• ex-KGB Spy: Russia Cultivated Trump as Asset for 40 years, ‘The Perfect Target’ Donald Trump was cultivated as a Russian asset over 40 years and proved so willing to parrot anti-western propaganda that there were celebrations in Moscow, according to a former KGB spy. Yuri Shvets, posted to Washington by the Soviet Union in the 1980s, is a key source for American Kompromat: How the KGB Cultivated Donald Trump, a new book comparing the former US president to “the Cambridge five”, the British spy ring that passed secrets to Moscow during the early cold war. (The Guardian)
Sunday, January 31, 2021
Sunday Strategist: Volvo Steals Super Bowl Marketing Playbook - btbirkett@gmail.com - Gmail
Sunday Strategist: Volvo Steals Super Bowl Marketing Playbook - btbirkett@gmail.com - Gmail
Coming into Super Bowl week, the Volvo marketing team is pulling off another trick play.
The company has promised to give out $2 million of its Swedish machines if anyone scores a safety in the big ball game Sunday. Safety, of course, is the brand’s north star. The message is a bit incongruous with a quarterback getting mauled by car-sized humans, but you get the point.
To qualify, fans will have to kit out their dream Volvo on the company’s site before the game; winners -- if there are any -- will be chosen at random.
These game gimmicks — so-called trigger promotions in marketingspeak — are increasingly common and almost always savvy. It's a page that any AAA ball club owner has thoroughly dog-eared. Most notably, Taco Bell has gone deep in the World Series with its “steal-a-base”-win-a-taco-
Volvo, meanwhile, is always happy to subtly troll its earnest Teutonic rivals, and cheaply at that. For one thing, $2 million worth of Volvos is not a lot of Volvos. In December, the average Volvo went for just shy of $50,000 in the U.S. and the company moved 37,000 of them.
Secondly, Volvo probably won’t have to make good on the deal. There have only been nine safeties in Super Bowl history, putting the chance at just north of 17%. Though safeties are getting more common; almost half of the Super Bowl safeties were scored since 2009.
If the unlikely happens, Volvo will get a social boost worth far more than $2 million. Marketing folks call this an “activation.” A static ad is fine, providing one pours enough money into it; an “activation” gets people involved and keeps them interested for more than 30 seconds. The giveaway gimmick is essentially a publicity put option — albeit one that also gets thousands of people to tinker around on the company’s web site in advance.
Smart marketers go so far as to hedge their bet with prize indemnity insurance. If some half-time hero manages to sink the half-court shot, the sponsor doesn't have to pay for the prize in full.
Volvo is getting good at this kind of thing. For the 2015 Super Bowl, it encouraged fans to Tweet why someone they know might deserve a free vehicle — its XC60 — every time the Super Bowl broadcast rolled a car commercial (which its rivals had ponied up $4.5 million apiece for). The trolling drummed up at least 55,000 tweets and the next month XC60 sales jumped by 71%.
Dubbed the interception, Volvo reckoned it snagged about $44 million in media buzz. In the football business that’s known as out kicking the coverage.
Saturday, January 30, 2021
The Science Behind QAnon: How Conspiracy Can Seduce Normal People - Bloomberg
The Science Behind QAnon: How Conspiracy Can Seduce Normal People - Bloomberg
How the QAnon Conspiracy Seduces Normal People
The theory contains many of the same features that make
games and detective novels so enjoyable.
By Faye Flam
January 30, 2021, 8:00 AM EST
QAnon is such a weird theory that it’s tempting to think
humanity is getting dumber. But it’s better seen as a highly sophisticated way
of manipulating people. QAnon may one day be considered a masterpiece of
propaganda.
This cult-like belief revolves around a conspiracy theory in
which prominent Democrats and Hollywood celebrities are systematically
victimizing children in order to extract something called adrenochrome from their
blood. They consume this substance, so the story goes, as both a youth elixir
and a recreational drug.
People may believe the theory, or parts of it, are true,
even if they don’t know that it’s called QAnon. In a December 2020 NPR/Ipsos poll, 17% of Americans
said that they thought it was true that “a group of Satan-worshipping elites
who run a child sex ring are trying to control our politics and media,” and
another 37% said they weren’t sure.
Why would anyone believe this, let alone so many people?
One reason is that believers discover the details of this conspiracy theory
for themselves by solving puzzles and finding clues called “drops.” Game designer Reed Berkowitz
says he quickly recognized QAnon as a kind of a game known as an alternate reality game. These are fictional stories that send
people out into the real world to gather clues. On the way, players encounter
others who are engaged in the same hunt.
Berkowitz doesn’t just think QAnon is like a game — he
thinks it is a game, though he says it was intended to fool people into
thinking it’s real. When people get find drops, they are mean to look like
valuable, high-level leaks.
The drops are designed to make people feel a sense of
discovery, something believers find highly rewarding. In a piece he wrote for
Medium, Berkowitz argues that when people think they’ve found an idea themselves, they become
attached to it. And they get pleasure from it.
When I talked to him by phone, he said alternate reality
games use something called rabbit holes to
send people in search of clues. The games can lead to phone calls and real
meetings between players. Reality and fantasy blend, but the players recognize
they are taking part in a game.
QAnon, he says, looks like something created with a purpose
in mind. “I absolutely think that
somebody is designing it and promoting it,” he says. The purpose is propaganda. The game leads people to
distrust mainstream media, politicians and medicine, including Covid-19
vaccination campaigns. It also leads them to antisemitic and racist beliefs.
Players may or may not believe the literal truth of the blood-draining story,
but they tend to be bonded by ideology and feelings of distrust.
The community reinforces those ties, says Berkowitz. “If
you're suddenly involved in this community of people who supports you and
believes that you’re valuable ... this keeps you coming back.” The game is
designed to reward people with social credit when they figure out the “correct”
answer, which is the answer the QAnon designer or designers had planned all
along.
And of course, we’re more isolated than we’ve been in recent
history — missing the diversity of social interactions that in normal life
keeps us from falling into ideological rabbit holes.
Simon DeDeo, a social scientist at Carnegie Mellon
University, says people too easily dismiss believers in conspiracy theories as
stupid. And that makes it hard to understand why these explanations draw people
in.
In a paper published in Trends in Cognitive Science, he and
a colleague explore the different factors that make explanations valuable. One
that applies particularly well to conspiracy theories such as QAnon is called co-explanation, an ability to link
seemingly disparate phenomena with a single explanation. The world’s great
scientific theories do it, too — from Darwin’s evolution to the theory of
electromagnetism to quantum mechanics tying together matter and light.
