The Official Indictment of Rentboy.com’s Founder Will Infuriate You

Kevin HurantFive months after arresting the chief executive officer and several employees of Manhattan-based Rentboy.com, a site that hosted men offering escort services to other men around the world, the Eastern District of New York has finally gotten federal indictments via a grand jury.

The indictments are only against founder and CEO Jeffrey Hurant and the company, Easy Rent Systems Inc., which controlled Rentboy.com. None of the other employees have been indicted, but a spokesperson told Reuters that criminal complaints against former employees are pending (one assumes, after they agree to plea deals in exchange for providing ammunition against Hurant).

I’ll attach the full 17-page indictment at the bottom, but I’ve got plenty of observations about the contents. There are three charges in the indictment. The first is promotion of prostitution against Hurant. Hurant is accused of running a business enterprise that violates New York’s prostitution laws. But yes, this is a federal indictment.  The U.S. attorneys are invoking the federal Travel Act, which allows the Department of Justice to turn certain state-level crimes like gambling, prostitution, bribery, and arson into federal crimes if it involves interstate or international communication. The second and third charges are money laundering conspiracy and money laundering charges for obviously taking money to host the escort ads at Rentboy.com. Those are the only charges in the indictment. This will become relevant as I explain the actual content included in the indictment.

Some things to note:

That Rentboy.com prohibited text advertising sex for money is presented as evidence of promotion of prostitution. The indictment notes that escort advertisements in advance and told escorts they could not actually offer sex for money, because that was illegal. What they could offer was their time in exchange for money. That Rentboy.com was advising its clients that they could not advertise prostitution and warned them whenever there were police anti-prostitution activities in their area is apparently proof that they were promoting prostitution. At one point, in response to police actions in Miami, Rentboy.com warned “ESCORTING IS LEGAL as long as you are offering your time and companionship, or non-sexual massage in exchange for money. OFFERING SEX FOR MONEY IS ILLEGAL. You cannot offer sexual services in exchange for money.”

None of us are naïve about what Rentboy.com actually did. Clearly the clients it hosted often provided sex for money. Nevertheless, it is telling that the indictment puts such an emphasis on how Rentboy.com tried to make sure its clients were not advertising prostitution essentially as proof that Rentboy knew that prostitution was going on.

The indictment attempts to tie Rentboy.com to human trafficking cases, despite no human trafficking charges. When Rentboy.com’s offices were initially raided, the initial complaint gave no indication that anything non-consensual was happening through Rentboy.com’s advertisements that Rentboy.com knew about. There was no implication of human trafficking or forced participation. The absence of such claims in an environment where police and prosecutors are quick to insist (often inaccurately) that women are being trafficked against their will for heterosexual prostitution was telling. As a result, critics of the Department of Justice’s behavior (myself included) blasted a crackdown and arrests for behavior that all appeared completely consensual and prosecution that appeared on the surface to be driven by puritanical attitudes toward sexual interactions between men, complete with lurid descriptions of sexual practices.

Apparently this criticism did not go unnoticed by the attorney’s office. Obviously an order went out to find any evidence that Rentboy.com might have facilitated any sort of non-consensual human trafficking. Between the period where Rentboy.com was raided and yesterday’s indictment, Florida saw a very high-profile forced gay sex trafficking case. Three men stand accused of luring men from Hungary to the United States and forcing them into sex work. It’s a very serious, horrifying case. One man has already been convicted and sentenced to 11 years in prison.

According to the indictment, these men advertised their victims on Rentboy.com (and elsewhere). Rentboy.com does not stand accused of knowing that these men were being trafficked or participating in the trafficking in any way. Hurant is not charged with violating any human trafficking laws. The kidnappers met their victims through a completely different site. It’s a transparent attempt at guilt by association. The indictment notes that one employee (apparently not Hurant) said in an email, upon hearing about the sex trafficking arrests, that he highly doubted the victims were sex slaves. What does this personal opinion have to do with the actual charges against Hurant? Very little.

Additionally, the indictment has a lengthy section criticizing Rentboy’s less than stellar handling of possibly underage male escorts in advertising originating from Asian countries. I don’t want to dismiss the concerns here, because if these accusations are true, the company, at Hurant’s and managers’ urging, did not adequately apply their own standards for proof of age for escort ads originating from Asian countries. One email (the indictment doesn’t make it clear who sent it) said “In Asia ok to approve them … unless you see a baby … :)”

So, that’s not very good, and yet the indictment fails to provide any actual evidence that ads for underage escorts appeared on the site, and again, neither Hurant nor Rentboy.com are facing any human trafficking charges, though it wouldn’t surprise me if the DOJ were trying to hunt some of these escorts down for proof that they were minors.

The DOJ wants a payday. The final four pages of the indictment list everything the U.S. attorney’s office wants to seize and keep from Rentboy.com. It includes $71,000 taken from Rentboy.com’s, office, about $228,000 from four different bank accounts (including Hurant’s personal bank account), approximately $1.2 million from two Ameritrade accounts held by Hurant and Easy Rent Systems, and ownership of the Rentboy.com Internet domain name.

