BofA: To Save Markets Central Banks Just Made Inequality And Populism Even Worse

There is a large dose of irony to the post-Brexit market response: while on one hand stocks have soared and as of today the S&P500 has already recouped more than half its post-Brexit losses (the SPX sank 5.7% peak-to-trough since the referendum and has since bounced 3.5%) an even sharper reaction has been observed in bonds. As BofA’s Barnaby Martin points out, “the irony of recent events is that the combination of risk-off sentiment and expectations of further central bank support has caused another surge in negative yielding debt…which will only compound the issues of wealth inequality and populism.”

This in turn will lead to more Brexit-type events, resulting in even more forcible reactions by central banks, even more multiple expansion, even higher stock prices, even lower bond yields, even more scramble for yield and risk, and even more inequality, and so on until something snaps.

The details:

Since last Thursday’s Brexit, the stock of global negative yielding fixed-income debt has jumped by almost $1tr, and now stands just shy of $11 trillion (chart 12).

 

 

Note that Japan is a big driver of this, as market doubts over Abenomics grow. Japan’s negative debt now stands at $6.2tr, almost 70% more than the amount of Eurozone negative debt ($3.7tr), despite the latter having a large amount of negative yielding corporate, agency and securitized bonds.

 

No wonder then that more institutions are becoming vocal in their criticism of central bank largesse. Note the BIS over the weekend, in their latest annual report, arguing that easy central bank policies may well be a contributing factor to the rise of boom and bust economic cycles.

And some thoughts from BofA on the biggest Catch 22: Monetary policy and populism

The post-mortems of how Brexit came to be are still being written. While the economic and social issues at stake were profound and polarizing, many struggled to truly grasp their scope. Understandably, a perception versus reality gap was clear (chart 8).

 

In the end, populism – and a vote away from the status quo – was a likely Brexit driver. Voter anger over themes such as income inequality played its part (see Michael Hartnett’s Wall St. vs. Main St. phenomenon here). As Chart 9 shows, the wealthiest 10% of households in the UK own 45% of aggregate total wealth. And the wealthiest 10% of UK households are over 5x wealthier than the bottom 50% of households…

 

 

But, paradoxically, today’s extraordinary monetary policy backdrop is likely adding to voter angst and exacerbating the theme of rising wealth inequality, rather than reducing it. As we highlighted last October, consumer savings rates have gone up in countries where central banks are being the most aggressive with their interest rate policies. Chart 10 shows that household savings rates have gone up in Denmark, Switzerland and Sweden recently. In the case of Denmark, the rise was notable in 2015 and coincided with the Danish Central Bank moving rates into very negative territory (CD rates were quickly cut to -75bp in early 2015).

 

 

“Animal spirits” on the consumer side have not as yet flourished. Low yields are likely driving concerns over future income generation (i.e. retirement), and thus contributing to higher consumer savings rates…and paradoxically the feeling of higher wealth inequality. And so as chart 11 shows, policy uncertainty – and populism – is becoming a much broader affair.

But for now the very catalyst – i.e., monetary policy – that led to Brexit and caused the latest and most vocal yet response by central banks, is ignored because as Germany’s finance minister said it best:

  • SCHAEUBLE: EU MINISTERS, G-7 AGREED TO AVOID MARKET CHAOS

Because that’s all that really matters.

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100 Nobel Laureates Demand that Greenpeace Stops Killing Poor Children

BlindKidUniversityofIowaAn open letter today signed by 100 Nobel Prize Laureates calls upon the anti-technology activist group “Greenpeace to cease and desist in its campaign against Golden Rice specifically, and crops and foods improved through biotechnology in general.” The laureates point out that “scientific and regulatory agencies around the world have repeatedly and consistently found crops and foods improved through biotechnology to be as safe as, if not safer than those derived from any other method of production. There has never been a single confirmed case of a negative health outcome for humans or animals from their consumption. Their environmental impacts have been shown repeatedly to be less damaging to the environment, and a boon to global biodiversity.”

