2018-05-21

Bear Market or QE4?

I did another detailed look at the Fed's balance sheet versus stock market performance over at Seeking Alpha. Fed Fork In The Road: Bear Market Or QE4

One thing that surprised me is I'd been focused on March 2009 balance sheet expansion and missed the balance sheet reduction in early 2009. The market rebounded into December 2008 and the Fed started easing back some of its support for the market. Even though the Fed committed to expanding its balance sheet in December, the balance sheet shrank at the start and the dip lines up well with the stock market drop. The percent increase in the Fed's balance sheet and the percentage increase in the S&P 500 into 2016 is also too close for comfort.

Correlations often weaken over time and since the Fed balance sheet didn't matter from Nov 2016 to January 2018, it may be that doing nothing was the best option for the Fed. The Fed decided it had to shrink the balance sheet though, and at least since January the correlation has returned. Maybe it'll weaken again as happened from Nov 2016 to January 2018. If it doesn't, the Fed is headed for monthly balance sheet reductions of more than 1 percent of assets. That will translate into a approximately a negative 1 percent monthly headwind for stocks.

Chinese Govt Spends Big to Develop Memory Chip Companies

An article discusses Wuhan Xinxin Semiconductor Manufacturing Corp and the Chinese government's plan to spend billions on chip technology. Wuhan Xinxin is still unprofitable after 11 years.

21st Century: 中国芯”艰难突围路:武汉新芯十一年终扭亏
Following the investment in the first phase of the IC Fund, which amounted to RMB138.7 billion, the second phase of the Chinese government's large capital investment has once again focused on the market. Relevant media reports indicate that the second phase of the brewing fund is expected to be no less than 150 billion to 200 billion yuan in size.

How will the national team support the chip industry? On the morning of April 26th, when General Secretary Xi Jinping came to Wuhan Xinxin Research under the Yangtze River Storage Store of the Ziguang Group, he mentioned that the core technology with independent intellectual property rights is where the company’s “Gate of Life” lies. The chip of equipment manufacturing industry is equivalent to the heart of people. The heart is not strong, and the body size is not too strong. It is necessary to speed up major breakthroughs in chip technology and bravely climb the peak of semiconductor storage technology in the world.

The 21st Century Business Herald reporter recently interviewed relevant stakeholders of Wuhan Xinxin, taking samples of issues such as Wuhan's efforts to develop IC industry and Wuhan Xinxin's development over the past decade and beyond, to restore the difficult breakthroughs of the central government and enterprises in the chip field.

From 2006 to the present, the central government has continued to invest heavily in Wuhan Xinxin. The integrated circuit industry has a intensive and long-term investment cycle. This company, which continued to lose money before 2017, is also struggling to break through the controversy.
Wuhan Xinxin was launched more than a decade ago as part of an effort to develop domestic chip suppliers:
The chip is called "industrial food". China still has gaps in chip design, manufacturing capabilities, and talent teams. China is the world's largest chip consumer, with 90% relying on imports and imports exceeding $250 billion a year.

The representative company of the Wuhan Xinxin Central Government who made efforts to develop the chip industry was incorporated in April 2006. It is invested by Hubei Province, Wuhan City and Donghu High-tech Zone. The investment scale for the first phase reached 10.7 billion yuan, which is the first time in the Central Region in these years. A 12-inch integrated circuit production line project.

As of now, Wuhan Xinxin is the only memory-based IC manufacturing company in China. Wuhan Xinxin is facing an urgent task of catching up with technology. Behind it is the continued investment of the Central Government. On August 5, 2015, the Hubei integrated circuit industry investment fund with a total size of not less than 30 billion yuan was established, of which Wuhan Xinxin is the investment focus. The first phase of the national integrated circuit fund of 138.7 billion investment, one of its investment priorities is the memory.
Experts who participated in the new core project told the reporter of the 21st Century Business Herald that Xinxin did achieve losses in 2017. On the one hand, the international market conditions were relatively good. In the past 20 years, the global semiconductor factory was much more involved. In addition, with mobile communications and the Internet of Things, With the development of the chip, the demand for chips has greatly increased and it is good for Xinxin. Of course there is another reason. From the financial report, the depreciation of the equipment is over.

