Uncertainty 

Doug Nolan


We shouldn’t read too much into one month of weak Chinese Credit data. 

July's growth in Aggregate Financing (i.e. system Credit) slumped to $164 billion, almost 40% below estimates, and down from June’s booming $566 billion - to the slowest expansion since covid crisis February 2020. 

July can be a seasonally weak month for lending, following a typical end-of-quarter surge. 

Analysts are downplaying the significance of July’s slowdown, expecting a seasonal pick up and a boost from last month’s reduction in bank reserve requirements.

We should, however, also consider Beijing’s newfound resolve in implementing a comprehensive reform agenda. 

It’s certainly not lost on Chinese officials that their runaway Credit expansion poses the greatest risk to China’s financial, economic and social stability. 

Still, they recognize market sensitivity to all developments impactful to financial conditions – especially now that significant cracks have surfaced in Chinese Credit. 

So, Beijing will move cautiously and without transparency. 

Moreover, they will play into the market perception that Beijing has everything under control. 

I would expect a tightening cycle to unfold with corresponding lower reserve requirements, interest rate cuts and PBOC liquidity injections. 

From the perspective of a determined Beijing, coupled with heightened Credit stress, July’s weak data is likely sending a warning. 

New Loans dropped to $167 billion, about half June’s $327 billion, and the weakest reading since October 2020. 

But at $2.135 TN, year-to-date Loan growth is running 5.8% ahead of 2020 and 29% ahead of comparable 2019. 

Loans were up 12.3% year-over-year, 26.9% in two years and 83% in five years.

Corporate Loan growth dropped to $67 billion, the weakest reading since October, and only a fraction of June’s $224 billion. 

At $1.358 TN, year-to-date Corporate lending is running 2.6% below 2020, but 34% ahead of comparable 2019. 

Corporate Loans expanded 11.3% over the past year, 25.5% over two years, 39% over three and 67% over five years.

The Consumer lending slowdown is perhaps the most intriguing aspect of July data. 

Mortgage borrowing dominates Consumer Loans. 

And while it doesn’t garner the same media attention as stock market-impactful reform measures, Beijing has moved aggressively to rein in mortgage lending excess. 

At $62 billion, Consumer Loan growth was less than half of June’s to the lowest level since February 2020’s covid-related contraction.

Again, we don’t want to read too much into a single month. 

But we should at least contemplate the possibility that Beijing’s determined effort to rein in apartment Bubble excess is finally making some headway. 

A sustained lending slowdown would presage a downturn in transactions and apartment prices, unleashing a problematic downside to historic Credit, asset and economic Bubbles. 

There is great Uncertainty associated with Chinese officials, citizens, bankers, and corporate managements having no experience with the downside of Credit and asset Bubbles. 

Such a prospect would explain sanguine Treasury and global bond markets in the face of non-transitory inflationary pressures. 

Living here in the Pacific Northwest, it was another week of 100 degree plus temperatures and thick smoke from scores of wildfires. 

This will undoubtedly be the hottest summer in Oregon’s recorded history. 

August 13 – CBS (Li Cohen): 

“It’s been a summer of sweltering heat waves and raging wildfires, and now it's confirmed: July 2021 was the hottest month on Earth since record-keeping began. 

The National Oceanic and Atmospheric Administration announced the findings on Friday, calling it an ‘unenviable distinction’ and part of a worsening trend related to climate change.”

It’s sad to see decades old fir trees succumb to protracted drought; heart-wrenching to know that hundreds of thousands of acres of beautiful forest are going up in flames. 

And as bad as things are on the U.S. West Coast, the fires in Greece, Turkey and Italy are nothing short of apocalyptic. 

This follows catastrophic flooding in Germany, Belgium and elsewhere in Europe. 

China is again this week suffering from devastating flooding.

August 9 – Reuters (Nina Chestney, Andrea Januta, Jake Spring, Valerie Volcovici and Emma Farge): 

“Global warming is dangerously close to spiraling out of control, a U.N. climate panel said in a landmark report…, warning the world is already certain to face further climate disruptions for decades, if not centuries, to come. 

Humans are ‘unequivocally’ to blame, the report from the scientists of the Intergovernmental Panel on Climate Change (IPCC) said. 

Rapid action to cut greenhouse gas emissions could limit some impacts, but others are now locked in. 

The deadly heat waves, gargantuan hurricanes and other weather extremes that are already happening will only become more severe.”

At this point, I cannot be alone in pondering whether climate change is already “spiraling out of control.” 

If not spiraling, it sure appears that climate instability is accelerating. 

Markets are said to hate Uncertainty. 

Yet stock prices rise to unprecedented heights in the face of myriad extraordinary uncertainties. 

The current course of experimental monetary inflation and fiscal stimulus creates epic Uncertainty. 

The course of China’s historic Bubble is similarly unsettled. 

The geopolitical backdrop points to alarming instability. 

Yet global climate change poses the greatest threat to all aspects of human life, starting with economic, social, political and geopolitical stability.

Market analysts have been trumpeting phenomenal earnings growth. 

Cut rates to zero, throw in Trillions of monetary stimulus, and then add Trillions more of fiscal stimulus - and the upshot will be one spectacular – if unsustainable - profits bonanza. 

But what type of a multiple would a sensible analyst place on currently inflated corporate earnings? 

What discount rate would one apply to future earnings streams when contemplating reasonable valuation? 

A really low rate, factoring in the likelihood of years of near zero short-term funding rates (and associated low bond yields)? 

Or instead, a relatively high discount rate, reflecting today’s unprecedented backdrop and associated uncertainties? 

The Crowd answers the former; I say the latter.

I’ve witnessed scores of spectacular booms and busts during my career. 

I’ve witnessed nothing comparable to China’s Bubble. 

The world should be panicky. 

Instead, there is near absolute faith in the Beijing meritocracy. 

Late-eighties “decade of greed” excesses were incredible – until they were completely overshadowed by the “roaring nineties”. 

I thought 1999 was a once-in-a-career experience. 

The 2008 mortgage finance Bubble collapse destroyed the myth that Washington had everything under control. 

Yet we’re now into the 13th year of the global government finance Bubble. 

Especially since the pandemic crisis response, manic excess has gone off the rails. 

The world should be panicky. 

Instead, it’s all business as usual, with near absolute faith in the power of central bank QE. 

It’s unethical to impose years of negative real returns upon savers, coercing them into the securities markets. 

Having a small group of central bankers manipulating market yields is the antithesis of free market capitalism. 

And the longer zero rates and artificially low market yields are imposed, the more extreme the underlying market, financial and economic maladjustment. 

Injecting Trillions of new “money” directly into the securities markets is pernicious inflationism and a deleterious redistribution of wealth. 

Yet, to the markets, none of that matters. 

What matters tremendously is that the Federal Reserve sticks with policies to inflate stock, bond and home prices. 

I have posited that the great vulnerability of contemporary finance is that it doesn’t work in reverse. 

It appears miraculous, so long as finance is expanding and asset prices are inflating. 

Markets are these days content to disregard myriad risks because of confidence in the Fed’s willingness and capacity to sustain the monetary boom. 

