Authored by Jonathan Turley,

We recently discussed a troubling conviction in Great Britain of a man for his “toxic ideology.” Now Ireland appears ready to replicate that case a thousand fold. The proposed Criminal Justice (Incitement to Violence or Hatred and Hate Offences) Bill 2022 would criminalize the possession of material deemed hateful.

It is a full frontal assault on speech and associational rights. The law would allow for sweeping authoritarian measures in defining opposing viewpoints hateful. Ireland appears to be picking up the cudgel of speech criminalization from Britain, an abusive power once used against the Irish.

The law is a free speech nightmare.  Even before addressing the crime of possession of harmful material, the law would “provide for an offence of condoning, denying or grossly trivialising genocide, war crimes, crimes against humanity and crimes against peace.” The crime of condoning, denying or grossly trivailising” criminal conduct would make most autocrats blush. The lack of any meaningful definition invites arbitrary enforcement. The law expressly states the intent to combat “forms and expressions of racism and xenophobia by means of criminal law.”

What is so striking about the law is how utterly unapologetic it is in the use of criminal law to curtail not just free speech but free thought. It allows for the prosecution of citizens for “preparing or possessing material likely to incite violence or hatred against persons on account of their protected characteristics.” That could sweep deeply into not just political but literary expression.

The interest of the Irish in assuming such authoritarian measures is chilling given their own history under British rule, including violent crackdowns on nonviolent protests like “Bloody Sunday.”  Free speech is now in a free fall in Great Britain and Ireland appears eager to follow suit.

The decline of free speech in the United Kingdom has long been a concern for free speech advocates  (here and here and here and here and here and here and here and here). Once you start as a government to criminalize speech, you end up on a slippery slope of censorship. What constitutes hate speech or “malicious communications” remains a highly subjective matter and we have seen a steady expansion of prohibited terms and words and gestures. That now includes criminalizing “toxic ideologies.” 

Under this pernicious law, a judge can order the search of a home based solely on a police officer’s sworn statement that he or she has “reasonable” grounds to believe illegal material may be present in a person’s home.

Again, the embrace of such laws by the Irish is crushingly ironic. Frank Ryan, who fought against the treaty, spoke for many radicals in declaring “as long as we have fists and boots, there will be no free speech for traitors.” Those anti-Treaty forces rejected the views of free speech that long defined Western nations. Now, Ireland is declaring “no free speech for haters” and assumes the authority to define who are haters and who are not.

The Irish people struggled for generations for equality and freedom. To now pick up the mantle of suppressing viewpoints is to make of mockery of the long struggle.

France will welcome the Ocean Viking and its 234 illegal immigrants “on an exceptional basis,” President Macron’s Interior Minister Gerald Darmanin announced on Thursday, Nov. 10, after several days of wrangling with Italy.

Darmanin also said that a third of the passengers would be “relocated” in France after disembarking in the port of Toulon.

“Because of Italy’s stubborn refusal and lack of humanity,” France had to allow the ship to dock, French Foreign Minister Catherine Colonna noted.

The Ocean Viking flies a Norwegian flag but is chartered by the French NGO SOS Méditerranée, whose headquarters are in Marseille.

It had been waiting for 20 days for permission to dock in an Italian port, but the Meloni government refused.

The French interior minister has described this refusal as “incomprehensible” and “selfish.” On Nov. 11, France’s EU Affairs Minister Laurence Boone further said that “trust is broken” with Italy.

The French government has also called Italy’s stance “unacceptable behavior” and suggested, through its spokesman Olivier Véran, that this could in the future have an impact on NextGenerationEU funds paid to Italy. Olivier Véran said on the public radio France Info:

“There are clear European rules accepted by the Italians who are, in fact, the first beneficiaries of the European financial solidarity mechanism.”

A statement by Italian Prime Minister Giorgia Meloni, who claimed it had been the duty of Paris from the outset to accept the ship, was “in total contradiction with our exchanges,”  Colonna insisted.

“There will be consequences if Italy persists with this attitude,” she warned.

However, as the Italian newspaper Il Giornale pointed out on Nov. 9, Italy has taken charge of three of the four boats that requested to disembark illegal immigrants at the beginning of November.

Remix News’ Olivier Bault reports that the blackmail involving the Italian recovery plan was well understood on the Italian side, and all the more so that the very same funds continue to be used to blackmail Poland and Hungary, the only two EU countries that have still not received a single cent of NextGenerationEU money.

On Nov. 8, as the Ocean Viking had finally decided to head for the French coast, Italian Prime Minister Giorgia Meloni said the Italians appreciated “France’s decision to share the responsibility for the migratory emergency, which until now has rested on the shoulders of Italy and a few other Mediterranean states, by opening its ports to the Ocean Viking.”

In an interview with Corriere della sera, Italian Deputy Foreign Affairs Minister Edmondo Cirielli stressed that “France welcoming a ship every four to five years is nothing extraordinary, but it is still good news.”

However, France’s interior minister on Thursday announced retaliatory measures against Italy for not allowing the disembarkation of 234 illegal immigrants aboard the French NGO SOS Méditerranée’s ship: France is canceling the relocation agreement under which it was to take charge of some 3,000 asylum seekers from Italy by the summer of 2023, and it will strengthen controls at the Italian border. Worse still, the French government is asking its European partners to suspend relocations from Italy as well.

“France lectures us, but turns away 80 migrants a day in Ventimiglia,” ran the headline in Il Giornale on Thursday. From the beginning of January to the end of October this year, 85,041 immigrants landed in Italy according to official figures, compared with 53,246 in 2021 and 27,203 in 2020. The relocation mechanism in which France and Germany participate only provided for 10,000 relocations of asylum seekers among those who will have landed in Italy, Spain, and Greece for all of 2022.

And as Il Giornale pointed out in another article published on Nov. 11, while Italy has witnessed the landing of over 60,000 illegal immigrants over the course of the last five months, France has accepted the transfer from Italy of only 38 asylum seekers during that period.

“So the decision to break promises had already been made,” Il Giornale wrote.

“All that was missing was the excuse to make it official. And it is also clear that Paris’ retreat does not stem from our government’s choice to initiate a more assertive confrontation with the NGO ships.”

In addition to all this, it has to be said that the Ocean Viking’s free shuttle service for illegal immigrants making the trip from Libya to Italy is not only run by an NGO based in France but it is mostly funded by left-wing local governments in France, including the city of Paris. It is a large boat capable of taking aboard several hundred immigrants at a time (it had well over 500 on some occasions) and costing €14,000 per day to operate.

The French alternative media outlet La Lettre patriote has just published an internal document of SOS Méditerranée that can be seen here and which shows the subsidies they have received recently from French municipalities, departments, and regions.

“On its website, SOS Méditerranée lists a total of 83 partner local governments,” comments La Lettre patriote. “In addition to major cities such as Lyon, Paris, Grenoble, Bordeaux, and Strasbourg, the NGO can count on significant financial support from nine departments, including Ille-et-Vilaine (€50,000 in 2020), Haute-Garonne (€100,000 in 2020), and Loire-Atlantique (€200,000 in 2020). On top of this, there are regional grants from Brittany (€75,000 in 2020), Burgundy (€50,000 in 2021), Centre-Val de Loire (€50,000 in 2021), and Occitania (€75,000 in 2020). Unsurprisingly, all these departments and regions are governed by left-wing majorities.”

To make matters worse, the French Alt-Right website notes, “in February 2017, SOS Mediterranée received the label of ‘great national cause‘ directly from the prime minister. This has enabled it to broadcast its communication campaigns free of charge on public radio stations and television channels.”