The loss of data in the financial report does not mean that the real dawn has come. According to the data provided by Tanshui, at present, the global memory market is highly monopolized and the market and key technologies are in the hands of several oligopolistic companies such as Samsung, Toshiba and Hynix. Samsung, Hynix and Micron monopolized 95% of the DRAM memory market. Samsung, Toshiba, Micron and Hynix monopolized 99% of the NAND memory market. The top six manufacturers monopolized 90% of the NOR memory market. Wuhan Xinxin still has a long way to go.
"Although it is a state-owned enterprise, unlike many monopolized state-owned enterprises, Wuhan Xinxin is faced with global market competition. This industry is a globally transparent market, and there is no designated unit procurement for the product. State-owned enterprises are not good at doing it." A practitioner from Wuhan Xinxin told a 21st Century Business Herald reporter.
Related:

A goos in-depth view at Semiconductor Engineering that sees high hurdles for China: Will China Succeed In Memory?
IP issues are just one of the challenges. China’s memory makers also face stiff competition in a tough market. “I look at this at maybe almost like what China did in the foundry industry. They have 10% market share. Maybe China will get 10% of the memory market,” IC Insights’ McClean said. “I don’t think it would be zero. But I don’t see big chunks of market share coming out of Samsung, Micron and Hynix anytime soon.”
Asia Times: China has too few chips to play in high stakes tech gameChina.org: Xi calls for maintaining new development philosophy, winning 'three tough battles'
"Businesses must unceasingly make breakthroughs in core technology, mastering more key technologies with self-owned intellectual property rights and building up the ability to dominate industrial development. The country needs you to pick up the pace," Xi said.

Xi then visited Wuhan Xinxin Semiconductor Manufacturing Corp. to inspect a national memory production base and assembly lines of integrated circuits.

In workshops, he listened to reports about smart manufacturing of chips and accelerating chip localization progress.

Referring to chips as like the human heart, Xi said, "No matter how big a person is, he or she can never be strong without a sound and strong heart," he said, urging businesses to make major breakthroughs in chip technology and challenge the new heights in global semiconductor industry.

2018-05-20

Anglosphere or Bust

Macrobusiness looks at Australian option with China rising in What will Australian life be like under the Chinese dictator?

The obvious solution is the one proposed by Paul Johnson in the late 1990s in Forbes magazine: the Anglosphere. He proposed a more formal arrangement, but the Anglo countries are already voluntarily cooperating in many ways. An Anglo confederation might formalize some military, economic and cultural ties. Britain in the EU would have been an issue, but that problem was solved by British voters. It also is a sort of push/pull solution to U.S. isolationism because a slightly more intense voluntary partnership would pull the U.S. into Europe and Asia, offsetting an isolationist exit from those areas. I doubt the U.S. will pull back entirely given communications and transportation advances, but this negative wave of social mood may not trough until the U.S. has abandoned most of its overseas commitments. This will also benefit the UK and Australia if the U.S. breaks apart into several nations. One could be a Hispanic southwest that has no desire for ties with the UK and Australia. Creating a structure for a seamless entry by new states in North America should be a very long-term consideration.

Did Bush Spy on Perot?

If George H.W. Bush was Halper's handler in 1980 and Halper tried setting up Trump in 2016, is it possible that G.W. Bush would have run an intelligence operation against Ross Perot in 1992?

NYTimes 1992: THE 1992 CAMPAIGN: The Overview; PEROT SAYS HE QUIT IN JULY TO THWART G.O.P. 'DIRTY TRICKS'
Marlin Fitzwater, the White House spokesman, told reporters in Billings, Mont.: "It's all nonsense. There's nothing to it. I don't want to attack Perot, but I don't know where he's getting it from. I mean, fantastic stories about his daughter and disrupting her wedding and the C.I.A. -- it's all loony."

No matter whether any of Mr. Perot's assertions are proved, they are bound to influence the final stretch of the Presidential campaign. With barely more than a week left, some analysts said the accusations could damage him by creating in the minds of voters a man who is forever imagining plots.

But the accusations also seemed calculated to feed a perception, fueled by Democrats and earlier in the race by Mr. Perot, that Republicans will do anything to win the White House.
The wedding story still sounds a little loony, but not the more important CIA part.
"I couldn't believe that anyone representing the President of the United States would stoop to these lows," he said on "60 Minutes," referring to a purported scheme to wiretap his office.

...Mr. Perot said that even after he left the race the Bush campaign cooked up a plan to install eavesdropping devices in his business office in Dallas. He said "a source" sent him "a floor plan, layout of my floor, and telephone numbers they wanted to tap."

...The Federal Bureau of Investigation confirmed in August that it was investigating accusations that someone had bugged Mr. Perot's office telephone and then had offered the tapes to Mr. Bush's campaign chairman in Texas. The Bush campaign chairman refused the tapes and notified the F.B.I., Federal officials said.
Well, Mr. Perot, you may be owed an apology. And the U.S. may be about to have a constitutional crisis of epic proportions.