Non-crisis, open-ended QE changed everything. 

Inflation today poses a huge risk. 

A sustained inflationary surge would force the Fed to withdraw stimulus, ending the illusion of never-ending central bank market support. 

Historic Bubbles would lose their foundations. 

To this point, Federal Reserve officials have been able to assert “transitory.” 

The Fed would be in a precarious situation if inflation angst was stoking bond market instability. 

But the bond market is underpinned by open-ended QE and prospects for faltering Bubbles and resulting Trillions of additional Fed purchases.

It’s an extraordinary paradox: the bond market’s disregard for inflation risk increases the likelihood inflationary pressures attain self-reinforcing momentum. 

Inflation complacency rests on the simple assumption that previous inflation dynamics will be sustained well into the future. 

Yet there is a confluence of unprecedented developments that point to a new paradigm. 

We have never witnessed such sustained monetary inflation, both at home and abroad. 

At the same time, fiscal deficit spending is unprecedented in a peacetime environment. 

Monetary stimulus literally opened the fiscal stimulus floodgates, with the combination in the process of creating the tightest labor market in decades. 

Meanwhile, there’s global climate change. 

Similar to other major risks, markets today instinctively view climate change as one more development that guarantees the Fed and global central bankers will sustain monetary stimulus indefinitely.

August 11 – Associated Press (Nicholas K. Geranios): 

“The wheat harvest on Marci Green’s farm doesn’t usually begin until late August, but a severe drought stunted this year’s crop and her crews finished harvesting last week because she didn’t want what had grown so far to shrivel and die in the heat. 

It’s the same story across the wheat country of eastern Washington state, a vast expanse of seemingly endless stretches of flatlands with rolling hills along its edges that produces the nation’s fourth largest wheat crop. 

It’s been devastated by a drought the National Weather Service has classified as ‘exceptional’ and the worst since 1977. 

‘This is definitely the worst crop year we have had since we started farming 35 years ago,’ said Green, whose family is the sixth generation on the same farming land just south of the city of Spokane.”

The stunted wheat crop in Washington is but one example. 

California farmers pulling out almond trees. 

Farmers in California, Oregon, Utah and elsewhere are being hit with water restrictions, as half the country suffers drought conditions. 

Reservoirs are running dry. 

From New York to California, there are calls to conserve electricity. 

A Friday Reuters headline: 

“’Once in 100 Years’ Drought Seen Affecting Argentine Grains Exports Into 2022.” 

Last week from Bloomberg: 

“The Argentine River That Carries Soybeans to World Is Drying Up.” 

And this week: 

“Sugar Soars as Crops in World’s Top Producer Brazil Hit by Frosts.” 

And today from CNN: 

“Get Used to Surging Food Prices: Extreme Weather is Here to Stay.”

The “inflation is transitory” assertion completely disregards the possibility that climate change could wreak havoc on food production, harvesting and transportation. 

It will impact production, supply chains and inventory management. 

Prepare for myriad disruptions in key facets of economic development. 

Life as we’ve known it could change profoundly, with inconceivable effects on many prices and market structures. 

Of course, manic markets will ignore such risks until they get hit over the head by them. 

This long, hot summer makes it seem as if that day is approaching.

What’s the worst that could happen

Three degrees of global warming is quite plausible and truly disastrous

Rapid emission cuts can reduce the risks but not eliminate them


By the standards of the 21st century as a whole, 2021 will almost certainly go down as a comparatively cool year. 

By the standards of the rest of human history its weather looks disconcertingly like hell.

On July 20th, as Belgium, Germany, the Netherlands and Switzerland were still coming to terms with the fact that a stationary system of storms had turned entire towns into rivers and shredded the surrounding countryside, hundreds of thousands of people in the Chinese province of Henan were evacuated in the face of floods of their own; the city of Zhengzhou saw a year’s worth of rain in three days.

Also on July 20th Cizre, in Turkey, saw a temperature of 49.1°C (120°F), the highest ever recorded in the country. 

There has been barely any respite from searingly hot conditions along the northern Pacific coast of North America since the region was hit by an unprecedented heatwave two weeks ago, and already the region is bracing for another. 

Other places at high latitudes have been seeing similar—if less destructive—anomalies. 

In the first half of the month Finland experienced its longest heatwave for at least 60 years, with temperatures rising to the low 30°Cs in Lapland. 

On July 14th the country tossed and turned through its hottest night ever: two weather stations recorded temperatures no lower than 24.2°C.

On July 11th, a National Weather Service thermometer at Furnace Creek in Death Valley recorded a temperature of 54°C. 

If confirmed by the World Meteorological Organisation (wmo), that would tie a reading taken at the same location last year for the hottest formally recognised daytime temperature ever. 

On July 19th more than 40% of the Greenland ice cap had meltwater on it. 

The amount of sea-ice cover in the Arctic was as low as it was at the same point in 2012, which saw the lowest summer sea ice ever recorded.

This is what Earth looks like when, according to the latest data from the wmo, it is 1.1-1.3°C warmer than it was before the steam engine was invented. 

The Paris agreement of 2015 created a compact to limit global warming to “well below 2°C” above the pre-industrial, ideally seeing it rise no more than 1.5°C.

That more stringent target was demanded by, among others, small-island states which see the amount of sea-level rise inherent in two degrees of warming as an existential threat. 

A huge subsequent report by the Intergovernmental Panel on Climate Change found that the difference between the two targets, even if it was just 10cm of additional sea-level rise by 2100, would wipe away the livelihoods of millions. 

Compared with 1.5°C of warming, 2°C would also expose an additional 420m people to record heat. And it would devastate Arctic ice cover.

Those Paris targets were, and remain, both prudent and incredibly ambitious. 

Right after the conference Climate Action Tracker (cat), an ngo, set itself the task of totting up all the emission-reduction goals and other policies, like fuel-efficiency standards for cars and trucks and renewable-energy targets, that the various nations had made. 

To gauge the aggregate impact of those measures, cat calculated the atmospheric concentrations of carbon dioxide they looked likely to produce and then used the results of climate models to see what those concentrations might mean in terms of warming. 

Their results showed the world was on track to be 2.7°C hotter than the pre-industrial baseline by 2100.

The people who negotiated the Paris agreement were fully aware of this contradiction. 

They expected, or hoped, that countries would make new and more ambitious pledges as technology progressed, as confidence that they were all really on board built up and as international co-ordination improved. 

There is evidence that this is happening. 

Revised pledges formally submitted to the un over the past 12 months in the run-up to the cop26 conference to be held in November have knocked cat’s estimate down a bit. 

If all government promises and targets are met, warming could be kept down to 2.4°C. 

Including targets that have been publicly announced but not yet formally entered into the Paris agreement’s ledgers, such as America’s net-zero-by-2050 pledge and China’s promise to be carbon-neutral by 2060, brings the number down to a tantalising 2.0°C.

That sounds promising. 

But the figure comes with a very big caveat and with large uncertainties.

The caveat is that this estimate includes policies announced but not enacted. 

