Why We Worry

The Morning Call confirms that it is not written by Alfred E. Neuman

We know that the Dow just had its best month in 33 years and that the bulls are all back out in force, but we – as is our wont – remain incredibly concerned about the future of our business and, by extension, of the nation and the economy that the capital markets support.  There’s a reason for our concern, of course, and it can, we think, be summarized by two recent stories that explain, at least in part, the delusion extant in the current Wall Street zeitgeist.

The first of these comes from yesterday’s Wall Street Journal.  And the picture at the top of the piece is, we think, perfect, in that carries the visage of one of the key drivers of our concerns over the long-term future of the business.  The story goes like this:

In February 2018, Beijing’s chief trade negotiator was in Washington to try to avert a trade war. Before meeting his U.S. counterparts, he turned to a select group of American business executives—mostly from Wall Street.

“We need your help,” Vice Premier Liu He told guests gathered in a hotel near the White House, according to people with knowledge of the matter. They included BlackRock BLK 0.44% Chief Executive Larry Fink, David Solomon, then Goldman Sachs Group’s second-in-command, and JPMorgan Chase & Co.’s Jamie Dimon, there as chairman of the Business Roundtable lobbying group….

America’s money men have long held a special place in Beijing’s corridors of power, but until now their firms have had little to show for it. The Trump administration has tried to “decouple” parts of the two economies—a direction that the incoming Biden administration would have a hard time reversing and may embrace. The broader U.S. business world also has soured on engagement with China.

Wall Street, however, is going all in. Since the signing of the trade deal, JPMorgan will get full control of a futures venture in which they had a minority stake. Goldman Sachs and Morgan Stanley became controlling owners of their Chinese securities ventures. Citigroup Inc., meanwhile, won a custodian license to act as a safe keeper of securities held by funds operating in the country….

And in August, BlackRock became the first foreign firm to win preliminary approval to start a wholly owned mutual-fund business in China, a potential admission ticket to a vast market of largely untapped mom-and-pop investors….

BlackRock, like many other big asset managers, can’t afford to ignore China. At home, the market is saturated and a fee war is eroding profits. As BlackRock’s index-mirroring funds have knit more investors’ returns—and the firm’s fortunes—more closely with China, they have become conduits for greater Chinese integration in global markets.

“I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term, both for asset managers and investors,” Mr. Fink said in a March letter to shareholders, “despite the uncertainty and decoupling of global systems we’re seeing today.”

We’d point out the irony in BlackRock’s Fink praising the government of and going after “mom and pop” investors in a country where that government has spent the last half-century forcibly killing and aborting those moms’ and pops’ kids.  But that wouldn’t be anywhere near as rich as the irony in the fact that he’d profess his giddiness over the firm’s future in China in the same “March letter to shareholders” in which he reiterated the firm’s unflinching dedication to environmental “sustainability” as its primary investment focus.  Some might think that Fink’s willingness to ignore such contradictions could give the misimpression that he just doesn’t care about the CCP’s malevolence and is concerned only with expanding his own empire and his own power.  Others might say that that’s not a “misimpression” at all.

In any case, the second story was published on Sunday by CNN, of all outlets.  It explains, in part, why, as the Journal noted, “The broader U.S. business world also has soured on engagement with China.”  To wit:

In a report marked "internal document, please keep confidential," local health authorities in the province of Hubei, where the virus was first detected, list a total of 5,918 newly detected cases on February 10, more than double the official public number of confirmed cases, breaking down the total into a variety of subcategories. This larger figure was never fully revealed at that time, as China's accounting system seemed, in the tumult of the early weeks of the pandemic, to downplay the severity of the outbreak.

The previously undisclosed figure is among a string of revelations contained within 117 pages of leaked documents from the Hubei Provincial Center for Disease Control and Prevention, shared with and verified by CNN….

The documents, which cover an incomplete period between October 2019 and April this year, reveal what appears to be an inflexible health care system constrained by top-down bureaucracy and rigid procedures that were ill-equipped to deal with the emerging crisis. At several critical moments in the early phase of the pandemic, the documents show evidence of clear missteps and point to a pattern of institutional failings….

The leaked revelations come as pressure builds from the US and the European Union on China to fully cooperate with a World Health Organization inquiry into the origins of the virus that has since spread to every corner of the globe, infecting more than 60 million people and killing 1.46 million.

But, so far, access for international experts to hospital medical records and raw data in Hubei has been limited….

The documents show a wide-range of data on two specific days, February 10 and March 7, that is often at odds with what officials said publicly at the time. This discrepancy was likely due to a combination of a highly dysfunctional reporting system and a recurrent instinct to suppress bad news, said analysts. These documents show the full extent of what officials knew, but chose not to spell out to the public.

Now, none of this will come as a surprise to anyone who has been paying even the remotest bit of attention to China over the years or to the evil that lurks in the CCP.  Heck, back in February, just four days after the first verified “discrepancy” noted by CNN above, we published a piece titled “We Know They're Lying, But Why?” in which we wrote the following:

They’re lying about the number of people who have the novel coronavirus.  They’re lying about the number of people who have died from the novel coronavirus.  They’re lying about how long they’ve been aware of the existence of the novel coronavirus.  And they’re lying about heaven knows what else having to do with the novel coronavirus.  The Chinese government is doing what the Chinese government does, lying….

The Chinese government is less trustworthy than almost any institution on earth, save, perhaps, the government of its client state of North Korea, where Dear Leader shot 11 holes-in-one in his first round of golf, bowled a 300 the first time at the alley, and learned to drive when he was three….


Longtime readers know that we have been railing against the CCP and its risks to the financial markets (not to mention its risks to the people of China, the people of Hong Kong, the people of Taiwan, and…well…the world) for as long as the financial markets have expressed their intention to ignore those risks.  Indeed, we left our last job at a large financial services firm in part because the investment bank insisted on censoring our ability to discuss the risks posed by the CCP openly and honestly.

It is worth noting, we think, that our former firm no longer exists.  And while its desire to ignore the risks associated with Chinese government corruption and malevolence played little role in its collapse, its desire to ignore and even to PARTICIPATE IN other corrupt and malevolent activities DID play a role, a HUGE role.  It is also worth noting that when that collapse occurred, it nearly took the markets and the broader economy with it.  And it was a fraction of the size of the real players in the business – like BlackRock, Goldman, and JP Morgan, to throw out a few names at random.

The CEO of the largest asset management firm in the world has a similar desire to ignore corruption and malevolence.  In his eyes, China is the greatest opportunity ever, but you’re dangerous and pose a risk to the future of the markets and the planet because you drive an SUV.

And that’s why we worry.

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