Conspiracy theories also tie up lots of little loose threads
this way, just like a satisfying whodunit. “What something like QAnon does is
hijack that source of joy we get from solving a murder mystery,” DeDeo
says. But conspiracy believers tend to put too much weight on co-explanation.
“Fundamentally, they have the right values … These values are virtues mostly,
except when the value is overemphasized,” he says.
Facebook, Reddit, YouTube and Twitter are the perfect soil
for this sort of thing to bloom, bringing together users seduced by the lure of
discovery. If people are engaged in QAnon, social media gives them more, until
people are storming the U.S. Capitol.
Now
that social media is becoming many people’s only social outlet, we can expect more conspiracy theories to
spread.
There is no new normal without real-world social
interactions. There’s only a new abnormal.
Listen to Faye’s interviews with Berkowitz and DeDeo on her
podcast, “Follow the Science,” available on Spotify, iTunes, or wherever you
get your podcasts.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Faye Flam at fflam1@bloomberg.net
To contact the editor responsible for this story:
Sarah Green Carmichael at sgreencarmic@bloomberg.net
Robinhood Fallout Sweeps Market After $1 Billion Lifeline - Bloomberg
Robinhood Fallout Sweeps Market After $1 Billion Lifeline - Bloomberg
Robinhood Fallout Sweeps Market After
$1 Billion Lifeline
By Annie Massa, Misyrlena Egkolfopoulou, Michelle F Davis,
and Matthew Monks
January 29, 2021, 12:30 AM EST Updated on January 29, 2021,
6:40 PM EST
DTCC asked brokerages
for $33.5 billion in collateral Thursday
Robinhood taps its
existing investors and bank credit lines
The Reddit hordes were at it again Friday, once again
bidding up shares of GameStop Corp. and warring with hedge funds by seeking out
targets such as Siebert Financial Corp. and Twinkie maker Hostess Brands Inc.
Hours after Robinhood
Markets said it received a cash infusion of more than $1 billion, having
just angered legions of retail investors by imposing a raft of trading
restrictions, the Securities and Exchange Commission said it would look to
identify potential misconduct and review decisions by brokerages to curtail
transactions on certain stocks.
The fallout also humbled one of Wall Street’s best known
contrarians, Andrew Left, whose Citron
Research announced it will no longer
publish short-selling analysis after a two-decade run.
Markets opened Friday
with other heavily shorted and thinly
traded stocks catching massive bids. Siebert Financial soared almost 399%
at one point during regular trading, and Jefferies analyst Steven DeSanctis
offered up other potential targets, including Hostess and mattress-maker Sleep
Number Corp. And the stock that started it all, GameStop, surged 68% on the day
to close at $325.
By mid-afternoon, Robinhood
announced that it had put limits on
purchases of shares and options for 50 stocks, including vaccine maker
Moderna Inc., Bed Bath & Beyond Inc., Tootsie Roll Industries Inc. and
Rolls-Royce Holdings Plc.
The past few days have been a whirlwind for the Menlo Park,
California-based brokerage.
New York markets had just fired up Thursday, and the
investing world was tuning in for the latest episode of the continuing drama:
Legions of Robinhood investors versus
hedge-fund Goliaths.
But within minutes, a shock wave invisible to the outside
world rattled the mechanics of Wall Street -- sending Robinhood rushing for
additional cash. The stock market’s
central clearing hub had demanded large sums of collateral from brokerages including Robinhood
that for weeks had facilitated spectacular jumps in shares such as GameStop
Corp.
The Silicon Valley venture with the wildly popular no-fee
trading app came to a crossroads. It
reined in the risk to itself by banning certain trades and unwinding client
bets -- igniting an outcry from customers and even U.S. political leaders. By
that night, word was emerging that Robinhood had raised more than $1 billion
from existing investors and drawn hundreds of millions more from bank credit
lines to weather the storm.
“Look, it is not
negotiable for us to comply with our financial requirements and our
clearinghouse deposits,” Robinhood Chief Executive Officer Vlad Tenev said
in defending his firm’s decisions on Thursday in a Bloomberg Television
interview. “We have to do that.”
The capital injection is “a strong sign of confidence from
investors that will help us continue to further serve our customers,” a
Robinhood spokesperson later said in an emailed statement. The money will allow
the firm to “continue to invest in record growth.”
Robinhood took additional
precautions, limiting purchases of fractional shares and cryptocurrencies.
When the history of this month’s stock mania is written, it
may be a story of how retail traders set out from Reddit message boards to challenge Wall Street’s status quo -- and
ended up battering their beloved brokerage too.
For weeks, Robinhood, with a mission “to democratize finance
for all,” has been their trading platform of choice as they inflicted billions
of dollars of losses on hedge funds by sending stocks that those firms had
shorted into the stratosphere -- a sort-of populist
crusade into the staid world of finance.
Robinhood’s trading restrictions made virtually nobody
happy, except perhaps the hedge funds. In a surreal scene, political
archenemies Alexandria Ocasio-Cortez and Ted Cruz found common ground in
lashing the firm’s decisions. Conspiracy theories erupted online.
The question is whether such critics will dig into the
industry’s inner workings, where pressure mounted on Robinhood and other firms
to limit certain trades. That would put a rare spotlight on arcane parts of
the market designed to prevent catastrophe, such as the Depository Trust & Clearing Corp.
One key consideration for brokers, particularly around
high-flying and volatile stocks like GameStop, is the money they must put up
with the DTCC while waiting a few
days for stock transactions to settle. Those outlays, which behave like
margin in a brokerage account, can create a cash crunch on volatile days, say when GameStop falls from $483 to $112
like it did at one point during Thursday’s session.
“It’s not really Robinhood doing nefarious stuff,” said
Bloomberg Intelligence analyst Larry Tabb. “It’s the DTCC saying ‘This stuff is
just too risky. We don’t trust that these guys have the cash to be able to
withstand settling these things two days from now, because in two days, who
knows what the price could be, it could be zero.’”
The trouble on Thursday began around 10 a.m., when after
days of turbulence, the DTCC demanded significantly more collateral from member
brokers, according to two people familiar with the matter.
A spokesman for the DTCC wouldn’t specify how much it
required from specific firms but said that by the end of the day industrywide collateral requirements jumped to $33.5
billion, up from $26 billion.
