Author Archive: Tyler Durden

Beijing Blowback Begins: China Orders Anbang To Sell Its Overseas Assets

Two weeks ago, when discussing the troubles plaguing one of China’s conglomerates and “boldest dealmaker”, HNA Group – recently best known for acquiring Anthony Scaramucci’s SkyBridge capital in a transaction that has yet to close – we said that what until recently was one of the world’s most aggressive roll-ups of varied companies from around the globe, including stakes in Hilton Companies and Deutsche Bank, as well as countless Chinese acquisitions, could very soon become the “reverse roll-up from hell”, as the stock price of HNA tumbled, putting the roughly $24 billion in loans that had been taken against HNA stock in jeopardy of breachin their LTV limits, forcing a massive margin call, and potential firesale liquidation of the company’s assets as shown in the chart below…

… which have been hit with the double whammy of various rating agency downgrades in recent months, further eroding the collateral value of all of HNA’s various assets.

Yet while the fate of HNA’s conglomerate future still remains largely in the hands of the market, which could easily prompt a firesale if it were to push HNA stock low enough, another Chinese conglomerate may not have the benefit of the market’s potential generosity, because according to Bloomberg, Chinese authorities have asked HNA’s peer, Anbang Insurance Group, the insurer whose chairman was recently detained in June and was classified as a potential “systemic risk” to China’s economy, to sell its overseas assets.

In addition to demand a liquidation of many if not all assets acquired by Anbang over the past three years, the government also asked the company – whose Chairman will surely comply following his brief “detention” – to bring the proceeds back to China after disposing of holdings abroad, suggesting not only growing concerns about Chinese capital outflows, but Beijing’s apparent intention to undo the massive Chinese M&A wave that swept the globe from 2014  through most of 2016, and led to the infamous “Chinese acquisition premium.”

Bloomberg notes that it is not clear yet how Anbang will respond, and in a WeChat message, the insurer said that “Anbang at present has no plans to sell its overseas assets,” although that is sure to change once Beijing asks again, less politely this time. “Currently, Anbang’s various businesses and operations are all normal, and the company has ample cash and sufficient solvency capabilities.”

Anbang, together with HNA, Wanda and Fosun, were the four most prominent Chinese conglomerates which unleashed a buying binge across the globe, fueled by soaring sales of investment-type insurance policies. Since 2015, the four companies completed a combined $55 billion in overseas acquisitions, 18% of Chinese companies’ total, and according to some, were instrumental in accelerating China’s capital outflows over the same period.

Anbang first emerged in the public arena with its high profile 2014 acquisition of New York’s Waldorf Astoria hotel. Subsequently, Anbang and its peers acquired such trophy assets as AC Milan, Legendary film studios and Hilton Worldwide.

Anbang alone made billions in acquisitions in such businesses as the Westin St. Francis, InterContinental Miami, Rabobank’s mortgage portfolio and various other M&A targets around the globe.

However, it all ended with a thud in mid-June, when Anbang Chairman Wu Xiaohui was detained for questioning, while the policies fueling the company’s growth have been all but banned by regulators. At this moment Anbang is merely a shell corporation, with virtually no new business creation, one whose massive debt load threatens to careen the company soon if it does not find sources of cheap liquidity and fast.

At a twice-a-decade conference on financial regulation convened by President Xi Jinping this month, policy makers pledged to rein in corporate borrowing and said that preventing systemic risk was an “eternal theme.”

Making matters worse is that Anbang’s rise in recent years was fueled by sales of lucrative wealth-management products that offered among the highest yields compared with peers, a key spoke of China’s $9 trillion shadow banking universe. China’s insurance regulator this year started clamping down on what it termed “improper innovation” and tightened rules on high-yield, short-term investment policies. Anbang and other aggressive insurers such as Foresea Life got caught up in the crackdown.

Where Anbang’s death spiral could turn especially aggressive, is if Anbang customers start surrendering their policies and stop buying new ones, a feedback loop that would accelerate a continuing cash drain at the company, while forcing its existing product suite of wealth products to default, leading to the biggest risk facing China’s economy: a shadow bank run.

One Anbang product, called Anbang Longevity Sure Win No. 1, boosted the firm’s life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8 percent. That helped provide fuel for the firm’s more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.

If investors realize that not only China’s M&A party is over, but that the shadow banking sector is facing a potential default cliff, the scramble to recover invested capital will be unprecedented.

For now, Anbang can delay the inevitable cash call by following Beijing’s demands, and slowly – at first- begin liquidating its trophy offshore assets, and repatriating the proceeds, effectively inverting the outbound M&A surge that marked the past three years. The good news is that at least at this moment, there are plenty of willing buyers for the upcoming Anbang firesale..

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Trump Saw A Disturbing Video, Then He Shut Down The CIA’s Covert Syria Program

While we’ve carefully documented the dynamics in play behind Trump’s decision to end the CIA’s covert Syria program, as well as the corresponding fury this immediately unleashed among the usual hawkish DC policy wonks, new information on what specifically impacted the president’s thinking has emerged.

