s important that we all take a pause and stop withdrawing cash from the system, which means a “temporary” shutdown of other banking operations for a week or two.

It will happen. It’s unavoidable.

A couple of interesting facts…

The price of U.S. Treasury bonds is collapsing. Since the end of July, the 10-year Treasury rate has risen sharply, from a yield of 2.65% to over 4.3% now. There haven’t been bigger losses in the U.S. Treasury bond market, EVER.

[ZH: The 1-year drawdown of US Equity and Treasury Market Cap is $14 Trillion, the largest draw that we have ever seen in absolute terms…]

Signs of inflation are fading, and the American economy is obviously heading into a severe recession.

But rather than stabilizing – which is what usually happens – the selloff in longer-dated U.S. Treasury securities is intensifying, and liquidity is at its lowest levels since March 2020.

That suggests that the market doesn’t trust the dollar anymore. And that means the entire system is at risk.

Payback’s A Witch

The sell-off in long-dated Treasuries isn’t because of last year’s inflation. It’s because the market knows that the U.S. Treasury cannot possibly afford a real rate of interest on its massive $31 trillion in debt.

Think about it: this year’s increase in Social Security benefits payments is 8.7%. At even half that rate of inflation, a 2% real yield on a 10-year U.S. Treasury bond would be well above 6%. If the U.S. government has to pay anything like that rate of interest to roll over its debts (average duration is 5 years) in the coming years, it is already bankrupt.

There are $24 trillion worth of publicly traded U.S. Treasury securities. At 6% interest, that’s $1.4 trillion a year in payments. That’s roughly 40% of total federal tax receipts.

This same kind of panic struck last month in the long-dated bonds of Great Britain. Now, along with big declines in long-dated U.S. sovereign bonds, the Japanese yen is falling apart, and the Swiss National Bank is suddenly accessing currency swap loan facilities from the Federal Reserve.

Most worryingly, liquidity is disappearing in the U.S. Treasury market, the most liquid financial market in the world. Analysts at Bank of America wrote yesterday that “the [U.S. Treasury] market is fragile and potentially one shock away from functioning challenges.” That’s broker-speak for “we’re in uncharted territory here.”

We are on the cusp of a complete panic in the world’s bond markets. Like we explained last week, a global “Minsky Moment” is looming.

We think this crisis will be the largest the world has seen since World War II. That brought the end of sterling’s role as the world’s reserve currency. This will end the U.S. dollar’s reign as the world’s reserve currency.

What’s next is going to be incredibly painful. Most of the developed world is going to see its standard of living decline 30% to 50% over the next 4-6 years. There’s going to be a lot of anger and a lot of violence.

It’s worth remembering how we got here.

Lies, Damned Lies, And Printing Presses

I’m talking about Ben Bernanke. As the Chairman of the Federal Reserve from 2006-2014, he decided in the aftermath of the Global Financial Crisis that the banking system had to be saved, by any means necessary. To finance the massive losses – which were over $10 trillion in the U.S. alone – the world’s central banks began printing money and buying government bonds to finance massive bailouts.

Like squirrels watching a bank robbery, the members of the Nobel Committee – which recently awarded Bernanke the prize in economics – saw everything that happened and knew nothing about what it meant.

Printing money doesn’t cure economic problems: it simply skews who pays for them.

Printing trillions to paper over the financial system’s losses moved the egregious errors of Bank of America, Bear Stearns, Lehman Brothers, Goldman Sachs, AIG, Fannie Mae and Freddie Mac, General Electric, General Motors and others from their balance sheets, onto the balance sheet of the U.S. Treasury and the Federal Reserve.

Morally these actions are repugnant – much like requiring that taxpayers finance hundreds of billions’ worth of second-rate college educations for 10 million lazy, underachieving students – but on a vastly bigger scale.

The real problem isn’t financial. Printing money changes societies by giving the government virtually unlimited amounts of power. That warps the ambitions of politicians and gives socialists unlimited budgets. People soon believe every problem can be solved by the government and the printing press. Trade-offs are no longer required. Costs are no longer relevant. In this kind of environment, no problem is too big to solve through politics and the central bank. And if there isn’t a crisis, then one will soon be invented.

And, sure enough, as soon as the U.S. central bank began to sell assets and return to “normal” policies in 2018 and 2019, a new, even bigger crisis was “found.”

A novel coronavirus. Never mind that coronaviruses appear all the time and that most people will get and survive the flu a half dozen times in their lives… this time the world went completely nuts.

Everything was shut down for two years – except politics. Trillions were spent on vaccines – vaccines that don’t prevent you from getting Covid or from transmitting Covid. It was definitely a government vaccine: it cost trillions, everyone was forced to use it, and it didn’t work.

Nothing else worked during the Covid lockdown either. Kids don’t learn at home. Employees don’t work at home. Flimsy surgical masks don’t prevent you from contracting or spreading Covid – they don’t work, but they were required too. Fauci wore two masks, everywhere. He received four different shots of the “vaccine.” Guess who got Covid anyway?

Worst of all, the government spent unlimited sums of money on things like the ridiculous “paycheck protection program,” which might as well have been called “Fraud on a Federal Scale For You.”

The lie that we could print over the mortgage losses led directly to the lie that wearing a paper mask can stop a virus. Or that a vaccine created in a few weeks and tested only on a handful of people could stop a coronavirus that constantly mutates. With a printing press, there’s no problem that appears too big for the government to handle.

But, much like the “vaccine” and the paper masks, the printing press is just a lie too.

Altogether, the world’s central banks have printed over $25 trillion over the last 12 years.

In the United States, the printing was equal to more than 30% of our GDP. In the Eurozone, the printing was twice as large – over 60% of GDP. In Japan, the printing has been equal to over 100% of GDP.

You can think of these figures as being the size of the mirage we’ve been living in.

Reality looms.

Time to Opt-Out of “Money” Entirely

Our advice? Do everything you can to avoid holding the currency or the bonds of bankrupt western nations that have been trying to print their way to prosperity. And most importantly, do not let the current rally in the U.S. dollar fool you.

Yes, it’s the basis of the current monetary standard and, as such, in a crisis it is where all the banks will hide. It could continue to strengthen for several more weeks or months. But it has no more legitimacy than the euro or the yen. And it is only a matter of time – maybe only hours – before it will begin printing again, trying to keep the system from coming apart at the seams. Maybe it will work – but only after the value of the dollar (and the rest of the paper money) has fallen by 50% or more.

What will survive this crisis? Energy. Bitcoin. Land. Timber. Critical metals, like copper. High-quality, capital efficient businesses that aren’t in debt.

What will fail? Anything that has to refinance debt in the next 5-7 years.

Tyler Durden
Sun, 10/23/2022 – 17:40

Trump Vows To ‘Take Back Our Magnificent White House’ In 2024

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Trump Vows To ‘Take Back Our Magnificent White House’ In 2024

Former President Donald Trump told a packed crowd of supporters on Saturday night that he’ll ‘probably’ have to run again in 2024.