‘Rare Circumstances’
Brokerage executives rushed to figure out how to come up
with the funds. Robinhood’s reaction drew the most public attention, but the
firm wasn’t alone in limiting trading of stocks such as GameStop and AMC
Entertainment Holdings Inc.
Charles Schwab Corp.’s TD Ameritrade curbed transactions in
both of those companies on Wednesday. Interactive Brokers Group Inc. and Morgan
Stanley’s E*Trade took similar action Thursday.
Thomas Peterffy, the billionaire chairman of Greenwich,
Connecticut-based Interactive Brokers, told Bloomberg TV the restrictions were
prompted by concerns “about the
integrity of the marketplace and the system.”
On Friday, Interactive Brokers said in a tweet that it has
removed all of its previously announced options trading restrictions.
E*Trade stressed that its measures were highly unusual. “We
take actions like this seriously, and only initiate them in rare
circumstances,” said spokesman Thayer Fox, adding that he expected normal
trading to resume Friday.
Robinhood said after markets closed that it plans to allow
“limited buys” to resume in affected securities. It also tried to assuage
customer concerns with an email that evening: “This was a temporary decision
made to best continue serving you, and was not an easy one to make.”
Credit Lines
The firm has tapped at least several hundred million dollars
from its bank credit lines, a person with knowledge of the situation said. The
company’s lenders include JPMorgan Chase & Co. and Goldman Sachs Group
Inc., according to data compiled by Bloomberg.
Representatives for Robinhood and those banks declined to
comment.
Robinhood’s capital remains “strong,” CEO Tenev told
Bloomberg TV, underscoring that the restrictions helped protect both the
brokerage and its clients.
One question is whether frustrated customers will forgive
what some see as a betrayal in their campaign against Wall Street’s financial
elite.
Douglas Bray, a software developer from Connecticut who’s
been using Robinhood for about five years, said he plans to withdraw about
$100,000 after the trading restrictions.
“I’m disappointed I could not keep my money in GME like any
institutional investor could,” said Bray, 32, referring to GameStop’s ticker.
“Hedge funds are on the brink of a massive short squeeze and appear to be
calling in all the cavalry. So brokers are now ‘protecting’ customers as a
facade so that they can appease their institutional backers. The entire
community is outraged.”
Webull, which has expanded during the pandemic, saw new
accounts soar 16-fold over the seven-day average, according to CEO Anthony
Denier. Its app ranked as the second-most-popular free iPhone app in the U.S.
on Thursday, up from No. 60 a day earlier, according to SensorTower, which
gathers data on mobile apps. (Robinhood was still No. 1.)
Denier didn’t want to comment on the reason for the jump.
Earlier Thursday, Webull also restricted trading on shares including GameStop
and AMC, but then reversed its decision.
Robinhood has been expected for months to hold an initial
public offering this year. Late Thursday, people with knowledge of those
preparations said the plan is to press ahead sometime in the first half of
2021, despite the controversy and draw-down on credit lines.
But it remains to be seen what the lasting impact is from Robinhood’s
association with the retail trading revolt -- and now any strains in the firm’s
relationship with the rebels behind it.
“The restrictions in trading today only worsened the
situation,” Douglas Boneparth, who competes with Robinhood for customers as
president of the wealth-management firm Bone Fide Wealth, said Thursday. “Many
will ignore the fact that Robinhood faced increased costs that created an
unsustainable business environment.”
— With assistance by Sarah Ponczek, Sophie Alexander, Emily
Chang, and Michael Patterson
Friday, January 29, 2021
Knowing When to Sell GameStop Stock at the Top Is Impossible - Bloomberg
Knowing When to Sell GameStop Stock at the Top Is Impossible - Bloomberg
How Will the GameStop Game Stop?
Plus a little AMC.
By Matt Levine
January 28, 2021, 12:08 PM EST Corrected January 28, 2021,
2:22 PM EST
What is
the endgame for the GameStop Corp. trade? You could imagine a story like
“the stock keeps going up to $1,000 as people realize this is really a $70
billion company with enormous ability to grow earnings and expand margins,
and then it stays there as GameStop executes on its new plan and becomes the
dominant player in the video game industry.” That is the sensible endgame, the
normal one, the sort of endgame that, for instance, Tesla Inc. bulls imagine
for Tesla. The stock rockets up because the market comes to understand and
believe the company’s long-term vision; investors look past today’s relatively
modest results and value the company based on what it will do in the future.
Then the future arrives, the company does what people expected, and the
valuation is justified.
This is quite hard to imagine, and I don’t think many
GameStop bulls expect it to go this way, but I guess it’s on the menu.
A
second possible endgame is like “the stock keeps going up to $1,000,
every hedge fund is bankrupted, the stock market is shut forever and capitalism
ends, ushering in a new golden age of kindness and abundance.” This again
does not strike me as especially likely—though more likely than the first
one—but let’s also put it on the menu.
Every
other endgame has the basic contour of “the stock keeps going up to $1,000 (or
whatever), then it crashes back down again.” That’s how bubbles work,
and speculative manias, and pump-and-dump schemes. These words are bad
words, and this process is often considered a bad thing, but of course if you
buy at the beginning and sell at the top it is good for you.
The trick, then, is
figuring out when it is going to hit the top. I am not going to tell you
how to do that, of course—it is quite hard!—but let’s talk generally about the
thought process. If you are buying GameStop right now, at 1,700% or whatever
above its price a month ago, you would ideally have some theory of who you
are going to sell it to. “Somebody else on Reddit” is one answer. It is the
standard answer, really, in bubbles and pump-and-dumps. It seems to have worked
well so far, but it is not very robust. Everyone
on Reddit buying the stock right now is hoping to get out before it collapses,
so if your plan is to sell it to them, and their plan is to sell it to you,
somebody is in trouble. Maybe not today though. Basically it can go on as long as new people keep coming to Reddit and deciding to
buy GameStop. WallStreetBets,
the subreddit that has been pumping GameStop, hit 3 million users
yesterday. It’s at 4 million this morning. So there might be some room left to
run on this theory.
You could have other theories, and Reddit absolutely does.