Thomas Joscelyn, a Middle East analyst for the Foundation for Defense of Democracies, explains in the August edition of The Weekly Standard:

Earlier this year, President Donald Trump was shown a disturbing video of Syrian rebels beheading a child near the city of Aleppo. It had caused a minor stir in the press as the fighters belonged to the Nour al-Din al-Zenki Movement, a group that had been supported by the CIA as part of its rebel aid program.

 

The footage is haunting. Five bearded men smirk as they surround a boy in the back of a pickup truck. One of them holds the boy’s head with a tight grip on his hair while another mockingly slaps his face. Then, one of them uses a knife to saw the child’s head off and holds it up in the air like a trophy. It is a scene reminiscent of the Islamic State’s snuff videos, except this wasn’t the work of Abu Bakr al-Baghdadi’s men. The murderers were supposed to be the good guys: our allies.

Trump pressed his most senior intelligence advisers, asking the basic question of how the CIA could have a relationship with a group that beheads a child and then uploads the video to the internet. He wasn’t satisfied with any of the responses:

Trump wanted to know why the United States had backed Zenki if its members are extremists. The issue was discussed at length with senior intelligence officials, and no good answers were forthcoming, according to people familiar with the conversations. After learning more worrisome details about the CIA’s ghost war in Syria—including that U.S.-backed rebels had often fought alongside extremists, among them al Qaeda’s arm in the country—the president decided to end the program altogether.


Screenshot of the horrific video of a CIA-backed Syrian group beheading a boy named Abdullah Issa.

At the time the beheading video surfaced (July 2016), many in the American public naturally wanted answers, but the story never really picked up much momentum in the media. As Joscelyn describes, it caused nothing more than “a minor stir in the press.” The State Department seemed merely satisfied that the group responsible, Harakat Nour al-Din al-Zenki, claimed to have arrested the men that committed the gruesome crime, though nothing more was known. Absurdly, a US government spokesperson expressed hope that the child-beheading group would “comply with obligations under the law of armed conflict.”

The only press agencies that publicly and consistently challenged the State Department at the time were RT News and the Associated Press, yet even these attempts didn’t get picked up beyond the confines of the State Department’s daily briefing. When the AP’s Matt Lee initially questioned spokesman Mark Toner as to whether Zenki would continue to receive any level of US assistance, Toner casually replied “it would give us pause” – which left Lee taken aback.

Meanwhile, it wasn’t just the US government which had aided Zenki, but as fighting in Aleppo raged it became a favored group among both the mainstream media and prominent think tank pundits. One of the UK’s major broadcasters (Channel 4) even went so far as to attempt to delete and hide its prior online content which sought to normalize the beheaders as “moderate” and heroic once news of the video got out.

Controversial, but @AbuJamajem is largely right:

– “In #Syria, U.S. Can Keep Its Hands Clean or Get Things Done”https://t.co/vYzwH0mWXB

— Charles Lister (@Charles_Lister) August 22, 2016

Among think tankers, Zenki’s most prominent public supporter, frequently presenting the terror group as actually representative of Syria’s “secular” and supposedly democracy-promoting armed opposition (even after the beheading video emerged), was Charles Lister. Lister was finally confronted not by mainstream media, but by AlterNet’s Max Blumenthal at a DC event held by the (largely Gulf funded) Atlantic Council.

Only by the time of this January 2017 public forum, and after being persistently questioned, did Lister awkwardly back off his previous enthusiastic promotion of Zenki:

We can imagine that Trump saw other things beyond the shocking Zenki beheading video which made him fully realize the utter criminality of the CIA program (Thomas Joscelyn further emphasizes that Trump came to understand the full scope of CIA cooperation with al-Qaeda in Syria).

The only question that remains is who in the CIA or Obama-era State Department should be prosecuted first?

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Meanwhile, Somewhere In The Pentagon…

Authored by Charles Hugh Smith via OfTwoMinds blog,

The decision to launch nuclear weapons is political, not military.

As North Korean supreme leader Kim Jong Un declares that “The Entire US Territory Is Now Within Our ICBM Range”, somewhere in the Pentagon, operational plans to neutralize North Korean nuclear and long-range missile capabilities are being refined.

There are undoubtedly two sets of operational plans: one deploying conventional weapons, and the second for deployment of nuclear weapons.

Nothing personal, Mr. Kim Jong Un, it’s just business. A core duty of planners in the Pentagon is to ask “What if” and draw up a range of scenarios and operational plans to carry out the civilian leadership’s policies and decisions.

One such scenario is “what if North Korea launches a ballistic missile that is tracking to strike U.S. territory?”

One response option in this scenario would be to wait and see if the North Korean missile hits the U.S. and if it is armed with a nuclear weapon, and if so, if the warhead detonates.

Another option is to respond immediately with a nuclear strike that neutralizes North Korea’s ability to launch any more nuclear-armed missiles.

The U.S. Armed Forces does not declare war or make the decision to launch a nuclear strike–that is the perogative and responsibility of the nation’s civilian elected leadership. The duty of the U.S. Armed Forces is to be prepared to execute the decisions and policies of the elected civilian leadership.