Read the indictment below and responses by lawyers for Rentboy.com here. Also be sure to read Elizabeth Nolan Brown’s recent Reason cover story about how the war on sex trafficking is becoming the new war on drugs.

Rentboy Indictment

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The Libertarian Movement: Too Extremist, Too Moderate, or Just Right?

Some interesting recent sprouts in the fertile field of libertarian activists and polemicists arguing about appropriate or effective techniques for same, launched by the Niskanen Center’s Will Wilkinson’s two-part essay (highly shared and lauded in social network spaces where libertarians dwell) trying to totally destroy, as the kids say on the internet, the famous statement from Barry Goldwater’s 1964 acceptance speech for the Republican Party’s nomination: “Extremism in defense of liberty is no vice. Moderation in the pursuit of liberty is no virtue.” 

That Goldwater slogan, Wilkinson thinks, has warped libertarian brains ever since. As Wilkinson notes, the words were “put” in the speech by future libertarian movement firebrand Karl Hess, though Hess in his memoir Mostly on the Edge says he got the phrase from Straussian superstar Harry Jaffa. Credit or blame for it is a muddy trail Wilkinson strolls down at his leisure.

The first part reads mostly like pure intellectual history of the phrase, and has little obvious relevance to the contemporary libertarian scene or the Niskanen Center’s mission. Wilkinson brings out, amidst the aforementioned twisty and inconclusive forensic history of the phase, that it could (or even should) be interpreted to defend violence, that southern racists believed their violent extremism against black civil rights was in defense of their liberty, and that Timothy McVeigh blew up a lot of people in what he thought was a protest against government attacks on liberty. 

Since no one in the modern aboveground libertarian movement openly advocates murderous violence (or seem openly inspired by Goldwater’s phrase much even if they disagree that it means “murderous violence in defense of liberty is OK”), one must go to part two, focused on “moderation,” for modern relevance.

Wilkinson stresses he’s concerned with practicality. If one can achieve victories for liberty by means of persuasion, and not the “extremism” of violence (with Lincoln’s actions in the Civil War as an example of the latter), surely that’s preferable? Surely, and persuasion is what libertarians try to do, more or less successfully.

When libertarians accuse others of being insufficiently extreme in their libertarianism, it’s generally not about the means (always persuasion of some sort, in some arena) but the ends. Milton Friedman’s polemical success in eliminating the draft is labeled a victory for “modernation” because it was based in persuasion and not violence. One could argue that Friedman’s goal, though, was extreme in calling for a complete end to the draft, not to just limiting its application or widening loopholes or limiting its time periods or raising soldiers’ salaries. It didn’t seek a small change in the draft; it called for a huge, one might even call “extreme,” change.

But Wilkinson says:

 In terms of practical life, political or otherwise, moderation in principle means hammering out workable compromises with people who hold to different principles…..This need not be understood as moderation in the sense of watering down our principles, or admitting that they are wrong in order to get along. Milton Friedman and Martin Luther King, Jr. never backed down from their radical principles. We need “moderation in principle” in the sense of being willing to negotiate toward public rules that do not perfectly conform with our principles, and to abide by those rules, even as we act to change them in the direction of our principles.

…..A free-for-all of extremism isn’t likely to bring anyone around, so what good is it? At best, extremists about rival conceptions of prime political values hive off into polarized camps and regard each other as bitter enemies in a high-stakes culture war. And this sort of enmity breeds mutual distrust. Cooperation breaks down and gains from cooperation go unrealized, even on matters about which where there’s no underlying disagreement….

That “extremism” in the ideological sense won’t bring anyone around seems unproven, and at least slightly belied by the history of the modern American libertarian movement in terms of winning ideological devotees—that is, “bringing people around.” It has not in most cases brought around either enough or the right people for many or most specific policy changes, to be sure.

Real political change, Wilkinson points out, of necessity involves negotiation and persuasion with people who don’t agree with you on core issues. It requires actual human interaction based on at least some trust and some sense of respect. The “spirit of moderation that engenders open-mindedness and mutual respects helps a lot in this regard. Maybe this is the most compelling reason to embrace moderation in pursuit of justice: it’s more likely to work.”

Movement libertarians, Wilkinson says, often argue from a position of such essential mistrust or moral condemnation of state action, a desire for a government of a size and function that has never been real in history, that it “takes nearly everything off the table of democratic negotiation…[leaving] no space for politics, as it is commonly understood.” Thus, they tend to be bad at

the roiling adversarial mess of multiparty democratic politics. Accordingly, libertarians tend to see democratic politics as an ungodly festival of thuggery and mutual predation. Active political participation is seen as wicked, futile, or both. It’s hard to think of a political philosophy less likely to inspire its adherents to throw themselves into the hard work of real politics, or to see any virtue in it….when fire-breathing dogmatists predictably fail to make any headway democratically—“working within the system”—they tend to perversely interpret this as evidence of the hopeless corruption of the system and the pointlessness of trying to get anything done using ordinary “moderate” democratic political tactics. This, in turn, confirms in their minds that extreme measures may be called for, since “moderation” seems to get nothing done. It’s a cozy, self-reinforcing loop of principled ineffectuality.