In case you're wondering why Bush might help Clinton, there's two reasons. George H.W. Bush didn't like Trump and he's become friends with the Clintons, including voting for Hillary.

I can't find the clip, but George W. Bush once said in an interview while smiling, "Bush, Clinton, Bush, Clinton" when discussing who was next up for President. That doesn't mean he knew his father was working to make that a reality, but it does reveal that he wasn't at all bothered by the possibility and in fact seemed to think it was a good idea.

WaPo: How Bill Clinton and George W. Bush got over their politics and became BFFs

BBC: George Bush Sr calls Trump a 'blowhard' and voted for Clinton

Bush Spy Games? Carter Spy Campaign Template For Trump Set Up

UPI 1983: A former Ronald Reagan campaign official charged Thursday
A former Ronald Reagan campaign official charged Thursday administration conservatives are trying to manipulate the Jimmy Carter papers controversy to force the ouster of White House Chief of Staff James Baker.

The charge was leveled as two junior officials of the 1980 Reagan campaign were singled out as receiving inside information from Carter's campaign camp and one was labeled the head of a network of former CIA agents who spied on the Carter administration.
The source in the Carter administration had a grudge:
The station quoted Ed Coyle, deputy director of John Anderson's independent presidential campaign, as saying a former Carter campaign worker with 'a vendetta' against Carter approached him during the campaign and offered to provide information about Carter's political strategy.

'He clearly implied that he had access to campaign strategy memos, personal, political memorandum from various people in the White House during the campaign,' Coyle said in the interview. 'He also suggested that his woman friend was in a position to know personal information about people with whom she worked and for whom she worked in the White House.

'He was never very specific. He struck me as being just obsessed with the idea of hurting Jimmy Carter's re-election.' Coyle said he believed the man, who was not identified, was upset because he was refused some kind of grant. He said he told the man to leave and informed Carter officials in the summer of 1980 about the incident.
NYTimes 1984: A BANK THAT BANKS ON CONSERVATIVE DOLLARS
Mr. Halper worked on Mr. Bush's campaign, and the bank grew out of a conversation in 1980 between Mr. Halper and Mr. McLean, according to Mr. Halper. Mr. Halper was also policy director of the Reagan-Bush campaign that year, and he later figured in the investigations into the unauthorized transfers of campaign strategy information from the Carter camp to the Reagan camp.

A report by a House committee earlier this year said, ''Halper appears to have claimed that he saw Carter debate briefing material during the 1980 campaign.'' But Mr. Halper gave an affidavit to the committee saying he did not recall seeing any debate-related information or material or having made statements to that effect to anyone.
Halper had a grudge against Carter. And he was a "Never Trumper" who hates Trump

The Intercept, today: The FBI Informant Who Monitored the Trump Campaign, Stefan Halper, Oversaw a CIA Spying Operation in the 1980 Presidential Election
But now, as a result of some very odd choices by the nation’s largest media outlets, everyone knows the name of the FBI’s informant: Stefan Halper. And Halper’s history is quite troubling, particularly his central role in the scandal in the 1980 election. Equally troubling are the DOJ and FBI’s highly inflammatory and, at best, misleading claims that they made to try to prevent Halper’s identity from being reported.

To begin with, it’s obviously notable that the person the FBI used to monitor the Trump campaign is the same person who worked as a CIA operative running that 1980 Presidential election spying campaign.

It was not until several years after Reagan’s victory over Carter did this scandal emerge. It was leaked by right-wing officials inside the Reagan administration who wanted to undermine officials they regarded as too moderate, including then White House Chief of Staff James Baker, who was a Bush loyalist.
One point being overlooked is the role of the Bushes. Halper was with the Bush campaign, not the Reagan campaign. It was the Jeb Bush campaign that initially paid Fusion GPS for dirt on Trump.
When the scandal first broke in 1983, the UPI suggested that Halper’s handler for this operation was Reagan’s Vice Presidential candidate, George H.W. Bush, who had been the CIA Director and worked there with Halper’s father-in-law, former CIA Deputy Director Ray Cline, who worked on Bush’s 1980 presidential campaign before Bush ultimately became Reagan’s Vice President. It quoted a former Reagan campaign official as blaming the leak on “conservatives [who] are trying to manipulate the Jimmy Carter papers controversy to force the ouster of White House Chief of Staff James Baker.”