A world which follows the policies that are actually in place right now would end up at 2.9°C, according to cat (the un Environment Programme, which tracks the gap between actual emissions and those that would deliver Paris, provides a somewhat higher estimate). 

Almost everyone expects or hopes that policies will tighten up at least somewhat. 

But any reasonable assessment of the future has to look at what may happen if they do not.

As to the uncertainties, they are many and various. 

Translating political statements into gigatonnes of carbon dioxide is hardly an exact science. 

Just as no one knows whether countries will choose to stand by the policies they have mooted, nor can they be sure that those policies will deliver the reductions claimed. 

And although there is no doubt that greenhouse gases influence climate and are driving the rising temperatures seen around the world, difficulties in untangling various feedback loops and complex countervailing effects mean that there remains considerable uncertainty about how much further climate change a given amount of greenhouse gas brings about.


This uncertainty gives the probabilistic estimates made by cat, and other groups, large error bars. 

The calculations of peak warming if existing targets are met and promises kept give a 68% chance of a peak temperature between 1.9°C and 3.0°C (see chart 1). 

In the America-at-net-zero-by-2050 scenario the 68% probability range runs from 1.6°C to 2.6°C. 

This fits with modelling from elsewhere. 

According to calculations by Joeri Rogelj and his colleagues at Imperial College London, even emissions scenarios which provide a two-in-three chance of staying below 2.0°C also include a small chance of 2.5-3.0°C of warming: less than one-in-ten, but possibly more than one-in-20.

Hold tight

A 3°C world is thus both a pretty likely outcome if nothing more gets done and the worst that might still happen even if things go very well indeed. 

That makes it worth looking at in some detail, and the result is alarming. 

Those modelling climate impacts have long argued that they do not increase linearly. 

The further you go from the pre-industrial, the steeper the rate at which damages climb. 

And as what was rare becomes common the never-before-seen comes knocking (see chart 2). 

Judging by the results of specific studies, the differences between 2°C and 3°C are, in most respects, far starker than those between 1.5°C and 2°C.


Just as today’s world is not uniformly 1.2°C warmer than the pre-industrial, a 3°C world is not uniformly 1.8°C warmer than today (see chart 3). 

Some regions, chiefly the oceans and parts of South America, will warm less; others will get much hotter. 

The Arctic, including northern Canada, Siberia and Scandinavia, will receive the brunt of the warming. 

Some more populated regions are also in for above-average temperatures. 

According to one study mean temperatures in Russia, China and India would increase by 4-5°C, 3.5-4.5°C and 3-5°C, respectively.


Warmer regional temperatures will bring more frequent and more extreme heatwaves, including to higher-latitude regions in North America, Europe and Asia that have little or no experience of such things. 

A comparison of how 1.5°C, 2°C and 3°C of global warming would affect European extremes published in 2018 found that while “tropical” nights where temperatures remain above 20°C from dusk till dawn are currently mostly the preserve of the Mediterranean shoreline, the area affected stretched north as warming progressed until, under a 3°C regime, they became a regular occurrence in the Baltics. 

It is the lack of enough cooling at night which, by and large, drives deaths during heatwaves.

Striking though such a change would be, hot nights in previously cool wealthy countries can be adapted to. 

Green roofs, water sprinklers and improved air-conditioning can all help. 

People can switch to more indoor living during the summer months. 

Construction workers, farm labourers and other people whose jobs are physical and primarily done outdoors, though, would suffer disproportionately, as would those who could not easily afford the additional cost of installing and running air-conditioning.

This is as nothing, though, compared with what increases in heat can do in the humid tropics. 

Human bodies cool off through the evaporation of sweat, and under humid conditions evaporation is harder. 

The “wet-bulb” temperature is a measure that reflects this combined effect of heat and moisture on the difficulty of keeping cool.

Except at 100% relative humidity, the wet-bulb temperature is always lower than the temperature proper; dry air means that 54°C in Death Valley equates to a wet-bulb temperature in the low- to mid-20s. 

Wet-bulb temperatures in the 30s are rare. 

And that is good. 

Once the wet-bulb temperature reaches 35°C it is barely possible to cool down, especially if exercising. 

Above that people start to cook.

Wet-bulb temperatures approaching or exceeding 35°C have been recorded, very occasionally, near the India-Pakistan border and around the Persian Gulf and the Gulf of Mexico. 

But not all such instances are reported. 

A re-analysis of weather-station data published in 2020 showed that such extreme humid heat actually occurs more often than is recorded, mostly in very scarcely populated parts of the tropics. 

The study also found that its incidence had doubled since 1979.

Richard Betts, a climatologist in Britain’s Met Office who has led several surveys of the impacts of high-end global warming, says that beyond 2°C small but densely populated regions of the Indian subcontinent start to be at risk of lethal and near-lethal wet-bulb temperatures. 

Beyond 2.5°C, he says, places in “pretty much all of the tropics start to see these levels of extreme heat stress for many days, weeks or even a few months per year.”

In less humid places, heat depletes water supplies. 

A modelling analysis of water scarcity at 1.5°C, 2°C and 3°C found that two-thirds of humanity will experience progressively drier conditions as the climate warms. 

At 3°C, periods of dryness currently treated as exceptional 1-in-100-year events are projected to happen every two to five years in most of Africa, Australia, southern Europe, southern and central United States, Central America, the Caribbean and parts of South America.

We’re in for nasty weather

The occasional drought can be dealt with by recourse to reservoirs or groundwater. 

When droughts become prolonged and/or frequent such alternatives dry up. 

As a result, some modelling suggests that at 3°C more than a quarter of the world’s population would be exposed to extreme drought conditions for at least one month a year. 

California’s megadrought, which has affected the water supply for consumption, sanitation and irrigation as well as fuelling record-breaking fires, gives a glimpse into what this could look like for large swathes of the planet, almost all of which face far higher hurdles to adaptation than one of America’s richest states (albeit one with a high number of poor people).

This does not necessarily mean that every crop is at risk of heatwaves, or that the world will face a structural food shortage. 

Some arable land will be blessed with a useful increase in rain, and the fields farmed by Goldilocks may be spared a concomitant increase in flood risk. 

Temperate climates will benefit from longer growing seasons, and some crops will also benefit from higher carbon-dioxide levels, since it is the raw material of photosynthesis. 

Although the Intergovernmental Panel on Climate Change (ipcc) estimates that cereal prices might be 29% higher under 3°C of warming, putting 183m people at additional risk of hunger, it also sees it as possible that they might hardly shift at all.

But whatever the averages, there will be a much higher risk of crises which panicky reactions make worse. 

In the summer of 2010 temperature records which had stood since the 1880s were broken in Russia, the world’s third-largest wheat producer; temperatures stayed up around 40°C for weeks. 

Wheat yields fell by about one-third: Russia banned exports in order to maintain its own supply. 

That led to price spikes on global food markets which have since been linked to civil unrest in a number of low-income countries.

More measured policy responses would have helped. 

But the opportunities for panics over food shocks will undoubtedly increase. 

A study co-sponsored by Britain’s Foreign, Commonwealth and Development Office estimated that the likelihood of an extreme heatwave capable of wiping out the southern Chinese rice crop in a given year was 1 in 100 under 1°C of warming, but one in ten under 2-3°C of warming.