Wilkinson advocates instead that libertarians should:

see polities and economies alike as dizzyingly complex emergent systems that we should try to understand and improve, but not as the sorts of things about which we can make reliably decisive moral judgments, and certainly not the sorts of things we ought to seek to replace wholesale with castles of imagination built on philosophical theory.

A libertarianism that has a place for democratic politics has a place for the virtue of pursuing liberty and justice through moderate, democratic means. A libertarianism that can see dignity and virtue in democratic participation, that doesn’t need to insult potential political allies, or scare them off by constantly pining for what most people see as a crazy, scary, speculative utopia … a libertarianism like that can win friends and influence people. This sort of libertarianism, comfortable with moderation, can actually move the needle—can actually deliver incremental pro-liberty policy reform.

I don’t know about you, but I want more freedom in my lifetime. I want it soon. And I’m not moving to a charter city or a man-made island. I want more freedom here, in America—which is, by the way,  never going to be a majority-libertarian country. But that’s okay. We can make it a considerably freer country, anyway. It’s possible to nudge enough people to see the merit in moving the dial a little toward liberty on this or that specific issue, issue after issue, over and over again. That is, it’s possible if enough of our fellow citizens will listen to us, if they will trust us, if they come to regard us with the respect that is engendered by respect. 

Some very broad brush observations: Perhaps that “nudging” has to or at least can come from education or conversion in the “extreme” forms of libertarianism? Why would people keep shifting even little bits toward liberty if they don’t believe it, and shouldn’t believe in it motivate the shifts? It could be that Wilkinson wants a more purely empirical libertarianism that stresses mostly or only issues that see obvious improvements for most people in their circumstances by libertarian change, unconnected with larger questions of the moral purpose of government. That may be what he means, and it may be true. But many desirable libertarian changes, such as those related to defense or criminal justice, seem to me empirically to be mostly motivated by a high-minded sense of justice, as the changes have very small to non-existent effects of the lives of most citizens.

Wilkinson’s empiricism would feel more rooted if examples of “incremental pro-liberty reform” that were blissfully free of libertarian extremism, however defined, were provided. (As long as it’s agreed that the “extremism as violent revolution” part he spent so much rhetorical time on is irrelevant to anything about the libertarian movement or modern America in general.) After the fog of violence is waved away, as it should be, I interpret him as saying that coming into real politics—defined apparently as the part where one is actually crafting laws and getting legislative bodies to pass them, which the Niskanen Center’s efforts are about, not electoral politics—like gangbusters with “it’s a pure libertarian solution we are seeking” is a bad idea.

It’s possible I’m mistaken in understanding the precise arena in which he means this advice to be taken, but  electoral politics may be where moderate attitudes of compromise are more appropriate, if one wants votes to matter, since no electable candidate is apt to have a full body of extreme libertarian ideas. Is this advice being given only to politicians, who have to vote for some specific law or proposal that comes to their attention? If it was, it makes some sense.

But for activists and proposers and crafters of policy ideas that you hope will become law, why not be a consistent and hopefully persuasive voice for a proposal that goes all the way you want to go? If you don’t, who will?

If you lose that fight and the choice then becomes, do you as libertarian individual or institution become a “supporter” of half-measures in the sense of declaring that well, you and whatever political forces you command are OK with and consider such half-measures a better option than the status quo, that’s different and likely wise. But perhaps that version of moderation doesn’t need to shape the initial process of what ideas libertarians active in politics propose and advocate.

Not to say there is no real world evidence for the good effects of avoiding libertarian extremism. For one example, I’m sure it has helped medical marijuana liberalization that most of the people pushing it avoided linking the issue with complete legalization at first.

Then it likely helped the rising tide of complete pot legalization that it is usually not linked with complete drug legalization, as much as that might annoy me. Arguments about costs and medicine and harmlessness and overkill that a more extreme libertarianism might condemn as besides the real point about self-ownership seem to be very convincing.

However, some older crusades of libertarian content, from abolition to abortion to civil rights, seem to largely have both succeeded and been motivated by “extreme” positions of justice sought for and achieved. And, by definition, if we are ever to have complete legalization, some people somewhere sometime have to rigorously plump for complete legalization.

It may also be that winning in the real scrum of politics is less ultimately about “respect” from those who disagree, though it may have that as a necessary-not-sufficient condition, and more about convincing the people one is interacting with either that one is right or that one has created a political inevitability. I don’t see how either of those ends must be or even would necessarily often be achieved fully divorced from staking out an “extreme” libertarian position.

The Niskanen Center itself has no problem advocating what to most Americans is an extreme position on letting in Syrian refugees, and relies on moral fervor in doing so. (“Moderation” as a floating value might lead to the assumption that even the Center should move its policy positions closer to the status quo, for its sake, if moderation is thought to trump correctness or actual preference.) 

Neither I nor anyone else has adequate evidence for what is the best technique for libertarian political change, or indeed that there is a singular one. It is unclear if Wilkinson believes in a more purely elite model of such change, or if he believes that politicians must be swayed by a passionate and large enough portion of the electorate valuing and demanding libertarian change. That seems to me a vital point to settle or at least consider in this question of extremism v. moderation.

