As China PMI Disappoints, Another Major Problem Emerges

As China PMI Disappoints, Another Major Problem Emerges Tyler Durden Sun, 05/31/2020 – 21:30

Overnight, China’s NBS reported that in May, manufacturing PMI signaled a continued recovery in factory activity, albeit at a slower pace than in April and below expectations (50.6, exp.51.0, down from 50.8). Sub-indexes in the manufacturing surveys suggest export order sub-index remained weak and employment deteriorated further.

Of note, the manufacturing employment sub-index weakened to 49.4 from 50.2, implying continued deterioration in the labor market. On the other hand, inventory indicators suggested a destocking trend, with raw material inventories declining to 47.3 from 48.2, and the finished goods inventory sub-index declined to 47.3 from 49.3 in April.

Yet even as China’s factories are starting to hum again, a new problem is emerging as executives are now worried that the rebound could falter on weak demand both at home but especially abroad, something we warned about some time ago when we warned that China’s push to produce at all costs will eventually backfire.

Justin Yu, a sales manager at Zhejiang-based Pinghu Mijia Child Product that makes toy scooters sold for American retailers, is among those seeing their order book improve from the depths of the coronavirus lockdown, but remain well below normal.

Quoted by Bloomberg, Yu said that “we are seeing more orders coming in this month as we get closer to our normal peak season,” Yu said. “But our orders are still 40-50% lower than last year.” The factory’s production capacity is running at about 70% to 80%, and Yu is making to order to avoid any build up in stock.

The disconnect between China’s recovering production and still dormant demand had shown up in data revealing a rise in inventories and once again contradicting the official PMI numbers which as noted above, show that to be easing. China’s fake data aside, the worry remains that sustained overproduction will lead China’s factories to keep cutting prices, compounding global deflationary headwinds and worsening trade tensions, before they eventually cut back on production and therefore even more jobs.

“The supply normalization has already outpaced demand recovery,” said Yao Wei, China economist at Societe Generale SA. “In other words, the recovery so far is a deflationary recovery.”

Which is another way of saying it is not a recovery at all, and the US, whose economy remains largely shut is not helping.

So given the weak export outlook, manufacturers such as Fujian Strait Textile Technology are switching their business models to target the home market, according to Bloomberg. It used to sell 60% of its products to Europe and the U.S. before the coronavirus crisis wiped out those sales. Now, Dong Liu, the company’s vice president, is looking for opportunities at home.

“Our company executives have started to visit the local market to make more potential clients know about us,” he said. “Since May 26, we have been producing 24 hours everyday at full capacity. All the inventory has already been sold and we’re rushing to make goods.”

Alas, the domestic-focused strategy also has numerous drawbacks: while China’s consumers are largely free to resume their regular lives as fresh virus cases slow to a trickle, they too aren’t spending like they used to (almost as if they also don’t believe Beijing’s solemn vows that everything is back to normal): retail sales slid 7.5% in April, more than the projected 6% drop. Restaurant and catering receipts slumped by 31.1% from a year earlier, after a 46.8% collapse in March.

“Although demand conditions are improving on the margin, they will still take a long time to recover to where they were before the virus crisis. Investment is picking up, domestic consumption improving and external demand is less bad than it was” said Chang Shu, analyst at Bloomberg Economics. The question, of course, is how much time.

In Zhenjiang, Jiangsu province, Melissa Shu, an export manager for an LED car lighting factory, said although orders are steadily improving, there’s no sense of urgency from her clients and the outlook remains uncertain. “We’re just making goods slowly,” Shu said. “We are worried about the coming months.”

* * *

As Bloomberg speculates, some producers may be hoping for a real-life enactment of Say’s law, a part of economic theory which suggests that ultimately supply will create its own demand, as long as prices and wages are flexible, although in China where every datapoint is manipulated and fake, nobody really knows what the current state of the economy is.  Various real-time indicators continue to pain a mixed picture.

Another scenario proposed by UBS is that industry self-corrects adversely. The bank’s chief China Economist Wang Tao points to strong steel production during the depths of the coronavirus lockdown, even when demand was weak. Higher inventories means that even as demand recovers, steel production won’t show much of a pick up. And once producers know that orders are falling, they will adjust output.

“I do not think supply will outstrip demand for long – once inventories build up, or producers know orders are falling, production will come down as well,” she said.

Should unemployment continue rising, that could trigger a very messy feedback loop. Premier Li Keqiang in a press conference on Thursday highlighted job creation as a critical priority for the government. The urgency to create jobs may mean there’s even less likelihood of a shake up of state owned companies in the heavy industrial sectors that have historically fueled excess production. It also means that even more ghost cities may be coming.

The disconnect is already clear in data points that show, for example, stronger coal consumption by power plants and rising blast furnace operating rates by steel mills, while at the same time gauges for property and car sales are improving more slowly. That combination, according to Bloomberg, will drag on China’s growth over the coming months, according to economists at Citigroup.

The problem for China’s industrial sector is that it really needs both local and global demand to be strong. If both are weak, and only the government is “injecting” support, it’s a dire outlook. But if local demand recovers and global demand doesn’t, there are still problems.

The best summary of China’s “big problem” came from Viktor Shvets, head of Asian strategy at Macquarie Commodities and Global Markets: “At the end of the day, China’s economy is driven by demand and right now there is no demand,”

A scenario where manufacturers capacity originally dedicated to the export market is retooled to produce for the home market instead would still lead to overproduction. Then the supply-demand mismatch would end up adding to deflationary pressures and a pose fresh headwinds to economic growth, according to Bo Zhuang, chief China economist at research firm TS Lombard.

For now, China’s factory owners are hoping that won’t happen but their optimism is waning fast.

Grace Gao, an export manager at Shandong Pangu Industrial that makes tools like hammers and axes – around 60% of their goods go to Europe – is seeing orders come in as her clients get up and running again. But even as things pick up, Gao remains hesitant to call a full recovery. “Our clients are facing unprecedented problems,” she said. “It’s still hard to estimate when we’ll get back on our feet.”

ZeroHedge News

“We’re All Suspects Now”: A Look Inside The NSA’s New “Contact Chaining” Tool

“We’re All Suspects Now”: A Look Inside The NSA’s New “Contact Chaining” Tool Tyler Durden Sun, 05/31/2020 – 22:00

Submitted by Simon Black of Sovereign Man

New book explores NSA’s “contact chaining” tool

What happened:

We all know Edward Snowden revealed that the NSA collects and stores massive databases of information on Americans’ phone call and text metadata.

But then what? Most people think it sits on ice until and unless an alphabet agency like the FBI, CIA, or DHS wants to dig through it.

In reality, it is processed into a detailed map of your social contacts, constantly updating with new data.

Everytime you make a phone call or send a text, a new piece of data enters the government’s hands, and they update the map of your social contacts.

A new book explores the “contact chaining” tool, which is an essential second piece of the collection and storage of mass metadata.

What this means:

This tool allows the NSA to play “six degrees of separation” to connect you to almost anyone.