What sea level would look like at 3°C depends on how quickly things heat up. 

Because ice takes time to melt and warmth gets into the ocean depths only slowly, sea level takes its time responding to the surface temperature. 

This means the seas will be lower at the point when 3°C is reached if it is reached quickly than if temperatures rise more slowly.

What matters more than the sea level at the time when the world hits 3°C is the sea level to which a 3°C world would be committed in the long run. 

The West Antarctic Ice Sheet, which until a decade ago was considered pretty stable, is crumbling at the edges. 

There is growing evidence that at around 2°C of warming it will begin to break down completely. 

“If that point is passed, the evidence suggests that the rate of ice loss from West Antarctica will increase dramatically,” says Nerilie Abram of the Australian National University.

The full effects of such a collapse—perhaps 1.6 metres’ worth of sea-level rise—would not be seen for another century or more. 

But the rate of change would increase much sooner than that. 

“On our current climate trajectory,” says Dr Abram, “we can expect a very rapid jump in how quickly Antarctica loses ice in just a few decades time.” 

In a 3°C world similar concerns apply to Greenland, too.

Cities, and indeed low-lying countries, which might hold their own against the 30-90 centimetre sea-level rise expected by 2100 in a 2°C world, might well have to throw in the towel faced by four or five times as much. 

As with wet-bulb temperatures, there are limits to the extent to which adaptation can offer hope once the world gets to 3°C. 

And even when lives can be saved, places cannot. 

Coastal cities that hundreds of millions now call home would be changed utterly if they persist at all. 

Nor could the indigenous cultures of the Arctic or the rainforest survive in anything like their current form. 

Much of the Earth-as-was would be forgotten, as well as lost.

There has got to be a way

The limits to adaptation apply to nature, too. 

Animal and plant species adapt to warming climates by shifting to cooler ones where possible. 

Already fish are on the move, some species edging away from tropical waters to temperate, others from the temperate to the chilly. 

Land animals unable to trek to higher latitudes can, if they live in hilly places, find respite at nearby higher altitudes instead. 

But these strategies only work up to a point: mountains have peaks, and the Earth has poles.

And it only works for species and ecosystems that are able to move faster than the climate warms. 

Coral reefs do not have that facility. 

They are predicted to disappear completely in a 3°C world (their boiled, bleached fate is worsened by the fact that higher carbon-dioxide levels make seawater too acidic for them). 

Some such failures to adapt make the world hotter still. 

The Amazon rainforest, already weakened by logging and burning, would be very unlikely to survive in such a world. 

In its passing it would release further gigatonnes of carbon into the atmosphere.

The Amazon will not disappear overnight. 

Even if emissions go largely unchecked from now on, a 3°C future looms only in the second half of the century, not the first. 

But the longer it takes to cut emissions, the more avoiding 3°C becomes something only achievable through the application of untested and in some cases troubling technologies designed either to suck carbon from the atmosphere in vast amounts or to throw some of the sun’s warming rays back into space. 

Humanity would find itself wedged between a geoengineered rock and a very hot place.  

Tonya Harding Explains Gold’s “Flash Crash”

By Matthew Piepenburg



Gold price manipulation is back in the form of a “flash crash“; below we skate through its details and ask: “Why now” and “how’s it done?”

Kneecapping the Competition

Many may remember figure skater Tonya Harding and the infamous pre-Olympic kneecapping of her competitor, Nancy Kerrigan, in 1994.

The scandal was simple: If there’s a stronger athlete on the rink who frightens you, “then take em out.”

Such nefarious deeds may seem unusual, but in the rigged arena of central-bank markets and derivative price fixing, this kind of desperate behavior is, well…par for the course.

When it comes to rigged markets, we’ve written extensively about the open charade which passes daily for “free market price discovery” in a nefarious COMEX trade which, for years, has been the scene of deliberate price fixing on paper gold via cleverly employed swaps, loans and precious metal “leases.”

This is not fable but fact.

Fear of Better Athletes

For the desperate architects behind a global financial system buoyed by increasingly worthless fiat currencies, their greatest fear was and remains that stubborn little athlete which mocks that otherwise pathetic little dollar, namely: Physical gold.

In simpler terms, gold is the Nancy Kerrigan to the dollar’s Tonya Harding.

Gold, after all, is the veritable “anti-dollar” when it comes to an actual and historically-confirmed store of value which can’t be printed/created at will like the Greenback.

This, of course, poses problems for an increasingly discredited financial system which thrives exclusively on both the artificial liquidity and false reputation of that otherwise debased and grotesquely over-created dollar.

Of course, the big boys and the bullion banks (central and commercial) know this.

They also loathe the thought of losing face or admitting their failure and guilt in destroying currencies, supply and demand forces or basic ethics.

For this reason, shady little figures from the BIS to the LBMA have been trying for decades to knee-cap gold’s natural price rise ever since shady little Nixon decoupled the dollar from its golden chaperone in 1971.

By the way, the result of that little “de-coupling” has been a 98% drop in the purchasing power of that dollar when measured against a single milligram of gold.

Stated otherwise, gold is embarrassing the world reserve currency: Its stubborn rise is proof of the dollar’s now open and obvious fall.

Solution? Knee-cap the better asset.

What About Basel 3?

But if the uber-levered COMEX arena was the shady “scene of the crime” for decades of gold kneecapping, why is gold taking yet another dramatic hit in price in this supposed “flash crash” so soon after Basel 3’s recent efforts to clean up the price-rigging smut in the derivatives arena?

In short: What gives?

How did gold “flash crash” from $1761 on a Friday to $1677 by Monday?


Why were billions worth of gold contracts being dumped into the overnight markets with no bidders to catch them in a fall not seen since the infamous “Covid” market implosion of March of 2020?

Or stated otherwise: What sane, institutional sellers would ever make such a concentrated, 24,000-contracts “bid-nuking” trade?

What market forces (a jobs report?) would justify or motivate such a deliberate sell-off?

Well, as we see below, there may be a few Tonya Hardings lurking deep within a still very rotten derivatives trading rink conspiring to kneecap gold yet again with a flash crash…

Basel 3: A New Era or Old Tricks?

As we wrote in detail elsewhere, the Basel 3 regs of 2021 marked a new (and needed) era of less and less derivative trading among the commercial banks.

Given that the nominal value of all derivatives traded in 2020 was 7X the value of global GDP (!), such a belt-tightening in derivatives was long overdue.

On its surface, Basel 3 seemed immediately bullish for gold, which had been the victim of decades of deliberate and highly concentrated/levered shorts by a small handful of 8 powerful players against thousands of otherwise less powerful longs.

In other words, Basel 3’s slow removal of the derivative shotgun pointed at gold should have sent its price rising not falling, especially not on the scale of a flash crash and in a backdrop of extreme currency debasement.

So again: What gives?

The Sketchy Side of Derivatives

Part of the answer lies in sifting through some derivative fog. Bear with me…

Derivatives, for example, have more than one flavor or designation.