In order to make our country successful, safe, and glorious again, I will probably have to do it again,” Trump told the crowd in Robson, Texas.

He then said “In 2024, most importantly, we are going to take back our magnificent White House…

Trump spent part of the evening comparing his record to the first two years of Joe Biden, suggesting multiple times that Democrats have no plan or competence, Just the News reports.

“We have people who don’t know what the hell they’re doing,” said the 45th president.

“They’re against oil, God, and guns, and they say they’re going to do well in Texas. I don’t think so.”

Tyler Durden
Sun, 10/23/2022 – 17:15

2 Dead With Monkeypox In NYC As Officials Rename ‘Stigmatizing’ Disease

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2 Dead With Monkeypox In NYC As Officials Rename ‘Stigmatizing’ Disease

New York City announced two monkeypox-linked deaths on Friday, the first fatalities connected to the disease in the five boroughs, NBC New York reports. Aside from reporting that the individuals were ” immunocompromised” and had “underlying health conditions,” few details were made public, as officials instead offered condolences in a brief statement.

We are deeply saddened by the two reported deaths and our hearts go out to the individuals’ loved ones and community. Every effort will be made to prevent additional suffering from this virus through continued community engagement, information-sharing, and vaccination,” officials said in the statement.

In total, there have now been four monkeypox-linked deaths in the US since the outbreak began, with the first fatality reported in California in September.

As of Oct. 17, the city has recorded at least 3,695 known cases of the virus. Since reaching its peak at the end of July, the outbreak of cases in New York City has dropped significantly, down to single-digit daily numbers by the beginning of this month.

To date, more than 143,000 first and second doses of the monkeypox vaccine have been administered. -NBC NY

Name change

NYC Health Department officials also debuted a new name for monkeypox this week, claiming that the term was ‘stigmatizing’ – though we would note that it only seems to be left-leaning politicians making this claim.

The new name? MPV

The previous name is an inaccurate and stigmatizing label for a virus that is primarily affecting a community that has already suffered a long history of bigotry,” said the health department, providing no examples. “Stigma is a shadow affliction that can follow viruses and drive people away from care, even when the illness itself is treatable,” the city continued.

“The Department requested the World Health Organization change the name, and continues to urge global health authorities to make this modification universal.”

However, the equity considerations are too great to wait any longer,” the health department added, Just the News reports.

Tyler Durden
Sun, 10/23/2022 – 16:00

Biden’s Energy Strategy Is Seriously Backfiring Ahead Of November Elections

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Biden’s Energy Strategy Is Seriously Backfiring Ahead Of November Elections

Authored by Mike Shedlock via MishTalk.com,

Democrat’s odds in the November elections are plummeting fast. Energy, crime, and inflation are three reasons why…

White House Press Secretary tries to defend Biden’s energy policy. Image from Tweet below.

White House Press Secretary Karine Jean-Pierre says White House isn’t trying to put oil companies ‘out of business’

There’s a doctored YouTube video showing the Press Secretary walking out after a question by Peter Doocy, White House correspondent for Fox News.

There was no need to doctor it, the clip speaks for itself.

Video Exchange

Peter Doocy: You’re asking oil companies to further lower gas prices. What makes you think that they are going to listen to an administration that is ultimately trying to put them out of business? 

Karine Jean-Pierre: How is the administration trying to put them out of business? 

Peter Doocy: Well, they produce fossil fuels and the president says he wants to end fossil fuels. 

Karine Jean-Pierre: So look. You kind of asked this question yesterday and here’s where we would say US oil production is up and on track to reach a record high next year. ….

Questions Abound

  • If oil production is at a record high, why are high prices the oil industry’s fault? 

  • If oil production is at a record high, what about Biden’s pledge to kill the industry? 

The answer to the first question has to do with refining capacity, regulations and Biden’s threat to kill fossil fuels.

Karine never addressed Doocy’s question. She made a disingenuous reply, never answering the question.

Here’s a third video that explains.

Biden’s Oil Price Machinations

Please consider the WSJ article Biden’s Oil Price Machinations.

Three weeks before Election Day, Mr. Biden is ordering 15 million more barrels released from the nation’s Strategic Petroleum Reserve (SPR) to reduce gasoline prices.

The new releases are a sign of political desperation. Crude price climbed after OPEC+ this month announced a two million barrels a day cut in production. 

The Administration said Wednesday it may continue releases as long as “conditions”—i.e., political conditions—require, but this is unsustainable. The SPR has fallen by about 210 million barrels since last fall. The Administration says the 400 million or so barrels that remain are “more than ready to respond to energy security needs today.” That’s also far from clear.

One reason is that the Administration is fast depleting the medium-sour grade crude in the reserve that is most useful to U.S. refineries. Much of what remains is a light-sweet crude produced from shale, much of which gets exported. Future releases could compete with U.S. shale in the tight global refining market and even discourage investment in shale production.

A true national emergency could also fast deplete the reserve. That’s why previous Presidents performed only three emergency releases: Operation Desert Storm in 1991 (17.3 million barrels), Hurricane Katrina in 2005 (20.8 million), and the Libya oil disruptions in 2011 (30.6 million). Though prices exceeded $90 a barrel from 2011 to 2014, Barack Obama didn’t resort to emergency drawdowns to reduce gas prices.

The Administration now says it plans to encourage “near-term production” by announcing its “intent” to repurchase oil for the reserve when the price of West Texas Intermediate (WTI) crude oil falls to $67 to $72 a barrel. Who knows when this will happen since the Saudis have indicated their intent to keep prices around $90 to $100 a barrel.

We’ve been writing for months that Mr. Biden could deflate oil prices by giving a simple speech declaring an end to his political war on fossil fuels. Instead he resorts to gimmicks like the SPR releases and cozies up to dictators. Hours after OPEC announced its production cut, news leaked that the White House plans to ease sanctions on Venezuela to liberate its oil production.

Markets are smarter than Administration officials think, and so are voters.

Hypocritical Message So Contorted Everyone Can See It 

It’s clear the SPR drawdown is for political purposes. 

It’s equally clear Biden wants to shut down the industry while blaming them for lack of production. Meanwhile, the White House press secretary is bragging about record production.  

The Journal accurately comments voters are smarter than the administration. Independent voters upset over abortion policy are now coming to grips with Democrat policies on energy, education, and inflation. 

Polls Surge to Republicans

538 Election Odds 2022-10-22

How the House Forecast Has Changed 

538 House Election Odds 2022-10-22

How the Senate Forecast Has Changed 

538 Senate Election Odds 2022-10-22

Senate Who’s Ahead 

 

538 Senate Election Odds by State 2022-10-22

 

Arizona is a lost cause. Control of the Senate will come down to Nevada, Georgia, and Pennsylvania. 

Republicans could easily have won all four but selected weak Trump-backed candidates in all four states instead. 

Despite Trump, the Republicans may pull this off. 

I had Nevada in the Republican column long ago. 538 just recently flipped.