The ethical considerations of such a decision are not the Pentagon’s purview–those considerations rest with the elected civilian leadership. If North Korea is poised to kill 2 million Americans, South Koreans, Japanese, etc., then isn’t erasing North Korea’s capability to kill millions at the cost of 50,000 North Korean lives in a limited nuclear strike the more ethical choice?

Those considerations are not part of operational plans. The purpose of operational plans is to get the assigned job done. Limiting civilian casualties might well be part of the assigned mission. But it’s not the Pentagon planners’ job to make those mission decisions.

There are no small nuclear explosions, but there are smaller explosions and variations that have profoundly different consequences. Ground-burst detonations carve out craters and send shock waves through the earth that crumple tunnels, bunkers, elevator shafts, etc. Ground-burst detonations generate vast quantities of radioactive particles. Since it’s well known that North Korea has buried its most precious nuclear resources deep underground, ground-burst detonations would be the only way to disrupt the access routes to bunkers deep underground.

Air-burst nuclear detonations generate field effects, i.e. electromagnetic pulses across the spectrum. These can be “tuned” to some degree. Thus a neutron-type weapon is designed to sicken and kill enemy soldiers while leaving buildings and equipment intact. This might be the weapon of choice to neutralize any attempt by the North Korean Army to launch a devastating artillery attack on South Korea in retaliation for the destruction of North Korea’s missile and nuclear capabilities.

Air-burst field effects often include massive disruption of electronic equipment. This might limit the operational plans for air-burst nuclear detonations near ther DMZ, as technologically advanced South Korea might well suffer significant economic losses from an air burst near the border with North Korea.

By the same token, an air-burst nuclear detonation over North Korean military communications headquarters might be considered essential to distrupt the North Koreans’ command and control capabilities.

My point here is that operational plans to decapitate North Korean nuclear and ICBM capabilities exist and are constantly being revised and refined in light of new intelligence. It’s not the planners’ job to make the geopolitical or ethical calculations that inform such a drastic decision. It’s the planners’ job to make sure a strike ordered by the elected civilian leadership of the nation achieves its goal, i.e. eliminates North Korea’s nuclear and missile delivery capabilities completely.

It’s easy to say nuclear weapons should never be used, but what if conventional weapons can’t do the job, or create greater risks? Would you consider it a good ethical trade-off to wait for millions to die before killing thousands? That’s a political choice, and one that will always be second-guessed or disputed. But making such decisions is the purpose of elected civilian government.

The planners job is much more direct. If the elected civilian government orders the neutralization of North Korea’s ability to kill millions of civilians in South Korea, Japan or the U.S., then the job boils down to aligning existing resources and reckoning how many resources will be needed to get the job done in the most effective way available.

A conventional-weapons strike would likely require hundreds (and possibly thousands) of aircraft sorties, and all that such a monumental effort entails. It would also requires a significant amount of time to execute. A nuclear strike requires far fewer resources but has consequences far beyond those of conventional weapons.

There have been no nuclear weapons detonated with the express intention of destroying civilians since 1945. The stakes are high, and nobody wants to launch a nuclear attack unless it is in retaliation for a nuclear attack. But by then it’s too late to save the millions killed by the initial attack.

We all hope deterrence works. But deterrence very nearly failed a number of times in the Cold War between the USSR and the US. Given the possibility that deterrence might fail–over-ridden by a commander with launch authority, or a dozen other possibilities of miscalculation or impulse– plans must be made for a first-strike designed to neutralize a nuclear missile capability.

The decision to launch nuclear weapons is political, not military – but achieving the goal is the duty of the military.

It’s nothing personal, folks–it’s just a peculiar business.

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Crypto Veteran Explains Bitcoin’s “Software Update” And Recent Price Moves

By Valentin Schmid of The Epoch Times

After a spectacular run up to $3,000, Bitcoin prices have been choppy, falling as low as $1,830. However, they reversed and rallied more than $1.000 in just a few days after a software upgrade called Segregated Witness (SegWit) was confirmed, which will allow Bitcoin to perform more transactions and develop different functionalities.

Epoch Times spoke to Bitcoin expert Trace Mayer about SegWit, the problem with the Bitcoin miners, other crypto coins, and expectations of price movement going forward.

Epoch Times: It looks like Bitcoin is getting a major upgrade with Segregated Witness. Can you explain?

Trace Mayer: It lays the platform for Bitcoin to scale and it also lays a big platform for extensibility. We’re going to be able to do all types of things because it is also a fix for something called transaction malleability. By fixing a lot of these things with Segregated Witness, Bitcoin is just going to be so much more. It’s a really, really big upgrade.

There are some vested interests, whether in the Bitcoin community or outside of the Bitcoin community, that have not wanted to see Segregated Witness activated. So, it’s been a long, protracted fight. But it looks like it’s going to get activated and Bitcoin will be on its way.

Epoch Times: Why did it take so long?

Mr. Mayer: It’s been two years in the making. If we had something like a Facebook, or a Google, and let’s say that that you only needed five percent of the voting shares in order to completely stop any future growth or development of the company, well, guess what?