The laureates specifically demand that Greenpeace stop its attacks on Golden Rice which has been genetically enhanced to produce a vitamin A precursor as a way to prevent millions of deaths and cases of blindness annually in poor countries where the grain is the chief food staple. Vitamin A deficiency causes blindness in between 250,000 and 500,000 children each year, half of whom die within 12 months, according to the World Health Organization. A study by German researchers in 2014 estimated that activist opposition to the deployment of Golden Rice has resulted in the loss of 1.4 million life-years in just India alone.

Among the signatories are David Baltimore, Paul Berg, Elizabeth Blackburn, Steven Chu, Daniel Kahneman, and Harold Varmus.

The laureates’ letter states:

WE CALL UPON GREENPEACE to cease and desist in its campaign against Golden Rice specifically, and crops and foods improved through biotechnology in general;

WE CALL UPON GOVERNMENTS OF THE WORLD to reject Greenpeace’s campaign against Golden Rice specifically, and crops and foods improved through biotechnology in general; and to do everything in their power to oppose Greenpeace’s actions and accelerate the access of farmers to all the tools of modern biology, especially seeds improved through biotechnology. Opposition based on emotion and dogma contradicted by data must be stopped.

How many poor people in the world must die before we consider this a “crime against humanity”?

Actually, Greenpeace and other anti-biotech activists such as Naomi Klein and Vandana Shiva have long surpassed that threshold.

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Hillary Clinton’s Tech Platform: Government Meddling for Some; Incentives and Deals for Others

PhoneHillary Clinton has just released a huge policy guide detailing what she’s promising to accomplish for the behalf of the tech sector as president. The Washington Post noted that it “reads like a Silicon Valley wish list.”

Indeed, it’s extremely obvious that parts of the agenda were written by the interests themselves. To wit: “Localities may seek to stimulate more investment by current or new service providers by streamlining permitting processes, allowing nondiscriminatory access to existing infrastructure such as conduits and poles, pursuing ‘climb once’ policies to eliminate delays, or facilitating demand aggregation.” Let’s see that get excerpted as a quote in Clinton’s Twitter feed.

The larger substance of Clinton’s platform on technology tracks alongside Clinton’s overall plan to get elected: She’s presenting herself as President Barack Obama’s third term. Everything that the Obama administration has either promoted or done on tech issues, she seeks to continue.

Clinton wants a greater emphasis on STEM education and computer science in schools and more tech-oriented training opportunities, with more government involvement and “investment” (spending). She wants tax credits for tech incubators and entrepreneurs and college loan repayment deferment and partial forgiveness for young post-college people involved in startups. She wants to ease green card pursuits for those who get educations in the right tech fields.

And she also wants to continue the administration’s meddling in the development and spread of technology itself. She seeks to continue the Federal Communications Commission’s role—and the government’s role in general—to expand access to broadband internet access for all and essentially treat the internet like it’s a utility. Fortunately her platform is more about developing public-private partnerships instead of encouraging municipal services to attempt to compete with the private sector with their own services. Her platform doesn’t seem hostile to municipally controlled broadband, but that’s a potential disaster in the making.

She says that she wants to “reduce barriers to entry and promote healthy competition” for tech innovation. And then on that very same page she declares her support for “net neutrality,” which expands government power and takes control away from Internet providers and lets the government decide how flexible they can actually be. Net neutrality is a barrier to innovation.

Clinton and the people who put this policy paper together do not see a contradiction here. Note the use of the word “healthy” to modify “competition.” The government will decide what that means. That’s exactly what’s happening with the FCC and net neutrality. This is a paper fundamentally about how the federal government will either control outright or heavily nudge through incentives and grants how tech innovation progresses in the United States—and who gets to participate.

And so what we have at the end is documentation of who is going to have to lobby the Clinton administration and for what ends to make sure they benefit from tech policy. So much of what is proposed here—training, education, more innovation—is tied not just to regulation but government spending. This policy lets people know well in advance that the government under Clinton will most certainly be picking winners and losers over who gets grants and who doesn’t and who gets regulated and who doesn’t. Does your coding camp measure up? Will the FCC let you run your Internet service your way? It will be the government—possibly influenced by your competitors or rival influences—calling the shots.