Concern in Pennsylvania is well-founded. Even Republican pollster Trafalgar still has Pennsylvania in the Democrat Column.

Which Polls 538 Pennsylvania 

Momentum is shifting rapidly, but if you are a Trafalgar fan, odds still favor Fetterman IF the election were today. 

But the election is not today.

Which Polls 538 Georgia 

Once again, the Republican, Walker is closing the gap. But once again Trafalgar has the Democrat ahead.

Georgia is more complex because Libertarian Chase Oliver is also on the ballot. He is pulling about 3%. That’s tiny but large enough to tip the scales. 

In Georgia, the winner has to get more than 50% otherwise the top two will square off in a special election. 

As it stands, neither Walker nor Warnock is likely to win a majority. That means there would be a runoff.

PredictIt Senate Odds  

PredictIt does not reflect what betters think would happen now but what will happen on election day, Tuesday, November 8, 2022.

Momentum is clearly in Republican’s favor. The backlash over abortions has shifted to inflation, energy, crime, and education policies.

But even assuming a Nevada Senate flip for Republicans, they still need retain Pennsylvania or flip Georgia to win control. 

Georgia is somewhat of a wildcard. There’s highly likely to be a runoff. Can Walker top 50 percent in a runoff? 

Right now, my guess is yes, if for no other reason than Democrats are increasingly likely to be demoralized after losing control of the House.  

Regardless, Biden will be a lame duck for the next two years other than damage by decree, which could still be substantial as budget-busting student debt cancellation proves.

*  *  *

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Tyler Durden
Sun, 10/23/2022 – 15:30

Watch: Elite US Airborne Division “Practicing For War” Near Ukraine Border

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Watch: Elite US Airborne Division “Practicing For War” Near Ukraine Border

At a moment Ukraine says that Russian forces are starting to withdraw from the key port city of Kherson, and as Ukrainian cities suffer under increased aerial attacks, the US Army is flexing its muscle with elite training exercises just a few miles from Ukraine’s border.

Near the Ukraine-Romania border, an elite airborne division is “practicing for war” – as a CBS film crew detailed days ago – and is ready to be called up at a moment’s notice

The U.S. Army’s 101st Airborne Division has been deployed to Europe for the first time in almost 80 years amid soaring tension between Russia and the American-led NATO military alliance. The light infantry unit, nicknamed the “Screaming Eagles,” is trained to deploy on any battlefield in the world within hours, ready to fight.

The training is described as happening just three miles away from Romania’s border with Ukraine

The timing is also hugely significant, coming at a moment the Kremlin has already for months accused Washington of using the Ukraine crisis to wage a proxy war against Russian forces.

“We’re ready to defend every inch of NATO soil,” Brigadier General John Lubas told CBS News. “We bring a unique capability, from our air assault capability… We’re a light infantry force, but again, we bring that mobility with us for our aircraft and air assaults,” he said.

War correspondent Charlie D’Agata observed in capturing the rare footage that “It’s not just about defending NATO territory,” but that “They’re fully prepared to cross over into Ukrainian territory” – he said speaking of the Army airborne forces.

It’s also significant that the Pentagon is not at all taking steps to hide the troop presence so near the active conflict zone in Ukraine; instead, in inviting a CBS crew to ride along in Black Hawk helicopters the US is openly advertising it, while no doubt delivering a strong warning message to Moscow. 

Journalist Glenn Greenwald has observed of the footage making the rounds on Sunday:

It’s always a bad sign when the US military starts embedding the largest media corporations to enable exciting war shots for the evening network news. Biden has done literally everything to make the US a belligerent in the war in Ukraine short of deploying full battalions there.

The Kremlin has long warned it is ready to attack any foreign weapons or troops which enter Ukraine. Already the Russians suspect a long-embedded US intelligence and special forces contingency helping the Ukrainians on the ground. It true, at this point it is probably a very “light” footprint, while the presence of the 101st Airborne just across the border sends a signal that things could escalate dramatically in the blink of an eye.

Tyler Durden
Sun, 10/23/2022 – 15:00

California Wildfires Cancel-Out Two Decades Of Emissions Reductions

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California Wildfires Cancel-Out Two Decades Of Emissions Reductions

Authored by John Seiler via The Epoch Times,

In 2020, greenhouse gas emission reductions by California were negated by the CO2 from wildfires.

That’s according to a new study by researchers from UCLA and the University of Chicago, Up in smoke: California’s greenhouse gas reductions could be wiped out by 2020 wildfires.”

“Wildfire emissions in 2020 essentially negate 18 years of reductions in GHG emissions from other sectors,” the study’s authors concluded.

Yet, comprehensive sensible policies could mitigate the wildfires. These policies include, especially, undergrounding power lines, which often spark onto dry wood, starting conflagrations.

According to the study, “We estimate that California’s wildfire carbon dioxide equivalent (CO2e) emissions from 2020 are approximately two times higher than California’s total greenhouse gas (GHG) emission reductions since 2003. Without considering future vegetation regrowth, CO2e emissions from the 2020 wildfires could be the second most important source in the state above either industry or electrical power generation.”

Their solution: “Our analysis suggests that significant societal benefits could accrue from larger investments in improved forest management and stricter controls on new development in fire-prone areas at the wildland-urban interface.” Those things would help.

But the state has lagged in dealing with its aging electricity infrastructure—a problem made worse, ironically, as more electric vehicles hit the road and need more juice from already overloaded power lines.

When I was state Sen. John Moorlach’s press secretary, 2017-20, one of his priorities was the power lines. In 2016, the year before I joined him, he sponsored Senate Bill 1463. It would have required the California Public Utilities Commission and CalFire to prioritize fire-hazard areas “associated with overhead utility facilities when determining areas which it will require enhanced mitigation measures for wildfire hazards.”

After scrupulous vetting by several committees, it passed unanimously in both houses of the Legislature. Then Gov. Jerry Brown vetoed it. Which made no sense.

In 2018, during another wildfire conflagration, the Daily Caller reported, “As California Burns, Jerry Brown Takes Heat for Vetoing 2016 Wildfire Mitigation Bill.” It quoted Moorlach, “Not addressing wildfires has reversed all the work we’ve done to reduce greenhouse gases. It’s inconsistent.”

Also in 2018, Moorlach introduced a new bill, numbered again Senate Bill 1463. It would have spent $600 million to mitigate wildfires. This time, things turned out better, as another bill, Senate Bill 901, grabbed the idea and included $200 million from cap-and-trade revenues to go toward wildfire mitigation. That bill was authored by state Sen. Bill Dodd (D-Napa), and the money at least was a start.

Flummoxed voters bounced Moorlach in 2020. That was just before the massive, unexpected surpluses of the past two years flowed into the state treasury. What an opportunity to sharply reduce greenhouse gases, not by some utopian edict of banning non-electric cars by 2035, but by actually doing something comprehensive about the spark-prone power lines.