So in the board rooms, you fight all the time. But with proxy voting you can have control of some of these very large corporations and get stuff done with inactive votes or people abstaining. But with Bitcoin, when you want to change something, you have to actively get a very large chunk of votes.

You have to gets votes from users who are using the wallet software, that performs network consensus. You have to get votes from the miners who are processing transactions in blocks. You have to have a super majority from everybody in order to maintain distributive consensus, or you’ll have what’s called “a fork” or a split of the blockchain. So anybody with even a very small percentage can exercise a veto. So Bitcoin has a whole different type of governance than a normal company.

And so, if you want to move upgrades forward, you have to have super majority consensus from millions of people and that’s a hard thing to achieve. So with Segregated Witness finally looking like it’s going to activate, Bitcoin’s rising up to a whole new level, because it’s being upgraded in terms of scale and extensibility.

And I think that’s being reflected in the price, because it’s going to have so many more use cases in the future. So investors who are buying and holding it today are looking at this saying: “The uncertainty about the path of Bitcoin going forward is getting cleared up, therefore we’ll buy and hold it because it’ll be so much more useful in the future.”


Veteran Bitcoin expert Trace Mayer has been involved in Bitcoin since
2011 and is also a major investor in many related start ups

Epoch Times: But you say this is not a done deal yet.

Mr. Mayer: Right. We’re not out of the woods yet. We’ve only locked in what’s called BIP 91. We have another, couple hundred Bitcoin blocks before we start enforcing BIP 91, and miners will be the ones enforcing that.

And then even after that gets enforced, we need two weeks in order for BIP 141 to be activated. And then we have another two weeks before we actually start enforcing that. So the earliest time SegWit could be active and functioning on the network is mid-August.

Miners could be liars. They’ve proven that in the past when they have signaled falsely. So you get all types of Machiavellian games. But it does appear that we’ve gotten consensus.

People are starting to signal they are going for SegWit and people are relying on that. It’s really not in the miners’ best interest to disrupt this process any more than they already have. They stand to lose the most amount of money because they’re the only ones who have to actively choose which fork to follow, and that has the economic consequences.

Everybody else can just sit and hold and see how it plays out but doesn’t have to make an economic choice.

Epoch Times: Aren’t the miners just service providers for the users?

Mr. Mayer: The work they do has value because individuals and users of Bitcoin place value on that work. If miners do work that users do not value, then miners will lose a lot of money in the process. And then they won’t be miners anymore because they’ll go bankrupt.

Miners can’t fire anybody. The people who hire and fire are the people who hold Bitcoin and who use Bitcoin. The way they determine who they’re going to hire or fire is based on what software they run. And 99.1 percent of the people who interact with the Bitcoin network are using the Bitcoin core software because it’s the safest, the most reliable, the most secure.

But these miners think they can top-down authoritarian control Bitcoin because the work they do provides value either way. What they’ve found is that the more they try to squeeze their grip on the Bitcoin community, the more they’re just grasping at air.

Users and consumers should presume as a fundamental premise that miners are hostile and malicious to Bitcoin users and consumers. They’re not to be trusted. They’re a rattlesnake to be on your highest guard against.

Bitcoin’s been very much an open source community project where there’s been a lot of good will. People have presumed that other people are acting with good intentions, that they have Bitcoin’s best interest at heart. It’s been very collegial.

But this two-year-long debate around SegWit revealed that these miners are not to be trusted. This sets up a whole different type of game theory in the way that you interact with other people in the ecosystem. The Miners burned their bridges with a lot of people in the Bitcoin community.

At the end of the day, it has been very good because it helps Bitcoin become even stronger and more censorship resistant. You can think of it like the body getting a nasty cold or flu. It’s not any fun while you have it but if it doesn’t kill you, it makes you stronger because you increase your immune system and your ability to respond.

Epoch Times: What’s your opinion on some of the other coins in the space?

Mr. Mayer: None of them really have like a good, decentralized, peer-to-peer, censorship resistance, scalable, liquid, secure, way of protecting and storing value. And that’s why Bitcoin is king of the mountain.

That’s not to say that there isn’t a lot of fun going on and that you can’t make a lot of money with these altcoins. We have a lot of really cool projects going on and a lot of fun tech, but don’t pretend that you’ve got the security, the liquidity, and the scalability that Bitcoin has. Nobody is even close.

Epoch Times: What do you think the price is going to do in the near future?

Mr. Mayer: I think if we’re going to continue having turbulence. I think between now and probably the end of the year, after the November decision on 2x the issues get definitively resolved.

Then I think the price is going to be significantly higher. You never know, of course Bitcoin’s always wild and crazy, but the thing is, it just might actually turn into something, so perhaps, you should acquire a little bit of it.

And that’s really what people have to do, they have to develop their own human capital to learn how to buy Bitcoin, sell Bitcoin, secure Bitcoin. And even if you’re doing this with just a $50 or $100 bucks, you’re getting the technical literacy.

So if you wanted to move larger amounts in, you could confidently do it without losing your money. And so all of that takes time and diligence and hard work for people to do, which is why we see these waves of adoption and usage happening. Which means that there’s going to be lots of upside potential with Bitcoin for many, many years to come.