On the one hand, you have the kind that are traded on regulated exchanges, and on the other, you have the really shady kind that are traded on the OTC (over-the-counter) market, which is just a fancy term for arms-length, unregulated and highly illiquid (i.e., risky) trades.

As a former hedge fund manager, I, and many others in Wall Street, knew the OTC market is where truth and transparency went to die and scheming, front-running and price-fixing options (forwards, swaps, and credits) went to the moon.

In other words, the OTC is a sketchy place,

Despite comical assertions by folks like Larry Summers that derivatives were designed to hedge risk, everyone knew that the OTC arrangements were and are a place where bankers went to expand risk (and credit) not for business reasons but for trading profits.

Fortunately, the Lehman crisis ultimately reminded the world that: a) Larry Summers was bad at both math and honesty, and b) derivatives created rather than hedged risk.

The clever post-08 policy makers lurking behind their heavily lobbied-curtains needed a quick, damage-control response to the sub-prime (i.e., derivatives) crisis, which they achieved with calming semantics.

The “solution” came down to “regulations” which would add two euphemistically charming new words of wisdom to the derivatives quagmire, namely: 1) “high quality risk assets” (i.e., liquid assets) and 2) “net stable funding ratios” (i.e., banks required to have enough assets to cover liabilities).

Seems pretty smart, right? All was safe again, right?

Furthermore, with Basel 3 now requiring banks to have even more safe, liquid “good stuff” and less illiquid, levered “bad stuff” (i.e., too many derivatives), one would assume that real assets would move and price more fairly, including gold, right?

Well, let’s look closer, and you may start to see the reasoning for a flash crash.

Making Derivatives Simple?

Given gold’s fixed supply, its $835B slice of the mega-trillion-dollar derivatives pie seemed like a needle in a haystack.

In fact, at first glance, it would appear that the big boys, including the BIS, were not even concerned about little ol’ gold and its cozy corner of the derivatives trade.

But bankers are clever little foxes guarding their own henhouse, and came up with two intentionally complex ways to classify (and hence distort) the gold derivative trade, which in turn is broken down by two types of complex trading instruments, namely futures contracts and forward contracts.

Thankfully, I will not take you too deeply into those weeds, but suffice it to say that such deliberate complexity makes it nearly impossible for the average guy or gal on the street (or 20-something “financial journalist”) to unpack and hence discredit the sketchy games played on the rink of derivative-distorted gold pricing.

The first level of intentional complexity has to do with futures contracts vs. forward contracts.

Bear with me.

It’s not as boring or “smart” as they want you to think it is.

Futures contracts are traded on registered exchanges for which institutional investors and just about anyone else have unfettered access.

Forward contracts, on the other hand, are traded in that shady little OTC market, for which normal investors have far less (if no) permitted access.

Instead, the only athletes allowed on that slippery rink for forward contracts are what are known as “principals” of “unregulated institutions,” which basically just means the big boys—i.e., commercial banks, major family offices, privately-held mega companies, sovereign wealth funds and other financial choir boys like central banks.

These lucky, big-boy “foxes” are allowed to trade forward contracts and do most of their ice-skating in and among other members of the London Bullion Market Association (LBMA), who settle their trades in either London or Zurich.

According to the foxes at the BIS, there were about $530B worth of forward contracts in this members-only rink last year.

Thanks to Basel 3, those banks/players are required to treat their contracts as “unallocated (paper) gold” (i.e., “bad stuff’), which are booked as liabilities on their balance sheets.

But as Basel 3 reminds, those same banks also need to show equal amounts of “good stuff” (i.e., real, physical gold) assets to match their “bad stuff” (paper gold) liabilities.

This means those $530B worth of derivatives (forward contracts) need to either: 1) be slowly removed from their books or 2) converted into “good stuff”—namely,” allocated (physical) gold.”

In sum, the banks need more physical gold to meet Basil 3, and by year end, gold demand (and pricing) among these foxes should be rising, right?

But here’s the embarrassing rub: there’s a very real possibility that those LBMA members don’t actually have enough physical gold assets (8,667 tons) to meet their balance sheet ($530B) paper liabilities.

Are you seeing the potential motivations for a flash crash yet?

Banks Need More Gold Tomorrow than they “Report” Today

The foxes over at the LBMA, however, would tell you not to worry—as they have over 9500 vaulted tonnes of physical gold.  

Unfortunately, however, what bankers say is not entirely a reflection of, well…reality.

Let’s do some armchair auditing and basic math…

The Physical Gold Supply Lie

Over 5,700 of those so-called 9500 “available” tons are held by the Bank of England, which is not in fact an LBMA member.

Yet even if it were, more than half of its “vaulted gold” has been leased out to other central banks.

In short, the required and promised gold just aint really there…

This leaves about 3800 or so tons of actual physical and vaulted gold in actual possession of the LBMA members, of which 1500 tons is already earmarked for gold ETF’s.

This means the actual and available amount of physical gold (roughly 2330 tons) does not meet the required 8667 tons needed to match the $530B of paper gold liability exposure at the LBMA membership club.

Uh-oh?

It would seem, alas, that the foxes don’t have enough real gold to meet the new regs.

Of course, if we wanted to know for sure, we could just check with the LBMA vault audits, right?

But it may surprise you to discover that no such audits have been reported.

This may explain why the LBMA members have been screaming like spoiled children to be granted an exemption from (or a start-date extension of) those pesky Basel 3 regs.

In other words, the member institutions of this insider-banking click don’t appear to own enough physical gold to meet the new regulations, which would suggest that the good ol’ days of the OTC derivative price manipulation of gold are waning.

A Forced “Clean-Up” & Pressure from China

But we are hardly the only ones calling BS on the 50-year derivative price manipulation in the gold space.

The big boys in China were taking note as well, and looking to strategically expand their role as a new zip code for fairer global gold trading.

This is because the Chinese are big fans of physical gold but no fans of US dollar policies (i.e., decades of exported US inflation) and the downward gold price-fixing by a small handful of Western banks.

In short, the Chinese want better price discovery in gold, as they fully recognize its golden future.

This would explain why the most active Chinese bank in London’s gold market, ICBI Standard Bank, recently bought Barclay’s 2,000-ton vault…

You can be sure that China’s growing interest as a better gold trading platform has forced the Bank of England to make an extra effort to repair its reputation (enter Basel 3) by forcing a tighter muzzle on the LBMA in particular, and OTC tricks in general, regardless of all the screaming from London.

More Gold Demand from Banks, Means More “Timely” Manipulation

This means western banks will be forced to buy more gold, as demand for this “barbarous relic” will be greater, rather than less, in the years ahead.

Which brings us back to the initial question above as to why certain parties would suddenly sell $4B (notional) worth of gold into a bid-crushing avalanche to embarrass (i.e., weaken) the gold price by 100 bucks in just 2 trading days?

Could it be that these same old western gold-manipulators wanted to see the price of this asset fall before they had to start buying more of the same?

After all, aren’t these the entities that stand to benefit the most from this flash crash?