In January 2021, an appeal was launched by 28 French left-wing local authorities to provide moral and financial support to SOS Méditerranée and its 69-meter-long and 15-meter-wide Ocean Viking ship. Of course, these 28 local governments committed themselves to providing such support. The mayors of Paris (Anne Hidalgo), Lyon (Grégory Doucet), Marseille (Benoît Payan), Lille (Martine Aubry), Bordeaux (Pierre Hurmic), and Grenoble (Eric Piolle) were among the signatories.

“By accepting for the first time that a boat disembarks migrants in a French port, Emmanuel Macron is sending a dramatic signal of leniency,” Marine Le Pen tweeted on Nov. 10. “With this decision, he can no longer make anyone believe that he wants to put an end to massive and anarchic immigration.”

Back in 2018, French President Emmanuel Macron twice refused to allow the Aquarius to dock in Marseille with more than 600 migrants rescued in the Mediterranean. With the Ocean Viking, however, it would seem logical that France should take full responsibility for its passengers as it finances its operations.

But Marine Le Pen’s National Rally, unlike the other major French parties, does not condemn Italy’s attitude. Speaking on France Info on Nov. 10, the spokeswoman for her parliamentary group praised the firmness of Giorgia Meloni’s government and said that if NGO ships pick up people in distress near the Libyan coast, they must take them back to their port of departure. Otherwise, Laure Lavalette added, the nearest safe port is in Tunisia, not in Italy.

“Our firm policy on immigration is the only one that can prevent men and women from risking their lives to reach our continent. We must refuse to be accomplices to the smugglers and to allow the Ocean Viking to dock in France,” Marine Le Pen tweeted on Nov. 9.

As for Giorgia Meloni, she recalled on Nov. 8 that “in matters of security and the fight against illegal immigration, the Italians have expressed themselves at the ballot box by choosing our program and our vision. (…) Our goal is to defend the law, security, and every person’s dignity. To do this, we want to curb illegal immigration, prevent further deaths at sea, and combat human traffickers. The citizens have asked us to defend Italy’s borders, and this government will not betray its word.”

Two days earlier, Hungarian Prime Minister Viktor Orbán thanked his Italian counterpart in these terms: “Finally! We owe a big thank you to Giorgia Meloni and the new Italian government for protecting the borders of Europe. Grazie Giorgia!”

The standoff is causing major concerns in Brussels, with European Commission Vice President Margaritis Schinas saying on Saturday that the EU “cannot allow two member states [to be] fighting each other in public and creating yet another mega political crisis over migration.”

Via ‘Big Serge Thoughts’ Substack,

Russia Abandons Kherson

In January, 1944, the newly reconstituted German Sixth Army found itself in an operationally cataclysmic situation in the southern bend of the Dnieper River, in the area of Krivoi Rog and Nikopol. The Germans occupied a dangerous salient, jutting out precariously into the Red Army’s lines. Vulnerable on two awkward flanks, and facing an enemy with superiority in manpower and firepower, any general worth his salt would have sought to withdraw as soon as possible. In this case, however, Hitler insisted that the Wehrmacht hold the salient, because the region was Germany’s last remaining source of manganese – a mineral crucial for making high quality steel.

A year prior, in the opening weeks of 1943, Hitler had intervened in another, more famous battle, forbidding the previous incarnation of the Sixth Army from breaking out of a pocket forming around it at Stalingrad. Prohibited from withdrawing, the Sixth was annihilated wholesale.

General Armageddon

In both of these cases, there was a clash between pure military prudence and broader political aims and needs. In 1943, there was neither a compelling military nor political reason to keep the 6th Army in the pocket at Stalingrad – political intervention in military decision making was both senseless and disasterous. In 1944, however, Hitler (however difficult it is to admit it) had a valid argument. Without manganese from the Nikopol area, German war production was doomed. In this case, political intervention was perhaps warranted. Leaving an army in a vulnerable salient is bad, but so is running out of manganese.

These two tragic fates of the Sixth Army illustrate the salient issue today: how do we parse the difference between military and political decision making? More specifically, to what do we attribute the shocking Russian decision to withdraw from the west bank of the Dnieper in Kherson oblast, after annexing it just a few months ago?

I would like to parse through this issue. First off, one cannot deny that the withdrawal is politically a significant humiliation for Russia. The question becomes, however, whether this sacrifice was necessary on military or political grounds, and what it may signify about the future course of the conflict.

As I see it, the withdrawal from west bank Kherson must be driven by one of the four following possibilities:

1. The Ukrainian Army has defeated the Russian Army on the west bank and driven it back across the river.

2. Russia is setting a trap in Kherson.

3. A secret peace agreement (or at least ceasefire) has been negotiated which includes giving Kherson back to Ukraine.

4. Russia has made a politically embarrassing but militarily prudent operational choice.

Let us simply run through these four and examine them in sequence.

Possibility 1: Military Defeat

The recapture of Kherson is being fairly celebrated by Ukrainians as a victory. The question is just what kind of victory it is – political/optical, or military? It becomes trivially obvious that it is the first sort. Let’s examine a few facts.

First off, as recently as the morning of November 9 – hours before the withdrawal was announced – some Russian war correspondents were expressing skepticism about the withdrawal rumors because Russia’s forward defensive lines were completely intact. There was no semblance of crisis among Russian forces in the region.

Secondly, Ukraine was not executing any intense offensive efforts in the region at the time the withdrawal began, and Ukrainian officials expressed skepticism that the withdrawal was even real. Indeed, the idea that Russia was laying a trap originates with Ukrainian officials who were apparently caught off guard by the withdrawal. Ukraine was not prepared to pursue or exploit, and advanced cautiously into the void after Russian soldiers were gone. Even with Russia withdrawing, they were clearly scared to advance, because their last few attempts to push through the defenses in the area became mass casualty events.

Overall, Russia’s withdrawal was implemented very quickly with minimal pressure from the Ukrainians – this very fact is the basis of the idea that it is either a trap or the result of a backroom deal that’s been concluded. In either case, Russia simply slipped back across the river without pursuit by the Ukrainians, taking negligible losses and getting virtually all of their equipment out (so far, a broken down T90 is the only Ukrainian capture of note). The net score on the Kherson Front remains a strong casualty imbalance in favor of Russia, and they once again withdraw without suffering a battlefield defeat and with their forces intact.

Possibility 2: It’s a Trap

This theory cropped up very soon after the withdrawal was announced. It originated with Ukrainian officials who were caught off guard by the announcement, and was then picked up (ironically) by Russian supporters who were hoping that 4D chess was being played – it is not. Russia is playing standard 2D chess, which is the only kind of chess there is, but more about that later.

It’s unclear what exactly “trap” is supposed to mean, but I’ll try to fill in the blanks. There are two possible interpretations of this: 1) a conventional battlefield maneuver involving a timely counterattack, and 2) some sort of unconventional move like a tactical nuclear weapon or a cascading dam failure.

It’s clear that there’s no battlefield counter in the offing, for the simple reason that Russia blew the bridges behind them. With no Russian forces left on the west bank and the bridges wrecked, there is no immediate capacity for either army to attack the other in force. Of course, they can shell each other across the river, but the actual line of contact is frozen for the time being.

That leaves the possibility that Russia intends to do something unconventional, like use a low yield nuke.

The idea that Russia lured Ukraine into Kherson to set off a nuke is… stupid.

If Russia wanted to use a nuclear weapon against Ukraine (which they don’t, for reasons I articulated in a previous article) there’s no sensible reason why they would choose a regional capital that they annexed as the site to do it. Russia has no shortage of delivery systems. If they wanted to nuke Ukraine, very simply, they wouldn’t bother abandoning their own city and making that the blast site. They would simply nuke Ukraine. It’s not a trap.

Possibility 3: Secret Deal

This was sparked by the news that US National Security Advisor Jake Sullivan has been in contact with his Russian counterpart, and specifically the sense that the White House has been pushing for the negotiations. Under one rumored variant of the “Sullivan Deal”, Ukraine would acknowledge Russia’s annexations east of the Dnieper, while west bank Kherson would revert back to Kiev’s control.