* * *

Finally, here courtesy of CoinDesk, is a quick timeline of BitCoin Cash following its imminent August 1 launch:

We’re less than 24 hours away from the launch of Bitcoin Cash.

Whether you’re worried, interested or excited, you can’t deny that the event – which will likely see a new cryptocurrency created from the existing bitcoin blockchain – will have ramifications on the larger ecosystem.

In this article, I’m going to go over the different things you can expect in the next few days.

July 31

As you may have seen on social media, exchanges and merchants are currently scrambling to prepare for the fork.

At a minimum, these custodians of customer bitcoins will want to record customer balances right before the hard fork so they can untangle who’s entitled to what later. (Or risk facing accounting challenges).

More adventurous exchanges are preparing to list Bitcoin Cash as a separate asset, though this presents its own problems.

For one, listing a cryptocurrency that hasn’t launched could prove difficult. Also, once markets are live, trading is likely to be choppy. (Part of what caused crazy volatility during the Zcash launch was that so few exchanges supported it during the first few days.)

This probably won’t be the case as many exchanges have already committed to supporting the trade of Bitcoin Cash, but it bears watching.

We can expect many exchanges to freeze withdrawals in preparation of the above.

August 1, 00:00 UTC

This is the expected time of the BIP 148 UASF launch.

Because the bitcoin network is already enforcing BIP 91, this should be a non-event. That is, BIP 148 won’t split the network and bitcoin will continue as a single chain.

August 1, 12:20 UTC

Bitcoin Cash will launch.

At this point, miners that are mining Bitcoin Cash will create a transaction block greater than 1 MB in size and fork the bitcoin network.

There are a few scenarios here that depend on the percentage of hash power that the new blockchain attracts:

  • If less than 16% of bitcoin’s current hash power transitions to Bitcoin Cash, the first block will likely take over an hour. This won’t affect the bitcoin blockchain that much, though on average, blocks should take a little longer than 10 minutes.
  • If 17-50% of hash power moves to mining Bitcoin Cash, the first block will likely take between 20 minutes to an hour. This will slow down the bitcoin blockchain somewhat. Blocks on bitcoin will take between 12-20 minutes.
  • If more than 50% of hash power is mining Bitcoin Cash, the first block will likely take less than 20 minutes. This will slow down the bitcoin blockchain significantly. Blocks on bitcoin will take longer than 20 minutes on average.

During this time, users will likely begin sending Bitcoin Cash to exchanges that both list the cryptocurrency and that have vowed to continue operations through the fork.

We can expect that the exchanges that accept Bitcoin Cash deposits first will have a lot of activity, and that initial trading will likely cause some significant price volatility due to reduced liquidity.

As for transaction approvals, even with low hashing power, we can expect the Bitcoin Cash mempool to be relatively empty since the network’s blocks will be relatively big.

At 12.5% hash power, the mempool on Bitcoin Cash will clear at about the same rate as bitcoin. That said, confirmations will be much slower for the coin with less hash power until difficulty adjusts.

August 3–7

If Bitcoin Cash has relatively low hashing power, we can expect some difficulty adjustments at this time. Most scenarios result in something close to 10-minute block times provided the hash power stays constant.

This is probably not a safe assumption as miners will likely be switching between Bitcoin and Bitcoin Cash depending on which one is more profitable.

Bitcoin Cash will be much easier to mine after the difficulty adjustments, and we may get some relatively fast blocks (2.5 minutes or less) until we hit block 479,808.

August 8–14

SegWit should lock in on bitcoin around this time.

Depending on how much mining power moves over to Bitcoin Cash, and how much new mining power shows up, lock-in on block 479,808 on bitcoin may take longer than expected.

Once lock in is achieved, the code will be activated later this month, effectively upgrading the main bitcoin blockchain to support larger-capacity transactions.

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Schwab: “New Accounts Are At Levels We Have Not Seen Since The Dot Com Bubble” As Millennials Rush Into Stocks

We can now officially close the book on the “cash on the sidelines.”

One week ago, we reported that in the latest weekly survey of Bank of America high net worth clients, the cash allocation had fallen to an all time low of just 10.4%, below the previous record low of 11% in April 2007 as everyone is “forced” to dance in this market, in which the music is still playing.

Now, in a separate confirmation of what Deutsche Bank recently classified as market “froth”, Jonathan Tepper points out that the stock euphoria has finally spread to the retail investor.

Case in point: in its Q2 earnings results, Schwab reported that after years of avoiding equities, Schwab clients opened the highest number of brokerage accounts in first half of 2017 since 2000.

This is what Schwab said on its Q2 conference call:

New accounts are at levels we have not seen since the Internet boom of the late 1990s, up 34% over the first half of last year. But maybe more important for the long-term growth of the organization is not so much new accounts, but new-to-firm households, and our new-to-firm retail households were up 50% over that same period from 2016.

In total, Schwab clients opened over 350,000 new brokerage accounts during the quarter, with the year-to-date total reaching 719,000, marking the biggest first-half increase in 17 years. Total client assets rose 16% to $3.04 trillion.