One reason that all this is happening is that WallStreetBets posters are mad at short sellers and want to squeeze them. The idea is that short
sellers, who borrow stock and sell it in order to bet that it will go down,
will at some point be forced to give up and cover their shorts by buying back
the stock. This is, uh, not wrong? Several short sellers have been carried out
of this trade; most notably, Melvin Capital said that it closed its short
position and has taken a cash injection from bigger funds to repair the hole
that some redditors dug in its balance sheet. And yet short interest in
GameStop remains very high, apparently above
100% of the float. 1 (You can check
this on, for instance, the single-purpose website isthesqueezesquoze.com, to
give you a sense of how popular this theory is.) The endgame theory here is simply that when all those short sellers capitulate, they will
have to buy in the stock, and then you can sell it to them. If more than 100%
of the shares are still short, then everyone who owns a share now could sell
that share to a desperate short seller and get out at a profit; the short
sellers would eat all the losses. 2
This is not a flawless theory or anything. As the price gets
higher, other people could step in to
short the stock, because it is so clearly overpriced. That is a terrifying
thing to do right now but it could make you a lot of money; I suppose
someone is doing it. (And keeping very quiet about it.) And as some short
sellers get out, the cost and availability of stock borrow will improve for the
other short sellers, making it easier for them to stay in the trade. It’s not
like Apple Inc. and Tesla Inc. have zero short sellers. Short sellers can be
with you forever.
Still, yes, it’s a theory: You will get out at the top by
selling to short sellers, who will have to buy. And the form of that theory is
very good. A theory like “I will sell to
someone who has no choice but to buy, no matter the price” is much better
than a theory like “I’ll try to sell to someone dumber than me.”
There are other
possible forced-buyer endgames. Let me suggest the funniest possible
endgame, funnier (though also less likely) than the “GameStop really is a $70
billion company” and “capitalism ends” ones. It is hinted at here:
This month’s breathtaking gains in the stock have boosted
GameStop’s market value to about $24 billion, making it bigger than more than a
third of the companies in the S&P 500 Index. Only Plug Power Inc. is larger
in the closely watched Russell 2000 Index, a far cry from the end of 2020 when
the then $1.3 billion company was firmly in the middle of that gauge.
Hmm yes. The S&P 500 Index is an index of, roughly
speaking, the 500 biggest U.S. public companies by market capitalization.
GameStop is not in that index, because a month ago it was a small company, in
the index of 2,000 small companies. Now it is—measured by market
capitalization, though nothing else—a big company. If the redditors can hold on long enough, can they get GameStop added
to the S&P? Can they turn it into a big company just by bidding the
stock up? If they can, then S&P 500 index funds will be forced to buy it,
no matter the price, and all the redditors who brought it here can get out at a
profit. And they will have a big and permanent win, and also the current version
of financial capitalism—the index-fund version—will collapse in absurdity.
This is not likely just because the S&P is not purely
based on market capitalization; for one thing, a company needs to have positive net income to be added to the index.
3 GameStop doesn’t. GameStop would have
to go at least a little way down the path of its fundamental turnaround—it
would have to start making money instead of losing it—to get into the index.
You need a little bit of corporate reality for this one to work out.
I have assumed here that you bought stock at some ludicrous
price and are planning to sell it for some even more ludicrous price. But
plenty of the people pushing GameStop’s stock up haven’t actually done that.
They’ve bought call options. Call
options are a leveraged way to bet on the stock: You put in less money than if
you’d bought the stock directly, but get similar upside. You also sharpen the
problem of getting out. If you buy short-dated out-of-the-money call options on
GameStop, and it stops going up, you don’t have to worry about finding someone
to buy your stock: Your options will expire worthless and you’ll lose all your
money.
Call options are also a leveraged way to push the stock
up: When you buy a call option, the market maker who sells you the option
buys some of the underlying stock to hedge its exposure to you, and this pushes
the stock up. And then if the stock goes up more, the market maker’s exposure
gets bigger, and it buys even more stock. This is sometimes called a “gamma squeeze” or “gamma trap,” we
talked about it on Monday, and WallStreetBets posters are consciously
exploiting it to push up the stock.
It is another sort of
forced-buyer theory, sort of: The stock will keep going up because options
market makers will be forced to buy it. It’s not quite as good as the other
ones, though, because options market makers aren’t forced to buy the stock no
matter the price. They buy the stock as long as it’s going up, but they’re forced to sell on the way down.
4 If you’re buying short-dated
out-of-the-money call options on GameStop hoping to push the price up, that has
worked great so far. But if it stops working—if people stop piling in to buy
more call options—then it will start working in reverse. You’ve created forced
buyers on the way up, but forced sellers on the way down. They’ll be
competing with you to get out before it all collapses.
Turn off the stocks
Another possible endgame, for me personally, is that we all
get so tired of talking about GameStop that we stop. Perhaps the stock goes up,
perhaps it goes down, but we stop checking. If I were king I might be a little
tempted to impose that ending by law. This guy is!
The top securities regulator in Massachusetts said the New
York Stock Exchange should halt trading
in GameStop stock for 30 days so it can
“cool down.” Retail traders—often using options--have helped propel the
stock more than 1,000% this year. On Wednesday alone, shares were up more than
100%.
“I really think at this point it calls upon the regulators,
in this case, the New York Stock Exchange, to consider simply suspending it for
a month and stop trading it,” William Galvin, the Secretary of the Commonwealth
of Massachusetts, told Barron’s. “These small and unsophisticated investors are
probably going to get hurt by this.”
Counterpoint, these small and unsophisticated investors have
made absolute buckets of money by this, at the expense of large and
sophisticated hedge funds. Shutting down the stock for a month because
people are having too much fun does not seem exactly like it would cool things
down?
Still of course one sees his point. Why is GameStop trading? Nobody in Galvin’s position—no regulator
or politician or economist or CEO—goes around saying, like, “the point of the stock market
is to be really fun and exciting and let people mess with each other and make
some of them super rich more or less at random.” The point of the stock market
is to Enable Price Discovery or Encourage Capital Formation or something boring
like that. Stock markets exist so that companies can raise money to fund their
projects, and so that the smartest analysts of companies can work diligently
and compete fiercely to put the proper value on those companies so that we as a
society can know what projects are most valuable. Stock markets exist so that
regular people can invest their savings in those companies, making everyone
better off: Companies get funding to pursue socially beneficial projects;
regular people get an ownership stake in economic growth. Or whatever.
This theory has some obvious flaws in its real-life
application, but it’s a decent theory. It is, if not exactly true, true-ish; it
describes the fundamental underpinnings of the market if not necessarily its
everyday operation. It posits a social purpose for financial markets, beyond
making funny memes on Reddit.