If that sounds manipulative and sketchy, well, such manipulation and sketchy is nothing new to these Basel 3-trapped banks…

In short, the simple, sad yet unspoken truth is that most commercial and central banks don’t actually have as much gold stored in their own vaults as they claim to have.

That is, they’ve been “fibbing, fudging and faking it” for years, which, again is nothing new and amounts to a basic job description for the bullion banks.

We’ve written elsewhere about this. Most of central bank gold is leased away rather than stored safely at home—and that gold aint coming back, especially from the Chinese…

“Conspiracy Theory” or Just Business as Usual?

In case you think this lack of gold is a conspiracy theory, be reminded that the New York Fed, responsible for storing earmarked gold for foreign central banks, recently refused to allow the Bundesbank and other national banks to inspect their own earmarked gold.

Why the refusal?

Take a wild guess: Because the Fed didn’t actually have enough of it.

The harsh reality is that the central banks, which have between them a declared ownership of 35,544 tons of physical gold, don’t have what they say they have.

Instead, they are concealing old leases, recent swaps and loans, and engaging in outright misappropriation of earmarked gold that simply isn’t where they say it is.

In short, after 50 years of market deception, the jig is up on these banks, and today they need to buy more gold (and fast) to save face. Time for a flash crash?

Why Buy High When You Can Fix the Price Lower?

My cynical yet experienced view is that this most recent tank in gold pricing was yet another price manipulation to make such Basel 3-required gold purchases less expensive and hence less painful for the foxy bankers.

Stated simply, a handful of sketchy banks just manipulated the gold price down so they could buy it on sale rather than on high.

The Official Price Explanations Don’t Fly

The pundits, talking heads and Fed apologists, however, will roll out the standard talking points and attribute the recent and dramatic “flash crash” in gold on positive job reports, technical “death crosses,” rising rates and a stronger dollar.

Ah, the ironies do abound.

If rates are rising, it’s only because inflation is rising faster, which portends rising rather than falling gold prices in the future, something gold investors, rather than speculators, understood long ago.

And as for rising rates strengthening that precious dollar, if you still believe that a dollar drowning in liquidityand sinking toward more rather than less inflation is “strengthening,” please take yet another look at the power of the dollar (and euro) when measured against gold:



Which brings us back to Tonya Harding…

A Darker Truth?

When gold is embarrassing the US dollar with as much visual clarity as the foregoing evidence confirms, the only option left for desperate banks is to break the rules and knee-cap the one thing which is causing them fear and the embarrassment.

The recent kneecapping of gold by those mysterious players in the OTC is nothing more than that: A Tonya Harding moment in the gold market.

Shame on that, and shame on them.

In the end, however, we all know what happens to Tonya. 

Rising Covid Cases Hang Heavy Over the Travel Industry, Again. How to Play the Stocks Now.

By Lawrence C. Strauss

Royal Caribbean’s Celebrity Edge, pictured docked at a port in Mexico, set sail from Florida in June—the first sailing out of a U.S. port among the major cruise operators since the pandemic began. / Eva Marie Uzcategui/Bloomberg


Royal Caribbean Group CEO Richard Fain had been prone to break into song on his company’s blog, crooning “Oh, What a Beautiful Mornin’ ” in late June after the cruise line launched its first ship from U.S. waters since the pandemic sidelined the industry for more than a year. 

Fresh off that maiden voyage and with the industry’s restrictions falling by the wayside, Fain gave an encore in mid-July, singing “I Can See Clearly Now.”

Not so fast, says the Delta variant. 

While the mutated Covid-19 strain has been spreading for months, the highly contagious variant seized headlines over the past week or so as cases and deaths climbed—particularly among the unvaccinated—and concerns grew that governments might reimpose restrictions on crowds and business operations. 

The progress that has been made in containing the disease, and in returning to life and business as normal, is now threatened.

Travel and leisure stocks, many of which rode the promising Covid vaccine news last November and became textbook reopening plays, have been veering off course for months. 

The Dow Jones U.S. Travel & Leisure Total Return Index is down 0.5% since the beginning of March, after notching a 25% gain over the previous four months. 

The Delta variant just adds more question marks as companies in the sector get set to report earnings over the next few weeks.

“What’s the No. 1 thing the market in general hates?” asks Chris Woronka, a hotel and leisure analyst at Deutsche Bank. “Uncertainty.”

And the travel and leisure industry has uncertainty in spades. 

Cruise operators still have to contend with regulators, most notably conditions outlined by the Centers for Disease Control and Prevention on matters such as the percentage of passengers that must be vaccinated on a vessel. 

Another potential barrier: a court battle over a Florida law that forbids companies from requiring customers to show proof that they have been vaccinated for Covid.

Many hotels are open for business, but business and group travel has lagged leisure as corporate America is in the early phases of reopening. 

Airlines, too, have been left in a holding pattern amid concerns about renewed travel restrictions and a slower-than anticipated recovery if countries delay border reopenings. 

And for every travel and leisure sector, a labor shortage remains a concern.


While investors navigate the shifting daily Covid headlines, there are other crosscurrents buffeting travel and leisure sectors, including the broader market’s rotation back into growth stocks and the concern that some travel names had gotten too pricey. 

And industries within travel are at different stages in their respective recoveries.

Take the cruise industry, roiled like perhaps no other by the pandemic. 

Carnival (ticker: CCL) and Royal Caribbean Group (RCL) recently resumed cruises out of U.S. ports after 15 months sitting idle, though at well below normal passenger capacity thanks to health protocols and fleet capacity constraints given the challenge of staffing up and getting these titanic ships ready for the seas. 

Carnival said this past week that it plans to operate up to 75% of its global fleet capacity by the end of the year—an ambitious target given the headwinds.

Lodging companies, meanwhile, are further along in recovery, as are casino operators, timeshare firms, and car rental companies. 

These businesses weren’t restricted the way cruise operators were and so they’ve been benefiting from Americans’ pent-up demand to return to their favorite pastimes since vaccinations began rolling out earlier this year. 

At the same time, 2022 and 2023 earnings estimates across the travel and leisure subsectors have been rising.

“Cruise lines and hotels and gaming have different factors affecting them,” says Robin Farley, an analyst at UBS. 

And the recent headline risk stemming from the Delta variant creates “an opportunity to re-engage with some of the reopening names that have pulled back a little bit.”

Whether it’s cruise lines, casino resort operators, timeshare companies, hotel companies or lodging real estate investment trusts, most of these stocks have lagged behind the broader market this year and are in negative territory in some cases. 

MGM Resorts International (MGM), for example, is up about 2% since March 1, versus a 12% gain for the S&P 500. 

Shares of Carnival, the largest cruise operator, have fallen 14%. 

Marriott International (MAR) is off 7%. 

Timeshare company Hilton Grand Vacations (HGV) is down 5%. 

And Avis Budget Group (CAR) is down about 20% from its all-time high of around $94, set in mid-June.

Yet while the initial reopening rally lifted most boats, the latest leg of the reopening play will require investors to be more discerning and do a bit more due diligence—and the pandemic to cooperate and come more fully under control.

“New investors are looking at valuation, and they are a little bit pickier about where they enter the group,” says Bill Crow, managing director of real estate research at Raymond James. 