There has been some action. Gov. Gavin Newsom’s summary of the budget enacted in June for fiscal year 2022-23 tallied, “The Budget includes $1.2 billion in additional actions to continue building forest and wildfire resilience statewide.”

Industry also is acting. According to San Diego Gas & Electric, its “Wildfire Mitigation Plan outlines a suite of programs and initiatives that the company will undertake to continue to advance wildfire safety. One of those initiatives is strategic undergrounding of overhead power lines.

“Burying power lines removes the risk of these lines sparking fires during adverse weather events, but more importantly, buried lines can remain energized during Public Safety Power Shutoffs, reducing the impact of power outages to fire prone communities.”

All that also is a start. But given the great emphasis put on reducing CO2 emissions by California politicians, and the immense cost imposed on residents here, shouldn’t this have been the top priority on spending this year’s $100 budget surplus?

According to one estimate, “At a cost of $3 million per mile, undergrounding 81,000 miles of distribution lines would cost $243 billion.” A lot of money. But, say, $50 billion could have been taken from the $100 billion surplus to underground the most vulnerable power lines.

Finally, Proposition 30 on this November’s ballot mainly is about increasing taxes on what supporters actually brand “Greedy Billionaires and CEOs.” Taxes would rise up to $4.5 billion a year to install electric vehicle chargers to benefit Lyft, the initiative’s sponsor. But as bait for voters, it also would spend 20 percent of revenues on a Wildfire Green House Gas Emissions Reduction fund. That could mean up to $900 million a year to reduce wildfires.

As with most issues—homelessness, crime, drought, tax reform, agriculture, energy—the state is taking a haphazard, piecemeal approach to fighting wildfires. The comprehensive approach the state took during its Golden Age of the 1940s-early 1970s—building the state water and schools systems, especially—is something no longer possible. Even as the state enters another season of wildfires, burning down homes and turning Californians into human S’mores.

Tyler Durden
Sun, 10/23/2022 – 14:30

China Congress Ends As “Dictator For LIfe” Xi Stacks Inner Circle With Loyalists; Equity Market Implications

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China Congress Ends As “Dictator For LIfe” Xi Stacks Inner Circle With Loyalists; Equity Market Implications

One week after it started with a historic, “resetting” speech by China’s President, on Sunday – a day after China’s top political meeting of the past five years wrapped up – Xi Jinping unveiled a new leadership team stacked with loyalists as he looks to consolidate his power in a precedent-busting third term.

One day after his predecessor Hu Jintao was unceremoniously escorted out of the 20th Party Congress for reasons still unknown, Xi walked into Beijing’s Great Hall of the People followed by members of the Communist Party’s new Politburo Standing Committee — the pinnacle of Chinese leadership — in descending ranking order.

As Nikkei reports, Shanghai party chief Li Qiang was the first member behind Xi to walk into a room packed with journalists, confirming his second-in-command rank and signaling that he will become the country’s next premier. The pair were followed by anti-corruption chief Zhao Leji, ideology tsar Wang Huning, Beijing party head Cai Qi, top Xi adviser Ding Xuexiang and Guangdong province chief Li Xi. Most have previously worked with the 69-year-old Xi over the years as he shot up the ranks of the party.

Vice Premier Hu Chunhua, a protege of former President Hu Jintao who had been seen as possible contender for premier, appeared to have been demoted after he not only failed to make Xi’s inner circle but was also excluded from the 24-member Politburo.

And for the first time in a quarter century, there will be no women in the Politburo after the retirement of its sole female member Sun Chunlan, a vice premier and China’s top pandemic handler. Surely US women’s rights group will get right on top of that boycotting Chinese goods.

The unveiling of Xi’s cabunet comes after Xi sealed up his bid for a new term at Saturday’s official close of the twice-a-decade National Congress. Analysts had predicted that Xi would surround himself with loyalists in a bid to crush the party factionalism and infighting that marked the tenures of his predecessors Hu Jintao and Jiang Zemin, and they were absolutely correct.

“The appointments of Xi’s associates to the highest positions of power in China indicates that Xi’s vision for China will be rigidly executed in the next decade,” said Valarie Tan, an analyst at the Germany-based Mercator Institute for China Studies. “Those promoted to power have had their political careers closely tied to Xi’s leadership, implying that this is going to be an administration that will not question or challenge Xi’s authority.”

In remarks to Sunday’s briefing, Xi said his administration would be on “high alert” for the challenges ahead. This echoed a speech to the opening of the congress when he elevated security to the top of the agenda, as Beijing navigates a slumping economy and soaring tensions with the U.S. and other Western nations.

“The journey ahead is long and arduous but with determined steps, we will reach our destination,” he said. “We will not be daunted by high winds, choppy waters or even dangerous storms.”

China would “always champion the common values of humanity” as the world grapples with “unprecedented challenges,” he added.

“When all countries pursue the cause of common good, we can live in harmony, engage in cooperation for mutual benefit and join hands to create a brighter future for the world,” he said. “Just as China cannot develop in isolation from the world, the world needs China for its development.”

On Saturday, nearly 2,300 party delegates chose a new Central Committee composed of 205 voting members that was pivotal to the top leadership shuffle. The newly picked committee met for the first time on Sunday behind closed doors to vote on candidates for the Politburo Standing Committee led by Xi as general secretary, and the larger Politburo.

Some of the current leaders were dropped including Premier Li Keqiang, who was scheduled to retire this year, as well as senior official Wang Yang, who had been seen as a contender for Xi’s second-in-command.

While the just-ended congress set out top officials and Xi as head of the party and military, some governmental positions will be confirmed in March at the National People’s Congress, China’s rubber-stamp parliament.

Most notably, Xi will renew his presidency for a third time, after he ditched a two-term limit from China’s constitution in 2018, opening the door for him to rule for life.

On Saturday, party cadres adopted changes to the party constitution that among other things incorporated Xi’s ideologies and economic policies including a focus on boosting domestic growth and reducing inequality.

“The document gives Xi’s ideas and leadership political legitimacy. Since it is a legal document, it can then be used by Xi to provide the legal basis for justifying the use of force to diffuse any tension, take down any opposition within the party-state,” Tan said. “Those who run afoul of those ideas enshrined in the constitution can be officially deemed as in violation of the party.”

In response to the expected outcome, Rep. Michael Waltz (R-Fla.) on Sunday said Chinese President Xi Jinping has “cemented his place as a 21st century emperor of China” after breaking with tradition and securing a third, five-year term to lead the nation.

“He has stacked to the organs of power in China with his loyalists. He has centralized power with himself. He has eliminated term limits,” Waltz told Fox News’ “Sunday Morning Futures” host Mario Bartiromo. “He is dictator for life now, all with a major step towards what he sees as his legacy.”

Waltz, who sits on the House Armed Services Committee, said Xi has “become the most powerful Chinese dictator” since Mao Zedong, the communist dictator who founded the People’s Republic of China (PRC) party and ruled until his death in 1976.

“And that’s returning China to become the global superpower — not a superpower — but the global superpower, in line with ancient Chinese greatness,” Waltz added.