It is just the case, just inevitably the case, that if you
are going to have financial markets that are optimized for those purposes—that
are liquid and complete, that attract smart people, that are open to
everyone—they are also going to have a certain amount of nonsense. It’s not
like WallStreetBets invented financial nonsense! Financial-market nonsense is,
like, 70% of what we talk about around here on a normal day. How many times
have I written about hedge funds tricking each other using credit default
swaps? Financial markets exist to foster
price discovery and capital formation, but the way they do that is
mostly by letting smart people mess
with each other all day. WallStreetBets is a new class of smart people messing, quite
effectively, with the old ones.
The questions are how much nonsense you are willing to
tolerate, and whose nonsense you are willing to tolerate. 5 There is a view that WallStreetBets’ nonsense
is somehow particularly bad: It is so transparently silly, without even a bare
pretense of serving the efficient allocation of capital. (Also have you read
WallStreetBets? It is … uncouth.) There is another view that WallStreetBets’
nonsense is relatively good, as these things go, that the redditors are the
heroes here, or at least that they’re not the real villains. If you think that
Wall Street Has Gotten Away With It For Too Long, the GameStop situation gives
you another opportunity to talk about that, though it is not entirely clear
what you should say. Here’s Elizabeth Warren:
“For years, the same hedge funds, private equity firms, and
wealthy investors dismayed by the GameStop trades have treated the stock market
like their own personal casino while everyone else pays the price,” Warren
said. “It’s long past time for the SEC and other financial regulators to wake
up and do their jobs -- and with a new administration and Democrats running
Congress, I intend to make sure they do.”
Do what, though? Shut down WallStreetBets? Subsidize it?
I myself have a high degree of tolerance for everyone’s nonsense.
I certainly don’t think short sellers should be banned or shunned or punished
for betting against companies, I agree that short selling is socially
beneficial, all that boring stuff. But I also think it is funny when some
redditors blow up a short hedge fund for fun, and I don’t really think they
should be banned or punished either. The redditors are playing an obvious silly
game, in public, on Reddit, but the hedge funds are playing a game too, and
they are grown-ups and know what they’re getting into.
Of course what William Galvin actually said is not “this is
all a pointless casino that serves no social purpose,” which would be broadly
correct, but rather “these small and unsophisticated investors are probably
going to get hurt by this.” And, yes, that is also undoubtedly true. (Almost
undoubtedly; as we discussed above, the “GameStop is really worth $1,000” and
“capitalism collapses into an age of abundance” options remain theoretically
available.) Not all of them, of course; people who got in at $20, or $400 for
that matter, and got out at $500 will do great. But a lot of people will lose
money.
And … ? Here, again, the question is how much nonsense you
are willing to tolerate. We have discussed before the sort of creaky U.S. rules
around who can buy what sorts of risky investments, and I have proposed a
simple standard. I call it the “Certificate
of Dumb Investment.” Under this standard, anyone can buy diversified
low-fee mutual funds to their heart’s content, but to buy dumb stuff—private
placements but sure let’s say also volatile meme stocks—you have to go down
to the local office of the Securities and Exchange Commission and sign a form
saying that you know that what
you’re doing is dumb, you know you will probably lose all your money, and you
forfeit forever any right to complain. 6
Then you can do whatever dumb thing you want.
Surely WallStreetBets is … that? Like, look at it. “Like
4chan found a bloomberg terminal illness” is its motto. Everything about the
site screams “this is dumb but you might enjoy it.” I mean:
WallStreetBets users have driven headfirst into bets on
everything from cruise-line operators hit by the pandemic to Lumber Liquidators
Holdings Inc., the company embroiled in scandal following reports that it had
installed flooring with excessive amounts of formaldehyde. And they have done
so unabashedly, celebrating both their victories and their losses with gusto.
(The community has dubbed posting screenshots of the latter, which frequently
garners thousands of upvotes, as “loss porn.”)
“A lot of other places that discuss trading are really
pretentious. At WallStreetBets it’s both, ‘Look at my money!’ but also ‘Look at
all this money I lost,’ and I think that’s what’s refreshing to people,” Mr.
Rogozinski said.
It should be refreshing to regulators! “Hey we do trades
that lose us a lot of money, it’s fun, wanna join us?”
Of course not everyone getting into GameStop now is a
regular reader of WallStreetBets. But it’s not just WallStreetBets. Look
around! Look at the wall-to-wall news coverage! Good Morning America!
Everything! If you are getting into GameStop now, and you are a sentient human
being on this planet, the two things you know are:
GameStop has gone up a lot and
This is dumb.
You’re fine! If you want to jump in now, you know it’s dumb
and think it looks fun anyway. Why should William Galvin protect you from
yourself?
Anyway William Galvin is not alone. There’s Adena Friedman:
Nasdaq CEO Adena Friedman suggested Wednesday that her
exchange could halt trading activity for stocks, in the event they were
targeted by internet users, to enable the exchange to investigate possible
manipulation and allow investors to “recalibrate.”
And there is, uh, Robinhood:
Robinhood Markets and Interactive Brokers Group Inc. curbed
trading in stocks including GameStop Corp. and AMC Entertainment Holdings Inc.,
prompting outrage from users who had pumped up the shares in a Reddit-inspired
frenzy.
Robinhood, which attracted millions of new users last year
as individual investors poured into the market during pandemic lockdowns,
restricted transactions on those stocks and others, the brokerage said Thursday
in a blog post. Interactive Brokers said
it wouldn’t allow clients to take new options positions in names including
AMC, GameStop and BlackBerry Ltd.
Yeah, look, I sympathize. If you keep letting people in,
some of them are going to get in at the top, and then some of them are going to
say, unfairly, “why did you let me in at the top?” Though of course when you
stop letting people in, that might be what ends the fun—the stock plunged this
morning after Robinhood’s move—and so whoever you last let in will necessarily
have gotten in at the top and will sue you even more. (“Why did you let me in
at the top, and why did you then cause the crash?”) Also I have to say that if
Robinhood stops letting people gamble on meme stocks, that is going to hurt its
ability to attract customers who want to gamble on meme stocks.
Elsewhere, the WallStreetBets subreddit itself shut down
briefly. Janet Yellen is “monitoring the situation,” which I hope means she is
lurking on Reddit. The Securities and Exchange Commission is also “aware of and
actively monitoring the on-going market volatility in the options and equities
markets,” and they are definitely lurking on Reddit.