They call it “contact chaining,” as in, determining who you are linked to. They know better than us who is in our inner circle, who are our casual contacts, and who is a friend of a friend.

This is so much broader than the government seeing when you sent a text. They can map out your entire social life.

And as coronavirus “contact tracing” comes into effect, it would be wise to remember just how dangerous it is for the government to have such detailed information on all Americans.

Everyone is being investigated, before they are ever suspected of committing a crime. We’re all suspects now.

* * *

Ohio judge blocks state from enforcing lockdowns against gyms

What happened:

A week before the Ohio lockdown order was lifted, two dozen gyms that sued the state won the first round of the lawsuit.

A judge placed a preliminary injunction against the state, saying police and officials cannot enforce the lockdown orders against the gyms. Gyms could reopen, without threat of legal consequences.

The judge said government officials relied on faulty legal reasoning to say they had the authority to close down every gym in the state for two months.

The government’s powers to quarantine and isolate applies to individual instances. It cannot be used as a wide net to encompass every business and individual across the state, regardless of their coronavirus status.

What this means:

The governor said he didn’t “think it’s a big deal” since gyms were set to reopen less than a week after the ruling anyway.

That is tone deaf, as many politicians are at this point.

They have destroyed countless businesses with their authoritarian orders. So it is a big deal when courts strike them down.

Maybe governments won’t be able to overreach so far next time.

* * *

Judge rules FBI can’t even look at your phone’s lock screen without a warrant

What happened:

When police arrest a suspect, they inventory personal items like a cell phone.

During the process of powering down a phone, it is reasonable for law enforcement to see the phone’s screen.

That had already happened in this case.

But then an FBI agent went to the evidence locker, took out the suspect’s phone, and powered it on. The specific purpose was to gather evidence from the phone’s lock screen– the display that shows up before entering a passcode to access the phone.

But the FBI agent did not bother asking a judge for a warrant. And that made it an illegal search under the Fourth Amendment protections against unreasonable search and seizure, according to a judge.

The evidence was thrown out.

What this means:

When we are so used to the government doing whatever it wants, and not facing any consequences, little victories like these are encouraging.

There is a reason the Constitution attempted to restrict law enforcement and government powers when it came to the rights of the accused.

Otherwise, it is far too easy for the government to go digging around for a crime, without ever suspecting one in the first place.

And with the number of petty laws and victimless crimes out there, we are all guilty of something

ZeroHedge News

Smith: Why The Public Should Rebel Against Forced Vaccinations

Smith: Why The Public Should Rebel Against Forced Vaccinations Tyler Durden Mon, 06/01/2020 – 00:00

Authored by Brandon Smith via,

The debate over the morality and practicality of forced vaccinations has been raging for many years, long before the coronavirus ever hit the US population. With the advent of the pandemic the narrative has shifted to one of “necessity”. The media and the majority of governments around the world now act as if mass vaccinations are a given; the “debate is over”, as collectivists like to say when they are tired of having to deal with any logical or factual complaints.

In the case of the novel coronavirus there is no vaccine yet; unless of course the virus was engineered or evolved in a lab (as more and more evidence is suggesting), and then perhaps there is one already developed. Typically, vaccines take years to test and produce, and whenever a vaccine is rushed onto the market very bad things tend to happen.

The vaccine debate often revolves around the issue of safety. Is a particular inoculation safe or poisonous? Does it have long term effects that are dangerous? Does it harm children with highly sensitive and underdeveloped body systems?  These are valid concerns, but ultimately the fight over vaccines has less to do with medical safety or effectiveness and more to do with individual rights vs government demands.

In other words, the more important questions are:  Should social engineering by governments and elites be allowed? Do people have the right to determine how their bodies are medically augmented or manipulated? Does the “security of the majority” take precedence over the civil liberties of the individual?  And if so, who gets to determine what freedoms will be taken away?

The Legal Argument

The purveyors of the forced vaccination philosophy usually make a legal or technical argument first before they appeal to the idea of “the greater good”.  They do this because they know that public perception often assumes (wrongly) that legal authority is the same as moral authority.

In 1905, the US Supreme Court was presented with Jacobson vs. Massachusetts, a case involving the subject of state enforced smallpox vaccination. The defendant argued on the grounds of the 14th Amendment that his bodily liberty was being violated by the state if he was subjected to arbitrary vaccination without his consent. The state and the Supreme Court felt differently (of course). The Supreme Court ruled against Jacobson on the grounds that his refusal to take the vaccine put other people “at risk”, and that “for the common good” states have certain “police powers” that supersede personal liberties.

Whenever liberty movement activists argue against forced vaccinations on constitutional grounds, THIS is the counter-argument that the government and statists will make. They will bring up Jacobson vs. Massachusetts and then claim that is the end of the discussion.

Essentially, the Supreme Court argued that the federal government could not interfere with state imposed forced vaccinations on the grounds of states rights and the 10th Amendment. Most people in the liberty movement will find this rather ironic, as it is bizarre to hear about the federal government defending states rights. But, this support of the 10th Amendment is highly selective.

First, let’s not forget that the Supreme Court has been wrong many times in the past. In the Dredd Scott case in 1834, the Supreme Court ruled in favor of slavery and the right of states to enforce the institution. They also argued that the 5th Amendment protected slave owners because freeing slaves meant depriving owners of their “property”.

The Supreme Court’s habit is to defend states rights and the 10th Amendment when people’s individual liberties are being quashed. However, if a case involves states protecting citizens from federal intrusion, the court flips and attacks states rights when they work in favor of individual liberty or self determination.

The Jacobson  vs. Massachusetts case may be the reason why Trump and the federal government have mostly left the lockdowns and emergency actions to the states.  The legal precedence was already established in 1905 on quarantines and forcing vaccinations through state police powers, so it only follows that the establishment would utilize the states to carry out such measures in the near future.

The “states vs federal government” debate sets up a false paradigm. There is no separation between state and federal governments when it comes to tyranny – both sides love it, though they pretend to be opposed to each other at times. That is to say, whether it is the federal government violating your constitutional rights or the state government violating your constitutional rights, the Supreme Court is often comfortable with both.

The truth they don’t want to discuss is that at bottom the Bill of Rights overrules them regardless of federal precedent or the 10th Amendment. The key to the Bill of Rights is that each American citizen has INHERENT LIBERTIES that supersede both federal and state power. These rights are inalienable. They cannot be violated today, and the law cannot be adjusted to violate them tomorrow. These rights and freedoms are ETERNAL.

The Supreme Court hisses with a forked tongue about the “spirit of the constitution” but ignores the clear and concrete intent as stated by the Founders. Statists argue in favor of the “living document” philosophy when it suits them as a means to change the original meaning and laws put forth in the Bill of Rights because this allows them to violate citizen freedoms under the guise of “legality”. But “legality” is not the same a morality. Legality is meaningless, and the Supreme Court is meaningless if it acts against the constitutional bedrock of the Bill of Rights and individual liberty as they have done numerous times in the past.