* * *

Below we summarize and excerpt the key points on the now concluded Chinese Congress from the Goldman economics team, which focuses on the new appointments, and the equity market implications (full note available to pro subs in the usual place)

1. Key features of the top leadership (Politburo Standing Committee)

  • The number of PSC members remains at seven, as widely expected. There are four new members in the Politburo Standing Committee (PSC): Li Qiang (currently serves as the Party Secretary of Shanghai),  Cai Qi (the primary secretary of the CCP Central Secretariat), Ding Xuexiang (served as director of the General Office of the CCP) and Li Xi (currently Party Secretary of Guangdong), who are all drawn from the previous 19th 25-member politburo (one rung below PSC in party leadership).
  • Most of  the new appointees worked with President Xi at earlier stages of their careers (for example Li Qiang and Cai Qi worked with Xi Jinping in Zhejiang and Ding Xuexiang has been working with Xi Jinping since 2007 in Shanghai). Li Keqiang (current Premier of the State Council), Li Zhanshu (current Chairman of the Standing Committee of the National People’s Congress), Wang Yang (current chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC)) and Han Zheng (current primary vice Premier of the State Council) have retired, while Xi Jinping, Wang Huning, and Zhao Leji remain as the Standing Committee members of the PSC.
  • Xi is reaffirmed as the party’s general secretary and chairman of the Central Military Commission (CMC). Based on the lineup of the Standing Committee members, we think Xi will in all likelihood also keep his government position as the President of the PRC, and Li Qiang will likely be the Premier of the State Council; but these government-related roles will not be confirmed until the National People’s Congress (NPC) to be held in March next year.
  • Li Xi will replace Zhao Leji as the new chief of the party’s anti-corruption body (Central Commission of Disciplinary Inspection, CCDI), a party post that was also officially announced today. The government positions for the rest of the new PSC members will not be formally revealed until the NPC next March. Exhibit 1 compares the members of the 20th PSC with those of the 19th PSC.

2. More broadly on the new Politburo and the Central Committee, and amendments to the Party Constitution:

  • The number of the Politburo members declined marginally from 25 to 24. He Lifeng (current head of the NDRC (National Development and Reform Commission) newly joined the Politburo and is widely expected to replace Liu He (a key economic policy advisor to Xi Jinping and the director of Central Finance and Economic Affairs Commission, the Financial Stability and Development Committee under the State Council) and to be in charge of policies related to the economy and the financial market. Other notable senior policymakers related to economic/financial policies include Yi Huiman, who is the 20th Central Committee member and currently serves as the head of the China Securities Regulatory Commission (CSRC). The current head of the China Banking and Insurance Regulatory Commission (CBIRC), Guo Shuqing, is no longer a member of the 20th Central Committee; and the current head of the People’s Bank of China (PBOC), Yi Gang, is no longer an alternate member of the 20th Central Committee; these imply they will retire from their government roles as well.

  • Based on our estimates, overall turnover rate of the 20th central committee (relative to the 19th Central Committee) is 66%, slightly higher than the 65% turnover rate of the 19th Central Committee (2017) and notably higher than the 57% rate of the 18th Central Committee (2012).

  • Amendments to the Party Constitution: Although the new version of the Party Constitution has not been released as of now, state media including Xinhua News have flagged major amendments. Besides more significant highlights of Xi Jinping’s thoughts, the new Party Constitution will incorporate “modernization with Chinese characteristics”, “dual circulation” strategy, “ensuring both development and security”, “uplifting the fighting spirit and enhancing the ability to fight”, “building a world-class army” and “resolutely opposing and foiling secessionist activities aimed at ‘Taiwan independence’” into the Party Constitution. There will also be continued focus on “high-quality growth” and “common prosperity”. It’s still unclear whether “Two Establishes” (两个确立) and “Two Safeguards” (两个维护) – two political slogans promoted by CCP to reinforce Party leadership under CCP General Secretary Xi Jinping – have been directly added to the Party Constitution, but state media has been emphasizing the importance of these requirements.

3. Policy implications and key upcoming events:

  • We do not think the 20th Party Congress (and its first Plenum) would be the occasions for key policy changes, and continue to expect a gradual relaxation of “Dynamic Zero Covid” policy stance to start in Q2 2023. Policy implementation could be more efficient though as personnel-related issues (related to party roles) have been settled.
  • Upcoming key policy events related to the economy include the Politburo meeting inn early December in preparation for the Central Economic Work Conference (CEWC), the CEWC itself by late December, and the Two Sessions in March 2023.

Equity market implications from the 20th Party Congress from the GS Portfolio Strategy team:

1. An unprecedented third term for President Xi. On October 23, at the opening day of the First Plenum of the 20th National Party Congress, President Xi was elected as the General Secretary of the CCP and the Chairman of the Central Military Commission for the next 5 years. The appointments deviate from implicit post-Mao Party conventions in at least two respects: a) a de facto 2-term limit for CCP General Secretary and the unwritten “7 up 8 down” retirement age for senior Party leaders; and, b) marking the first time for a top leader in the Party’s history to officially extend his reign for the third term since the Mao Zedong era.

2. Markets historically have liked political changes. Outside of the General Secretary position, 4 and 15 new members have been introduced to the Politburo Standing Committee (PSC) and the Politburo, effectively keeping the total number of PSC members unchanged but 1 less for the Politburo (24). Notable retirees from the Standing Committee are Premier Li Keqiang and Wang Yang, Chairman of the CPPCC, both at the age of 67. While data-points are limited, empirically, Chinese equities have usually performed well shortly after the conclusion of the Congress in the episodes where top leadership transition took place (i.e. changes in the highest and second-highest ranked Party leaders), with the post-Congress market performance positively correlated with the number of member changes at the Politburo. This perhaps reflects market expectation that incoming leaders would prioritize growth over other competing objectives when they took office, and possibly investors’ appreciation of the fact that the (policy-making) power transition mechanism was in place within the Party.

3. Gauging the policy and political focus of the new leaders. By tabulating the recent speeches during the Congress from outgoing and newly elected Politburo and PSC members as per our selected key words under two broad categories— ideology/politics, and economy/markets—we note that incoming leaders could arguably be more focused on ideological and political subjects while the retiring policymakers appear more economy/market-oriented. This orientation may also apply to two key positions that are influential to the capital markets—Premier and Vice Premier/Director of Financial Stability and Development Committee—possibly assumed by Li Qiang (former Party Secretary of Shanghai) and He Lifeng (Minister of the NDRC) respectively based on their current Party rankings. While we recognize this key-word analysis could be subject to selection bias given the nature of the Party Congress (political as opposed to economic) and the specific responsibilities of the Politburo members, the results are by and large consistent with the key messages from President Xi’s opening speech at the Congress last Sunday and the latest amendments to the Party Constitution, which carry a strong flavor of “development with Chinese characteristics” and national security. Government-related positions will be officially unveiled at the National People’s Congress scheduled in March 2023.