Read through Clinton’s plan here.

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Hillary Superpac Has Taken $200,000 In Banned Donations

These past few weeks have been quite interesting for Hillary Clinton. We learned that Clinton omitted one key email from the State Department, that Hillary's official State Department calendar is missing a lot of entries, and we were reminded that it can be quite lucrative to be a friend of Hillary.

Now, courtesy of The Hill, we find that a super-PAC backing Clinton has accepted $200,000 in donations from a company holding multiple contracts with the federal government, despite a ban on such contributions. Said otherwise, the super-PAC is engaged in a pay-to-play deal. According to a review, Boston-based Suffolk Construction made two contributions of $100,000 to Priorities USA, who is backing Hillary Clinton for president.

From The Hill

According to a review of contributions by The Hill, Boston-based Suffolk Construction made two contributions of $100,000 to Priorities USA, which is backing the presumptive Democratic presidential nominee.

 

At the time it made the contributions, Suffolk held multiple contracts worth $976,560 with the Department of Defense for maintenance and construction projects at a Naval base in Newport, R.I., and the U.S. Military Academy in West Point, N.Y., according to the government website USASpending.gov.

 

Suffolk — which, by Forbes’s estimate, brings in some $2 billion in revenue annually — also donated $10,000 in 2015 to Right to Rise, a super-PAC that supported Republican Jeb Bush’s now-defunct presidential bid.

 

The donations from Suffolk highlight how a 70-year-old campaign finance law meant to prevent pay-to-play deals between public officials and companies making money from the government is often ignored by those making the donations and those on the receiving end.

 

The two contributions, one made in July and one in December, came during Clinton’s presidential primary battle with Bernie Sanders, who rose to prominence partly because he railed against super-PACs and the wealthy donors who fund them.

The Hill's review found that there is an increasing trend of contractors violating the law, betting that the politics of the FEC will never take action.

In addition to the donations to Priorities USA, The Hill found 14 federal contractors that had contributed a total of $173,250 to Right to Rise. Two had also given to Conservative Solutions PAC, a group that supported Sen. Marco Rubio’s (R-Fla.) bid for president.

 

One contractor, a Florida utility named Gulf Power Co., gave $44,000 to Right to Rise in March 2015. At the time, the company held more than $1 million in contracts with the Department of Defense.

 

The Hill asked Gulf Power whether the company was aware it was in violation of the ban and if it believed there was a conflict of interest in politicians benefiting from donations from federal contractors.

 

Jeff Rogers, a spokesman for the company, responded, “We believe Gulf Power’s right to make the contribution in question is constitutionally protected.”

 

Suffolk Construction, which since 2008 has received $169.7 million in federal contracts, according to USASpending.­gov, declined multiple requests for comment.

 

John Fish, the company’s CEO, has been a prolific donor to both parties over the years, though FEC records show he favors Democrats by a wide margin. He’s contributed thousands to President Obama’s White House bids and gave $500 to his 2004 Senate campaign.

 

Fish’s office did not return a request for comment.

 

The company itself has mainly funneled money to Republicans. In 2012 it gave $510,000 to Restore Our Future, a super-PAC supporting GOP presidential nominee Mitt Romney, and $50,000 to another group backing then-Sen. Scott Brown (R-Mass.).

 

Campaign finance lawyers say federal contractors that donate to super-PACs are taking a calculated risk that the politically deadlocked FEC will never take action against them.

Craig Holman of Public Citizen, an advocacy group says that "the increasing trend of contractors violating the law comes as no surprise," adding that "contractors now may circumvent the law either by creating an artificial division within the company for the purpose of making contributions, or even not bother with such machinations and make direct contributions, and can still feel assured they will not be prosecuted by a deadlocked FEC for violating the law."

* * *

Fred Wertheimer, president of Democracy 21, a campaign finance watchdog said "Every political operative and campaign knows that the FEC will not enforce the campaign finance laws. There's an old line: 'If you don't have enforcement laws, you do not have the laws', and that's what we're dealing with."

Sadly, Wertheimer is absolutely correct.