The Moral Argument

So, if we cannot rely on legality to protect us from state tyranny, what can we rely on? Forced vaccine advocates will say that morality is on their side as well, for if a person does not vaccinate they are putting the rest of society at risk of infection. Therefore, your individual rights must be violated in order to protect the rights of the rest of society. The problem is that Jacobson vs Massachusetts makes no logical argument supporting this assertion, and neither do forced vaccine proponents.

Look at it this way: How can a person that is not vaccinated “harm” people that are vaccinated? How are they putting those people at risk? If the vaccine actually works, then vaccinated people are safe from infection, aren’t they? So, the only person “at risk” is the person that chose not to vaccinate. This comes down to personal choice, there is no question of “the greater good” or social risk.

I find it fascinating that the people that argue fervently in favor of forced vaccinations (people like Bill Gates) also tend to be the same people that argue in favor of abortion rights.  So, “my body my choice” is acceptable when it comes to women ending the lives of unborn children, but “my body my choice” is not acceptable when it comes to mass vaccinations even though an unvaccinated person is a threat to no one.

Some vaccine advocates will then claim that unvaccinated people could be host to “mutations” that threaten herd immunity. The problem is that there is no evidence to support this argument. The vast majority of viruses tend to mutate into LESS deadly or infectious strains, not more deadly. The only mitigating factors would be if a virus was deliberately designed or engineered to mutate in an unnatural manner.

If a virus is designed to mutate into a vastly different and more deadly strain that can attack vaccinated persons then the vaccine was never useful to begin with, and forced vaccinations are pointless. Once again, if the vaccine is effective then there is simply no basis for the position that an unvaccinated person puts vaccinated people in danger.

The Conformity Argument

The next argument by pro-forced vaccination people is to ask “why”? Why do you care if you are vaccinated? What do you have to worry about? Just go along to get along, right…?

This argument reminds me of a common anti-gun narrative: Why do you need to carry a gun? Why frighten other people? The chances you will need it are slim, right…?

The most important answer to the gun question is “Because it’s my right to carry and I plan to exercise it. Also, your fear of guns does not take precedence over my constitutional freedoms.” The same goes for forced vaccination: Because it is my right to refuse to have ANY pharmaceutical product injected into my body. Your fears of infection do not matter to my constitutional rights. If you want to take the vaccine then that is your choice. Leave me out of it.

Arguing about hypothetical threats is a waste of time. I carry a firearm because I have the right to have a means of defense just in case I need it. I refuse vaccinations because I have a right to avoid potential bodily harm just in case I have suspicions of a faulty product.

And is there reason to be concerned about faulty vaccines? Absolutely. Mass vaccinations programs that were rushed to the public have a track record of harming people’s health.

With globalists like Bill Gates, an obsessive champion of depopulation at the forefront of the Covid-19 effort, I have no plans to accept any coronavirus vaccine. Bill Gates has funded numerous experimental vaccine trials through the World Health Organization, including Polio vaccination programs.  It was these same programs that led to viral outbreaks of polio in various countries and hundreds of paralyzed children. In fact, the vaccines caused more cases of Polio than the wild-type virus. This if VERIFIED FACT, admitted by the WHO and other mainstream sources, though numerous leftist media outlets continue to deny it.

At most, the WHO and Gates can claim that the infections were “accidental”. But if this is the case, it would still suggest that vaccines developed by Gates Foundation programs and the WHO should not be trusted.

In 1976 a swine flu scare enabled the initiation of a government funded mass vaccination program. The vaccine was faulty and was canceled in less than 10 weeks after causing hundreds of cases of Guillain-Barre syndrome, a rare neurological condition that leads to temporary paralysis and sometimes death.

In 2008, Swiss company Novartis tested a Bird Flu vaccine on the homeless and poor population of Poland. The vaccine trial paid participants $ 2, and they were told the inoculation was for the “normal flu”. According a homeless center in the area at least 21 people died right after they participated in the trial.

A GlaxoSmithKline executive by the name of Moncef Slaoui was recently tapped by Donald Trump to head up the government’s effort to develop a coronavirus vaccine. This appointment should be highly concerning to the public. Why? Because Glaxo has a dark history in vaccine development, including an incident in Argentina in 2007-2008 when they were fined after a pneumonia vaccine trial allegedly caused the deaths of at least 14 babies. Slaoui was in charge of Glaxo’s vaccine division at the time.

Statists that argue in favor of forced vaccination will dismiss all of these examples as mere “accidents” that are “rare”. Others will claim that fighting the pandemic is worth the risk of a “few deaths” due to some faulty vaccines. But this does not address the core issue of the battle against forced vaccination programs.  Does a minority of elites in government or even a majority of useful idiots in the general population have the right to declare ownership of your body in the name of an arbitrary “greater good”?  I say no, which is why I will NOT be conforming to any forced vaccine measures and I am willing to take extreme actions to defend myself from them if necessary.

As mentioned above, if a vaccine works, then there is no need to force people to take it. It will protect those that want it and the only risk is to those that choose not to use it. Frankly, the people in charge of the vaccine effort are not to be trusted, they have open ideological agendas that are questionable to say the least. Allowing them to dictate what goes into our bodies is akin to slavery at best, and possible mass death at worst.

*  *  *

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Plastic’s Back! COVID Contamination Concerns Crush California’s “Green” New Deal

Plastic’s Back! COVID Contamination Concerns Crush California’s “Green” New Deal Tyler Durden Sun, 05/31/2020 – 23:30

Disposable plates, silverware, and straws are making a comeback in California. New guidelines issued by the CDC recommend restaurants use plasticware by default as a way to limit the spread of the virus upon reopening. 

Environmental groups have become infuriated with the new recommendation, as it now means all their hard work to ban plastic straws and push a “Green” New Deal could come to an abrupt end (maybe temporarily) because according to the CDC, throwaway dishes, utensils, napkins, and tablecloths could reduce virus spread.

California recycling and clean water groups recently delivered a letter to Gov. Gavin Newsom, questioning how exactly plasticware diminishes the probabilities of contracting the virus and also accused petrochemical companies of “trying to influence CDC guidelines for reopening food establishments in their favor.”

“The idea that the CDC recommends that single-use disposable items should be preferred seems a little illogical to me,” Chris Slafter, interim coordinator of Clean Water Action’s ReThink Disposable program, which provides grants to restaurants and advises them on how to transition and replace plasticware to more sustainable products, told Politico. “Someone still has to handle that item before it goes into a customer’s hand.”

In pre-corona times, California and its green activists led the way in eliminating plastic straws and other petroleum‐based plastics from the restaurant industry as they have long criticized the items eventually end up in the oceans, polluting and killing wildlife. 

We recently noted that microplastics have also ended up in human stool. 

Now, in post-corona times, with California’s restaurant industry crashed (according to OpenTable data from late May), eateries that have been opened with carryout only and ones that have just fully reopened, have turned to plasticware over the CDC’s new sanitary guidelines. 

OpenTable restaurant data through the end of May

Restaurants in other states have also followed the new guidelines with the switch to disposable menus, plates, silverware, etc. 