I find this unlikely for a variety of reasons. First off, such a deal would represent an extremely pyrrhic Russian victory – while it would achieve the liberation of the Donbas (one of the explicit goals of the SMO) it would leave Ukraine largely intact and strong enough to be a perennial thorn in the side, as an inimical anti-Russian state. There would be the problem of probable further Ukrainian integration into NATO, and above all, the open surrender of an annexed regional capital.

On the Ukrainian side, the issue is that the recovery of Kherson only enhances the (false) perception in Kiev that total victory is possible, and that Crimea and the Donbas can be recovered entirely. Ukraine is enjoying a string of territorial advances, and feels that it is pushing its window of opportunity.

Ultimate, there seems to be no deal that satisfies both sides, and this reflects that the innate hostility between the two nations must be resolved on the battlefield. Only Ares can adjudicate this dispute.

As for Ares, he has been hard at work in Pavlovka.

While the world was fixated on the relatively bloodless change of hands in Kherson, Russia and Ukraine fought a bloody battle for Pavlovka, and Russia won. Ukraine also attempted to break Russia’s defenses in the Svatove axis, and was repulsed with heavy casualties. Ultimately, the main reason to doubt news of a secret deal is the fact that the war is continuing on all the other fronts – and Ukraine is losing. This leaves only one option.

Possibility 4: A Difficult Operational Choice

This withdrawal was subtly signaled shortly after General Surovikin was put in charge of the operation in Ukraine. In his first press conference, he signaled dissatisfaction with the Kherson front, calling the situation “tense and difficult” and alluding to the threat of Ukraine blowing dams on the Dnieper and flooding the area. Shortly thereafter, the process of evacuating civilians from Kherson began.

Here is what I think Surovikin decided about Kherson.

Kherson was becoming an inefficient front for Russia because of the logistical strain of supplying forces across the river with limited bridge and road capacity. Russia demonstrated that it was capable of shouldering this sustainment burden (keeping troops supplied all through Ukraine’s summer offensives), but the question becomes 1) to what purpose, and 2) for how long.

Ideally, the bridgehead becomes the launching point for offensive action against Nikolayev, but launching an offensive would require strengthening the force grouping in Kherson, which correspondingly raises the logistical burden of projecting force across the river. With a very long front to play with, Kherson is clearly one of the most logistically intensive axes. My guess is that Surovikin took charge and almost immediately decided he did not want to increase the sustainment burden by trying to push on Nikolayev.

Therefore, if an offensive is not going to be launched from the Kherson position, the question becomes – why hold the position at all? Politically, it is important to defend a regional capital, but militarily the position becomes meaningless if one is not going to go on the offensive in the south.

Let’s be even more explicit: unless an offensive towards Nikolayev is planned, the Kherson bridgehead is militarily counterproductive.

While holding the bridgehead in Kherson, the Dnieper River becomes a negative force multiplier – increasing the sustainment and logistics burden and ever threatening to leave forces cut off if Ukraine succeeds in destroying the bridges or bursting the dam. Projecting force across the river becomes a heavy burden with no obvious benefit. But by withdrawing to the east bank, the river becomes a positive force multiplier by serving as a defensive barrier.

In the broader operational sense, Surovikin seems to be declining battle in the south while preparing in the north and in the Donbas. It is clear that he made this decision shortly after taking command of the operation – he has been hinting at it for weeks, and the speed and cleanliness of the withdrawal suggests that it was well planned , long in advance. Withdrawing across the river increases the combat effectiveness of the army significantly and decreases the logistical burden, freeing resources for other sectors.

This fits the overall Russian pattern of making harsh choices about resource allocation, fighting this war under the simple framework of optimizing the loss ratios and building the perfect meatgrinder. Unlike the German Army in the second world war, the Russian army seems to be freed from political interference to make rational military decisions.

In this way, the withdrawal from Kherson can be seen as a sort of anti-Stalingrad. Instead of political interference hamstringing the military, we have the military freed to make operational choices even at the cost of embarrassing the political figures. And this, ultimately, is the more intelligent – if optically humiliating – way to fight a war.

Authored by Beth Brelje via The Epoch Times,

Election integrity was paramount on Jan. 30, 2005, when Iraq held its first free election in years to choose an entirely new National Assembly. Retired Marine Reserve Colonel Frank Ryan, today a Republican state representative in the Pennsylvania House, had been called out of retirement and was responsible for pulling together election security with the interim Iraqi government.

It was important that voting was simple for citizens and that they had confidence in the results.

People waiting to vote in Baghdad, Iraq, in 2005. (Frank Ryan)

Ryan was one of the few Americans permitted at Iraqi polling places. He attended the Iraqi government meeting when they were counting the ballots that election night.

“They did a tremendous job of making sure that they had a bipartisan group of people monitoring the counting of the ballots,” Ryan said.

“And by the way, we got the electoral results done the same day. Just saying.”

In the end, some people were disappointed their candidate didn’t win, but there were not accusations of fraud, Ryan said, because the election had a robust system of controls.

“We worked with the Deputy Minister of National Security, and the Multinational Force Iraq, to make sure that we had all the polling places covered,” Ryan told The Epoch Times.

“We had the rules of engagement relative to the counting of the ballots. We had tremendous security of all the ballots. We knew how many were issued at the polling places. We had complete control. And then obviously, the ultimate control was the dye on the finger to determine that you’ve already voted.”

Frank Ryan in Baghdad, Iraq, in 2005. (Frank Ryan)

Voting was risky. The insurgency, al-Qaeda, said they were going to kill anyone who voted. There was no mail-in balloting, yet nearly 75 percent of Iraqis showed up in person to vote.

Each voter dipped their finger in purple ink, a stain to prevent people from voting twice. A group of women in their 70s stood together, Ryan recalls, and they held their ink-stained index fingers up. “They were showing that they weren’t going to be intimidated.”

The night before the election, a rocket hit the U.S. Embassy in Baghdad, killing two Americans who worked there and wounding five others.

“One of the deputy ministers in national security called me up the morning of the election, and he was crying. I said, ‘Are you OK?’ and he said, ‘Today, my mother voted freely for the first time in her life. I wanted you to thank the American people for the sacrifices that they’ve done for the Iraqi people so that we can be free. And please tell those families that their children did not die in vain.’ And I started to cry, to think it meant that much to him.”

The dye on their hands was not going to come off in a day, Ryan said. It was going to be there for a while.

“They knew they could be executed for it, and they didn’t care. Voting meant that much to them.”

The privilege of voting and trust in the results cannot be taken for granted.

“The entire framework of our nation as a republic is based upon trust that people have in the system, that the elections are fair and secure,” Ryan said.

Leaving Office to Get Things Done

As a state representative, Ryan, who is also a certified public accountant, has worked on legislation to improve election controls and build voter trust. With Republican Rep. Seth Grove, he worked on Pennsylvania House Bill 1300 in 2021, an election reform bill vetoed by Democrat Gov. Tom Wolf.

This year, Ryan announced his retirement at the end of his term in December. But he is not done working on election security.

“I think I can have a bigger impact on public policy outside of the legislature, than from within it,” Ryan said, adding that it is a sad truth that it is hard for legislators to get things done.

“I intend to work specifically on election security and internal controls, and the elimination of property taxes for schools.”

Ryan believes he can better mobilize public support around these issues as a private citizen.

“Even the Democrats I’ve talked to want safe and secure elections,” Ryan said.

“Democrats and Republicans want to get this fixed, but sometimes they get pressure from their leadership who are being leaned on by outside influences or special interest groups.” Ryan is writing a book about this issue. “It’s going to be about how special interest groups control the agenda in Harrisburg and in D.C.”