4. Elevated equity risk premium (ERP), even accounting for slower growth and higher risks ahead. MSCI China currently trades on 8.9x forward PE, 11.1x ex banks, and 12.5x on a median basis, all at around 1.8 s.d. below historical averages. Earnings yield gaps from median stocks are at 2.3 s.d. and 0.1 s.d. to the inexpensive side for the onshore and offshore markets, and implied volatility and option skew on HSCEI are close to year-to-date highs (in March), all suggesting that significant risk premia has been built into equity prices. From a modeling standpoint, the market is trading at around 15% valuation discounts to what we view as fundamental-driven fair value for Chinese stocks, and we estimate its prevailing valuations may have already priced in roughly 2.5% probability that left tail scenarios (proxied by Russia’s current index PE), possibly related to heightened geopolitical tensions or structural degradation in growth, could materialize assuming market risk premium and corporate profitability are normally distributed in our probability-weighted fair-value model. That said, more clarity on the Zero Covid Policy (ZCP), stabilization of the property market, and de-escalation of cross-strait and US-China tensions are necessary conditions for ERP to moderate, in our view.

5. Moving on from the Congress to (zero) Covid. Investors have been eagerly looking for policy signposts for re-opening during the Congress. This is understandably so as China reopening could be one of the most visible, long-awaited, and powerful upside catalysts for the market aside from the possibility of a (dovish) Fed pivot and/or a cessation of the Russia-Ukraine war, in our view. In fact, on a perfect hindsight basis, our cross-country empirical study from 36 markets since 2020 reveals that equity markets tended to pre-trade the actual implementation of re-opening (as defined by the peak readings of our economists’ Effective Lockdown index during the initial and the Delta waves), gaining 5% 1-month before Covid-related disruptions began to dissipate, with the positive momentum generally lasting for 2-3 months. Benchmarking this trading pattern to our economists’ baseline view that China will probably start to re-open in 2Q23, we’d argue China could start to trade cyclically better in the early part of next year, everything else being equal.

6. Strategies: Sticking with “Plan A” and “Little Giants”, taking advantage of elevated skew in the Offshore market, selectively raising SOEs. With risk assets globally still being challenged by rising rates, sticky inflation, and lurking recession risk, we reiterate our market preference of favoring A shares over Offshore equities given the former’s lower sensitivity to global macro factors, and domestic-oriented liquidity profile. In contrast, ERP could stay elevated for and weigh on Offshore equities in the  short run possibly due to investor concerns over the absence of recognized market-oriented economic reformers in the newly configured PSC, although a combination of elevated option skew (HSCEI), low headline index valuations, and light investor positioning (high short interest ratios) leads us to believe that upside optionality could be an inexpensive hedge to right tail surprises, most likely from improving clarity on the ZCP and re-opening roadmap. Thematically, we believe Chinese Little Giants are well-placed to benefit from strategic policy tailwinds and could be a key source of alpha generation for investors under President Xi’s leadership and development vision. The emphasis on and pursuit of “Common Prosperity” will likely strengthen under the new leadership, boding well for select SOEs that might be deemed as strategically- or socially-important by policymakers. As such, we screen for Buy-rated SOEs (on Conviction List) from our analysts team, and SOEs that are better positioned to generate superior equity returns based on their: 1) R&D intensity and R&D expense growth, and 2) focus on aligning shareholders’ and management’s interests (e.g., have a stock incentive plan), both of which have been key explanatory factors for their outperformance empirically.

More in the full Goldman note available to pro subs.

Tyler Durden
Sun, 10/23/2022 – 14:08

Stockman: The Macroeconomic Consequences Of Lockdowns & The Aftermath

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Stockman: The Macroeconomic Consequences Of Lockdowns & The Aftermath

Authored by David Stockman via The Brownstone Institute,

During the past three years, Washington has made three catastrophic errors.

These include:

  • The draconian one-size-fits-all Lockdowns in response to the Covid;

  • The insane $11 trillion bacchanalia of monetary and fiscal stimulus payment designed to counter the supply-side shutdowns caused by the Virus Patrol;

  • The mindless Sanctions War on Russia, which has caused global commodity markets to erupt skyward.

The resulting economic and financial dislocations, both global and domestic, are unprecedented and could not have come in a worst context. Prolonged fiscal and monetary excesses prior to February 2020 were already destined to generate an era of reckoning, even before Washington jumped the shark after the Covid panic was ignited by Donald Trump in March 2020.

Consider the course of fiscal and monetary policy over 2003-2019. During that 17-year period, the public debt share of GDP soared from an already high 62% to 111%, and the Fed’s balance sheet exploded under the bailouts of 2008-2009 and QE thereafter from $725 billion to $4.2 trillion. The latter embodied a growth rate of 11.0% per annum over the period, nearly three times the 4.0% growth rate of nominal GDP.

In a word, Washington policy makers had been on a reckless lark for the better part of two decades. It was only a matter of time before an unavoidable policy reversal toward restraint would bring the hothouse prosperity of both Wall Street and main street crashing down.

Public Debt As % of GDP and Fed Balance Sheet, 2003-2019

The history books will surely record, therefore, that it was Trump who foolishly ignited the above depicted ticking financial timebomb. Based on the facts known now and the evidence available then, the prolonged Lockdowns ordered by Trump on March 16, 2020 were one of the most capriciously destructive acts of the state in modern history.

The reason is simple: The Covid was at best a super flu that did not remotely rise to a Black Plague style existential threat to American society, and therefore did not warrant any extraordinary “public health” intervention at all. America’s medical care system was more than equipped to handle the elevated case loads among the elderly and comorbid that actually occurred.

Indeed, the IFR (infection fatality rate) for the under 70-years population has turned out to be so low as to make the brutal economic shutdowns ordered by the Donald and his Fauci-led Virus Patrol tantamount to crimes against the American people.

A thorough-going study by Professor Ioannidis and colleagues across 31 national seroprevalence studies in the pre-vaccination era,  for example, shows that the median infection fatality rate of COVID-19 was estimated to be just 0.035% for people aged 0-59 years and 0.095% for those aged 0-69 years. So we are talking about just four-to ten-hundredths of one percent of the infected populations succumbing to the disease.

A further breakdown by age group found that the average IFR was:

  • 0.0003% at 0-19 years

  • 0.003% at 20-29 years

  • 0.011% at 30-39 years

  • 0.035% at 40-49 years

  • 0.129% at 50-59 years 

  • 0.501% at 60-69 years.

There is just no beating around the bush. The Lockdowns impacted the livelihoods and social life primarily of the working age and youth populations depicted below, but not in a million years should the heavy hand of the state been brought to bear on their ordinary freedoms to conduct economic and social life as they saw fit.

Nor does the Donald and Fauci’s Virus Patrol get off the hook on the grounds that these dispositive facts about the Covid were not fully known in early March 2020. But to the contrary, the results of a live fire case study involving the 3,711 passengers and crew members of the famously stricken and stranded cruise ship, the Diamond Princess, were fully known at the time, and they were more than enough to quash the Lockdown hysteria.