However, Stanford University epidemiologist Steven Goodman does not see a difference in plasticware from regular plating, in terms of reducing virus spread, as he notes, there’s still human staff behind the scenes making the food.  

“It doesn’t sound like there should be a big difference if they’re handled carefully,” Goodman said. “Washing the plates well should get rid of [the virus], and so the only difference could be how they’re handled between the time when they are on the table and in the sink or in the washing machine.”

Sharokina Shams, the California Restaurant Association’s vice president of public affairs, told Politico in an email response that “many of the current local public health orders (which are a response to the coronavirus pandemic) do put an emphasis on single-use products, and cities have been moving to suspend the ban on plastic bags.”

“It’s also interesting to note that the number of delivery and takeout orders went up during stay-at-home/shelter-in-place orders. If that becomes a long-term pattern, you may see the demand for single-use products rise,” said Shams. 

And just like that, who would’ve ever thought California’s green movement would get derailed by a virus. 

ZeroHedge News

The Question Of Evidence When Governments Push Political Narratives

The Question Of Evidence When Governments Push Political Narratives Tyler Durden Sun, 05/31/2020 – 23:00

Authored by Kevin Smith via,

In the last 30 years, there have been many big events which have been questioned. Iraq is the classic example of where a relative few questioning the pretext of that invasion (Weapons of Mass Destruction – WMDs) were insulted and smeared but later vindicated.

Today, in the background of the risk of world conflict and threat to health and our way of life arising from Covid-19, it’s never been more important to be sceptical and understand evidence.

Earlier in my career, I used to adjudicate financial disputes between two parties, weigh up the evidence, and decide the most likely scenario.

So, in terms of what’s going on in the world, I’m interested in narratives which are open to challenge and the thinking and motives of those in power, the media, and experts behind them. And particularly how the public watching and listening process these messages.

First, before reading on, watch this clip, which I think is hilarious and vaguely relevant to what I’m going to say:

For those not familiar with the actors, this was a press conference held by Eliot Higgins of Bellingcat in 2018. Bellingcat is an Atlantic Council-funded online investigative website which has looked into the shooting down of the MH17 passenger plane, alleged chemical attacks in Syria, and the Sergei Skripal incident.

Graham Phillips, who crashed the event, is an independent UK journalist. He was there to ask Higgins what evidence he had for concluding Russia was responsible for the Skripal incident.

Someone unfamiliar with the background watching the clip might view Phillips as an amusing but disruptive, perhaps even unhinged, character who should have been escorted away by the police sooner.

Yet appearances can be deceiving. Those aware of Bellingcat, Higgins, and their highly suspect investigations, will know that the some of the questions Phillips was posing about the evidence for Skripal were pertinent.

Secondly, many people think they are not qualified to research or question the politics or science behind government decisions.

I can understand people with busy lives accepting narratives about events in far-away parts of the world. But Covid-19 should really change that given the impact that lockdown may have on our lives for years to come.

This is what Lord Sumption, former member of the English Supreme Court, said about Covid-19 on BBC Radio 4 recently:

What I say to them is I am not a scientist but it is the right and duty of every citizen to look and see what the scientists have said and to analyse it for themselves and to draw common sense conclusions.

We are all perfectly capable of doing that and there’s no particular reason why the scientific nature of the problem should mean we have to resign our liberty into the hands of scientists.

We all have critical faculties and it’s rather important, in a moment of national panic, that we should maintain them.

Lord Sumption is right. I often didn’t have expert knowledge of the area I was adjudicating on. It wasn’t necessary as we would rely on expert evidence, typically independent or from two sources. What I did was just weighing up information — an ability most of us have when applying ourselves.

Evidence comes in many forms: testimony, circumstantial, documents, and research or expert studies.

Below are some established concepts of assessing evidence as well as some pointers about the reality of today’s global scene that’s relevant when reviewing sharply conflicting narratives.


This is a good initial indicator. Similar to detectives investigating a murder, they will be guided towards a suspect who has a criminal record.

In the case of Western governments, their advisors, and media, a look at their previous record on a whole range of important issues will show they’ve been wrong.

However, we should be mindful that just because they’ve always been wrong, that it doesn’t follow they are this time around.

For example, based on their past track record, we should certainly view governments’ response to Covid-19 with scepticism initially and ask questions. The information which flows from this and other material will make up the main body of evidence.


Taking Covid-19 as just one example, it amazes me when someone says, “you seem to think lockdown is not necessary, it states on the news that it’s working, so what proof do you have that it isn’t?”

I probably don’t need to elaborate on this lazy thinking except to say that the onus is on those who assert to prove. So, the duty is on the government to show that lockdown is working by directly reducing infection, and most importantly, is necessary in the big scheme.

The media is a main channel to communicate such evidence, but statements of “we don’t know” or “it’s too early to tell” or “trust the science”, contradictions, and scare stories have been typical of the entire Covid-19 response.

Meanwhile, many sceptical experts and independent commentators have brought much to the table in terms of scientific studies and the questioning proportionality of lockdown measures.

The sceptics as yet have not had the same air-time to put forward their case. But people need to remember that the government has not discharged the onus of proof over Covid-19, and historically, rarely do over other events.


We go back again to our detectives. Who has most to gain from pushing a certain narrative? With Iraq, there were clear agendas in Washington to go to war, so much so that stories appeared in the press of links between Saddam Hussein and Al Qaeda. When this nonsense was dismissed, we moved to the threat of WMDs. We went to war out of a determination by Bush and Blair.

Today, I believe that the UK government is realising their lockdown response was driven by blind panic after receiving incorrect advice on potential mortality rates from their scientists.So, their main motive now is to prevent an angry backlash against the damage caused by lockdown.

Mixed up in all events from Iraq to Covid-19 are the combined interests of numerous parties such as NATO-funded NGOs and investigative sites such as Bellingcat, career journalists, arms industry lobbies, and big pharma. These vested interests include money, career advancement, power, and ideology.

For example, in deciding whether to get involved in Syria, selfish interests worked together. This is why one war after another has been a disaster.

Independent journalists and activists don’t generally have the same motivations and therefore their opposition to their government’s Syria policy is based on the horror of the destruction and threat to world peace.

Thus, understanding the main players and their motives is crucial to understanding evidence.


I recall when adjudicating disputes, the lengths one party would go to, to mislead or pressurise me.

The government, in pushing the narrative of the day, is no different, and has many tools in its armoury, not least a compliant media.

Blaming others, dumbing-down debate, and distracting their audience towards less important issues are classic tactics. For example, when the Covid-19 debate should be about whether lockdown is proportional and necessary, the media focus on scare stories, lack of equipment for health service staff, and blaming China.

The government and media also build a ‘unifying’ theme, encouraging weekly clapping for health workers and constant TV adverts telling us to “stick together to see it through”.

But the mask slips when dealing with the dissenters. Heavy-handed policing of lockdown and outright censorship of those who question the necessity for lockdown, even extending to the views of respected but non-government experts.