Schwab also adds that just like in the case of Bank of America’s HNW private clients, the net cash level among its clients has only been lower once since the depths of the financial crisis in Q1 2009:

Now, it’s clear that clients are highly engaged in the markets, we have cash being aggressively invested into the equity market, as the market has climbed. By the end of the second quarter, cash levels for our clients had fallen to about 11.5% of assets overall, now, that’s a level that we’ve only seen one time since the market began its recovery in the spring of 2009.

While some of this newfound euphoria may be due to Schwab’s recent aggressive cost-cutting strategy, it is safe to say that the wholesale influx of new clients, coupled with the euphoria-like allocation of cash into stocks, means that between ETFs and other passive forms of investing, as well as on a discretionary basis, US retail investorshas never been more “all-in” stocks than they are now.

But wait, there’s more: throwing in the towel on prudence, according to a quarterly investment survey from E*Trade, nearly a third of millennial investors are planning to move out of cash and into new positions over the coming six months. By comparison, only 19% of Generation X investors (aged 35-54) are planning such a change to their portfolio, while 9% of investors above the age of 55 are planning to buy in.

Furthermore, according to a June survey from Legg Mason, nearly 80% of millennial investors plan to take on more risk this year, with 66% of them expressing an interest in equities. About 45% plan to take on “much more risk” in their portfolios.

In other words, little by little, everyone is going “all in.”

Ironically, Schwab’s own economists were forced to caution its clients that the party may soon be ending as we discussed last week in “Even Schwab Is Warning Retail Clients Of ‘Danger Signs Rising‘:”

A solid earnings season should contribute to a continuation of the bull market in stocks. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move.

Because if there is anything retail investors are known for, it is avoiding “overreacting” to “decent-sized pullbacks.” As for those 45% of Millennials planning to take on “much more risk” at the all time highs in the S&P, good luck.

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The Next Escalation: Pentagon Offers To Arm Ukraine, McCain Delighted

When we reported yesterday about Putin’s surprisingly harsh response to last week’s House legislation to launch new sanctions against Russia, which also binds Trump from unilaterally removing sanctions without getting Congressional approval, we concluded that “now we await the US re-retaliation in what is once again the same tit-for-tat escalation that marked the latter years of the Obama regime, as the US Military Industrial Complex breathes out a sigh of relief that for all the posturing by Trump, things between Russia and the US are back on autopilot.

We didn’t have long to wait.

The WSJ reports that, in what appears to be the next gambit by the U.S. Military-Industrial Complex (or “deep state” for those so inclined) to force Trump to “prove” that he did not, in fact, collude or have any ties with Russia or Vladimir Putin, Pentagon and State Department officials have devised plans to hit Russia where it hurts the most, and supply Ukraine with antitank missiles and other weaponry, and are now seeking White House approval at a time when ties between Moscow and Washington are as bad as during any point under the Obama administration.

American military officials and diplomats say the arms, which they characterized as defensive, are meant to deter aggressive actions by Moscow, which the U.S. and others say has provided tanks and other sophisticated armaments as well as military advisers to rebels fighting the Kiev government.

Ukrainian national guardsmen are instructed on the proper technique for
using a grenade launcher by an American soldier, on April 21, 2015

The question of course is, “why now?” Since the start of the Crimean conflict, which in turn was the byproduct of a State Department-facilitiated presidential coup in Ukraine, the US has been supporting Russian-speaking insurgents in the country’s east however Washington, wary of escalating the conflict, has largely limited its support for Kiev’s military to so-called non-lethal aid and training.

So one attempt at “why now”, is because with Trump reeling, and having already caved on the latest Congressional anti-Russia bill, why not push the president to escalate the Russia conflict to a point where not even his predecessor dared to take it. For now, Trump is unaware of the plan:

A senior administration official said there has been no decision on the armaments proposal and it wasn’t discussed at a high-level White House meeting on Russia last week. The official said President Donald Trump hasn’t been briefed on the plan and his position isn’t known.

Of course, that will change once the president, now with a veteran general by his side as new Chief of Staff reads the WSJ report, and starts debating whether it is worth to further deteriorate Russian relations if it means getting Mueller of his back, by showing just how committed Trump is to “containing Russian aggression.”

Meanwhile, setting the stage for the escalation, a Pentagon spokeswoman, Lt. Col. Michelle L. Baldanza, said the U.S. has not “ruled out the option” of providing “lethal defensive weapons to Ukraine.” U.S. Defense Secretary James Mattis has endorsed the plan, according to U.S. officials quoted by the WSJ.

Going back three years, when the Obama administration considered supplying arms to Ukraine – and ultimately refused to do so –  it faced considerable opposition from German Chancellor Angela Merkel and other allied leaders and instead provided Kiev with short-range radar, night-vision goggles and other equipment.

So, ironically, just as Trump’s imminent signing into law of the Congressional sanctions against Russia, which as we explained before, have already infuriated Europe, so any further escalation in Ukraine will likely add to Europe’s animosity toward the US.