When he thinks about election reform, Ryan looks at issues through the lens of his accounting experience.

He would like to see reconciliation by the precinct, comparing the number of voters to the number of ballots cast, and details defining each extra ballot.

It is expected that every county will have a surplus, Ryan explained. If a voter makes a mistake, their ballot is voided, and they are given a new one. Now that voter accounts for two ballots. This should be tracked. The legislation Wolf vetoed called for this and other types of audit mechanisms. Each county handles elections a little differently, he says, and there should be some uniform guidelines for how things are done. He also believes voters should be required to show identification.

“There are too many flaws in the processes,” Ryan said.

“If the elections are not close, everybody’s got full faith and confidence in those results. Like there’s no doubt in my mind that Fetterman won. I’m not happy about it. People didn’t ask me if I was happy about the results. But I do believe they were accurate. But if you were to tell me the race was within 20,000 votes, I wouldn’t be able to make that same assertion.”

That is why election security processes must be reformed, he said.

“I accept the results because I believe that it was the will of the people,” Ryan said. “And that’s my responsibility, to make sure that the election systems accurately reflect the will of the people. That’s the constitutional provisions that I swore to uphold when I became a United States Marine on Dec. 18, 1969.”

A whopping 87% of Journalism majors say they regret their decision, and would pick a different major if they could, according to CNBC, citing a ZipRecruiter survey of more than 1,500 college graduates who were looking for a job.

The aspiring corporate media propagandists were followed by Sociology and Liberal Arts majors at 72% each, and communications majors at 64%.

“When we graduate, reality hits,” said ZipRecruiter head economist, Sinem Buber, adding “When you are barely managing to pay your bills, your paycheck might become more important.”

On average, 44% of all job seekers with college degrees regret their field of study. 

The poll comes months after a Reuters survey found that trust in the mainstream media is evaporating.

It comes down to money

According to “The College Payoff,” a report from the Georgetown University Center on Education and the Workforce, bachelor’s degree holders typically earn 84% more than those with just a high school diploma, however of course, career path matters.

When broken down by areas of study, however, the difference is striking. Students who pursue a major specifically in science, technology, engineering and math — collectively known as STEM disciplines — are projected to earn the most overall.

In addition to STEM, health and business majors are among the highest-paying, leading to average annual wages that are higher at the entry level and significantly greater over the course of a career compared with liberal arts and humanities majors, the Georgetown Center found. -CNBC

What are the least regretted majors?

Computer and information sciences, criminology, engineering, nursing, and health.

According to Buber, “Pay is still most important,” but “Job security is now becoming more important. That happens whenever we have the fear of a recession.”

Via SchiffGold.com,

Bitcoin Hodlers: Time is Running Out to Convert Nothing into Something

Three key takeaways:

1. For weeks, the Bitcoin market has looked propped up by the whales, especially after the recent FTX disaster.

2. Bitcoin hodlers should strongly consider moving into gold, silver, or at least Ether.

3. Full disclosure, I have a complicated relationship with Crypto.

An Artificial Market

I have specifically avoided writing about Bitcoin despite having strong opinions on the subject. Bitcoin is a very hot topic, and most people have already made up their minds. In short, I think it has zero value but that argument has been made many times before so I couldn’t add anything new to the conversation.

Full disclosure, I have been in the Crypto market since 2013 and am net positive. That said, given recent market events, I cannot sit by in good conscience without giving fair warning. This is not a Bitcoin is worthless analysis, this is a wake-up call to push people to ask what is keeping this market from imploding. FTX isn’t the canary in the coal mine (that was Celsius, or one of the other firms that crashed this year). FTX is the coal mine, and it just collapsed.

I think the data shows that this market is being propped up by whales. If the dam breaks it could send markets crashing. Back on Oct 31, before anything happened with FTX, I texted a close friend:

My new theory is that the whales are not trying to pump the price anymore. Instead, they are trying to stabilize the price to win back institutional investors. I have never seen bitcoin price volatility so low over a 6 month stretch in 10 years. It just totally stopped moving after an epic collapse back in June. No bounce, no continuation, no nothing. Just super tight price range even while the stock market has continued falling.

I was led to this thinking after watching Bitcoin crash in June to ~19k and then just hold. It spent the next few months consolidating while the bond and stock markets went into turmoil. See the chart below with the simple price of SPY overlaid on top of Bitcoin since 2021. You may notice how steady the orange line has been since June 21, directly after the Bitcoin crash below $20k.

Figure: 1 SPY vs BTC

Let’s compare the 30-day rolling annualized standard deviation between Bitcoin and the SPY. This chart shows the difference in volatility between Bitcoin and SPY. Notice how it has been collapsing in recent months, and Bitcoin was actually less volatile than the S&P for a brief period in October. Since when is Bitcoin less volatile than the S&P 500? That has quickly reversed since the FTX fiasco.

Figure: 2 Volatility/Standard Deviation

However, while price volatility is falling, trade volume is not. The next chart is the 30-day rolling average trade volume of Bitcoin compared to the price. Once again you can notice a misalignment. As volume was steadily increasing over the last several months, the price stayed in a tight range.

Figure: 3 Price and Volume

Usually, large changes in volume are accompanied by large moves in price. But in this case, volume was moving up steadily while the price stayed nearly flat. How and why was this happening?

As I alluded to above in my text to a friend, this looked like an artificial market. The market nearly collapsed back in June and then just flatlined near 20k. That doesn’t happen, especially in Bitcoin. After this past week though, I am now convinced this market is being artificially propped up. After all, 27% of the market is dominated by a super minority of less than 0.01%. They have a major vested interest in keeping this market inflated. I think the increased volume against stable price action is from whales defending the price and painting the tape.

I won’t rehash what happened with FTX this week (there are 1,000s of articles explaining the epic collapse). Instead, I will just highlight that this is a MAJOR event in the Crypto space. To Crypto, this would be like 3 Enron happenings all at once, or Enron and Madoff happening in the same weekend. This is catastrophic on every level, but the price of Bitcoin only fell by about 20%. What?!?

In the stock market over the past several weeks, companies have been reporting disappointing earnings at a frequent clip. Each company has been absolutely punished for it. Some have fallen 20% or more in a single day which is extremely rare. These are bad earnings for major corporations that still have revenue. Yet Bitcoin has its Enron + Madoff moment and the price of Bitcoin drops by the same ~20%?

No way! I am not buying it!

Step back and think about this for just a moment. Take another look at the charts above that show how the price volatility collapsed despite steadily increasing trade volume. Most importantly, look at the recent massive spike in trade volume from FTX and the relatively minor price drop. For any mathematicians who might be claiming scale and relative impact are not properly reflected, take a look at the same chart on log scale below.

Figure: 4 Price and Volume on Log Scale

Okay, this looks a little bit more reasonable… until you remember that this was Enron + Madoff! No. I am sorry, but no. The price should be down 50-70% after this event. I am convinced it will be. Think about how much Crypto money just went up in smoke. Think about the confidence lost.

Everyone keeps saying that Crypto winters come and go, and so will this one. But will the summer ever be as bright for Bitcoin? Each winter has been followed by a bigger hype train than the last one. How can the next hype train be bigger than the last one? You had EVERYTHING going for it last year. The price was screaming higher, hype was at a fever pitch, Superbowl ads, celebrity endorsements. Everything!

When this Crypto winter breaks, Bitcoin won’t recover to new all-time highs without being artificially pumped up. Who is entering the market on the next rebound that wasn’t already in the market? Institutional investors have abandoned ship and the whales are left trying to stem the tide.

Want more proof that institutional investors have left? Take a look at the GBTC Premium/Discount chart.