Twitter mobs sucked into the frenzy of fear and the new ‘unity’ emerge to smear and insult those questioning the government position.

These tactics have been used prior to every war and during every crisis, only for the narrative to later collapse.

A sign that these people are wrong is that if their position had merit, they wouldn’t censor and would debate.

One of their tactics is to label anyone who questions the prevailing narrative as “conspiracy theorists”. Unfortunately, some dissenters, rather than stick to the position that the government has serious questions to answer, go on to speculate and develop theories which can’t be proven. This provides the opportunity for those pushing official narratives to dismiss powerful arguments based on one error or supplementary theory.


I know from experience that experts are often wrong — possibly due to a bias, an under- or over- emphasis on certain evidence, a method, or an inability to think a little outside of their field. The results can be seen in all professions, for example, in miscarriages of justice and the experts which advised governments on WMDs, chemical weapons use in Syria, and Covid-19.

As such, the government messages of “trust the experts” should be treated with caution.

[Especially when they are selective about who qualifies as an “expert”, and ignore prominent figures who disagree – ed.]


We all have conscious and unconscious prejudices or accepted viewpoints based on peer pressure. One example which comes to mind is among some even in alternative media circles. They say, “Assad is a brutal dictator, but didn’t gas his people”.

They’ve looked at the evidence to establish the latter, but have unconsciously swallowed the unsubstantiated media propaganda on Assad as a person.

Peer pressure, pre-determined positions, and ideology are barriers to independent thinking. But just being mindful of these pitfalls when reviewing evidence helps to get to a more open-minded mindset.


To those who’ve researched and studied evidence and applied this to global events, it’s apparent that mainstream thinking at all levels doesn’t resemble the reality. Nowadays, a mainstream position on the most important events can be ripped to shreds.

Covid-19 and lockdown are by far the biggest event which has affected all our lives. Therefore, I’d expect the important questions about the real risks and proportion to gather pace.

In the meantime, we should spend the time in lockdown looking at the evidence in the round.

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As China Fumes Over Trump’s “Gross Interference” In Hong Kong, Here Are 6 Things It Can Do In Retaliation

As China Fumes Over Trump’s “Gross Interference” In Hong Kong, Here Are 6 Things It Can Do In Retaliation Tyler Durden Sun, 05/31/2020 – 22:30

Following Trump’s Friday announcement of watered-down measures against China and Hong Kong, which included stripping Hong Kong of some of its privileged trade status as a result of Beijing’s crackdown on the island and threatening to kick out select Chinese students but falling well short of a “nuclear option” including sanctions on individuals and institutions and the expulsion of Chinese banks from SWIFT, Hong Kong’s government said actions threatened by President Donald Trump are “unjustified” and repeated that China is within its “legitimate rights” to pursue new national security laws that Beijing says will help quell months of unrest.

The People’s Daily, the official mouthpiece of China’s Communist Party, wrote that the plans outlined by Trump at the White House on Friday were “gross interference” in Beijing’s affairs and were “doomed to fail.” In a second commentary published Sunday on its front page, the newspaper accused the U.S. and Western politicians of “double standards” and “shameless hegemony” for their criticism of the legislation. Meanwhile, China’s ambassador to the U.S. wrote in a Bloomberg Opinion editorial that the central government has the ultimate responsibility for upholding national security in Hong Kong, and that the proposed legislation “will protect law-abiding citizens.”

And while Trump was widely seen as conserving ammo for future potential escalations, the market stormed higher on Friday amid optimism that the US president does not intend to pursue a more aggressive response over China’s de facto take over of Hong Kong. In fact, officials from Hong Kong wrote in a 949-word statement that they’re “not unduly worried” about the sanctions and trade restrictions proposed by Trump.

Hong Kong will continue to rely on rule of law, judicial independence, and a free and open trade policy, according to a statement issued Saturday evening local time.

The proposed legislation “does not give rise to fears of the loss of liberties by its people that will warrant international debate or interference by another country” and such fears are “simply fallacious,” the Hong Kong government said in its statement.

“We note with deep regret that President Trump and his administration continue to smear and demonize the legitimate rights and duty of our sovereign to safeguard national security in the Hong Kong Special Administrative Region which in turn is aimed at restoring stability to Hong Kong society,” the statement said.

Cui Tiankai, China’s U.S. ambassador, wrote on Saturday that Hong Kong was “a romantic fusion of the East and the West.”

“To our regret, such romance is evaporating,” the envoy wrote. The violent actions of protesters against police, citizens and property there there had crossed “a red line” for Beijing, he said. “Hong Kong is in disarray. China’s national security is at risk. That is why the central government has chosen to act.”

China’s rubber-stamp legislature on Thursday approved a proposal for sweeping new national security laws for Hong Kong, but it could take Chinese officials months to sort out details of laws banning subversion, secession, terrorism and foreign interference.

Meanwhile, the People’s Daily again underscored that China would be firm in responding to any U.S. moves, without specifying what actions Beijing might take. In Sunday’s commentary it said the proposed legislation is a rightful move to defend China’s sovereignty and compatible with international practice.

* * *

So what actions might Chinese policymakers take to deter these shifts in US policy, or in response to them?

According to Goldman’s economist Alec Philips, Chinese policymakers will take a somewhat reactive stance to US criticisms and demands on trade and other issues, at least publicly, in an effort not to escalate tensions. However, the forcefulness of the response could vary depending on how closely US actions strike at China’s strategic interests, and whether practical retaliation options exist that appear proportional and do not escalate frictions. For trade issues, the 2018-19 playbook of imposing retaliation only after the US has actually changed policy, and even then responding proportionately or slightly less than proportionately, will likely remain in force. Some possible retaliatory actions from Chinese policymakers in trade and other areas could include:

  1. Trade sanctions or tariffs on US exports. This particular Chinese response seems most likely in the event of a phase 1 deal breakdown. This was China’s response of choice during the trade war, although the scale of the response was typically less-than-proportional, reflecting both a desire to limit escalation and the smaller amount of US exports to China. If the trade deal were to break down and the Trump administration increased tariffs on China, expect to see a Chinese response of this type. (In theory, China also could conceivably impose formal or informal constraints on Chinese buying of US goods or “service exports” e.g. limit tourism or the flow of students studying in the US, as we have seen occur with some other regional trading partners in the context of political frictions–e.g. Chinese group tourism fell off sharply in Korea in 2017. However, such a response would have little impact at present given that tourism and international education have collapsed amid COVID-19.) It is doubtful that tariffs would be used as a response to other US actions beyond trade.
  2. Actions against US companies operating in China. US sanctions on Huawei recently expanded to include foreign companies selling a “direct product” of US technology, e.g. semiconductor chips made using US equipment. In response, Chinese policymakers might take actions unfavorable to US firms in China. These could include regulatory measures that complicate or prevent operation of a business. Chinese policymakers originally mooted the concept of an “unreliable entities list” about a year ago in the context of sanctions on Huawei and other Chinese companies; though it is unclear precisely what the consequences of being labeled “unreliable” would imply, presumably it would be very detrimental for sales within China. Retaliating in this way is not without cost: it could undermine policymakers’ efforts to present China as an attractive investment destination. It would also be outside WTO norms and could undermine China’s case for relief in that body.
  3. Export restrictions. Another possible response to US sanctions on particular companies, or other US actions constraining supplies to China, could be restrictions of Chinese exports to the United States. Rare earth minerals have been frequently cited in this context. China is a dominant supplier and substitution using other materials is difficult, so if China were to decide to restrict exports of rare earths to the US the effect could be significant. Indeed, Chinese state media threatened supply restrictions on rare earths following the initial round of sanctions on Huawei last year. That threat has prompted the US government to take measures to develop rare earth production and refining capacity in the United States. Another very sensitive area could be medical equipment and supplies, which are in great demand around the world given the coronavirus crisis, and where the US sources significant amounts from China. But the perception issues around curtailing supplies in this area would be significant, and third countries could potentially re-route such goods to the United States.
  4. Exchange rate depreciation. Chinese policymakers could choose to more readily accept currency depreciation, or even take active steps (such as weaker USDCNY fixings) to encourage it. Currently, the CNY is trading near multi-year lows against the USD but at more moderate levels against the CFETS currency basket…