Germany and France remain deeply skeptical about providing arms to Ukraine, fearing that such moves would raise tensions and deepen the conflict there. But U.S. officials said they expect allies, possibly including the U.K., Canada, Poland and Lithuania to be open to increased military support.

 

“It is really important we don’t inflame the situation,” said British National Security Adviser Mark Sedwell. “There has been quite a lot of agitation from across the border in the east.”

Alas it may be too late for that. Enter, the US warhawks, who now feel that after being shut out for nearly a year, it’s their turn to shine.

As the WSJ notes, U.S. officials say they “worry” that the conflict has intensified, with a rising number of cease-fire violations as progress on peace efforts has faltered. “The level of violence is up a bit of late,” said Gen. Curtis Scaparrotti, the top U.S. and NATO military commander. “The Russians provide equipment, some of their most modern equipment, and they provide proxy forces with advisers.”

Meanwhile, NATO continues to deploy even more troops to countries in the Baltics, Central and Eastern Europe, something which Russia has warned it takes as an act of aggression. Over weapons deliveries to Ukraine rebels may be just the spark that finally launches an armed conflict between Russia and NATO.

Under the Pentagon and State Department proposal, the U.S. would provide anti-tank weapons, most likely Javelin missiles, as well as possibly anti-aircraft weapons, in addition to other arms. Ukraine has long sought Javelins to counter Russian-made armored vehicles in rebel-held areas.

 

U.S. officials, however, said the plan would be to deploy the anti-tank missiles with Ukrainian troops stationed away from the front lines of the conflict —part of an effort by policy makers to limit the risks of escalation and defuse criticism that the moves could encourage offensive action by Kiev.

 

Javelin missiles and launchers are lightweight and usually carried by two-man teams, so they are highly mobile.

And the best bit: just like in Syria, the Pentago has said that “should Ukraine use the weapons improperly, Washington could decide to withdraw its support or technical assistance.”

It was not immediately clear what ‘improper use of weapons’ would consist of, but probably taking down another Malaysian Airlines airplane over Ukraine would be not be among the actions permitted.

Needless to say, the Ukraine is delighted by this latest development:

A senior Ukrainian official said Monday that the fact of the Pentagon’s proposal could help persuade Russia to scale back actions in Ukraine’s east. The official also said it was widely accepted in Kiev that any advanced weapons from the U.S. would be used only in an “emergency” and not during regular combat with separatist forces.

And another amusing detour: the WSJ writes that “U.S. and European officials are divided on how Moscow would respond to new arms shipments. Some believe it would push Moscow back to the bargaining table and others think it would prompt the Russian military to escalate the situation further.

Spoiler alert: it would be the latter, and most likely with devastating consequences. John McCain, for one, is delighted.

It’s about time. @WSJ: “Pentagon Offers Plan to Arm #Ukrainehttps://t.co/JoOyRv5U63

— John McCain (@SenJohnMcCain) July 31, 2017

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Bitcoin Is Rallying As ‘Fork’-Day Arrives

With only a few hours remaining before the widely-expected Bitcoin network’s SegWit activation and its anticipated fork, there is a bifurcation in the crytpo-world with Bitcoin higher (up 5%) and the rest of the major virtual currencies lower (down 4%). For now, crypto markets seem relatively calm and stable ahead of what was feared to be an extreme volatility moment.

Spot the odd one out…

As CoinTelegraph reports, after falling to below $1,800 in the middle of July, Bitcoin price has recovered to be trading around $2,700 as at the time of writing.

But more significant is the overall market behavior which is expressing relative calmness as price movement are less volatile than is usually experienced in seasons of anticipation.

Iqbal Gandham, UK Managing Director at eToro, on the possible Bitcoin split, comments:

“The surge in pricing we’ve seen since the start of this year has thrown digital cryptocurrencies into the public eye. Bitcoin in particular has been making headlines, as the possibility of it one day becoming a real world currency used throughout the world looks increasingly likely, even if this is a long way off.

 

But Bitcoin’s sharp increase in popularity has also risked its demise. Demand for Bitcoin has been so high in recent months, that those creating the cryptocurrency can’t keep up, slowing transactions. For Bitcoin to continue to scale and have the potential to become a globally used currency, this slowdown in transactions has to be addressed.

 

“Although the Bitcoin community has now agreed on a process for speeding up transactions – the mystic sounding Segwit – not everyone is happy. Some in the community are threatening a split to create an entirely new cryptocurrency created using a different process, called Bitcoin Cash. Nobody can be sure how this is going to play out over the short term.

 

”Over the long term, regardless of the outcome, it’s clear that blockchain technology can completely remake the world of money, and that in the future, a blockchain powered cryptocurrency, like Bitcoin, will be used by billions of people. This makes for a huge investment opportunity, but naturally one that comes with a few bumps in the road.”

CEO of Never Stop Marketing, Jeremy Epstein thinks that the current market behavior is as a result of the growing confidence of Bitcoiners about the technology as a long term phenomenon. Epstein tells Cointelegraph:

“I think that the reason for a relatively stable market at this time is the fact that more and more people are getting comfortable with the idea of Bitcoin over the long-term.

