West fans Myanmar flames to try and burn China

Plus recovery inflation, Amazon’s non-union, Alibaba’s fine, and Palantir and the nukes

Thank you for reading another edition of Contention! This week we’ve got just about eight minutes of wildcat business news. We cover:

  1. Recovery is real, and families will pay for it

  2. West fans Myanmar flames to try and burn China

  3. Rapid round: Amazon beats the union, China fines Alibaba, Palantir protects the nukes

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Recovery is real, and families will pay for it

U.S. equity markets surged to record levels last week as economic indicators continue to point to a historic economic recovery. The Dow added 2%, the S&P 500 2.7% and the Nasdaq 3.1%.

Adding to the rally: indications that most of the market’s inflation fears will land on working families, sowing the seeds for more austerity and profit-seeking to come.

The overall recovery is now undeniable, reaching deep into the economy, though jobless claims did come in worse than expected, hitting 744,000 vs. 694,000 predicted. But these numbers are all seasonally-adjusted, and last year’s pandemic crisis chaos has made the stats murkier than ever. So-called “base effects” will skew all sorts of numbers for the rest of the year

Services PMI numbers from earlier in the week underscore real optimism, as the economy’s largest sector expanded at the fastest rate in almost seven years. Bank of America credit and debit card data, a strong predictor of retail spending at-large, pointed to a 11.1% retail spending increase to come. January’s 5.3% gain was considered a blowout -- this will be one of the best months for consumer spending ever, if the numbers pan out. 

The underside to all of these gains: supply crunches driving up prices. The services PMI data showed a price index increase of 0.7%, the largest ever in the data series going back to 2009. Wholesale machinery and vehicle prices were up a whopping 6.7% month-over-month.

These costs showed up most dramatically in the Producer Price Index (PPI), the official inflation measure for business. They gained a full 1% for the month, far outpacing the Federal Reserve’s 2% target on an annualized basis. Economists expected only a 0.5% increase

These same supply problems also drove China’s PPI up 4.1% in March, compared to 1.7% in February. With the U.S. trade deficit at an all-time record, China’s producer prices are strongly correlated with U.S. consumer prices. Inflation looks to be on its way for everybody. 

This inflation is hardly a function of currency “debasement” -- Goldman Sachs closed out its dollar short position last week following a 3% gain in the dollar index this year. It’s because capital drives the economy -- not demand -- and major investors first failed to predict the pandemic last year and then failed to predict how it would turn out. 

Misallocated capital means frantic price signals, especially as central banks manipulate the most important prices of all, interest rates. Yields have ticked up in response to recent price increases, shoring up rich country currencies even while official inflation begins to rise.

That works well for those who have lots of currency on hand, but for working people the news is especially bad. Most of the inflation is happening in food, energy, and housing costs, hitting family bottom lines. That amounts to a loss in real wages as paychecks buy less, good news for employers that like desperate labor forces

Now look for amplified claims that crisis-era supplements to unemployment and forbearance programs are keeping workers out of the job market (as opposed to shrinking returns on labor). This new austerity push will take money out of the very same pockets stripped by inflation caused by the “recovery” only capital will get to enjoy. 

West fans Myanmar flames to try and burn China

On Saturday, Myanmar’s military forces killed at least 80 civilian protesters in Bago, a town 55 miles northeast of Yangon, the country’s commercial capital, according to Western-backed observers. The incident was only the latest in a surging, violent uprising since a Feb. 1 military coup. 

The conflict is as complex as Myanmar itself, with few good options for the long-suffering peoples of the country, but at least one of its aspects has become increasingly clear: Western powers are cynically manipulating it for their own geopolitical interests, with the worst yet to come. 

Myanmar -- known as Burma until 1989 -- has been under military rule since 1962. Elections in 1990 returned a landslide victory for the National League of Democracy (NLD) and its Oxford-educated liberal leader, Aung San Suu Kyi. The junta disregarded the results and placed her under house arrest, off and on, for 24 years. 

A new, military-written constitution in 2008 opened the door to limited civilian engagement in the government, and following another huge NLD victory in 2015, Aung San Suu Kyi became “State Counselor” -- the country’s formal civilian leader.

Since then, the Western darling has grown closer to the military and revealed her nationalist true colors, most notoriously by defending the country’s pogrom campaign against the Rohingya ethnic minority at the International Court of Justice. Aung San Suu Kyi refused to even acknowledge that the ethnic group exists. The NLD suppressed a number of ethnic nationalist parties and cancelled elections in minority zones for “security” reasons during November’s elections. 

So why did the military invoke a state of emergency and arrest Aung San Suu Kyi following that vote? Business. The NLD did slowly reform some of the country’s governance, and the military feared that these reforms might extend to the massive conglomerates its officers control, each with monopoly rights over major parts of the Myanmar economy. 

These conglomerates do big business with foreign companies. French oil giant Total and its U.S. rival Chevron buy $1 billion in natural gas each year from the military-controlled Myanmar Oil and Gas Enterprises (MOGE). Total announced that they would shelve new development plans in the country and donate the equivalent of its taxes to human rights groups. 

Korean steel giant Posco owns a 70% stake in a joint venture with Myanmar Economic Holdings Ltd. (MEHL), while two-thirds of Posco’s operating profits come from a natural gas deal with MOGE. The company fears that exiting the MEHL deal would threaten the MOGE cash cow. Japanese beer company Kirin also had major business with MEHL, but they have now withdrawn from the market. 