Figure: 5 GBTC Premium and Discount

This is easy money for institutions. If you want Bitcoin exposure, you can get exposure at a 42% discount. Why is this arbitrage not closing? Let’s make this a little fancier and adjust the price of Bitcoin by the premium/discount of GBTC.

Figure: 6 GBTC Implied Price

Notice something? Right now, GBTC is implying that the fair market price of Bitcoin is under $10k. So, who is right here? I am betting on the smart money that is unwilling to buy GBTC at a whopping 47% discount.

I get it. Bitcoin is like a religion for some people. HODL, laser eyes, Michael Saylor, blah blah. But sometimes something is just so obvious you have to get your head out of the sand. If you want true independence from the banking system and you want to reduce counterparty risk, then buy physical gold and silver. Unlike GBTC, the smart money is pillaging the Comex vaults right now while institutional investors are also paying a hefty premium for silver.

Let me guess, you still want Crypto exposure to maybe get the moonshot event. Triple up or more. Okay fine, at least buy something of value like Ether. It at least has some value. Probably not $1,200, but definitely greater than $0. It also has potential and versatility.

If it’s me, I still think about value. I wouldn’t pay $500 for a gallon of gas and I wouldn’t pay $10,000 for an ounce of gold (unless hyperinflation hits). So, at $1,200 Ether is probably overpriced. But again, at least it has value. I personally bought in the $150 range and sold too early at around $700.

Ether is far from perfect or a value investment, but it’s a better option than Bitcoin. Still, anyone who wants to exit the banking system and get value… look at physical precious metals!

My complicated history with Crypto

Full disclosure. I have a complex relationship with Crypto. I have made more money in Crypto than gold and silver for sure. I have been bullish and bearish at different times in my life.

As a Libertarian, I heard about Bitcoin back in 2012 and told myself to spend $2,000 and buy 1,000 BTC, toss half into cold storage, and then trade the other half. Whoops. I forgot to do this because it looked complicated. Then Cyprus happened and Bitcoin shot up to $50. I didn’t want to miss the next move, so I started buying. Had a decent stack at one point. Rode it up to $1,100 and then MtGox crashed and poof went my Bitcoins. I eventually sold the bankruptcy claim to an opportunistic buyer.

I decided I needed to understand the tech to see if I should buy back in. I read everything. The Bitcoin white paper, articles, wiki pages about hashing, and how blocks are linked together. How computers compete to solve for the nonce with the correct amount of preceding 0s (this is how the algo gets harder). I looked at transactions on the actual Bitcoin blockchain to try and understand it. It started to make sense to me, so when prices came down, I would buy and then sell the rebound. Doesn’t mean I was all-in though. Back in 2020, I wrote:

I think Blockchain is a vastly overhyped technology. Blockchain removes the need for trust and eliminates counterparty risk, but the cost is enormous. Blockchain is really just a super expensive low-performance database. Not to mention, that there is nothing truly unique in the [Bitcoin] blockchain code, Bitcoin simply has first mover advantage.

I still stand by this. Blockchain is a database, just really expensive. What makes Bitcoin any different than Litecoin or Bitcoin Cash? Maybe different hashing algos or transaction speeds. But structurally, very little. I bet if you ask most Crypto fanatics, they actually understand very little about the underlying tech. There is nothing about Bitcoin that makes it special except that it came first. When you factor in the cost to mine, Bitcoin actually has a negative value.

Ethereum is different. It wants to be Web 3.0 and wants to be the world computer. Maybe it will get there, maybe it won’t. But it has a lot better chance of being worth more than $0 in 10 years. Do you know what will definitely be worth more than $0 in 10 years, 100 years, and 1,000 years? Physical gold and silver. Not a futures contract or an ETF necessarily, but physical metal you can hold in your hand.

If you are still in Bitcoin, then you are betting and hoping for the whales to continue propping up this market. But there is an avalanche of selling coming. As I said, FTX isn’t the canary in the coal mine (that was Celsius, or one of the other firms that crashed this year). FTX is the coal mine, and it just collapsed. Somehow you can still trade BTC for almost $17,000. That’s an extraordinary amount given what just happened.

If you are still hodling, I encourage you to reconsider. Buy something of actual value with that money like physical gold and silver.

There is no counterparty risk, no concern over trust, and no risk of a hacker or losing your keys. It is the best form of insurance against the turmoil that lies ahead.

If you really want Crypto exposure, at least consider Ether. Even if it is overpriced, it is worth something greater than $0.

Bitcoin is worth whatever the whales can force it to be worth, but one day soon, they might lose the capital needed to manipulate the price higher or even just keep it from crashing.

As we learned with FTX, things look fine up until the very moment they are not. And then billions can be lost in a very short time.

How much do you trust the Bitcoin whales to keep this market afloat?

The US Space Force’s Boeing X-37B unmanned, reusable space plane successfully deorbited after a record-breaking orbital mission around Earth and landed at NASA’s Kennedy Space Center Shuttle Landing Facility on Saturday. 

The robotic X-37B landed at 0533 ET after spending 908 days in orbit — more than four months longer than the previous mission. 

 It’s the sixth Orbital Test Vehicle mission (OTV-6) with top-secret payloads that military researchers were testing in low-Earth orbit.

Even though most of the payloads are classified, some have been made public, such as the US Naval Research Laboratory’s Photovoltaic Radio-frequency Antenna Module, a small device that converts solar power into radio frequency microwave energy. 

Space.com expanded more on the non-classified experiments and technologies being tested:

“Technologies being tested in the X-37B program include advanced guidance, navigation and control, thermal protection systems, avionics, high temperature structures and seals, conformal reusable insulation, lightweight electromechanical flight systems, advanced propulsion systems, advanced materials and autonomous orbital flight, re-entry and landing.”

Task & Purpose has speculated some of the mysterious payloads could be “testing surveillance systems to experiments on putting satellites in lower orbits.”

After the space plane landed, Jim Chilton, senior vice president at Boeing Space and Launch, wrote:

“With the service module added, this was the most we’ve ever carried to orbit on the X-37B, and we’re proud to have been able to prove out this new and flexible capability for the government and its industry partners.” 

Space Force stated that “NASA scientists will leverage data collected after the materials have spent 900+ days in orbit and compare observed effects to ground simulations, validating and improving the precision of space environment models.” 

“The X-37B continues to push the boundaries of experimentation, enabled by an elite government and industry team behind the scenes.

“The ability to conduct on-orbit experiments and bring them home safely for in-depth analysis on the ground has proven valuable for the Department of the Air Force and scientific community. The addition of the service module on OTV-6 allowed us to host more experiments than ever before,” Lt. Col. Joseph Fritschen, DAF Rapid Capabilities Office’s X-37B Program Director, said. 

The X-37B is similar to the retired space shuttle, although the space plane is a fraction of the size, coming in at 29 feet in length and 9.5 feet high, with a wingspan of 15 feet. 

Here’s a list of the prior X-37 B’s top-secret missions in low-Earth obit:

• OTV-1: launched on Apr. 22, 2010 and landed on Dec. 3, 2010, spending over 224 days in orbit.
• OTV-2: launched on Mar. 5, 2011 and landed on Jun. 16, 2012, spending over 468 days in orbit.
• OTV-3: launched on Dec. 11, 2012 and landed on Oct. 17, 2014, spending over 674 days in orbit.
• OTV-4: launched on May 20, 2015 and landed on May 7, 2015, spending nearly 718 days in orbit.
• OTV-5: launched on Sept. 7, 2017 and landed on Oct. 27, 2019, spending nearly 780 days in orbit.
• OTV-6: launched on May 17, 2020 and landed on Nov. 12, 2022, spending over 908 days in orbit.

There are rumors the X-37B might be a testbed for space weapons or could be used to capture adversary satellites… 

Authored by Thorsteinn Siglaugsson  via ‘From Symptoms to Causes’ Substack,

Cognitive dissonance is when people feel discomfort due to discrepancies in their own thoughts or beliefs.