 

They realize that this is a short-term disruption and it is a feature, not a bug, of the way that the system operates. As a result, people are playing patience and they recognize that the age of decentralization is truly upon us so they can tolerate some of these challenges in the near term.”

CEO of Netcoins, Michael Vogel believes that the relative calm being experienced in the industry ahead of a major decision is due to the outlook of Bitcoin users. Vogel also notes that the actions of the exchanges may be significant in influencing how Bitcoiners perceive the process. He says:

SegWit activation is largely viewed as positive news for Bitcoin. And although I believe the Bitcoin Cash altcoin fork will be a footnote in the long run, there’s less worry among the customers that I’ve been speaking with.

 

Even if there is a negative effect on BTC price after a fork, one might assume there would be a positive effect on the BCC price (and vice versa). That being said, with most exchanges choosing not to carry BCC, that has given many Bitcoin users the clarity that they’ve been seeking about the future of Bitcoin.”

As CoinTelegraph conlcudes, Bitcoin as a decentralized technology will undergo several stages of development. Having survived the initial setbacks of its early days, it has grown significantly over the last few years both in volume and market capitalization. With the increasing level of awareness and understanding that is prevalent in the industry, it is safe to assume that in the long term Bitcoin will form a significant part of human existence.

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No Fireworks In Today’s Bill Auction: Has The Debt Ceiling Crisis Passed?

Unlike last Monday’s 3M T-Bill auction, which as a reminder priced at the highest yield since the fall of October, but more importantly showed a dramatic “kink” in the 3M-6M bill yield due to growing concerns of a disorderly debt ceiling debate and pot…

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Trump: “We’ll handle North Korea. It Will Be Handled. We Handle Everything”

With Gen. John Kelly set to be sworn in as Trump’s new Chief of Staff, just days after the latest and most advanced North Korean ICBM test yet, one which can reportedly reach as much as half the major metro areas on the continental US, President Trump on Monday pledged to “handle” North Korea’s provocative belligerence, without specifying exactly how he would do so as he faces rising tensions and limited options.

“We’ll handle North Korea. We’re going to be able to handle North Korea. It will be handled. We handle everything,” Trump told reporters at the start of Monday’s first Cabinet meeting with his new Chief of Staff, flanked by Secretary of State Rex Tillerson and Defense Secretary James Mattis.

Pres. Trump at Cabinet meeting: “We’ll handle North Korea…it will be handled. We handle everything.” https://t.co/t3q481atrR pic.twitter.com/R5OjZDTBmi

— Evan McMurry (@evanmcmurry) July 31, 2017

The comments follow “guidance” from the US Ambassador to the UN, Nikki Haley, who on Sunday told CNN that the “time for talk” is over. As CNN noted, “it was a seemingly stark admission – the US ambassador to the UN suggesting the North Korean crisis couldn’t be solved through diplomatic channels in the Security Council.”

On Firday, the Pentagon confirmed that North Korea fired an intercontinental ballistic missile capable of reaching the United States. The missile, fired from north central North Korea, traveled 600 miles before it fell into the Sea of Japan. Following the missile test, Trump said Saturday on Twitter that he was “very disappointed” in China for not doing more to curb North Korea’s missile program.

“I am very disappointed in China,” Trump tweeted. “Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk.”

Trump has repeatedly pressed China, North Korea’s only major ally, to put more economic pressure on Pyongyang, lamenting that he has few other options left to try to check North Korea. Trump did not hint at what actions he could take on Monday, but recent comments suggest he could take more steps to try to get China to act.

On Monday, Reuters reported that a “frustrated” China hit back over Trump’s weekend tweets, with the state-run nationalistic Chinese tabloid Global Times saying that “Pyongyang is determined to develop its nuclear and missile program and does not care about military threats from the U.S. and South Korea” adding “how could Chinese sanctions change the situation?”

China wants both balanced trade with the United States and lasting peace on the Korean peninsula, its official Xinhua news agency added in a commentary. “However, to realize these goals, Beijing needs a more cooperative partner in the White House, not one who piles blame on China for the United States’ failures,” it added.

Also over the weekend, the United States flew two supersonic B-1B bombers over the Korean peninsula in a show of “lethal, overwhelming force” on Sunday in response to the missile test and the July 3 launch of the “Hwasong-14” rocket, the Pentagon said. The bombers took off from a U.S. air base in Guam and were joined by Japanese and South Korean fighter jets during the exercise.

“North Korea remains the most urgent threat to regional stability,” Pacific Air Forces commander General Terrence J. O’Shaughnessy said in a statement. “If called upon, we are ready to respond with rapid, lethal, and overwhelming force at a time and place of our choosing.”

As reported earlier, South Korea’s Kospi stock index, oblivious of the constant threat of military action in its northern neighbor, closed 0.07% in the green, just shy of all time highs.

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‘Narratives’ Are Not ‘Truths’

Authored by James Howard Kunstler via Kunstler.com,
The polity is a social organism, of course, meaning that it adds up to more than the sum of its parts, a body of politics, if you will, just as each of us adds up to more than just our bodies. It&rsqu…

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