The generals have suffered far more than if they’d simply tolerated the NLD. Youth protests gave way to labor strikes which then led to general strikes by civil servants, health care workers, and even bankers. Military crackdowns on protests have killed hundreds so far. The upheaval has put Myanmar’s economy in freefall, with the IMF predicting last week that Myanmar’s GDP would drop 10% this year. 

Local businesses likewise have no love for the corrupt junta that has crowded them out of markets and charged them monopoly prices. The country’s main chamber of commerce cancelled a webinar with the military’s new investment minister because nobody -- not a single business owner in the entire country -- said they would attend. But the uprising has also centered in poor areas, with garment workers joining in demonstrations.

It’s into this volatile mix that U.S.-backed political forces have tried to secure an advantage over China. Myanmar and China share a 1,300-mile border, with Myanmar a crucial node in China’s Belt and Road Initiative (BRI). The infrastructure buildout would mean China could bring oil and gas supplies into the country over land, not through the Straits of Malacca, a strategic chokepoint at risk of U.S. attack. 

Western-backed NGOs have clearly tried to impose the same “color revolution” tactics promoted by the National Endowment for Democracy (NED) onto the Myanmar uprising. The NED is a CIA spin-off of the agency’s traditional mass political destabilization work, and the three-finger salutes, English-language protest signs, and “Milk Tea Alliance” branding connecting the campaign to liberal intrigue in Hong Kong and Thailand are all dead NED giveaways. 

Even more serious: protestors have burned down dozens of Chinese-run factories in the country, with Taiwan and the Republic of Korea telling businesses to fly their regional/national flags outside their Myanmar facilities to avoid violence. Prior to the coup, Western media had branded the NLD as a close China ally, with Aung San Suu Kyi visiting Chinese leader Xi Jinping seven times in recent years. All sides of Myanmar’s politics have to work with the country’s largest trading partner

Now Western interventionists are trotting out the same “Responsibility to Protect” justification used as a casus belli in Yugoslavia, Syria, and Libya. LIke those countries, past meddling by exploiting powers have left Myanmar’s ethnic politics a mess, but sparking that familiar chaos in the land between China and the Indian Ocean would serve Western interests well. Nothing would make U.S. leaders happier than a Syria-like situation in China’s backyard. 

Of course it will mean even more suffering for the people of Myanmar, but that’s never been important to U.S. calculations. In the meantime, neither the junta nor the Myanmar people look prepared to surrender -- just the course the plotters are hoping for. 

Rapid Round

Amazon beats union

Amazon workers at a plant in Bessemer, Alabama voted down a vote to unionize on Friday in a major setback for the Retail, Wholesale and Department Store Union (RWDSU). The company’s stock gained 2% on the news. 

Amazon appears to have won through a carrot-and-stick strategy, stressing benefits and a $15 starting wage that is twice the Alabama minimum, while holding mandatory anti-union meetings, texting workers on their phones, and putting signs inside bathroom stalls. The RWDSU claims Amazon illegally interfered with the union drive and filed a complaint with the National Labor Relations Board.

 Workers at other Amazon warehouses not in formal unions have nonetheless engaged in labor actions recently, with workers at one Chicago facility launching a wildcat strike last week over a brutal “megacycle” -- gruelling 10-hour graveyard shifts. 

Jeff Bezos meanwhile threw his support behind Pres. Joseph Biden’s infrastructure plan that would raise the corporate tax rate by 7% to 28%. The reason: Amazon needs infrastructure and rural broadband so more people can buy its products. The company added 500,000 workers to its payrolls during the pandemic, bringing its total workforce up to 1.3 million workers worldwide.

China hits Alibaba with landmark fine

China’s State Administration for Market Regulation slapped domestic tech giant Alibaba with a $2.8 billion fine for the online marketplace’s tactic of “choosing one from two,” preventing merchants from selling their wares on competing platforms. China is cracking down on anticompetitive activities in a widening antitrust campaign that has spread to most of the country’s tech giants.

The fine sets a record, but in absolute terms is relatively small for Alibaba at around 4% of its total 2019 domestic sales. Alibaba earned $24 billion in profit last year and had $48 billion in cash in December, but the scrutiny from the government has cut off $250 billion from the company’s valuation.

The People’s Daily described the fine as a “concrete measure to prevent the disorderly expansion of capital.” Next up: a potential breakup of Alibaba’s sprawling portfolio of companies including brands in the entertainment, media and fintech sectors.

Palantir goes nuclear

The National Nuclear Security Administration has awarded a $89.9 million contract to Palantir to track safety data in the U.S. nuclear weapons stockpile. The NNSA’s umbrella of responsibilities include Los Alamos National Laboratory and the Pantex Plant, the U.S. military’s primary nuclear weapons assembly and disassembly facility.

These complexes have struggled for years with safety and maintenance problems, all the more alarming given the danger of weapons of mass destruction. Los Alamos is at risk of radiation leaks caused by earthquakes in New Mexico. Pantex workers have reported stress and overwork causing maintenance to slip, and the warhead stockpile at Oak Ridge is so vulnerable an 82-year-old nun and peace activist broke into it. The NNSA also appears to have been a main target of the “Solarwinds” hack, likely the largest data breach in history. 

The U.S. military is also investing $1.7 trillion in new nuclear weapons. Palantir’s business model is to disaggregate, visualize and track large amounts of data, making the company’s software attractive to military, intelligence and police agencies.


Our only investment advice: Party Up.

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