During late January and February the virus had spread rapidly among the large, close-quartered population of the cruise ship, causing nearly 20% of the population to test positive—about half of which were symptomatic. Moreover, the population skewed elderly as is normally the case on cruise ships, with 2,165 people or 58% over 60-years of age and 1,242 or 33% over 70-years.

So if there was a vulnerable population sample this was it: That is, a stranded population of the mostly elderly in the close quarters of a cruise ship.

But, alas, the known mortality count from the Diamond Princess as of March 13, 2020 was just nine, and ultimately 13, meaning that the overall population survival rate was 99.8%. Moreover, all of these nine deaths were among the 70 years and older population, making the survival rate for even among the most vulnerable sub-population 99.3%,.

And, of course, for the 2,469 persons under 70-years of age on this ship, the survival rate was, well, 100%. 

That’s right. Donald Trump and his way-in-over-his-head son-in-law, Jared Kushner, knew or should have known that the survival rate of the under 70-years population on the Diamond Princess was 100%, and that there was no dire public emergency in any way, shape or form.

Under those conditions, anyone with a passing familiarity with the tenets of constitutional liberty and the requisites of free markets would have sent Dr. Fauci, Dr. Birx and the rest of the public health power-grabbers packing.

That the Donald and Jared did not do. Instead, they got led by the nose for month after month by Fauci’s awful crew because basically Trump and Kushner were power-seekers and egomaniacs, not Republicans and certainly not conservatives.

The resulting unnecessary economic wreckage is almost unspeakable. Here are four measures which show that the instant plunge in economic activity triggered by the Lockdowns was simply off-the-charts compared to any prior history.

During Q2 2020, for example, real GDP plunged by 35% at an annualized rate, leaving the declines during the prior 11 post-war recessions (gray columns) far in the dust.

Annualized Change In Real GDP, 1947 to 2022

Likewise, the drop in Q2 employment was in a whole new zip code. During April 2020, the US economy shed 20.5 million payroll jobs—a figure that was 28X larger than the worst  job loss of the Great Recession in February 2009 (-747,000).

Monthly Change In Nonfarm Payrolls, 1939-2022

Even industrial production (black line), which was not nearly as heavily impacted as the Leisure & Hospitality (L&H) and other services industries, dropped by 13%, or nearly 4X more than during the worst month of the Great Recession.

At the same time, payrolls at ground zero of the Lockdowns— restaurants, bars, hotels and resorts (purple line)— plummeted by a staggering 46% during April 2020 or by 50X more than any prior monthly decline.

Monthly Change In Industrial Production and Leisure & Hospitality Payrolls, 1950-2022

To call the above a “supply-side shock” is hardly an adequate description. Donald Trump literally decimated the production side of the US economy because he did not have the gumption, knowledge and policy principles necessary to blow off Fauci’s statist attack on America’s market economy.

But what came thereafter was actually worse. The Donald did not care a wit about fiscal rectitude and the surging public debt that was already in place; and actually had demanded time and again even more egregious money-printing than the ship of fools in the Eccles Building were already foisting upon the American economy.

So he loudly clambered on board as the panicked politicians on Capitol Hill and the money-printers at the Fed opened the stimulus sluice gates like never before. The resulting disaster is now coming home to roost, with Joe Biden being the available fall guy, and rightfully so–given the compounding damage being wrought by his truly idiotic proxy war against Russia and the related Sanctions War attack on the global trading and payments system.

Still, at the end of the day the disaster now unfolding was ignited by the Donald from the combustible fiscal and monetary brew he inherited.

And his current dominance of the GOP tells you all you need to know about what lies ahead. The once-upon-a- time “conservative party” in the economic governance of America has become about as useless for the task as teats on a boar.

The Aftermath

Needless to say, the 35% annualized plunge in real GDP during Q2 2020 was not caused by “aggregate demand” suddenly petering out. In fact, there was nothing about this unprecedented collapse in economic activity that was remotely related to the prevailing Keynesian demand-driven models.

To the contrary, the Covid contraction was all about the supply side. The latter had been directly monkey-hammered not by reluctant consumers and spenders, but by the marauding Virus Patrol which was shutting down restaurants, bars, gyms, ball parks, movie theaters, malls and countless more via direct “command and control” orders of the state.

To be sure, when you lay off 20.5 million workers in a single-month (April 2020), for instance, that does cause household purchasing power to diminish. But it was also a case of Say’s Law getting its due. Diminished supply was curtailing its own demand.

Indeed, the derivative loss of “aggregate demand” in April 2020 and the months immediately thereafter was tracking the prior loss of production and income. Consequently, the Keynesian solution of replenishing the lost demand with government transfer payments, promised only to draw down existing inventories, pull in more imports from less supply-constrained economies abroad and eventually inflate the price of existing supplies–whether from inventories, domestic production or sources abroad.

In fact, this is exactly what happened in a process of further drastic economic distortion compared to all prior history. In the case of retail inventories, stimmy-fueled “demand” literally sucked the inventory stocks dry. The ratio to sales plunged to an unheard of low of 1.09 months by May 2021.

Retail Inventory-To-Sales Ratio, 1992-2021

Likewise, import volumes erupted like never before. Between the pre-Covid level of $203 billion per month in January 2020 goods imports have soared by 46% to $297 billion per month. That’s a $1.1 trillion annual rate of gain!

China, South Korea, Vietnam and Mexico are undoubtedly grateful. But the only pump Washington’s massive stimmies primed was located mainly in foreign economies. Meanwhile, the US economy struggled all the way through this period because the  shutdown orders and fears generated by the Virus Patrol drastically constricted the supply side of the US economy.

Keynesian demand had nothing to do with it!

US Monthly Imports Of Goods, 2012-2021

In fact, the startling eruption of demand for durable goods leaves no doubt about how wrongheaded the giant stimmies actually were. Since money could not be readily spent on the normal slate of services, households went bananas spending their restaurant money savings and their multiple rounds of stimmies on goods that could be delivered to the front door by Amazon.

By the time the stimmies peaked in April 2021, personal consumption expenditures for goods were up by a staggering 79% over prior year. The resulting aberration in the flow of economic activity is plain as day in the chart below.

Y/Y Change In Personal Consumption Expenditures For Durable Goods, 2007-2021

At length, foreign supply chains buckled under the weight of artificial demand for goods stimulated by Washington and European policy-makers—a dislocation that was then compounded when their unhinged Sanctions War against Russia caused petroleum, wheat and other commodity prices to soar, as well.

As best shown by the lead indicator of upstream PPI prices for intermediate processed goods, inflation was brewing in the supply pipeline as early as September 2020, when the annualized rate of change posted at 5.6%. By December 2020 that figure had risen to 17.0%, and then was off to the races: Wholesale prices for processed goods were rising  at a 43% annualized rate by March 2021.