As an example, someone who takes pride in being honest, feels such discomfort when he tells a lie.

Another example of cognitive dissonance is the discomfort felt by members of a cult when they seek to explain how the end of the world was postponed, as their apocalyptic prophecy did not come true.

The term was in fact coined by psychologist Leon Festinger in his studies of such cults in the 1950s.

The opposite of cognitive dissonance is doublethink, a word that first appeared in George Orwell’s 1984.

Doublethink is the ability to accept two contradictory beliefs at the same time, while being totally unaware of the contradiction. In Orwell’s own words:

To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy was impossible and that the Party was the guardian of democracy, to forget whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again, and above all, to apply the same process to the process itself—that was the ultimate subtlety: consciously to induce unconsciousness, and then, once again, to become unconscious of the act of hypnosis you had just performed. Even to understand the word—doublethink—involved the use of doublethink.

This morning I saw an excellent example of this on someone’s Facebook wall (translated by FB from the Icelandic, so not perfect):

Tertullian, one of the church fathers, born in the late second century, made the following observation regarding the birth, death and resurrection of Christ:

Natus est Dei Filius, non pudet, quia pudendum est;
et mortuus est Dei Filius, prorsus credibile est, quia ineptum est;
et sepultus resurrexit, certum est, quia impossibile.

In English:

“The Son of God was born: there is no shame, because it is shameful.
And the Son of God died: it is wholly credible, because it is unsound.
And, buried, He rose again: it is certain, because it is impossible.”

Here, the contradiction is religious; only God can contradict himself, the absurd is allowed only to God; we mere mortals are bound by the rules of nature and the rules of logic. The only exemption is that through profound religious experience we can transcend the rules of logic and believe the absurd, hence “it is certain, because it is impossible.”

Does doublespeak have a religious dimension then?

Has the person who believes two contradictory statements at the same time in some way transcended reason, and entered into a religious dimension? Or has he simply lost his mind?

One week ago, in its latest and quite apocalyptic note which was a must-read for every finance professional (and is still available to pro subs), Elliott Management not only previewed the dire endgame of this monetary experiment, and for those who missed it here it is again…

… the Fed has never raised rates into a struggling economy, as it is now doing. What level of rates will occasion a crash? Or will it be some combination of a melee factor and rates? We can’t know. A crash would certainly put a strong damper on consumer and producer prices. Will they just keep raising rates until the economy does crash? Central bankers actually say that they are aiming for a soft landing. But they are not puppeteers. They do not have the control that they profess to have. Whether there is a soft landing or a “hard” landing (crash) is completely unknown at present.

As one final example, policymakers state their determination to tame inflation, but QE has not truly reversed. Mortgages on central-bank balance sheets are not being sold. They are raising interest rates like crazy, and the natural way for inflation to go from 10% to 2% is through a serious recession. There is still $30 trillion on central banks’ balance sheets. So what happens when the recession is in full force? Do the central bank balance sheets go to $50 trillion?

The world is on the path to hyperinflation, which is the direct route to global societal collapse and civil or international strife. It is not baked, but that is the path that we are treading. Uplifting, right

…  the hedge fund with nearly 50 years of capital markets experience also laid out a list of triggers that could “break” the market and lead to the next crash, including:

• Banks and other lenders are starting to be forced to recognize large losses on bridge financings and loans;
• Leveraged holders of mortgage-backed securities, and structured-debt products and CLOs, may be facing substantial markdowns;
• Liquidity in rates and credit markets has been dramatically reduced;
• Leveraged private equity will be under severe stress in the event of a meaningful recession; and
• Housing unaffordability has taken the largest and quickest jump in history (the combination of the 45% rise in home prices from 2019 through 2022 and the extraordinary and rapid rise in interest rates).

A “market break” is, of course, a topic that has been near and dear to our heart ever since we first predicted in January that the Fed’s rate hikes will inevitably lead to something snapping.

Remember, every Fed tightening cycle ends in disaster and then, much more Fed easing pic.twitter.com/zX7Dur8nLG

— zerohedge (@zerohedge) January 5, 2022

And while last week’s near-record market meltup on hopes that the CPI miss means the Fed will slowdown and/or pivot, we still have a lot of rate hikes and tightening pain to go, meaning that the odds of something big “breaking” remain dangerously high. So high in fact that Goldman’s research team, after coming out with a laughable (in retrospect) S&P500 target of 5,100 exactly one year ago, has become outright apocalyptic on stocks (if there was one reason to turn bullish on stocks, that’s it), and in its most read report last week, asks “What Could Break?” as a result of central bank tightening.

While Goldman does cover a lot of potential trigger point in the full report (which we recommend all pro subs read), we focus on the summary from Goldman editor Allison Nathan who partitions the findings into several core sections as follows:

Although the market apparently took comfort from October’s better-than-expected US CPI print, with inflation still far above target, it’s clear that the major central banks’ inflation fight is far from over. The aggressive policy tightening so far—and still in the pipe—has raised concerns about what could break in a global financial system that has grown accustomed to low rates. Which financial stability risks are worth watching, whether policymakers have the tools to effectively manage those risks, and if they could prompt central banks to slow or even pause the pace of tightening, is Top of Mind.

We first speak with Jeremy Stein, Professor at Harvard University, who was a vocal advocate of the view that monetary policy should be implemented with financial stability in mind during his tenure on the Fed’s Board of Governors in the aftermath of the Global Financial Crisis (GFC). Despite this long-held view, he argues that the still-acute inflation problem the US faces today means that “the Fed’s only option is to continue to make inflation its number one policy priority for now.” That said, he warns that financial instability risks should not be discounted, and that the Fed’s ability to address those risks is probably more limited than the market expects and than in past episodes of stress. That’s not only because actions to quell stability risks—the so-called “Fed put”—would almost certainly run counter to the prevailing monetary policy goal of slaying inflation, but also because we can’t assume that the tools that addressed past crises—such as the emergency credit facilities implemented at the beginning of the pandemic—could be employed today.

Vítor Constâncio, former Vice President of the ECB, has historically taken the opposite view of Stein—arguing that monetary policy should not respond to financial stability concerns—a view he stands by today even as the ECB now formally includes financial stability considerations in its policy decisions. But given that both the Fed and the ECB are already approaching the expected peak in policy rates, he expects the current hiking cycle to end before significant financial stability concerns arise that could force a recalibration of monetary policy. However, he worries about the potential effects of quantitative tightening (QT), especially in the Euro area, where incentives for banks to repay their TLTRO loans early will likely lead to an already sizable reduction in the ECB’s balance sheet even before the ECB embarks on formal QT. That said, he believes Euro area policymakers have all the tools they need nowadays to avoid a repeat of the 2010 sovereign bond crisis.

But GS European rates strategists George Cole and Simon Freycenet are less sure that financial stability risks won’t affect monetary policy in Europe. In their view, concerns about rate-sensitive debt in both the Euro area and the UK constrain the ECB and BoE compared to the Fed in their inflation fight, likely leading to a more cautious approach from both.   These risks, they say, may force an implicitly higher tolerance for inflation in Europe, although Stein and Constâncio believe that the US could potentially be headed in a similar direction as well.

* * *

So which risks—outside of a monetary policy mistake in itself—are worth watching? On both Stein and Constâncio’s lists is illiquidity in the US Treasury and other sovereign bond markets. Praveen Korapaty, GS Chief Interest Rates Strategist, explains why cracks in the plumbing of the market’s microstructure have appeared: a surge in outstanding sovereign debt that has far outpaced intermediation capacity mainly owing to post-GFC regulations that discourage market-making in these securities. Although Stein says that these issues are easily fixable, unless and until they are, Korapaty argues that the Fed and other major central banks may be increasingly forced to use their balance sheets to maintain orderly market functioning rather than to conduct monetary policy.