    … reflecting broad USD strength. In recent days, policymakers have signaled moderate resistance to further depreciation by setting the daily USDCNY fixing stronger than other factors would imply.

    Currency weakness might help exports on the margin, but could also intensify capital outflow pressures; although policymakers appear to have quite good control of the capital account following the chastening experience of volatility in 2015-16, their appetite for experimentation in this area is likely limited. We think the chance of an engineered depreciation is very small, though policymakers would likely accept some modest depreciation if tensions continue to intensify, especially if there were a breakdown in the trade deal or a major increase in capital outflow pressures.

  5. Large-scale sales of US asset holdings. At times of friction, the notion that China might sell its large holdings in US government securities as retaliation for trade actions surfaces in media commentary. (The latest Treasury International Capital data show Chinese holdings of $ 1.08 trn in US Treasuries as of the end of March, which are almost entirely from the official sector as China holds roughly $ 3 trn in FX reserves; in addition, agency holdings are on the order of $ 200bn and there could be additional assets held via custodians in other countries). For their part, US policymakers seem to have briefly entertained, but quickly discarded, the idea of trying to extract payment for damages related to the coronavirus from China’s holdings of Treasury debt. Here Goldman views disruptive actions by either the US or China in this area as unlikely. Abrupt large sales of Treasury securities or other US assets could tighten financial conditions well beyond the United States, so would appear an unattractive approach for Chinese policymakers for both political and economic reasons. However, a gradual reduction of US securities in the portfolios of SAFE and CIC is certainly a possibility-as overall reserve assets have been essentially flat, and the portfolio appears overweight US assets relative to trade weights. In fact, Chinese holdings of US debt have been unchanged for years, and while China is not dumping its TSY holdings, it certainly isn’t adding to them. Chinese policymakers might also choose to reduce the duration of their government securities holdings, which at least on the margin would push up long-term interest rates. Having said that, even a meaningful re-weighting of Chinese official assets out of US securities (say 5% of China’s total reserve assets per year or $ 150bn) would be small in comparison to the recent ramp-up in asset purchases by the Federal Reserve.
  6. Change in stance on geopolitical issues of concern to the United States. President Trump has in the past linked trade policy to foreign policy in his comments, for example in the case of China’s cooperation in managing North Korea’s nuclear ambitions. For example, in December 2018 he explained “I have been soft on China because the only thing more important to me than trade is war…If they’re helping me with North Korea, I can look at trade a little bit differently, at least for a period of time. And that’s what I’ve been doing. ” More generally, Chinese policymakers could choose to be more, or less, helpful in regard to geopolitical issues of interest to the United States as US policies towards China change. This sort of cooperation would presumably be evident to the intelligence community and senior US policymakers, but not necessarily to markets or the general public.

ZeroHedge News

Stocks Dancing On Deck For Titanic U.S.-China Clash

Stocks Dancing On Deck For Titanic U.S.-China Clash Tyler Durden Sun, 05/31/2020 – 22:00

Authored by Bloomberg macro commentator Garfield Reynolds

Complexity is causing global investors to underprice the danger from U.S.-China confrontations over Hong Kong. Far from being just a regional issue, the world’s two largest economies are sliding toward a more markets-negative showdown than anything we saw in the first three years of Donald Trump’s presidency.

Global stocks are trading as though this round of tensions will be resolved in a similar fashion to the 2018-19 trade conflict. Even though that caused plenty of damage to the world economy, there were limits to the field of battle. And as the phase-one trade accord showed, a fudged resolution was possible. The market reactions were obvious despite the confusing ebb and flow of the underlying story – more tariffs meant lower stocks and yields, fewer tariffs the reverse. The yuan predictably weakened sharply when the tariff threat escalated in May/June 2018 and again in the summer of 2019.

This year’s geopolitical cage-match has the potential to develop into a winner-takes-all affair, as the superpowers spiral into a Thucydides trap.

The always-difficult task of pricing in the risk of an extreme outcome is further complicated by the backdrop of extraordinary stimulus and Covid-19. That may explain why, beyond H.K. assets, it’s only the yuan which seems to be showing a sustained reaction.

Trump’s mild China comments on Friday spurred a rebound in risk assets, but the longer-term outlook remains skewed to the downside, as witnessed by fresh rhetoric over the weekend.

There’s a real threat of the global economy splitting into competing camps, raising costs and cutting productivity across industries as companies are forced to diversify and duplicate supply chains while they balance politics and profits.

China accounted for almost a quarter of world economic growth this century and is central to sustained global rebound from the pandemic. Australia, Vietnam and South Korea stand out as Asian stock markets whose outperformance in May only makes them all the more vulnerable to a U.S.-China fallout.

  • AUD/USD and the S&P/ASX 200 are surging now as Australia flattens its Covid-19 curve, but their longer-term outlook is clouded by disputes with the nation’s biggest trading partner.
  • The Kospi is almost 40% above its March low, even as South Korean data remain dire. The U.S. and China account for ~40% of the country’s trade, and many of its semiconductor shipments to China go via Hong Kong.

U.S. equities will also be in the firing line. Some of the Chinese companies targeted by listing rules were key drivers for the Nasdaq’s recent surge. Wall Street banks may miss out on billions, while companies like Apple, Intel, Nvidia have strong China exposure. Nvidia gets more than half its revenue from Greater China; Apple’s supply chain is dependent on suppliers based in China, South Korea and Taiwan.

On a positive note, European assets will gain extra allure. The potentially game- changing moves toward fiscal unity on the continent are an attractive contrast to Washington and Beijing’s shift toward geopolitical confrontation.

Perhaps recent moves by both sides are just posturing and the story will fade away soon but the signs aren’t good. In just the past two weeks, China has shown an increased willingness to challenge the U.S., Australia, India and others on a diverse array of issues. On the U.S. side, China-bashing has bipartisan support in the context of November’s election.

