“Be water, my friend.”
-Bruce Lee

Today’s greatest strategic threat to our Western democratic way of life is the Chinese Communist Party (“CCP”). Under the PRC’s President Xi Jinping, China is grabbing for what she believes is rightfully hers: Hegemony in Asia and dominance of the Western Pacific.

This matters. It is of relevance to all societies as the CCP undermines our way of life by infiltrating our economies, our educational institutions, our military and national security establishments and more.

The Biggest Threat to the West - China cartoon 05.09.2016

The CCP’s well-planned and carefully executed approach is multi-pronged and takes many shapes and forms: From the One Belt One Road initiative, to territorial claims in the far reaches of the South China Sea, domestic “unification” efforts targeting ethnic minorities including Tibetans and Uyghurs, and the PRC’s secretive and military driven space program.

Many of these questionable [Ethnic Cleansing] and controversial [Neocolonialism] efforts have gone unchecked by the international community. The World Bank is even accused of funding what are essentially concentration camps in Xinjiang Province – officially for the purpose of “Technical and Vocational Education and Training” of the Uyghur people.

Recently unearthed documents show that World Bank development funds were used by the CCP to purchase tear gas launchers, anti-riot batons, camouflage clothing, “stab-resistant clothing,” “stab-resistant gloves,” helmets, metal detectors, police batons, and barbed wire.

While few have stepped in to limit the CCP’s ruthless march to domination, in recent months one group of people have raised their voices loudly and forcefully to say to Beijing and the World that enough is enough: The People of Hong Kong.

It all started with a nonsensical extradition bill proposed by the Chief Executive of Hong Kong, Carrie Lam. Yet now, the protests have crystalized around key additional themes: primarily that Hong Kong is different from the image of China that the CCP is creating. As Hong Kongers, we want to live in a free, open, democratic society.

This is a critical threat to Xi and his hegemonial plan.

As Beijing has slowly but continuously violated the One Country Two Systems principle enshrined in the 1984 Sino-British Joint Declaration, the young generation in Hong Kong is fighting for its future. The fact that the protests have at times brought 2 million residents (out of 7.4 million in total) out into the streets is testament to the widespread support of this movement.

Hong Kong is also home to a large expatriate community in support of a plethora of multination corporations. They have chosen Hong Kong due to its strong legal system, excellent infrastructure, its business friendly tax system and stable society. Because Hong Kong is not the PRC. US corporations with significant presence in the territory include: Bank of America, Disney, JP Morgan, Goldman Sachs, IBM, Morgan Stanley, Ralph Lauren, etc.

Hong Kong’s flag carrier, Cathay Pacific Airways has stunningly seen its CEO, Rupert Hogg, and separately its Chairman, John Slosar, resign because the CCP required the airline to suspend any employees supporting the protests in Hong Kong. The CCP message is crystal clear: You may only operate your business, if you don’t challenge us.

Several of my friends in Hong Kong have expressed significant enough concerns about recent developments that they are now making plans to leave their hometown. What happens when the international business community no longer sees Hong Kong as a viable place from which to conduct its Asian and China business?

And how does one fight against a totalitarian government that is turning into a police state?

The leaderless protest movement in Hong Kong, with its broad societal support has taken Bruce Lee’s strategy to heart. And so far, the Hong Kong Government has not found a recipe to quell the determination of the people.

“I said empty your mind. Be formless, shapeless, like water. Now you put water into a cup, it becomes the cup. You put water into a bottle, it becomes the bottle. You put it in a teapot, it becomes the teapot. Now water can flow or it can crash. Be water, my friend.”

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.36-1.77% (bearish)
UST 2yr Yield 1.38-1.71% (bearish)
SPX 2 (neutral)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 61.62-64.03 (bullish)
REITS (VNQ) 91.11-94.25 (bullish)
Financials (XLF) 26.21-28.39 (bearish)
Shanghai Comp 2 (neutral)
Nikkei 206 (bearish)
DAX 115 (bearish)
VIX 13.25-21.18 (bullish)
USD 97.90-99.21 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 105.50-108.20 (bearish)
GBP/USD 1.20-1.24 (bearish)
USD/CHF 0.97-1.00 (bearish)
Oil (WTI) 53.89-58.32 (bearish)
Nat Gas 2.15-2.64 (neutral)
Gold 1 (bullish)
Copper 2.51-2.68 (bearish)

Best of luck out there today,

MB

Michael Blum
President

The Biggest Threat to the West - china