Constâncio and Stein are also concerned about the asset-liability mismatches of mutual funds, and especially of open-end bond funds, that have the potential to trigger asset fire sales in times of stress. This structural fragility was on full display in the US in early 2020 and never went away, Stein says, because the Fed bailed out these funds, but may not be able to do so the next time around. They are also worried about mounting pressure on sovereign and corporate borrowers in Emerging Market (EM) economies and beyond, especially, as Stein notes, given the sharp appreciation of the Dollar—a vulnerability that will likely persist according to GS FX strategists Kamakshya Trivedi and Sid Bhushan, who make the case that Dollar appreciation has further room to run.

Indeed, although GS FX strategist Karen Reichgott Fishman finds that FX intervention by many EM central banks (and the BoJ) has slowed the pace of domestic currency depreciation against the Dollar—if not prevented it—GS FX and EM strategists Ian Tomb and Teresa Alves point out that several Frontier economies are already in the midst of classic EM crises precipitated by a Dollar funding squeeze. That said, most major EMs have proven relatively resilient to these stresses, and globally-systemic EM risks appear low, in their view.

Even beyond EM, corporate borrowers are worth keeping an eye on, according to GS credit strategists Lotfi Karoui and Vinay Viswanathan. They argue that while fundamentals are still healthy for these borrowers, companies that have issued floating-rate leveraged loans, as well as commercial real estate (CRE) borrowers, are vulnerable to a higher-for-longer cost of funding shock. But they believe the risk of this shock threatening financial stability is lower than in past cycles.

And what about perhaps the most obvious place to look— pension funds—given that they were at the epicenter of the
most recent stress episode that arguably increased market focus on financial breakages in the first place? GSAM strategists Ed Francis, Matthew Maciaszek, and Michael Moran explain the recent pressure in the UK pension fund industry and why a similar crisis is less likely to repeat elsewhere, which Freycenet generally agrees with.

Finally, GS global economists Daan Struyven and Devesh Kodnani take a survey approach to assess the above—and other—financial stability risks that GS research analysts are watching. But, after all this discussion and monitoring of known risks, perhaps the biggest risks of all remain the “unknown unknowns” that we aren’t watching at all.

To summarize, the most likely market “fracture points” according to Goldman are, or should be familiar to regular ZH readers as we have discussed many if not all of these repeatedly in recent months, and include:

• Treasury (il)liquidity
• Asset-liability mismatches of open-end mutual bond funds
• EM and Frontier economy crises spiraling out of control as a result of the record dollar short squeeze
• Corporate borrower weakness, especially among those who have exposure to floating rates
• Pension funds

Below we excerpt some more from the Goldman report, and specifically the interview with former Fed governor Jeremy Stein:

Allison Nathan: One area of concern seems to be Treasury market liquidity. Is that concern warranted?

Jeremy Stein: Yes; the spike in Treasury market volatility in March 2020 proved that concerns over market liquidity are warranted. But the Fed could at least partially address this vulnerability with some relatively simple fixes. For example, the supplementary leverage ratio, which is a risk-insensitive capital requirement imposed on systemically important banks in the wake of the Global Financial Crisis (GFC), was unhelpful in the March 2020 episode, because it discourages banks from making markets in Treasury securities. The Fed could easily adjust this requirement so that it serves its intended purpose of acting as a backstop rather than as a primary binding constraint on market-making, and do so without weakening overall capital in the banking system by making a compensating adjustment in the risk-based requirements so that capital in the system remains the same.

The Fed could also make its standing repo facility—which lends against Treasury securities as collateral—accessible to a larger set of financial market participants beyond banks and primary dealers. If access to the facility was expanded to allow any hedge fund, mutual fund, etc. to bring Treasuries to the Fed and get cash at a moment’s notice, the asset fire sales that characterized the March 2020 stress episode may not have occurred to the same extent. I have heard some express the view that such broader access could create a moral hazard problem, but what is the bigger problem—lending against Treasury collateral, or, as recently occurred in the UK, getting cornered into buying a lot of Treasuries at a time when you’re supposed to be tightening monetary policy?

* * *

Allison Nathan: What other financial stability risks are worth watching?

Jeremy Stein: I continue to worry about the open-end bond fund complex, which the Fed basically bailed out in March 2020 by creating credit facilities that had a very powerful effect in stemming the large outflows and liquidations of assets from these funds at the time. While that was absolutely the right thing to do, it prevented us from learning more about the real fragility of some of these funds and created a moral hazard problem—credit spreads tightened, and business went on as usual with very little—if any—change in the underlying structure of these funds.

I also worry that the sharp appreciation of the Dollar resulting from the Fed’s aggressive rate hikes is putting stress on pockets of the financial system. Corporates in many Emerging Markets borrow in dollars, which can be an inexpensive source of funding but puts substantial pressure on these economies when the Dollar strengthens. Many of these countries are relatively small, so the trade spillovers may turn out to be limited, but the bigger risk is that cracks in the financial system could emerge—when loans go bad, what banks are overexposed to these borrowers? Japan is also a potential source of concern in this context. Its debt-to-GDP is running at more than 200%, with much of that debt effectively rolling on an overnight basis given the effect of their massive QE on consolidated debt maturity. That’s not a problem when interest rates are at zero, but if Japan begins to import inflation given global inflation trends and the strength of the Dollar, and the BoJ must start fighting inflation, this could become quite problematic. Many countries are facing the same issue, but Japan is an extreme case that bears watching.

Next, for the visual learners, a primer on US financial instability…

… and also Euro area.

There is much more in the full note, including Goldman’s take on FX interventions (they buy time, and “central banks will likely continue to conduct FX interventions over the near term as the Dollar continues to strengthen”), on when the US Dollar will peak, an assessment of the risk of a funding shock, can the UK pension fund crisis repeat and where, how long can the ECB and BOE keep fighting inflation with both economies now in recession, what the risk is in “risk free” rates, and more.

As noted above, all professional subscribers are encouraged to read the full note available in the usual place.

Authored by Conor Gallagher via NakedCapitalism.com,

For months the US has repeatedly tried to coerce India into cutting ties with Russia, thereby abandoning its national interests. New Delhi, however, continues to spurn American attempts to subject its economy to Washington’s dictates.

The latest fuss concerns the G7 price cap on Russian oil and EU and UK bans on shipping and related services for Russian crude. India continues to have no interest in joining the US-led initiative as it gets a steep discount on oil from Russia and wants to maintain the relationship with a long-time strategic partner. Indian Foreign Affairs Minister Subrahmanyam Jaishankar was just in Moscow on Nov. 8 to discuss continued sales of oil. From the South China Morning Post:

India’s foreign minister hailed New Delhi’s “strong and steady” relationship with Moscow on Tuesday, during his first visit there since Russia invaded Ukraine in February.

Subrahmanyam Jaishankar also declared India’s intention to continue to buy Russian oil, again disregarding the US appeal to allies and partners to isolate Russia from the global markets.

The G-7 plans are likely to send oil prices higher (despite US Treasury Secretary Janet Yellen claiming the opposite) and reduce tanker availability, both of which will threaten India’s energy security and hurt its economy as India is the third-largest consumer and importer of oil worldwide.

Russia has said it will not sell to any countries that participate in the price cap scheme, and Jaishankar has repeatedly stated that India cannot afford to buy oil at high prices – at least not without undermining its economic growth, which is forecast to be 6.1 percent in 2023, the fastest-growing major economy in the world. According to Energy Intelligence:

Russia emerged as India’s top crude supplier in October, shipping over 900,000 barrels per day or roughly a fifth of India’s demand. The two countries’ biggest concern is ensuring that Russian oil continues to flow after the Dec. 5 EU and UK bans and related G7 price cap.