Likely in some issues, merely winning over a core policy elite is enough (as might well be the case for some issues of concern for Niskanen Center, like specific military spending priority changes or tech privacy matters). But for some others, perhaps more mass popular energy is needed. (I doubt a carbon tax will seem politically possible until enough politicians are convinced that opposing one will be politically disastrous; similar for more and easier legal immigration.)

A theory or empirically presented sense of exactly how policy change happens is likely needed to convince someone who thinks, roughly and colloquially, that if politics is a game of moderation and compromise by nature, let’s make them moderate and compromise in our direction by starting from the farthest edges of libertarian principles, not from a position that has been pre-compromised by that sort of moderation. 

Ilya Somin at the Volokh Conspiracy at the Washington Post offers what he calls a “moderate defense of extremisim in defense of liberty” that captures some interesting aspects of what that phrase might mean for the modern libertarian movement.

Somin points out that often extreme libertarian positions are just right. In fact, if one is selling one’s work as libertarian, and Wilkinson does call Niskanen Center a “libertarian think tank” (though its president Jerry Taylor seems sure there is essentially no support in America for libertarianism), that should be good reason to advocate those positions. The caveat would be Wilkinson’s belief, as detailed above, that pushing those extreme positions just won’t work in American politics.

But maybe the way to make them work is the slow game of public ideological persuasion that has been the business of libertarian organizations since the late ’40s that aren’t strictly about the legislative scrum. Perhaps the purest and most extreme form of those ideas will be, to many at least, the most persuasive or at least the most energizing. As I quoted libertarian economist Richard Ebeling in my book on the history of the modern American libertarian movement, Radicals for Capitalism, people aren’t inspired to go to the barricades to eliminate a milk subsidy.

Somin adds that there are examples where ideological extremism does seem practical, as in the moral energies of abolitionism and civil rights, and that extremism has a political value Wilkinson might miss:

Another advantage of advocating extreme positions is that the presence of strong, articulate advocates of them makes more moderate reformers seem mainstream and reasonable by comparison. The existence of extreme, but intellectually serious advocates of Open Borders helps the cause of more moderate immigration reformers in the long run. If Open Borders is seen as an extreme, but legitimate part of public discourse, moderate reform can no longer itself be portrayed as unthinkable extremism.

Somin also points out to Wilkinson, who frames his libertarianism as Hayekian, that Hayek himself was a loud believer in utopian radicalism in a libertarian direction as a positive force in political and social change. Hayek credited the Socialists (mistaken) utopianism as one of their powerful and successful selling points. (There is always, with thinkers as complicated as Hayek, more to “Hayekianism” than just any one quote of Hayek’s. Still, the man had studied the rise of socialism in great detail and he may well have understood something important about how dominant political ideologies can and do change.)

While the whole “extremism in defense of….” phrase’s importance as a driving force of libertarian strategy or tactics seems questionable to me, Wilkinson has raised important issues in his take on it—big and eternal questions for political radicals whose answers are likely eternally contingent.

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Philadelphia Could Make Musicians Register With the Police

Philadelphia Councilman Mark Squilla has Got a license for that?introduced a bill requiring the proprietors of any performance venue (including concert halls, nightclubs, bars, and even restaurants) to submit the names and contact info of any musical act (including DJs) into a city-wide registry. 

As reported by BillyPenn.com:

The proposal, which was introduced last week and is headed to a committee hearing, would directly involve the Philadelphia Police Department in the approval process for so-called “Special Assembly Occupancy” licenses — giving law enforcement de facto veto power over whether shows can be held at venues that hold 50 or more people.

The bill broadly defines “performance act” as follows:

“Performance Act” shall mean any person or group of persons engaged in the act of singing, disc jockeying, rapping, dancing, playing musical instruments, and/or acting for an audience or group of patrons. The term shall also include the presentation of streaming or recorded audio or video, whether or not obtained for a fee, where such audio or video is offered primarily for listening or viewing. 

Squilla denies that any “specific music acts created this issue,” but he told BillyPenn that police access to performers’ personal information “enables them to review past performances to see if there were any public safety issues.”

But Sean Agnew, a Philadelphia-based promoter, says venue owners almost never deal directly with artists and that such arrangements are made between agents, managers and people like himself. Agnew told BillyPenn he “books 600+ shows a year” and “can’t imagine a band’s representatives wanting to give their clients information over to the police without a really good reason.” He adds, “I’m just trying to think of a situation where the police want the addresses and numbers of the 10+ members of Arcade Fire … Seems really intense.”

Writing on his Facebook page, Councilman Squilla denies that a city-wide registry of performers will result from this legislation and insists “this provision is NOT intended to restrict artistic expression or any kind of entertainment but rather is aimed at addressing public safety and quality of life issues.”

So what exactly is the bill’s intent? Squilla explains:

The primary goal of this bill is to close a loophole in the current legislation that has allowed venues to operate without a special assembly license (SAOL). SAOLs are required for certain venues that have live musical and other entertainment. We learned that some operators were able to avoid obtaining an SAOL because there was no live music or a DJ but music was streaming or playing from an iPod or iPad.