Halper, through his CIA work, has extensive ties to the Bush family. Few remember that the CIA’s perceived meddling in the 1980 election – its open support for its former Director, George H.W. Bush to become President – was a somewhat serious political controversy. And Halper was in that middle of that, too.

...Whatever else is true, the CIA operative and FBI informant used to gather information on the Trump campaign in the 2016 campaign has, for weeks, been falsely depicted as a sensitive intelligence asset rather than what he actually is: a long-time CIA operative with extensive links to the Bush family who was responsible for a dirty and likely illegal spying operation in the 1980 presidential election. For that reason, it’s easy to understand why many people in Washington were so desperate to conceal his identity, but that desperation had nothing to do with the lofty and noble concerns for national security they claimed were motivating them.
The irony now is that if there aren't major jail sentences for those involved in this operation and all the poison fruit that came from it (Mueller investigation), then the world will have a hearty laugh next time the United States crows about "free and fair elections." If you want to see who is the greatest threat to democracy, look no further than the U.S. government and its media enablers.

2018-05-18

None Dare Call it Sedition, Yet: Russia Collusion Investigate Takes Dark Turn

ZH: WSJ Asks "Was Trump's Campaign 'Set Up'?"
House Intelligence Committee Chairman Devin Nunes appeared on “Fox & Friends” Tuesday, where he provided a potentially explosive hint at what’s driving his demand to see documents related to the Federal Bureau of Investigation’s Trump-Russia probe. “If the campaign was somehow set up,” he told the hosts, “I think that would be a problem.”
If the government and members of the Democrat party colluded to influence the election and derail the Trump administration, it is guilty of major crimes.

Sedition is "incitement of resistance to or insurrection against lawful authority." I doubt anyone will be charged with sedition, but if the Democrat/Anti-Trump "Resistance" has used the FBI, DOJ and possible NSA or CIA to set up a Republican presidential candidate and wreck his administration, then all hell is about to break loose.

A constitutional crisis would be very negative for the U.S. dollar. Stocks could fall 70 to 90 percent , this would be orders of magnitude larger than Watergate and that coincided with a nearly 50 percent bear market from 1973 to 1974. That crisis was solved by removing the president. One can't simply remove the FBI and IRS (if this Russia scandal is true, then odds are the Obama admin was using the IRS to target political enemies.) Even if one wanted to eliminate them, it would require major changes to U.S. law and a wholesale revision of the tax code.

Update: The one flaw in the set up argument is the amount of planning, success, and willingness to break laws well before Trump is the nominee. If there wasn't a fear over a Trump candidacy, thehn it's odds to target him alone. There would likely be something similar going on with other candidates such as Cruz and Rubio. I still believe the most likely story is there was some smoke with Russia because of some meetings, this was blown up into collusion. All the real criminal activity was done after Trump won and the Obama admin rushed to cover its tracks for whatever legal violations may have been committed. This spiraled out of control, or was kept alive because it was politically useful for thwarting Trump. As with Watergate, the major crimes are all an extension of the cover-up.

Nothing Is Funny Anymore, China Martyrs Edition

A Chinese satire site was shut down for using a famous Chinese martyr in a 2014 video. The new law passed May 1 made such content illegal.

Inkstone: Y U NO TOE PARTY LINE? Rage comic site shut down for insulting Communist martyr
“We wrongly mentioned the martyr’s name,” said the rage comic star. “We will strictly follow and passionately embrace the Heroes and Martyrs Protection Law. We will refrain from making fun of martyrs, no matter what.”
I'm not defending this law, but which would you prefer, having a law that explicitly tells you things you can't say, or roving bands of Twitter mobs that enforce the same punishment based on sometimes random whims? The only difference between Chinese and American speech codes is Chinese don't pretend as if they believe in free speech.

More broadly, the curtailing of speech in China and the USA is a sign of intensifying negative social mood.

Fed Balance Sheets Down $20.6 B, Treasuries $8.6B

The Fed rolled $20.6 billion off its balance sheet this past week, $8.6 billion in Treasuries and $14.0 billion in MBS. This leaves about $11 billion in assets to go in May. There's another substantial amount of Treasuries maturing on May 31.

This week the S&P 500 diverged from the Fed balance sheet although the treasuries rolled off on Tuesday (the Fed publishes the maturity of Treasuries here: System Open Market Account (SOMA) Holdings of Domestic Securities and that was a sizable down day for the market, for what it's worth.


Bonus chart: the S&P 500 versus all commercial bank assets.