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The Real ‘Fear’ Index Just Went To ’11’

A funny thing has happened below the surface of the markets since late last year. As first The Fed, then The BoJ, and The ECB respectively saw their credibility crushed into a mumbling excuse pool of elite utterances as global bond yields crashed along with global growth and inflation expectations, professional investors have been busily buying crash protection (carefully masking their buying by managing 'normal' risk measure like VIX through endless nefarious cash, ETF, and Futures manipulation). But now, a week after 'Black Swan' bets soared ahead of the central-plan-destroying Brexit vote, the real 'fear' index has spiked to unprecedentedly high levels.

With VIX flip-flopping to and fro at the whim of every fast money trader…

 

Deep out of the money, and 'Black Swan' bets have been building…

"It's a black swan type of put," said Steve Sosnick of Timber Hill LLC. "It's very possible there will be an extreme result, and people like to have insurance against a low-probability, high-outcome event."

Smashing the SKEW Index – the real 'Fear Index' to 11 on the Spinal Tap amplifier of historical financial crises…

As a reminder, Skew measures the perceived tail risk of the market via the pricing of out-of-the-money options. Generally, a rise in skew indicates that 'crash protection' is in demand among institutional investors (institutional/professional investors are the biggest traders in SPX options).

In other words, professionals have rotated from 'normal' risk protection to 'extreme' risk protection at the largest pace on record all the while fooling the mainstream investor who sees a declining VIX and continues to pick up pennies in front of the steamroller.

As we explained previously, an unusual move in the skew index (which historically oscillates approximately between a value of 100 and 130) is especially interesting  when it diverges strongly from the VIX, which measures at the money and close to the money front month SPX option premiums.

Basically what a 'low VIX/high skew' combination is saying is: 'the market overall is complacent, but big investors perceive far more tail risk than usually' (it is exactly the other way around when the VIX is high and SKEW is low).

In even simpler words, a surprising increase in realized volatility may not be too far away…

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Oakland Cops Uncover Dead Colleague’s Fling With Underage Sex Worker, Make Sure to Get Her Number for Themselves

The young woman at the center of a scandal shaking multiple California police departments has revealed new and damning facts about the situation. Celeste Guap, 18, claims to have had sex with more than 30 Bay Area police officers in exchange for cash, tips about upcoming prostitution stings, and protection from prosecution. Things allegedly started when she was still a minor and met Oakland officer Brendan O’Brien in the course of fleeing an abusive pimp.  

According to Guap, she and O’Brien began having sex in February 2015. “We [would] tell each other you’re my only, you know, like that, but he knew what it was,” she told ABC 7 in a recent interview. O’Brien’s wife had died the previous year in what had been ruled a suicide but some suspected O’Brien of being involved in. 

Guap told the TV station that in September 2015, she celebrated her 18th birthday by traveling to Puerto Rico, where she found herself alone in a “rough area” and called O’Brien for help. He didn’t pick up. She threatened to expose him for sleeping with her when she was still 17 and, when he still didn’t respond, she did it, sending a text to a commanding officer at OPD detailing her relationship with O’Brien and several other OPD officers. She then sent a screenshot of the text to O’Brien. 

A few hours later, O’Brien committed suicide. 

“Guap appears to have some guilt about this, and perhaps some anger toward the dozens of other officers who contacted her for sex over the ensuing months,” SFist reports

I don’t know about you, but if my colleague had killed himself after being threatened with exposure by a teen sex worker, my impulse would be, at least, to avoid her. OPD officers, however, thought otherwise. Not only did those alerted to O’Brien and Guap’s relationship not report it, they began allegedly contacting Guap—the daughter of an OPD dispatcher—for sex themselves. Guap said she eventually began sleeping with cops from neighboring areas, too, including Alameda County and San Francisco. She turned over an array of cell phone records to various departments to corroborate her claims. 

Since these allegations came out, two OPD officers resigned and three more were placed on administrative leave pending investigation. The Alameda County Sheriff’s Office investigated four offiers, but determined that because Guap was 18 at the time they slept with her and they did not pay her in cash, no wrongdoing was involved. 