The market impact to the latest iteration of U.S-China tensions is far more complex to analyze than the damage from the trade war. Investors are wrong to mistake that for meaning it will be less damaging.

ZeroHedge News

The FAAMGs Are Up 15% In 2020; The Remaining 495 S&P Stocks Are Down 8%

The FAAMGs Are Up 15% In 2020; The Remaining 495 S&P Stocks Are Down 8% Tyler Durden Sun, 05/31/2020 – 21:33

One month ago, Goldman triggered a selloff in growth and momentum stocks, when it pointed out that  the five largest S&P 500 stocks, the FAAMGS (or MSFT, AAPL, AMZN, GOOGL, FB) have risen to account for 20% of index market cap, representing the highest concentration on record…

… resulting in the lowest market breadth since the tech bubble…

… and warning that “narrow market breadth is always resolved the same way” as “narrow rallies lead to large drawdowns as the handful of market leaders ultimately fail to generate enough fundamental earnings strength to justify elevated valuations and investor crowding. In these cases, the market leaders “catch down” to weaker peers.”

In short, as we wrote – somewhat jokingly – in April that “The Market Is Now Just 5 Stocks“, that’s precisely what has happened, with investors flooding into the buyback-funded momentum of the largest tech names …

… and creating the biggest “hedge fund/mutual fund/retail/momentum hotel” ever assembled in the FAAMGs. And here is an update to one of the most amazing statistics of 2020 from Goldman: YTD the 5 biggest stocks are up 15% while the remaining 495 S&P500 companies are lower by a collective 8%, with the overall S&P400 index is down 5% YTD (compare to four weeks ago here).

Here are Goldman’s comments on this bifurcation in the market:

The return of the S&P 500 index overstates the performance of the typical stock. The equity capitalization-weighted S&P 500 index has rebounded by 35% from its low and now trades just 11% below its all-time high. The index return since the start of the year is -6%.

The average stock has returned -13% YTD. The equal-weighted S&P 500 index trades 15% below the record high and has lagged the cap-weighted index by 650 bp this year.

The stellar return of the five largest stocks in the S&P 500 — MSFT, AMZN, AAPL, GOOGL, and FB — is the primary explanation for the large difference between the cap-weighted index and the average stock.

While the FAAMGs may grow further, there is a hard limit on just how much bigger they can get:

At 20%, the current aggregate index weight of the five stocks with the largest market caps is the highest in history, exceeding the previous peak of 18% at the apex of the Tech Bubble in March 2000. However, we are approaching the practical maximum concentration of 25% given most long-only portfolio managers have diversification requirements and individual stock position limitations of roughly 5%.

Incidentally, this historic bifurcation of the “market” into two sets of stocks is also why Goldman is skeptical about further upside:

Broader participation in the rally will be needed in order for the aggregate S&P 500 index to climb meaningfully higher. Goldman Sachs equity research analysts currently forecast just 1% upside for the cap-weighted group of the five stocks. The modest upside for the largest stocks means the remaining 495 constituents will need to rally to lift the aggregate index.

Luckily, there is nothing like a weekend of nationwide looting and violence to spark a broad-based market rally and push the policy tool formerly known as the S&P500 back to all time highs to convince everyone that nothing is fucked here.

ZeroHedge News

Where Is Ghislane Maxwell Now?

Where Is Ghislane Maxwell Now? Tyler Durden Sun, 05/31/2020 – 21:00

Authored by Gabrielle Bruney via,

Jeffrey Epstein is dead, but the accused pedophile financier is still surrounded by multiple mysteries. The source of his vast wealth still isn’t entirely known, nor have rumors that he may have trafficked women and girls to some of the world’s most powerful men been resolved. But one of the biggest lingering unknowns in the story is the status of Ghislaine Maxwell, Epstein’s longtime companion, who’s been alleged by Epstein survivors to have recruited young women and girls into the multimillionaire’s circle and participated in their abuse.

Maxwell has denied all accusations of being involved in abuse, and she’s never faced criminal charges. But it’s hard to know much more than that when it comes to her recent years, because no one knows exactly where she is.

“I’ve heard she’s in Brazil, I’ve heard she’s in France, I’ve heard she’s in California,” Lisa Bryant, director of the Netflix docuseries Jeffrey Epstein: Filthy Rich, told Esquire.

“Who knows where she is, really?”

Who is Ghislaine Maxwell?

Maxwell is the youngest of Elisabeth and Robert Maxwell’s nine children, and was born in France in 1961. The family lived in an English mansion, and her father was the founder of a media empire and served in Parliament. Maxwell attended one of the UK’s most exclusive boarding schools and then Oxford University. As members of British high society, Maxwell mingled with some of the nation’s most celebrated families, and became friends with Prince Andrew.

Her father died in 1991, after falling off his yacht and drowning. It’s been speculated that his death may have been a suicide, as on the day he died he was due to meet with the Bank of England over the matter of his being in default on millions in loans. After his death, the British media dubbed him the “crook of the century,” when it was revealed that he’d taken hundreds of millions of pounds from his employees pension funds. Maxwell told one news outlet after her father’s death that she felt he was murdered.

She moved to the United States the year of her father’s death, and soon met Jeffrey Epstein. The relationship marked a second reversal of fortunes for Maxwell, whose family lost much of its wealth after her father’s death. In 2000, she moved into a $ 4.95 million Manhattan townhouse purchased “by an anonymous limited liability company, with an address that matches the office of J. Epstein & Co. Representing the buyer was Darren Indyke, Mr. Epstein’s longtime lawyer.” She was his companion for years, managing his households and introducing him to her society friends

Maxwell and her father in 1984.

According to a lawsuit she filed this year in hopes of winning funds from the late financier’s estate, “While under Epstein’s employ, Maxwell was responsible for managing Epstein’s properties located in New York, Paris, Florida, New Mexico, and the U.S. Virgin Islands.”

“During the course of their relationship, including while Maxwell was in Epstein’s employ,” the lawsuit reads, “Epstein promised Maxwell that he would support her financially. Epstein made these promises to Maxwell repeatedly, both in writing and in conversation.”

However, a 2003 Vanity Fair profile of Epstein denied that Maxwell was an employee.

After Epstein’s 2008 conviction for soliciting prostitution from an underage girl, the two appeared to end their public association. In 2009, accuser Virginia Roberts Giuffre filed a civil suit against Epstein accusing him and Maxwell of grooming her into their alleged sex trafficking ring. However, Maxwell remained a fixture in New York society until around 2015. In 2012, she founded an environmental nonprofit called The TerraMar project, which folded in late 2019.

Epstein with Maxwell in 1995

Has she been charged with any crimes?

Though multiple survivors have alleged that Maxwell participated in Epstein’s alleged crimes, she’s never been criminally charged. One thing that could stymie potential efforts to level charges against Maxwell is the infamous 2008 plea deal that Epstein struck with the US Attorney for Miami, Alexander Acosta, which found him serving just 13 months in prison after initially facing charges that could have garnered him a life sentence. Jeffrey Epstein: Filthy Rich producer Joe Berlinger described the deal to Esquire as “unprecedented, unheard of sweetheart deal” that “included a non-prosecution agreement for named and unnamed co-conspirators.”