As it happened, the downstream CPI began to accelerate in March 2021, but by then the die was cast. Washington’s foolish attempt to massively stimulate “demand” in an economy that was being drastically curtailed on the supply side by its own public health orders and policies had already ignited the most powerful inflationary cycle in 40 years.

Of course, in March 2021, at the peak in the brown line below, Washington was still in full-on stimulus mode. Joe Biden’s $2 trillion American Rescue Act was injecting another round of fiscal stimulus, even as the Fed persevered in buying $120 billion per month of government and GSE debt.

Annualized Rate Of Change, PPI For Intermediate Processed Goods, September 2020 to May 2021

Here is the annualized rate of government transfer payments for the last two cycles—with the latter one, again, being off the charts by a country mile.

During the Great Recession cycle, the maximum increase in the government transfer payment rate was +$640 billion and 36% between December 2007 and May 2008 (i.e. the Bush tax rebate stimulus of that month was actually bigger than Obama’s shovel ready stimulus in February 2009).

By contrast, under the absolute frenzy of stimmies during the Covid cycle, government transfer payments increased from a run rate of $3.15 trillion per annum in February 2020 to $8.10 trillion by March 2021. That’s when the two Trump stimmies and the Biden add-on maxed out at $6 trillion in total spending.

The math of it is staggering. The annualized rate of government transfer payments rose by $4.9 trillion during that period, representing an out-of-this-world gain of 156% in just 13 months!

Is there any wonder that the American economy has been over-run with a “demand shock” of biblical proportion?

Annualized Rate Of Government Transfer Payments,  November 2007 to March 2021

An eruption of government spending and borrowing of this staggering magnitude within a matter of months would have normally caused a giant squeeze in the bond pits, sending  bond yields soaring skyward. But that didn’t happen: The benchmark yield on the 10-year UST (purple line) actually fell from an already low 3.15% in October 2018 to an absurd 0.55% in July 2020, and remained at just 1.83% thru February 2022.

There is no mystery as to why. During the same period, the Fed’s balance sheet (black line) erupted as never before, rising from $4.1 trillion to a peak of $8.9 trillion by February 2022. That is to say, the Eccles Building monetized a huge share of the stimmy spending, thereby drastically falsifying the entire market for government debt and all the private household and business debt that prices off from it.

Is it any wonder, therefore, that the Virus Patrol was able to run roughshod over the private economy?

Washington compensated one and all for the resulting harm and then some by unleashing a $6 trillion spending bacchanalia in less than 14 months, which was accomplished with barely a dissent from either party to the Washington duopoly because interest rates on government debt had plunged to an all-time low. In turn, that was enabled by the most reckless spurt of money printing and debt monetization in recorded history.

Meanwhile, the stock market and related risk assets rose by 60% on average and by two times, three times, and ten times in some of the hottest “momo” sectors during the same period. America was simply drunk on spending without production, borrowing without saving and money-printing without limit. It all amounted to a phantasmagoria of financial excess like had never before even been imagined, let alone attempted.

Fed Balance Sheet And Yield On 10-Year UST, October 2018 to February 2022

The real skunk on the woodpile, however, is that the rationalization for all of this fiscal and monetary excess —protecting households and businesses from the plunge of economic activity — was essentially bogus. The lost aggregate demand did not need to be replaced with stimulus and free stuff because there had been a prior and equal decline in aggregate production and income.

The only “stimulus” needed to restore the economy’s status quo ante was to send the Virus Patrol packing. That is to say, the Fed’s balance sheet could have stayed at $4 trillion (better yet it could have been returned to the previous path of QT-based shrinkage), even as the fiscal equation could have been pushed toward balance after decades of reckless borrowing.

To be sure, low-wage workers got hit the hardest because they worked in the services sectors slammed by the Virus Patrol, meaning there was an “equity” case for some kind of government help in these cases. But, alas, the help was already there in the form of the automatic shock absorbers that have been erected in the Welfare State over the last decades. We are referring to unemployment insurance, food stamps, ObamaCare, Medicaid and a medley of lesser means-tested programs.

The emphasis here is on means-tested. The so-called Safety Net was fully in place, would have covered 90% of the Covid-Lockdown hardship automatically and therefore required no fiscal bailout legislation at all, to say nothing of the $6 trillion of spending orgies that actually transpired.

The only thing missing was that fact that state unemployment programs generally exclude gig and part-time workers, the very modest segment of the labor force that got clobbered the hardest. But a year’s worth of support at $30,000 per worker (more than they make on average) for an estimated 5 million gig workers not covered by regular state UI programs would have cost $150 billion or just 2.5% of the tidal wave of Covid relief spending that actually occurred.

In any event, the US economy was a financial timebomb fixing to explode in February 2022 when Joe Biden decided to save “Novorossiya” (New Russia) from the Russians, who had intervened to protect their kinsman from the devastating attacks being leveled on the Donbas by the anti-Russian government planted in Kiev by Washington during the February 2014 coup.

The resulting Washington-inspired Sanction War on the largest commodity producer on planet earth was the tripwire for the calamity now underway.

Washington’s three great errors have turned the world upside-down. An economy freighted down with $92 trillion of public and private debt was, is and will remain an accident waiting to happen.

*  *  *

Republished from David Stockman’s site.

Tyler Durden
Sun, 10/23/2022 – 13:30

Russian Jet Nosedives Into Building In Siberia In 2nd Deadly Crash Within A Week

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Russian Jet Nosedives Into Building In Siberia In 2nd Deadly Crash Within A Week

Russia’s military has suffered a second fighter jet crash in less than a week within its own borders on Sunday. Two pilots were killed when their Su-30 fighter jet went down in the city of Irkutsk in southern Siberia on Sunday. 

Dramatic and shocking video shows the aircraft dive almost vertically before slamming into a two-story residential building. The families that reside there were unharmed, according to a statement by the regional governor. 

Social media stillframe of crash aftermath on Sunday, via Mash.

Emergency crews were on the scene quickly as a huge fireball engulfed the building upon impact. It’s being described as an accident which occurred in the midst of routine flight training.

Some Russian sources referred to it as a “test flight” – and interestingly the city is home to an aircraft factory which manufactures Su-30 fighters.

According to the BBC, “Russia’s state Investigative Committee said it had opened a criminal investigation into violations of air safety rules.”

Sunday’s crash was caught on video from multiple angles by passersby on the ground. The jet is seen in a freefall nosedive and no ejection or parachutes were seen deployed.

A mere one week ago a training flight crash involving a Sukhoi Su-34 slamming into an apartment complex resulted in the deaths of 15 people on the ground. 

Both incidents appeared completely unrelated to the ongoing conflict in Ukraine, where Russian aerial forces have stepped up operations across the country of late, particularly targeting Ukrainian energy infrastructure. 

Below: newly published footage of the prior crash in Yeysk on October 17.

In the prior incident, which took place in the town of Yeysk, the pilots ejected at the very last moment and survived the accident. 

Tyler Durden
Sun, 10/23/2022 – 13:00