The wrong GameStop
It’s all just too much:
A tiny West Australian mining company has been caught up in
the investing craze surrounding US company GameStop thanks to its ASX code
matching that of the American video game retailer.
GME Resources, which is listed on the local bourse with a
market capitalisation of just $40 million, is a mining company focused on
nickel and cobalt extraction. On Thursday, its shares soared more than 50 per
cent to 12 cents, their highest level since 2018, with volumes of nearly $7
million.
We talk a lot about mistaken-identity stock trades around
here: There is some news about a company, and people rush to buy the stock of
another, tinier, worse company with a similar name. This is like that, only
instead of there being news about GameStop, there is just … nonsense about
GameStop. Epicycles of nonsense, buying GME Resources for no reason except that
you wanted to buy GameStop for no reason.
AMC ATM
I should say that GameStop is far from the only ridiculous
meme stock; there’s a lot of this going on, though there is more of it going on
in GameStop than anywhere else. I recommend this recap of yesterday’s action on
Reddit and in meme stocks by Bloomberg’s Sarah Ponczek and Claire Ballentine,
with the accurate title “In 11 Hours of Pure Mania, 100% Stock Gains Popped Up
Everywhere.” One meme stock that is popular on Reddit is AMC Entertainment
Holdings, the movie-theater company. It was up 300% yesterday, why not.
In talking about GameStop, I have occasionally tried to tie
the goofy stock-price dynamics to corporate finance. I suggested that maybe
GameStop could sell stock at these absurd prices and use the money to, you
know, be a better company. It’s tricky, selling stock at these prices, but in
theory that’s what the prices are for: People
are telling you that they want to buy your stock to fund your projects, so you
might as well sell them the stock and do the projects.
AMC has
done that! On Monday it announced that it had raised $506 million of
equity (and another $411 million of debt) in various transactions that “should
allow the company to make it through this dark coronavirus-impacted winter.”
Good work. Even better, that same day AMC launched an at-the-market offering to
sell up to 50 million shares into the market at prevailing prices, allowing it
to sell opportunistically to any redditors who wanted to buy. Yesterday it
announced that it had finished the offering and raised $304.8 million from that
and a previous stock sale, at an average price of about $4.80 a share. Of
course yesterday the stock closed at $19.90, so AMC would have done better to
wait a day, but nobody’s perfect. When
redditors are clamoring to buy your stock you should sell it to them before
it’s too late; there’s no reason for the company to try to time the endgame
perfectly.
Also yesterday holders of $600 million of AMC convertible
bonds converted them into stock at a conversion price of $13.51 per share. Six
hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the
absence of significant increases in attendance from current levels, there is
substantial doubt about our ability to continue as a going concern for a
reasonable period of time,” AMC warned investors on Monday; four days and a
billion dollars later, there is somewhat less doubt. A week ago it was not
crazy to think this company was doomed; now it is entirely possible that it
will survive and thrive and show movies in movie theaters for decades to come
because everyone went nuts and bought
meme stocks this week. Capital formation!
AMC was trading around $9 at 11 a.m. today so I don’t really
know what those convertible holders were thinking but there you go. Maybe they
were thinking “wow redditors really want to buy this stock, we’d better get
some stock to sell them.”
To contact the author of this story:
Matt Levine at mlevine51@bloomberg.net
To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net
GameStop Isn't a History Lesson, It's a Syllabus - btbirkett@gmail.com - Gmail
GameStop Isn't a History Lesson, It's a Syllabus - btbirkett@gmail.com - Gmail
...In particular, there is the intractable issue of pensions. Many defined-benefit plans appear to be in real danger of failing to meet their guarantees, at least in the U.S.; defined-contribution plans the world over appear likely to leave people with inadequate income in retirement. Does society do everything it can to honor commitments to retirees (and thereby widen the generational gap still further)? Or are we on course for some reckoning in which older people surrender some of the benefits they have been expecting? This question is central to the next book club selection — The Great Demographic Reversal by Charles Goodhart and Manoj Pradhan — which we will be discussing in a live blog on the terminal on Feb. 3.
Wednesday, January 27, 2021
Antibody combos coming through - btbirkett@gmail.com - Gmail
Antibody combos coming through - btbirkett@gmail.com - Gmail
Antibody combos coming through |
Two companies reported positive results from Covid-19 antibody drug combinations Tuesday, as both seek to increase use of their therapies and ensure effectiveness against new strains. Regeneron Pharmaceuticals said its antibody cocktail reduced Covid-19 cases by half and prevented all symptoms in people at high risk of catching the coronavirus. A combination of two antibodies that Eli Lilly & Co. is advancing to combat new variants cut the chances of hospitalizations and deaths by 70% in high-risk patients. While antibody therapies have been a rare bright spot in treating people infected with the coronavirus, they’re expensive and production is hard to scale up. Logistical barriers to infusing contagious, recently diagnosed patients have also hurt use of the treatments. The Regeneron antibody cocktail could be used as a “passive vaccine” to protect those living with others who are already infected, the company said in a statement Tuesday, citing an early analysis of 409 people participating in a phase 3 trial.  Regeneron said its antibody cocktail reduced Covid-19 cases by half and prevented all symptoms in people at high risk. Photographer: Michael Nagle/Bloomberg The study is evaluating the antibody cocktail for immediate, short-term protection against the virus. It may offer certain advantages over vaccines that take several weeks to induce immunity, which is then longer-lasting. In an interim analysis of 186 people who received the treatment, 10 became infected with Covid-19, but no one experienced symptoms. In the placebo group, 23 of 223 people tested positive, with eight showing symptoms and one death. Those treated with the therapy also had lower viral loads and shorter periods of infection, according to the study. Lilly said on Tuesday that its antibody combination was effective in high-risk patients with a new Covid-19 diagnosis. The late-stage trial enrolled 1,035 patients, and there were 11 Covid-related hospitalizations or deaths from any cause among patients taking the combination, and 36 among those on placebo. Patients who got the combination had a statistically significant reduction in viral load and faster resolution of symptoms than those who got placebo, according to Lilly. The two data sets “underscore the importance of antibody treatments,” Cantor Fitzgerald analyst Louise Chen wrote in a Tuesday note. “Virus mutations and slower-than-anticipated vaccine rollout could mean that Covid treatments will be needed for the foreseeable future.”—Emma Court |
Track the vaccines |
Very Few Have Received Second DosesOur popular vaccine tracker has been updated with new features. We now show data on first doses, second doses and daily averages across the world. See the expanded data here. 
|
Tuesday, January 26, 2021
EU Turns the Screws on Financiers Clinging to Their London Desks - Bloomberg
EU Turns the Screws on Financiers Clinging to Their London Desks - Bloomberg
EU Turns the Screws on Bankers
Clinging to Their London Desks
By Viren Vaghela
January 25, 2021, 7:00 PM EST
London financiers are discovering that warnings from the
European Union over the cost of Brexit are more than tough talk.