But despite Jaishankar’s bullish stance in Moscow, India’s state refiners have not placed orders for crude lifting beyond Dec. 5 due to uncertainties about whether shipping and insurance will be available, Energy Intelligence understands. And a recent attempt by an Indian buyer to use the price cap in negotiations with a Russian seller prompted the latter to abandon the deal, market sources said.

The ongoing lack of clarity on the G-7 could be by design. Russian oil exports have already begun to dip, and Bruce Paulsen, a sanctions expert and partner at law firm Seward & Kissel, told American Shipper, “ If guidance on [price cap] compliance doesn’t come soon, some industry players may sit on the sidelines until they can determine that shipments under the price cap are safe.”

The US, in a neat sleight of hand, quit pressuring India to adhere to the price cap, and Yellen now says Washington is “happy” for New Delhi to continue buying as much Russian oil as it wants, including at prices above a G7-imposed price cap. But there are just a few caveats: India wouldn’t be able to use western insurance, finance, or maritime services to transport the oil.

“Russia is going to find it very difficult to continue shipping as much oil as they have done when the EU stops buying Russian oil,” Yellen told Reuters on Friday. “They’re going to be heavily in search of buyers, and many buyers are reliant on Western services.”

More from Energy Intelligence on why this amounts to a de facto price cap:

Indian refiners have the capacity to soak up another 600,000 b/d of Russian crude, provided it outcompetes the staple Mideast grades that are the lifeline of the country’s 5 million b/d refining base. But the availability of shipping and insurance — and payment channels — is key. From Dec. 5, tankers and shipping insurance linked to EU and G7 countries — which dominate oil shipping globally — will be barred from trading Russian crude unless those volumes are sold under the price cap, as yet undetermined.

About 90% of India’s liquids trade is shipped by foreign tankers, presenting challenges, independent energy analyst Narendra Taneja said. Insurance does not appear as problematic, and analysts say that Russian and Chinese firms can handle it.

This could leave Russia reliant on a shadow fleet of older tankers with opaque ownership that do not transact in dollars. According to Freight Waves:

Brokerage Braemar reported that 33 tankers previously handling Iranian or Venezuelan exports have carried Russian exports since April, mostly to China and secondarily to India.

Braemar defined the dark fleet as tankers that have carried Iranian or Venezuelan crude at least once in the past year. It put the current total at 240 tankers, mostly smaller and midsized, with 74% 19 years or older. Eighty of those vessels are very large crude carriers (VLCCs, tankers that carry 2 million barrels) that won’t fit in Russian ports but could be used for ship-to-ship transfers for Russian cargoes.

If the entire dark fleet switched to Russian service and were as efficient as the “mainstream fleet,” it would be more than enough to keep Russian exports flowing, but “vessels engaged in illicit trading are highly inefficient,” Braemar emphasized.

At the same time Washington is pressuring New Delhi to comply with the price cap, it is importing from India more vacuum gasoil, which is mostly used at refineries to produce other products such as gasoline and diesel. From Reuters:

Russia used to be a key VGO supplier to U.S. refiners before the Ukraine war broke out.

“Given that the U.S. is not buying Russian oil, they are looking for any and all alternatives,” said Roslan Khasawneh, senior fuel oil analyst at Vortexa…

U.S. and EU sanctions do not apply to refined products produced from Russian crude exported from a third country as they are not of Russian origin. In India, refiners boosted imports of discounted Russian oil to 793,000 barrels per day between April and October, up from just 38,000 bpd in the same period a year ago, trade data showed.

India joins a list of countries – including Saudi Arabia, Serbia, and Turkey – that are causing heads to explode in Washington for refusing to be bullied into submission.

This all must be coming as a shock in Washington as its Indo-Pacific strategy in recent years has always included a “like-minded” India helping to counter China and do the US’ bidding in southeast Asia. The possibility that India might pursue its own national interests didn’t seem to factor into the strategy.

The tension over the Russian price cap is just the latest in a series of disagreements between New Delhi and Washington. US sanctions on Iran’s oil exports deprive India of cheap Iranian oil, and force it to buy more expensive US energy exports. India is now the largest oil export destination for the US.

Similar to the way Washington is arming Greece and Cyprus in an effort to bully Turkey into breaking off its friendly ties with Russia, the US is doing the same in Pakistan to pressure India. The US has begun to accommodate Pakistan again after the ouster of former Pakistani prime minister Imran Khan, who blames his loss of power in a no-confidence vote on the US.

In September, the U.S. State Department enraged India when it approved a $450 million deal to upgrade Pakistan’s F-16 fleet. Shortly after, the US ambassador to Pakistan created more tension during a visit to the Pakistani-held part of Kashmir, which he called by its Pakistani name instead of the United Nations-approved name “Pakistan-administered Kashmir.”

On Nov. 8 US State Department spokesman Ned Price lectured India on what are in its best interests:

We’ve also been clear that now is not the time for business as usual with Russia, and it’s incumbent on countries around the world to do what they can to lessen those economic ties with Russia. That’s something that’s in the collective interest, but it’s also in the bilateral interest of countries around the world to end and certainly over the course of time to wean their dependence on Russian energy. There have been a number of countries that have learned the hard way of the fact that Russia is not a reliable source of energy. Russia is not a reliable supplier of security assistance. Russia is far from reliable in any realm. So it is not only in the interest of Ukraine, it is not only in the interest of the region, of the collective interests that India decrease its dependence on Russia over time, but it’s also in India’s own bilateral interest, given what we’ve seen from Russia.

We’ll have to wait and see if the Indian people get the message because as of now the opposite is true.  India’s Observer Research Foundation released poll results on Nov. 2 that showed that 43 percent of Indians regarded Russia as their country’s most reliable partner, which was far ahead of the US at 27 percent.

Washington would be hard pressed to explain how New Delhi scaling back its economic ties with Russia would be a good thing for India.

Fuelled by a surge in import of oil and fertilizers, India’s bilateral trade with Russia has soared to an all-time high of $18.2 billion over the April-August period of this financial year, according to the latest data available with the Department of Commerce. That makes Russia India’s seventh biggest trading partner — up from its 25th position last year. The US, China, UAE, Saudi Arabia, Iraq, and Indonesia remain ahead of Russia.

India, Iran, and Russia have also spent the past twenty years developing the International North-South Transport Corridor to increase trade between the countries, and it took on increased importance with the western sanctions on Moscow. From The LoadStar:

RZD Logistics, a subsidiary of Russian railway monopoly RZD, has begun regular container train services from Moscow to Iran to serve growing trade with India by transloading.

This is aimed at maximizing use of the alternative International North South Transport Corridor (INSTC), a Central Asia cross-border multimodal freight network helping the two strategic partners work around supply chain challenges created by western sanctions on Russia.

The inland-ocean leg involves an estimated transit time of 35 days, compared with about 40 with previous traditional shipping, according to industry sources.

In much the same way that US heavy-handedness is backfiring elsewhere, the pressure applied on India seems to only be encouraging New Delhi to find a way around the dollar. The Loadstar adds that the Reserve Bank of India is also implementing new regulatory guidelines to help exporters settle shipments in rupees, instead of US dollars that had run into sanctions-related bottlenecks:

The Federation of Indian Export Organizations has also been pressing government leaders to extend the alternative currency method beyond Russian markets.

“While the Russia-Ukraine war is a setback to our exports in the short run, we are looking to increase our exports to Russia once the rupee payment mechanism gets operationalised,” FIEO noted.

While India has been benefitting from the discounted Russian crude, it also wants to maintain good ties with Moscow to avoid pushing Russia closer to China and potentially Pakistan, India’s biggest rivals in Asia.

Pakistan is also now asking the Russian Trade Ministry to introduce a currency swap arrangement to strengthen economic ties between the two countries.