Got that? It’s about ensuring public safety through enhanced licensing and making sure bars that don’t even use actual DJs to amplify music aren’t exempt from ponying up the requisite cash. Just in case you missed the point, the bill raises the license application fee from $100 a year to $500 every two years. 

Philebrity.com describes how the proposed law would work in practice:You used to be cool, Philly.

It would effect small shows and promoters who’d have to deal with all of this plus their rising fee costs, and it would also seemingly create a Brazil-esque mountain of bureaucracy and paperwork for the city to have to deal with, not to mention he Philadelphia Police Department using their resources to work on license approvals.

A representative of the Pennsylvania ACLU told BillyPenn, “This bill reflects a strange expansion of police duties and a dangerous muddling of the line between law enforcement and business licensing.” 

Writing at Philly Voice, Aubrey Nagle quotes Avram Hornik, whose company manages several Philadelphia performance venues:

“[Police are] not trained for it. They have enough responsibilities to police the city and keep the city safe — why do they have the responsibility for deciding if something is a risk or not?” Hornik said. “And if they don’t affirmatively say it’s safe, then if something goes wrong, they’re responsible.”

“The way this is drafted, it puts everything in the police’s court for everything that happens in his or her district.”

He added that the process would be susceptible to “prejudice, censorship or bias,” and that the lack of communication with those in the entertainment industry leading up to the bill’s introduction is frustrating.

It is hard to choose which way to define this story. On one hand, it seems like a classic example of a legislator acting out his puritanical fear of young people and their popular music. On the other hand, it’s an all-too-familiar case of the government chiseling into people’s ability to do business unencumbered by a plethora of occupational licenses and cumbersome regulatory hurdles that enrich no one but the agencies tasked with enforcing them.

Further, if enacted, the law would be yet another in what Reason contributor J.D. Tuccille calls “the spiderweb of laws, rules, and regulations that turn the majority of Americans into criminals.” Politicians like Squilla might think his bill is an innocuous improvement to city code, but such laws are always ultimately enforced by the barrel of a gun. Philadelphia’s lawmakers should seriously consider whether such potential confrontations are really worth the cost of making sure a bar’s iPad is appropriately licensed. 

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Time Is Running Out For Freeport After Downgrade To Junk And Striking Warning From Moody’s

Three weeks ago we wondered when Moody’s would finally get the Freeport McMoRan joke when, with its stock crashing to unseen lows, it would finally cut investment-grade rated FCX (Baa3) to its rightful place deep in junk territory:

As we noted then “the US copper and gold producer has seen its 5-yr CDS spread trading at implied junk levels for the last six months. Troubles have intensified over the past month and credit spreads now imply a 79% chance of default within the next five years.”

We got the answer last night, when Moody’s finally slashed its rating on the copper miner by four notches, from Baa3 to B1 saying “the downgrade reflects an increase in leverage stemming from a severe drop in copper prices last year.”

Moody’s downgrades FCX’s ratings, assigns B1 CFR; outlook negative

 

Moody’s Investors Service downgraded the senior unsecured ratings of Freeport-McMoRan Inc (FCX), and Freeport-McMoRan Oil & Gas LLC (FMOG) to B1 from Baa3. The rated debt instruments at FCX and FMOG are cross guaranteed by the respective holding companies. The ratings for Freeport Minerals Corporation were downgraded to Ba2 from Baa2. The rated debt instruments at Freeport Minerals Corporation (formerly Phelps Dodge) have a downstream guarantee from FCX. At the same time, Moody’s assigned a B1 Corporate Family Rating (CFR), a B1-PD Probability of Default rating and an SGL-2 Speculative Grade Liquidity rating to FCX. The outlook is negative.

 

The downgrade reflects the deterioration in FCX’s debt protection metrics and increase in leverage as a result of the more precipitous drop in copper prices in 2015, particularly in the last six months of the year as well as the collapse in oil prices, with prices continuing to be pressured downward in 2016. Based upon the company’s year-end reporting, we estimate that leverage, as measured by the debt/EBITDA ratio, is around 6x incorporating Moody’s standard adjustments.

But most ominously, Moody’s added the following striking warning:

We believe that the current environment is not a normal cyclical downturn but a fundamental shift in the operating environment for these commodities. As a consequence, a wholesale recalibration of ratings in the mining industry is deemed necessary. With the downturn expected to be deeper and longer, any material improvement in metrics will be protracted, absent the company’s ability to execute on its objective of reducing debt through asset sales and joint venture transactions. While we recognize that FCX has undertaken a number of steps throughout 2015 to respond to deteriorating market conditions, the ongoing ability to further adjust to a lower price environment is expected to be more challenging and the timing and execution of asset sales is uncertain.

In other words expect even more downgrades not only for FCX but for all its peers, and certainly for Glencore which we expect wil be downgraded any moment.