In total, Guap claims to have slept with 32 members of local law enforcement, although she claims only three paid her. The rest she slept with for information and protection from arrest, said Guap, who mostly did street-based sex work. 

I don’t mean to deny Guap’s agency, but when your choices are have sex with someone or get thrown in jail… It might not be rape as we commonly think of it, but it’s sure as hell—if nothing else—an abuse of authority. It’s coercion. And it’s a direct result of the criminalization of prostitution, a system that seems to benefit no one but corrupt cops and violent sex traffickers. 

While all of this was happening with Guap, the Oakland and Alameda County police departments were very public crusaders against prostitution. In the first six months of 2014, Oakland police made 295 arrests related to prostitution and conducted 30 prostitution stings. “We don’t have a lot of resources,” said OPD Luitenenant Kevin Wiley at the time. “But the ones we have, we dedicate 110 percent.” 

The city even ran billboards featuring the mugshots of men who were arrested for attempting to pay for sex. Another series of recent Oakland city billboards featured slogans such as: “Buying a teen for sex is child abuse. Turning a blind eye is neglect.” 

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Quebec Publicly Financed an Arena to Get an NHL Team. You Won’t Believe What Happened Next.

Do not publicly finance sports arenas, Canada.When the National Hockey League (NHL)’s Quebec Nordiques left the Francophone Canadian city at the end of the 1994 season for the greener pastures of Denver (where they would almost immediately become a multiple Stanley Cup-winning powerhouse as the Colorado Avalanche), the city’s fans were heartbroken. Two decades later, they’ve got a new heartbreak to deal with — the fact that they dropped almost $400 million (CAD) to publicly finance a brand-new the Videotron Centre hockey arena — as part of the city’s bid to receive an expansion franchise, only to see that franchise awarded to hedonistic desert city of Las Vegas

Readers of Reason know we often cover the almost-unfailing debacles which transpire when taxpayers either choose or are compelled to finance sports arenas for extraordinarily wealthy team owners, but this situation in Quebec includes some flourishes that managed to surprise even a ragged cynic like myself. 

For example, Quebec City Mayor Régis Labeaume said to the Toronto Star in 2011 that comparing public funding for a hockey arena with funding for true public works, such as hospitals, was both “reductive” and “inappropriate.” Labeaume added, “The population of Quebec City wants an arena…We live in a society and there are lots of things in a society.” The mayor also said at the time that the city planned to borrow $125 million and cut $62 million in “red tape” to meet its financial obligations for the project.

Also in 2011, the Canadian National Assembly passed Bill 204, granting control of the arena to the Canadian media giant Quebecor, which paid just $33 million for the privilege of reaping the lion’s share of potential profits on the public’s investment. CTV News Montreal reported that opponents of the deal said that “the arena contract was issued without any public bidding process and that the contract amounts to the city of Quebec giving one of the largest companies in the province, Quebecor, $40 million each year for 25 years.”

It gets crazier. Bill 204 protects the deal from any potential lawsuits and shields the arena’s financial records through a confidentiality agreement. Still, opposition leaders recently presented documents which show the team-less arena is currently running a projected $2.2 million annual deficit, 50 percent of which the city is responsible to pay for. And as Deadspin‘s Barry Petchesky notes, “Conflicts of interest abound: Qubecor’s controlling shareholder Pierre Karl Péladeau was the leader of the Parti Québécois from May 2015 until he resigned last month.”

In addition, the fact that the province of Quebec, which only four years ago was roiled by massive student-led protests over a $1600 public college tuition hike, would commit almost $200 million to subsidize a private business is particularly gobsmacking. 

Quebec City’s failure to land an expansion NHL franchise should not be such a surprise. Yes, hockey is far more popular in the country it was born in than in Las Vegas, and anyone who has ever visited Quebec knows public life practically shuts down when “the game” is on. But unlike bilingual Montreal, Quebec City is almost exclusively French-speaking, which has always made it a tough sell to free agents and top prospects. One-time phenom Eric Lindros infamously held out for an entire year rather than play for the Nordiques, and when the team finally traded him to the Philadelphia Flyers in 1992, the bounty they received formed the core of a Stanley Cup-winning team. Unfortunately for Le Québécois, that team would win in Denver

The point is, Quebec already lost a team, and the city’s liabilities that make it a less economically viable location for the NHL have not changed in the past two decades. The lesson remains the same: no matter how badly you want to be a big league city, the public should never foot the bill for billionaire’s vanity projects.