Even the global pandemic’s fallout didn’t provide any wiggle
room for the world’s largest interdealer broker, TP ICAP Plc.
The London-based firm said Monday it was prevented from
serving all its EU clients because it hadn’t completed its planned relocation
of staff to Paris. The company’s disclosure came hours before a Dutch
member of the European Central Bank’s executive board emphasized the need for
banks to build out their units in the bloc.
“It is essential that we continue to push banks which have
relocated to the euro area to allocate enough staff and assets to their new
structures,” the ECB official, Frank Elderson, told the European Parliament.
The developments underscore the hard line taken by European
regulators keen to compete for the crown jewel of the British economy, which
was excluded from the Brexit trade negotiations. Brussels is determined to show
the cost to leaving the world’s largest trading bloc and prise business away
from the City of London. The U.K. relies
on the industry for about a tenth of all tax receipts.
The realities of
leaving the EU have “come home to roost” for Britain, EU’s financial services
Commissioner Mairead McGuinness said on Bloomberg TV last week.
March Talks
Europe and the U.K. have yet to negotiate a deal for finance
that would permit anything like the pre-Brexit status quo to function. Until
then, assets and people are up for grabs. Talks slated for March center around
a path forward for cooperation, and have mainly symbolic relevance, while any decision on equivalence is unlikely to
come anytime soon.
Earlier this month Europe’s top markets regulator warned
firms against trying to finesse the situation, such as using online pop-up “I
agree” boxes to circumvent rules that
require investment services with European clients to be conducted within the EU.
Chancellor of the Exchequer Rishi Sunak has hinted at a
repeat of Margaret Thatcher’s “Big Bang” period of financial services
deregulation now that the U.K. is no longer bound by EU rules.
London lost 6.3
billion euros ($7.7 billion) in daily stock trades to EU venues on Jan 4,
while consultancy EY estimates that financial-services
firms operating in the U.K. shifted about 7,500 employees and more than 1.2
trillion pounds ($1.6 trillion) of assets to the European Union ahead of
Brexit.
Paris Penalty
TP ICAP’s experience offers another cautionary tale. It
didn’t manage to relocate about 80 brokers from the U.K. to its unit in Paris
before Dec. 31 due to pandemic restrictions and difficulties finding schooling
for its employees’ children, according to a person familiar with the matter who
asked not to be named discussing private details.
That left the broking firm unable to serve all EU clients on
trades like euro interest rate swaps and other euro-based products, the person
said. It was unclear how long it would take TP ICAP to relocate brokers amid
ongoing pandemic restrictions but it committed to do so at the “earliest
opportunity.” A spokesman for the company declined to comment beyond the
statement.
“Due partly to the extraordinary circumstances relating to
the COVID-19 pandemic, in particular relating to stay-at-home orders and travel
restrictions currently in effect, it has not yet been possible to complete the
relocation of staff to the EU 27 or the local hiring of brokers in the EU-based
offices of TPIE as quickly as originally planned,” the company said.
The disclosure was prompted by a notice from France’s
Autorité des Marchés Financiers Friday warning that firms face criminal
sanctions from Jan 1. if they don’t follow rules requiring an authorized branch or subsidiary within
the EU and sufficient personnel to
ensure prudent risk management.
While ICAP said there would be no “material impact” on its
financial results, the EU’s McGuinness reinforced the view from Brussels in
comments on Monday: “We will only take decisions where they are in the interest
of the European Union.”
— With assistance by Silla Brush, and Nicholas Comfort
Friday, January 22, 2021
Navalny releases investigation into decadent billion-dollar 'Putin palace' - CNN
Navalny releases investigation into decadent billion-dollar 'Putin palace' - CNN
The 17,691-square-meter castle features 11 bedrooms according to plans obtained by FBK.
But Navalny's new investigation, which he says he thought of while getting treated at the Berlin Charite clinic, purports to show the scale of the estate and expose dubious financial schemes behind the grand project.
Don't Fear the $15 Minimum Wage - Bloomberg
Don't Fear the $15 Minimum Wage - Bloomberg
Three Safeguards to Ease the Mind of
$15 Minimum Wage Critics
Some economic risk is real, but there are simple ways to
ensure an increase works for everyone.
By Noah Smith
January 21, 2021, 12:00 PM GMT
Advocates of raising the federal minimum wage to $15 an hour
have the upper hand in the debate. Skeptics raise some good points, but all of
their concerns can be addressed with simple tweaks to the policy.
When people argue about the minimum wage, they usually talk
about whether or not it kills jobs. Economists used to think a minimum wage
would create a lot of unemployment by driving a wedge between supply and
demand. But over the past 30 years, a veritable mountain of high-quality
economic evidence has confirmed that this rarely if ever happens, at least in the short term. The most
likely reason is that most labor markets are dominated at least to some extent
by powerful employers, so that supply
and demand aren’t really governing the market in the first place. As a
result, economists have become much more favorable to the minimum wage, with
opinions roughly evenly split on the $15 number as far back as 2015.
But even if the danger of a $15 minimum wage is much less
than economists used to think, that doesn’t mean it’s zero. There are three big dangers. Fortunately,
there’s a fix for each of these.
First, there’s local
variation in the amount of minimum wage that a place can bear. In San Francisco,
wages and living costs are both very high, but in a small town in Mississippi,
both are low. That means a $15 minimum wage will effectively be a much higher
number in the small Mississippi town than in San Francisco, relative to what
people already earn. And a much higher minimum wage carries a greater risk of
job loss — if you don’t believe that, just imagine raising the minimum wage to
$2,000 an hour.
Now, this problem is somewhat mitigated by the fact that the
areas with low wages also tend to have fewer employers. That gives those
employers more market power, which gives them a cushion that allows minimum
wages to rise higher before they start forcing layoffs. But even after taking
this into account, a $15 minimum wage is probably
still dangerous for many low-wage areas. And that puts poor Americans in
danger, since they’re the ones who tend to live in towns that don’t pay
very much. This may have happened in Puerto Rico in the 1980s.