Then, overnight RBC had the following words of caution when it cut its FCX price target once again, from $8.00 to $6.50:

Our view: At current spot prices, we estimate that Freeport would have a cash shortfall of $1.8 billion over the next two years. Freeport has $4 billion of room on its revolver, but there is a risk that the company could breach its debt covenants by the end of 2016. As a result, Freeport is pursuing asset sales to reduce debt, including the $2.0 billion in maturities over the 24 months. At the same time, uncertainty remains with respect to ongoing negotiations with the Indonesian government. We expect the risks associated with asset sales and debt repayment, and the situation in Indonesia, to continue to weigh on the share price.  We maintain our Sector Perform recommendation and reduce our price target to $6.50.

 

Asset sales required to reduce debt: With $20.4 billion of debt on the balance sheet, $2.0 billion of maturities over the next 24 months, and little in the way of free cash flow at current prices, Freeport is focused on selling assets to reduce debt. The company has made it clear that it is trying to sell not only the O&G assets but also its mining assets. The company is targeting debt reduction of $5–10 billion.

 

Balance sheet and funding sensitivity: At spot prices, we estimate that Freeport would have a cash shortfall of $1.8 billion through 2017 and a much larger shortfall in 2018. The revolver should provide sufficient liquidity through 2017. However, the risk of a covenant breach and the large shortfall in 2018 highlight the need for asset sales.

As a result the joke today is on FCX shareholders who found a brief
respite in yesterday’s torrid rally, which has fully roundtripped today.


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HSBC Curbs Mortgage Options to Chinese Nationals Buying U.S. Real Estate

Screen Shot 2016-01-28 at 9.08.53 AM

Two days ago, I published a post explaining how the super high end real estate bubble had popped, and how signs of this reality have emerged across America. Here’s an excerpt from that post, The Luxury Housing Bubble Pops – Overseas Investors Struggle to Sell Overpriced Mansions:

The six-bedroom mansion in the shadow of Southern California’s Sierra Madre Mountains has lime trees and a swimming pool, tennis courts and a sauna — the kind of place that would have sold quickly just a year ago, according to real estate agent Kanney Zhang.

Not now.

Zhang is shopping it for a discounted $3.68 million, but nobody’s biting. Her clients, a couple from China, are getting anxious. They’re the kind of well-heeled international investors who fueled a four-year luxury real estate boom that helped pull America out of its worst housing slump since the 1930s. Now the couple is reeling from the selloff in the Chinese stock market and looking to raise cash to shore up finances.

In the Los Angeles suburb of Arcadia, where Zhang is struggling to sell the six-bedroom home, dozens of aging ranch houses were demolished to make way for 38 mansions built with Chinese buyers in mind. They have manicured lawns and wok kitchens and are priced as high as $12 million. Many of them sit empty because the prices are out of the range of most domestic buyers, said Re/Max broker Rudy Kusuma, who blames a crackdown by the Chinese on large sums leaving the country.

Well, I have some more bad news for mansion-flipping Chinese nationals.

From Reuters:

continue reading

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Will Record January Stock Volatility Produce Long-Term Tremors?

Via Dana Lyons' Tumblr,

The stock market has seen more big moves in 2016 than any other January in history; other volatile January’s have often come near market tops.

You may be familiar with the concept of the “January Barometer”. While there are different versions, they all fall under the same premise: as goes the first day or week or full month of January, so goes the rest of the year. Earlier this month, we looked into this indicator to some degree, given the historically poor start to the year in the stock market. Certainly none of these seasonal patterns work every time. However, from what we’ve observed, there does seem to be some degree of truth to the tendency of the stock market to follow its early January direction over the rest of the year.

Besides a historically weak start to the year, we are also witnessing a historically volatile start to the year. This is not terribly surprising, given that volatility is typically part and parcel of weak markets. But by one measure, we are seeing THE most volatile January in U.S. market history. Through today, there have been 17 trading days in January. Based on the Dow Jones Industrial Average (DJIA), 12 of them have seen moves of at least 1%, up or down. At 71%, this marks the highest percentage of January days seeing moves of at least 1% in history.

Given this development, we wondered if there was perhaps a January Barometer based on volatility as opposed to just weakness. Again, they tend to go hand-in-hand so there is not surprisingly some overlap. However, we took a look at all January’s over the past 100 years that exhibited a high level of volatility, as measured by an elevated number of 1% days. Since 71% is unprecedented, we had to relax the parameters a bit to find other years in the sample. So we arbitrarily picked January’s with over one third, or 33%, of their days moving at least 1%. This netted us 22 years prior to 2016 in the past 100 years.

Some of these years, not surprisingly, occurred after sustained bear markets had already driven stocks down some 20%, 30% or even as much as 60% off of their highs before January even got started. Again, such volatility is commonplace within the depths of bear markets, such as in the January’s of 2009, 2003, 1974-75 and the early 1930′s. As comparisons to our present situation, however, those years don’t seem to fit the bill.

So, of the original 22, we looked at just those years when January began with the DJIA within 10% of its 52-week high (this year began with the DJIA just less than 5% from its 52-week high). Such high volatility within arm’s length of a 52-week high is less conventional and probably serves to be a bit more instructive to our present situation. That stipulation weeded out half of the results and left us with the following 11 years:

1916
1929
1934
1939
1976
1983
1987
1999
2000
2008
2015

Now, if you know anything about your market history, that list of years may jump out at you – and not in a bullish way. Here they are on a chart.