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Here’s How Gary Johnson Can Make the Presidential Debates: New at Reason

Gary JohnsonFifteen percent is the magic number Libertarian presidential candidate and former governor Gary Johnson needs to reach to earn his voice in the 2016 election.

By capturing the support of 15 percent of voters in national public opinion polls, Johnson could join the major party’s presidential candidates on the primetime debate stage. With both Democratic and Republican presidential candidates disliked at historic levels and a rising share of political independents frustrated with the two major parties, this is the year a third-party candidate like Johnson has a realistic chance of getting onto the debate stage.

Emily Ekins, Cato Institute’s director of polling, examines what it would take for Johnson to make the cut.

View this article.

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The Elites Have Lost the Right to Rule – Part 2

In the end, the elites will be overthrown and a power vacuum will form.  The transition period will be extremely difficult as the elites will fight their demise to the end.  For you see, they care nothing for you they care about their power and control.  Nevertheless, rulers have always only ruled by the will (or apathy) of the people and when the people become overly taxed and abused they always rebel.  The main thing to think about is what kind of society do we want to rebuild from the ashes.  I am of the view that it must be a return to the Constitution and an elimination of central banking power and secrecy.  Let’s not fall for a demagogue or be pushed into a war when things are at their worst.

– From my 2010 post: The Elites Have Lost The Right to Rule

While the Trump and Brexit movements are indisputably fascinating merely as public indictments against the greedy and criminal status quo, they are equally meaningful from another perspective.

The reaction from many in the media to both Trump and Brexit have betrayed their ultimate motives by exposing their dangerous, antidemocratic biases. Now this has nothing to do with whether or not you are in favor of either Trump or Brexit. Personally, I think Trump is a very unwelcome reaction to the destructive trends going on around us. He’s extraordinary divisive (even amongst people who all hate the establishment), has no regard for civil liberties, and displays obvious authoritarian tendencies. Despite this point of view, I don’t focus obsessively on all the negative aspects of Trump in my posts because I acknowledge that Trump is a symptom of a much larger problem, not the root cause of it. Dealing with symptoms can keep things settled for a time, but the problem will invariably return in far worse form should the underlying causes remain unresolved. People are acting as if it can’t possibly get worse than Trump. Believe me, it can get a lot worse.

With that out of the way, let’s talk about root causes. Donald Trump and Brexit are direct responses to a horribly rigged, parasitic and phony global economy. I’ve been writing about this dangerous reality and warning about the unpleasant outcomes of it for over half a decade now. It’s not just me of course. Countless people have been doing it, including self-aware individuals from the 0.01%. Recall last year’s post by Nick Hanaeur, which I highlighted in the 2014 post: The Pitchforks are Coming…– A Dire Warning from a Member of the 0.01%.

He warned:

continue reading

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Deadline Approaching: Intern at Reason This Fall!

Reason is accepting applications for our FALL 2016 journalism internship through July 1.

The Burton C. Gray Memorial Internship program runs year-round in the Washington, D.C. office. Interns work for 12 weeks and receive a $5,000 stipend.

The job includes reporting and writing for Reason and Reason.com, helping with research, proofreading, and other tasks. Previous interns have gone on to work at such places as The Wall Street JournalForbes, ABC News, and Reason itself. 

To apply, send your résumé, up to five writing samples (preferably published clips), and a cover letter by the deadline below to:

Gray Internship
Reason
1747 Connecticut Avenue, NW
Washington, DC 20009

Electronic applications can be sent to intern@reason.com, please include “Gray Internship Application” and the season for which you are applying in the subject line.

Summer Internships begin in June, application deadline March 1

Fall Internships begin in September, application deadline July 1

Spring Internships begin in January, application deadline November 1

Internship dates are flexible.  

Looking for a full-time job at Reason? Go here.

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