But that danger is easily dealt with. Just give low-wage areas a partial exemption
from the federal minimum wage -- for example, make it $12 instead of $15. That
will greatly reduce any danger of unemployment. It might even entice a few
employers to shift to the low-wage areas, giving them some much-needed growth.
In fact, President Joe Biden’s plan already includes a provision to tie future
minimum wage increases to local wage growth; all he has to do is make a similar
relationship apply to the initial increase as well.
A second worry is that a higher minimum wage could worsen recessions. In an economic
downturn, some hard-hit companies try to preserve jobs by cutting wages until
the recession is over. Minimum wage makes this harder. A 2014 paper by
economists Jeffrey Clemens and Michael Wither found that the Great Recession
hurt low-wage workers in states where minimum wages were high relative to local
wages.
But this is also pretty easy to take care of. Just allow
the government to lower the minimum wage temporarily in case of a severe
recession. In fact, this process could be automatic: If real-time measures
of recession, such as the so-called Sahm Rule (named after Bloomberg Opinion’s
own Claudia Sahm) are flashing red, it could be an automatic trigger for a
temporary minimum wage holiday. And if the government wants to make very sure
that companies use the savings to keep workers employed, they could put in a
provision that only gives the temporary minimum wage holiday to companies
who keep workers on payroll.
A final danger of minimum wage is to small businesses. These businesses tend to be less efficient and
have thinner profit margins, so they’re less likely to be able to handle a
substantial minimum wage hike. Thus, minimum wages can potentially drive
small companies out of the market and make big business more dominant. A
solution is simply to allow small
businesses to have slightly lower minimum wages. U.S. minimum-wage laws
already allow exemptions for very small businesses. And Seattle’s hike to
$15 allowed small businesses to take four extra years to phase it in.
So there are some real dangers of minimum wage. The kind of
big layoff disaster that economists used to fear is highly unlikely, but Biden
should include safeguards like these so that poor areas, recession-hit
employers and small businesses are protected from the potential downsides of
his minimum wage hike. These are not difficult tweaks, and they could help make
sure that the $15 minimum wage doesn't suffer a backlash.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net
To contact the editor responsible for this story:
Susan Warren at susanwarren@bloomberg.net
Thursday, January 21, 2021
How President Biden Can Fix Trump’s ‘Failed’ China Policy - Bloomberg
How President Biden Can Fix Trump’s ‘Failed’ China Policy - Bloomberg
How President Biden
Can Fix Trump’s ‘Failed’ China Policy
One scholar’s
alternative to “impatient unilateralism and decoupling.”
By
January 21, 2021, 8:20 AM EST
Former President Donald Trump doesn’t have much to show for
his toughness toward China. He didn’t shrink the U.S. trade deficit with the
country. Americans, not Chinese, have borne most of the cost of emergency
tariffs on Chinese products. And China is focused more than ever on
self-reliance, rapidly developing domestic technology to replace high-tech
American products.
Trump’s “impatient unilateralism and decoupling” was “a
largely failed approach,” writes Scott Kennedy, a senior adviser and trustee
chair in business and economics at the Center for Strategic and International
Studies, in an article titled “A Complex Inheritance: Transitioning to a New
Approach on China.” It was published on the CSIS website on Jan. 19, a day
before the presidential inauguration of Joe Biden.
The article was praised on Jan. 20 by Malcolm Riddell,
author of the online China Macro Reporter, who wrote, “Of the many prescriptive
China essays I have read, this is among the top.”
Kennedy isn’t soft on China. He says the strategy followed
by Trump’s predecessors, which he calls “patient multilateralism,” would also
not work with President Xi Jinping, who he says is “aiming to dominate the
commanding heights of the global economy.”
What to do is more complex than just deciding where to
settle on the scale of recoupling or decoupling the two economies, Kennedy
writes. He breaks the problem down
into four categories. One includes things that Biden
can and should do unilaterally because they’re good for the U.S. and
don’t hurt anyone else, such as supporting the World Health Organization,
the World Trade Organization, and the Paris climate accord—all of which
Biden is already doing. “Taking these steps early will help clarify that the
world’s most serious challenge is China, not U.S. allies and the international
institutions they helped build,” he writes. He says the U.S. should roll back the Section 232 tariffs
on steel and aluminum imported from America’s allies while keeping
them in place against China and Russia, which have been accused of dumping
steel at below cost.
At the other extreme are U.S. actions that would very much hurt China but
that Kennedy argues the U.S. should take unilaterally anyway, such as toughening
sanctions for abuses of human rights, delisting Chinese companies operating in
the U.S. that don’t comply with U.S. financial reporting requirements, and
keeping in place bans on Chinese telecommunications companies that are
suspected of being threats to national security.
“Far more complicated,” Kennedy writes, are Trump polices that
the U.S. shouldn’t reverse unilaterally. One category is Trump
initiatives that “have hurt the U.S. economy, eroded U.S. soft power, done
little to advance U.S. national security, and damaged the United States’
relationships with allies, all without imposing substantial costs on China.”
This, he says, includes Section 301 tariffs on Chinese goods, closing of
consulates, and tit-for-tat expulsion of journalists. Rather than simply
rolling these back, Kennedy says, the U.S. should engage in “bilateral negotiations in which
China either reciprocates or addresses the U.S. concerns that
prompted the restrictions to begin with.”
Last come the Trump administration’s crackdowns on companies such as
Huawei Technologies Co. that may help protect national security
but at a cost. “The Trump administration dramatically broadened the basis
for being targeted, from asking whether a U.S. exported product could harm U.S.
national security if it got into the wrong hands to whether companies could not
be trusted because they were Chinese and subject to Beijing’s control,” he
writes. Treating foreign companies differently from domestic ones—known as extraterritoriality—sets
a precedent that other countries, including China, could exploit, he writes.
Kennedy says the U.S., working with allies, should develop standards that
protect national security and that “if adopted by China, would at least in
principle not be objectionable.”
People can reasonably disagree with the fairly hawkish
Kennedy about where to set the dial on U.S. relations with China, but he
provides a service by breaking the relationship down into four distinct
categories, each with its own challenges. As he writes, “To successfully
transition to a new and more effective China strategy, the various existing
measures should not be treated in the same way.”
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