He notes that lodging stocks’ run-up extended through early March around when fourth-quarter earnings releases were wrapping up. 

“There was a lot of excitement among management teams, maybe more than there should have been at that point, given where fundamentals were.”

Crow maintains that lodging fundamentals have continued to improve since then, and he chalks up the underperformance since early March to the Delta variant, the market’s recent pivot to growthier names, and more scrutiny of valuations. 

Raymond James recently upgraded the lodging REIT sector to Overweight.

In shunning many of these stocks, the market hasn’t distinguished between domestic leisure travel, which has rebounded impressively since around March, and corporate travel, which continues to lag behind. 

This could mean opportunity for investors. 

Cruise and timeshare companies, for instance, focus on leisure customers, while other sectors, such as lodging, are more reliant on business travelers.

In a recent interview with Barron’s, Marriott International finance chief Leeny Oberg said that business travel for the company is “still clearly behind where leisure travel is but making steady and solid improvement.” 

In normal times, business-related customers account for roughly two-thirds of the company’s overall business.

How quickly group and corporate travel will rebound is a major question mark for investors, and analysts have varying views on the timeline. 

“There’s some pent-up demand for corporate travel in the same way there is pent-up demand for leisure travel,” says Woronka. 

“As long as the Delta variant is not causing problems in the U.S., you’ll see some of that corporate travel come back post-Labor Day.”


Asked about the Delta variant, Oberg was optimistic but measured. 

Marriott has been paying close attention to “vaccination rates and CDC travel guidance, and watching to see how things unfold,” she says.

One way investors can keep tabs on the unfolding impact of the Delta variant is midweek hotel activity, which is when most business travel occurs. 

On July 6 and 7, a Tuesday and Wednesday, hotel occupancy in the U.S. averaged 62.7%, up from 53.8% on May 4 and 5, according to hotel data provider STR and Raymond James research.

It’s an imperfect indicator, however, as Crow notes that some of the increased midweek demand likely isn’t entirely attributable to a pickup in business travel. 

He points to a “distinct increase” in midweek hotel demand “in markets like San Diego, Miami, Tampa, and Orlando [that] are really driven by leisure travel” and not in business travel hubs like New York, Chicago, and San Francisco.

Crow, however, remains upbeat about the prospects for business travel improving in the third quarter, though it hinges on offices reopening and children getting back to school.

Still, it’s hard to handicap what’s going to happen over the next few months. 

The wild cards are manifold. 

The Delta variant. Reopening regulations and renewed pandemic restrictions. 

Customer reticence and a labor shortage. 

And more. 

As Woronka says: “When you have multiple factors impacting stocks, it means that underperformance is more prolonged.”

For the travel and leisure sectors writ large, then, investors can expect the choppiness to continue while mining for longer-term winners. 

Here are six recommendations, based in part on interviews with analysts who follow these stock groups.

Wyndham Hotels & Resorts

Shares of this hotel-franchising company, which focuses on midscale and economy brands such as Super 8 and Days Inn, have returned 7.1% since March 1. That’s not market-beating, but it’s a solid performance compared with more upscale lodging companies such as Hyatt Hotels (H), which is down 12%.

Wyndham Hotels & Resorts (WH), with its emphasis on locations outside of big cities, has benefited from relying heavily on leisure customers, which accounted for about 70% of its business before Covid, according to Truist Securities.

What’s more, the company’s tilt toward no-frills midscale and economy brands is paying off. Those tiers of the lodging market have been bouncing back faster than more upscale tiers. During the week ended July 17, revenue per available room for U.S. midscale hotels was up 5.2% compared with the corresponding period in 2019 before Covid hit. Luxury hotels’ RevPar, as the metric is known, was down 14.4% over that same period.

Another plus for Wyndham’s stock: It has continued to pay a quarterly dividend even as many travel and lodging names suspended their payouts during the pandemic. Wyndham, which did cut its dividend last year from 32 cents to 8 cents, boosted it in March to 16 cents a share.

Hilton Worldwide Holdings

Long-term fortunes for Hilton Worldwide Holdings (HLT) are tethered to group and business travel, which accounts for about 80% of the company’s business in normal times, according to Truist Securities. That makes for a risky play as the recovery of those two segments could be delayed by weak demand exacerbated by the Delta variant.

While Hilton’s business is largely dependent on group and business travel, its operating model provides investors with some protection. Above, Canopy Hilton Hotel in Washington, D.C.

Will Newton/Hilton

But Hilton’s asset-light operating model, which eschews owning hotels and relies on franchising and management fees, provides some flexibility and downside protection. Farley, the UBS analyst, also likes the company’s strong net unit growth as it continues to expand its global network of hotel rooms. “If business travel restarts a little bit later than people think, they are still going to be in a fine position in terms of liquidity,” Farley says.

UBS has a Buy on the stock, which is down 0.4% since early March.

Royal Caribbean Group

In late June, Royal Caribbean’s Celebrity Edge set sail from Fort Lauderdale, Fla.—the first sailing out of a U.S. port among the major cruise operators since the pandemic idled the industry in March 2020 and forced multiple rounds of capital raising amid billions of dollars in lost revenue.

The company has since launched other sailings from U.S. harbors, and the broader industry is regaining its sea legs, but there’s a solid argument that Royal Caribbean enjoys some longer-term advantages over its peers.



For one thing, Royal Caribbean “has the least amount of equity dilution in terms of capital raising” during the pandemic, says Farley, who has a Buy rating on the stock, which is down about 15% since March 1.

Another plus: The company opened Perfect Day at CocoCay, its private island in the Bahamas, in 2019—a $250 million project. 

The island’s amenities include a big water park, beaches, swimming pools, and restaurants. 

The pier can accommodate large ships, meaning customers don’t have to use tender boats to get there. 

And it’s not that far from Florida, making it an easy hop from U.S. ports.

“All the cruise lines have private destinations and private islands,” says Farley. 

“But Royal has a very differentiated product. 

Most private islands are a nice beach and some cabanas.”

Travel + Leisure

Trading as Wyndham Destinations heading into 2021, this company is the product of a merger/rebranding that reflects a desire to diversify beyond its core timeshare offerings. 

In addition to its signature magazine and other media platforms, Travel + Leisure (TNL) brought with it several travel clubs.

“They are trying to essentially make it easy for people to book a vacation in one or two clicks through their platform,” says Deutsche Bank’s Woronka. 

“That person is not necessarily going to buy a timeshare, but TNL is still going to profit from that transaction.”

What’s more, the company’s legacy timeshare business depends on leisure customers, not business travelers—a relatively good place to be. 

By Woronka’s calculations, the company’s enterprise value was trading recently at 8.3 times estimated 2022 earnings before interest, taxes, depreciation, and amortization, at the low end of its historical range since the business entity was created in 2018.

He has a Buy on the stock, which is down 3.3% since March 1.

MGM Growth Properties

The REIT was formed in 2016 as a way for MGM Resorts to sell some of its assets while continuing to operate them. 

That paid off throughout the pandemic for the REIT, which continued to collect rent from the casino properties it owns. 