 

image

 

First of all, 9 of the 11 occurred within the confines of a secular bear market (FYI, our view is that the market is still likely in the post-2000 secular bear so we are including 2015 in that category). Only 1983 and 1987 took place in a secular bull. And while the market fared just fine in the years following those two, 1987 did bring a little surprise later in the year. All in all, however, these volatile January’s that occurred relatively close to the DJIA’s highs did not lead to very attractive returns over the long-term.

image

Including the 2 occurrences in the 1980′s, a majority of these precedents showed negative returns as far out as 4 years. Yes, this study has involved a fair bit of data-mining, however, it is still difficult to run tests that produce results showing median 4-year returns in the red.

Is it a coincidence that so many of these volatile January’s coming just off of 52-week highs occurred during secular bear markets? We don’t know but we generally don’t believe in coincidences in the markets. Regardless, a large percentage of these previous occurrences very closely marked cyclical tops within those secular bear markets. If we are indeed still within the confines of the post-2000 secular bear market, the volatile January to begin 2016 would seem to bear the threat of another cyclical market top – and perhaps market tremors for some time to come.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.


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Saudis Have No Proposal To Cut Output

And with that we can close the chapter on today’s “Greece is fixed” “oil production will be cut” trial balloon/rumor fiasco.

  • SAUDI HAS NO PROPOSAL TO CUT OUTPUT 5%: OPEC GULF DELEGATE

To all those who panicked and covered their shorts, our condolences.

The reaction…

 

And just for good measure, because Riyadh has no intention on ending the production onslaught until the last shale driller lies crushed in the dust, the Saudis issued one but two denials.


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“The Level Of Alarm Is Extremely High” As Zika “Spreading Explosively” WHO Warns

Meet the new Ebola.

Well over a year since the global fears over the Ebola epidemic sent US stocks reeling in late 2014 ahead of an even sharper rebound, today the head of the World Health Organization delivered a very stern warning when she said that the Zika virus, a mosquito-borne pathogen that may cause birth defects when pregnant women are infected, has been “spreading explosively” in South and Central America.

“The level of alarm is extremely high,” WHO director general Margaret Chan said Thursday in an e-mailed statement according to Bloomberg. Chan said she will convene an emergency meeting on Feb. 1 in Geneva to consider whether to declare the outbreak a “Public Health Emergency of International Concern,” which can coordinate government responses to direct money and resources at the virus. She added that the spread of the mosquito-borne disease had gone from a mild threat to one of alarming proportions.

Bloomberg adds that according to Chan researchers are working to determine the exact link between the virus and birth defects such as microcephaly, which causes babies to be born with abnormally small heads and potential developmental problems. “The possible links, only recently suspected, have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions,” Chan told members of the WHO executive board in Switzerland.

One way in which the Zika virus is comparable to Ebola is that in both cases there is no vaccine and it could take years before one is available.

Another way the Ebola scenario could come back with a vengeance is that the WHO said that it expects the infection to eventually become common in the U.S. Travelers from countries with outbreaks have already been diagnosed on their return to America.

A report from Reuters confirmed this, when it noted that according to the WHO, the Zika virus may affect “between three million and four million people.”

The WHO’s director-general said the spread of the mosquito-borne disease had gone from a mild threat to one of alarming proportions.
Marcos Espinal, an infectious disease expert at the WHO’s Americas regional office, said: “We can expect 3 to 4 million cases of Zika virus disease”. He gave no time frame.

The WHO also added that it wants to prevent inappropriate trade or travel limits due to Zika, but it may be too late for that:

The WHO said it is working to increase surveillance and diagnosis of the virus to spot new cases. Public health officials may also work on methods of mosquito control, hoping to control the virus’s spread by reducing the vector it uses to travel from host to new victim.

 

That could be difficult because of the El Nino weather pattern, Chan said, which will bring unusually heavy rains, creating puddles and pools where the bugs can breed.

 

The new threat is that the virus, which has long been present in Africa and equatorial Asia, has spread to 23 countries in the Americas, according to the WHO. While many populations where the virus has long been present have immunity, that’s not the case in newly affected areas, which has raised the agency’s level of concern.

Without a vaccine or effective treatment, some countries have told women to put off getting pregnant for several years.

But the worst news from this outbreak may be for Brazil which has reported 3,893 suspected cases of microcephaly, the WHO said last week, more than 30 times more than in any year since 2010 and equivalent to 1-2 percent of all newborns in the state of Pernambuco, one of the worst-hit areas.

Workers in hazmat suits fumigate the Sambadrome ahead of Carnival celebrations in Rio de Janiero, Brazil.

It is so bad that Brazil has warned the viral outbreak may affect the 2016 Summer Olympics, with the government admitting that it has been a formidable fight. Earlier this week, Brazilian Health Minister Marcelo Castro said the country was losing the battle.