In April, an appeals court upheld the 2007 deal, writing in its opinion that the decision was “not a result we like, but it’s the result we think the law requires.”

Maxwell is currently suing Epstein’s estate for money for her legal fees, and for the price of private security, alleging that her “prior employment relationship” with Epstein has caused to her be subjected to death threats.

Maxwell at a 2016 event.

Where is Ghislaine Maxwell now?

Though once a fixture of the global high-society, Maxwell has been spotted rarely in recent years. Last summer, she was photographed at a Los Angeles In-N-Out Burger, though the authenticity of the photo has been disputed. Her New York townhouse was sold in 2016.

This month, it was reported that lawyers for accusers seeking to file a civil suit against Maxwell have been unable to locate her. According to ABC news, one alleged victim’s “legal team dispatched process servers to five addresses previously connected to Maxwell, including a multi-million dollar brownstone on Manhattan’s Upper East Side, an apartment building in Miami Beach and Epstein’s mansion on Palm Beach Island.”

Maxwell is also contending with other civil lawsuits filed by alleged survivors. Just this month, she won the right to delay her questioning in a suit filed by Annie Farmer, the sister of fellow Epstein accuser Maria Farmer, on the grounds that her testimony could be used against her in a current criminal investigation. But with the FBI allegedly investigating Maxwell, her story could be far from over.

ZeroHedge News

“The Dollar Is Out Of Stock Everywhere”: Hong Kong Money Exchangers Turn Away Clients Amid Run On US Dollars

“The Dollar Is Out Of Stock Everywhere”: Hong Kong Money Exchangers Turn Away Clients Amid Run On US Dollars Tyler Durden Sun, 05/31/2020 – 20:30

Even before protests over a controversial extradition bill sparked the tumultuous pro-democracy movement that swept across Hong Kong last year, the notion that the city’s freedoms were under threat, and that China would soon move to curtail them, had been gestating since the 2014 Umbrella Movement. Last Spring, before the movement began in earnest, Kyle Bass published a paper entitled “the Quiet Panic” about how Hong Kong was a ticking time bomb. A few months later, it exploded.

Over the past 16 months, expats haven’t been the only ones fleeing Hong Kong. Virtually everyone who can afford to move has at least considered the possibility of selling their once extremely valuable Hong Kong real estate and fleeing elsewhere, perhaps to New Zealand, or Australia, or Malaysia – or Taiwan, which is currently drawing up plans to welcome expats.

As we reported on Friday, as more prepare to move before China tightens its grip, Sing Tao, Hong Kong’s second-largest Chinese-language newspaper observed that Hong Kong residents have been exchanging more of their HKD holdings into foreign currencies at banks and money exchange counters on Thursday.

It got so bad that according to a follow up report from the SCMP on Saturday, the rush for US dollars forced money exchangers in Hong Kong to turn away hundreds of customers after running out of the currency amid fears the United States could end the city’s preferential trading status.

According to money exchange store owners, demand for the US currency surged this week after China’s legislature endorsed a resolution for its top legislative body to craft a tailor-made national security law for Hong Kong which would criminalize acts and activities of secession, subversion, terrorism and foreign interference.

In kneejerk response, HK residents – fearing the Hong Kong dollar could be unpegged from its US counterpart – rushed to convert their local currency into something they view as more stable: the US dollar.

Long lines promptly formed at money changers in a number of Kowloon districts including Tsim Sha Tsui and Sham Shui Po on Friday, as residents waited for shop operators to replenish their US dollar supply. Eric Wong Wai-lam, who runs Rich Bird Currency Exchange in Sham Shui Po, was forced to turn away 600 customers who wanted to convert their local banknotes to the US currency.

Queues formed at money changers in a number of Kowloon districts including at this shop in Tsim Sha Tsui; Photo: Edmond So, SCMP

“There will be no US dollars for exchange until next Tuesday or Wednesday,” he told customers, adding that his shop could only serve those who had previously placed an order. He explained that demand for the US currency had increased 10-fold this week, with more customers looking to switch large sums – hundreds of thousands or even millions of Hong Kong dollars – at a time.

“The US dollar is out of stock everywhere. We’ve offered every last bit of our supplies to our customers,” Wong said adding that residents also sought alternatives such as the pound, Euro and Australian dollar. “People will take anything you have,” he said.

As the SCMP further details, civil servant Mike Ma had hoped to change HK$ 35,000 (US$ 4,514) into US dollars, but had to make do with £1,000 (US$ 1,237) and NT$ 20,000 (US$ 666) instead. The 35-year-old British National (Overseas) passport holder said he had been keeping foreign banknotes since Hong Kong was gripped by anti-government protests last year, but had visited exchange stores more often this week because of uncertainties over the city’s economic future.

Kevin Chan, operator of an online shopping site, bought US$ 3,000 on Friday, saying he had been doing so from time to time since the social unrest broke out. “It’s like buying insurance,” the 31-year-old said.

A customer manages to get US dollars at Rich Bird (HK) Currency Exchange in Sham Shui Po. Photo: Edmond So, SCMP

Chan said panic buying of the US dollar reflected how Hong Kong had found itself in the middle of a political tug of war between the world’s two superpowers. “[China and the United States] are bluffing now. You don’t know what stakes they will raise next. Hong Kong is in a passive position. It’s just a pawn to both sides,” Chan said.

“I’m not confident about the current situation, same as many others. In case the US dollar peg is reset, buying the US dollar beforehand gives me more confidence.”

The Hong Kong currency has been linked to the US dollar since 1983 and any change in the peg does not require approval from the US government. The Hong Kong government determines which currency the local dollar is pegged to. The currency is kept pegged in the range of HK$ 7.75 to HK$ 7.85 to the US dollar.

Eddie Yue Wai-man, chief executive of the local central bank, the Hong Kong Monetary Authority, said earlier this week the peg would remain the bedrock of the city’s financial system, with foreign reserves of more than US$ 440 billion. And while the city had yet to show any noticeable sign of fund outflows from the Hong Kong dollar or banking system, the market is starting to crack. Though spot HKD has been trading toward the strong end of its band as the Fed slashes rates to zero amid growing speculation the US central bank may soon follow through with negative rates, Kyle Bass’s bet against the currency peg, which critics once slammed as absurd and unlikely to pay off, is becoming increasingly popular as a trade as derivatives markets price in growing expectations for depreciation.

Even Hong Kong’s largest banks, HSBC, saw a small handful of its automated teller machines run out of US dollars, but was working to replenish them. The bank has 39 locations that offer foreign currency, but not all distribute US dollars. Customers can withdraw up to HK$ 80,000 per day per bank card.

“HSBC has sufficient supply of banknotes and is committed to supporting its customers and the smooth operation of the financial system in Hong Kong,” a HSBC spokeswoman said.

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