The REIT’s portfolio of properties includes Mandalay Bay and Park MGM on the Las Vegas Strip as well as some regional facilities such as the Borgata in Atlantic City, N.J.

MGM Growth Properties (MGP) was set up as a triple-net lease REIT, meaning it doesn’t have to pay for maintenance or capital expenditures. 

Those fall on the MGM Resorts, which operates the properties. 

“The triple net lease structure was new to the gaming industry in the last couple of years, and it hadn’t been through a significant downturn,” says Farley, who has a Buy rating on MGP.

The company has made it through the pandemic in solid shape with its dividend intact, most recently at 51.5 cents a share on a quarterly basis. 

“The pandemic has really proven that business model,” Farley says.

The REIT, with a recent yield of 5.5%, is widely viewed as an income play. But it has returned 14.1% since March 1.

Host Hotels & Resorts

Lodging REITs had a difficult time during the pandemic as a lot of business dried up. 

Host Hotels & Resorts (HST) was no exception, as evidenced by its decision last year to suspend its quarterly dividend and share buybacks. 

However, the company’s strong balance sheet is paying dividends of a different sort: three major acquisitions announced this year that will add to earnings.

The company does have properties in markets hit hard by Covid such as New York and San Francisco, but it also has exposure to resorts in Florida and other states that have performed better this year. 

Woronka has the stock at a Buy, and says it’s relatively cheap. 

By his calculations, Host Hotels’ enterprise value was recently trading at 12.4 times its estimated 2022 Ebitda, in the middle of its historical range. 

The stock is down 3.1% since March 1.

“If you believe we are early in a new lodging cycle, which is my opinion, you want to be buying things early in the cycle because you’re going to benefit from more years of cash-flow growth,” says Woronka.

The Dangers of Decoupling

With Sino-American relations increasingly coming to resemble the geopolitical dynamics of the original Cold War, the world is heading toward a fraught new equilibrium. While some in the West long for a new "Sputnik moment" to motivate investments and reform, they should be careful what they wish for.

Daron Acemoglu


BOSTON – The Chinese government’s crackdown on Alibaba last year, and on the ride-hailing company Didi this month, has generated fevered speculation about the future of that country’s tech industry. 

Some view the recent Chinese regulatory interventions as part of a justifiable trend paralleling US authorities’ own intensifying scrutiny of Big Tech. 

Others see it as a play for control of data that might otherwise be exploited by Western countries. 

And still others, more plausibly, see it as a shot across the bow to remind big Chinese companies that the Communist Party of China is still in charge.

But, most consequentially, the Chinese government’s actions are part of a broader effort to decouple China from the United States – a development that could have grave global implications. 

Despite steady deterioration in Sino-American economic and strategic relations, few thought the rivalry would turn into a Cold War-style geopolitical confrontation. 

For a time, the US was overly dependent on China, and the two economies were too closely intertwined. 

Now, we may be heading toward a fundamentally different equilibrium.

Three interrelated dynamics defined the Cold War. 

The first, and perhaps most important, was ideological rivalry. 

The US-led West and the Soviet Union had different visions of how the world should be organized, and each tried to propagate its vision, sometimes by nefarious means. 

There was also a military dimension, illustrated most vividly by a nuclear-arms race. 

And both blocs were eager to secure the lead in scientific, technological, and economic progress, because they recognized that this was critical to prevailing ideologically and militarily.

While the Soviets eventually proved less successful than the US in driving economic growth, they did chalk up early technological-military victories. 

The successful launch of the Sputnik satellite served as a wake-up call for the US.

The stark rivalries of the Cold War were possible largely because the US and the Soviet Union were decoupled. 

US investments and technological breakthroughs did not automatically flow to the Soviets (except, sometimes, through espionage) in the way that they have with China in recent decades.

But now, Sino-American hostilities, exacerbated by Donald Trump’s incoherent diplomacy, have created modern analogs of the Cold War rivalries. 

The ideological rift, which was not even on the horizon 20 years ago, is now well defined, with the West extolling the virtues of democracy (warts and all) while China confidently pushes its authoritarian model around the world, especially in Asia and Africa.

At the same time, China has opened new military fronts, not least in the South China Sea and the Taiwan Strait. 

And, of course, the economic and technological rivalry has been escalating over the past decade, with both sides concluding that they are in an existential race to achieve dominance in artificial intelligence. 

Although this focus on AI may be misguided, there is little doubt that mastery of digital technologies, bioscience, advanced electronics, and semiconductors is of paramount importance.

Some observers have welcomed the new rivalry, believing that it will give the West a well-defined common purpose. 

The “Sputnik moment,” after all, motivated the US government to invest in infrastructure, education, and new technologies. 

A similar mission for public policy today might yield many benefits; indeed, the Biden administration has already begun to frame US investment priorities in terms of the Sino-American rivalry.

It is true that many of the West’s Cold War-era success stories depended on the Soviet Union serving as a foil. 

Western Europe’s model of social democracy was viewed as a palatable alternative to Soviet-style authoritarian socialism. 

Similarly, market-driven growth in South Korea and Taiwan owes much to the threat of communism, which forced autocratic governments to eschew overt repression, undertake land reforms, and invest in education. 

And yet, the potential benefits of a new Sputnik moment are probably far outweighed by the costs of decoupling. 

In today’s interdependent world, global cooperation is fundamental. 

The rivalry with China, though essential to the defense of democracy around the world, is not the West’s sole priority. 

Climate change also poses a civilizational threat, and it will require close China-US collaboration.

Moreover, commentators nowadays tend to downplay the Cold War’s tremendous costs. 

If the West now lacks credibility when advocating human rights and democracy – including in Hong Kong and China – that is not only because of a generation of disastrous military interventions in the Middle East. 

During the years when the US thought that it was locked in an existential conflict with the Soviets, it toppled democratically elected governments in Iran (1953) and Guatemala (1954), and supported vicious dictators like Joseph Mobutu in the Democratic Republic of the Congo and Augusto Pinochet in Chile.

It is an equally grave mistake to think that the Cold War fostered international stability. 

On the contrary, the nuclear arms race and brinkmanship on both sides prepared the ground for war. 

The Cuban Missile Crisis was hardly the only time that the US and the Soviets came close to open conflict (and “mutually assured destruction”). 

There were also close calls in 1973, during the Yom Kippur War; in 1983, when Soviet early-alert systems sent a false alarm about a US intercontinental ballistic missile launch; and on other occasions.

The challenge today is to achieve a model of peaceful coexistence that allows for competition between incompatible visions of the world and cooperation on geopolitical and climate-related matters. 

That doesn’t mean the West should accept China’s human-rights abuses or abandon its allies in Asia; but nor should it allow itself to fall into a Cold War-style trap. 

A principled foreign policy should still be possible, especially if Western governments allow their civil societies to lead the scrutiny of China’s abuses at home and abroad.


Daron Acemoglu, Professor of Economics at MIT, is co-author (with James A. Robinson) of Why Nations Fail: The Origins of Power, Prosperity and Poverty and The Narrow Corridor: States, Societies, and the Fate of Liberty.