Rio’s authorities have been particularly alarmed by the statement, as the city, usually a hotspot for dengue, will receive hundreds of thousands of visitors during the upcoming Carnival and the Olympic Games set to open in August.

The anxiety over the spread of the Zika virus has become international after several Latin American countries reported hundreds of Zika cases.

Earlier this week, the United States reported its first microcephaly case related to the Zika virus. The mother of the infected baby has been to Latin America. Some countries have issued alerts warning pregnant women not to travel to Zika-affected regions.

Will the Zika panic reach Ebola proportions? For now the story has been mostly contained domestically, however several more Zika cases on US soil and the fear and loathing of October 2014 may quickly repeat once again.


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ACLU Documents Racially Skewed Enforcement of Seat Belt Laws

According to a new report from the American Civil Liberties Union (ACLU), blacks are twice as likely as whites to be pulled over in Florida for failing to fasten their seat belts. Although Florida survey data indicate that blacks are slightly less likely to buckle up than whites, the difference is only 7 percent, so it does not come close to accounting for the 100 percent difference in seat belt citation rates. In some jurisdictions, the difference was even bigger: about 200 percent in Orange and Palm Beach counties, 300 percent in Escambia County. The ACLU says “these racial disparities raise serious concerns that law enforcement [agencies] engage in racial profiling when enforcing the Florida Safety Belt Law.” 

The report analyzes data that state law requires police to report (although the ACLU notes that compliance with that mandate fell from 293 agencies in 2007 to 147 in 2014). The ACLU’s main calculation is based on citations per 100,000 people: 1,821 for blacks vs. 970 for whites in 2014. The report also notes that blacks accounted for 13.5 percent of resident drivers but 22 percent of seat belt tickets that year. “If Black people had been stopped and ticketed for seatbelt violations in proportion to their estimated representation among Florida drivers,” the ACLU says, “they would have received 20,296 fewer seatbelt citations in 2014.”

The ACLU suggests several reforms to address the racial disparity in seat belt stops, including better enforcement of the reporting requirement and investigation of agencies with especially large disparities. Conspicuously missing from the list: repealing the state law that requires people to wear seat belts, or at least the part of it that authorizes “primary enforcement,” which lets police stop a car if they suspect the driver or a passenger is not complying. Florida is one of 32 states with primary enforcement of seat belt laws; in the other 18, police need an independent reason to pull a car over, after which they can write a seat belt citation if it is justified.

Primary enforcement of seat belt laws gives police yet another excuse to hassle people who are not violating anyone’s rights, yet another pretext for stops aimed at discovering consensual “crimes” such as drug possession, yet another occasion for initiating an encounter that may result in protracted detention, a humiliating search, legalized theft, assault, kidnapping (a.k.a. arrest), or even death. As the ACLU notes, the policy also provides yet another opportunity for racial biases to influence law enforcement. Assuming seat belt enforcement is often a cover for stops aimed at implicating people in drug offenses and/or seizing property allegedly connected to drug offenses, the same factors that make blacks especially likely to be arrested on drug charges may help explain racial disparities in seat belt citations.

Inviting these intrusions, whether racially motivated or not, is especially hard to justify when the aim is stopping people from driving without a seat belt, a self-endangering habit that (like riding a bicycle or motorcycle without a helmet) does not pose a threat to others. Back in 2005, when only 20 states let cops pull over unbelted drivers, I wrote a feature story for Reason that noted the potential for the sort of mischief highlighted in the ACLU report:

As states move toward primary enforcement (which the transportation bill signed by President Bush in August encourages them to do with a promise of extra highway money), seat belt laws may arouse more resentment and concern, especially since traffic stops can lead to further hassles, such as interrogation and examinations by drug-sniffing dogs. Fear of racially tinged police harassment was the main reason New Jersey, the second state to adopt a seat belt law, did not follow New York’s lead in allowing primary enforcement, and most states copied the New Jersey model. “Do I think racial profiling is an issue?” says MADD’s Chuck Hurley, who lobbied for stricter seat belt laws when he worked at the National Safety Council. “Yes, I do.” But Hurley doubts primary enforcement of seat belt laws will noticeably worsen the problem, and he argues that it makes sense as a matter of consistency: If you can be pulled over for a broken tail light, why not for failing to buckle up? One answer is that the broken tail light poses a potential hazard to others, while the unbuckled seat belt does not. But unless they want to repeal existing seat belt requirements, says Hurley, politicians who oppose primary enforcement are left to argue, rather implausibly, that it’s “the Maginot Line between enough government and too much government.”

Even if you don’t object to the paternalism inherent in legally requiring people to use seat belts, you might rationally object to laws that expand a cop’s disturbingly broad power to mess with you.

[Thanks to Marc Sandhaus for the tip.]

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Biotech Bloodbath As Investors Seek Safety Of Facebook 83x P/E

Biotechs are getting crushed, extending losses of the last few days as it appears the earnings beat for Facebook has sparked a great rotation from everything into the social network.

 

Because nothing says safety like a stock trading 83.5x P/E…

 

Yes we know Fwd P/E is “just” 35x… This has dragged FB back into the green for the year but TSLA and NFLX are getting hammered…


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