Freedom Caucus in the Fray, Mike Pence’s Marriage Rules Violate the Law? P.M. Links

  • Not only is Vice President Mike Pence a bad person—because he doesn’t dine alone with women who are not married to him—he’s obviously breaking the law, says Vox.
  • Betsy DeVos says competition would help schools in the same way that competition has improved ride-sharing. People are condemning her for this metaphor, because they are stupid.
  • Critics of Charles Murray barely understand The Bell Curve.
  • Donald Trump vs. the Freedom Caucus.
  • Sean Spicer says “reality” dictates that Bashar al-Assad will remain president of Syria.

from Hit & Run

Weekend Reading: Washington, We Have A Problem

Authored by Lance Roberts via,

In this past weekend’s missive, I discussed the failure of Congress to get the Affordable Care Act (ACA) repealed, much less replaced. The problem, of course, is the failure to repeal the ACA leaves in question the ability to pass other agenda based items such as tax reform, border wall construction, repatriation or immigration reform. As I noted the debt ceiling debate, which is rapidly approaching, is the next major hurdle. To wit:

With the government currently at the ‘debt ceiling limit,’ and the June 1st deadline approaching for ‘extraordinary funding measures,’ Congress will need to address the FY18 budget resolution before it can act on tax reform. This is necessary to provide the ‘reconciliation instructions’ that allow Republicans to pass tax legislation with only 51 votes in the Senate (and therefore no Democratic support). Reaching an agreement on the FY budget resolution will not be easy; in the past, conservatives have demanded a balanced budget within ten years but this would require endorsing spending cuts (in non-binding form) that some centrist Republicans might oppose along with the BAT.


Given this backdrop, tax reform will probably not begin to move through the legislative process until after June at the earliest. Of course, while Wall Street believes ‘tax reform’ will be a much easier process than repealing health care, the reality is it could be just as tough as government entitlement programs, funding for Planned Parenthood, and other programs central to the Democrats, and some left-leaning Republicans, come under attack.

For the markets, which have ramped up since the election on ‘hopes’ of a quick implementation of reforms under the new Administration, the risk of disappointment is running high.” 

This assessment has not changed in the past week, and already we are beginning to discussions of border wall construction being postponed, along with infrastructure spending, and tax cuts being whittled down to just 28% for corporations vs. 15-20%. 

The last point is the most important given that current valuations in the market are currently being supported by the notion that tax cuts will lead to a profits expansion. The issue, however, remains that while profits may expand from paying lower taxes, and could be much less than currently hoped for, top line revenue growth still remains a missing ingredient as shown in the chart below. 

While anything is certainly possible, there is the simple issue that economic cycles do NOT last forever. With wage growth still stagnant, debt levels rising and inflation coming from all the wrong areas (health care, rent & gasoline), the risk of disappointment in the “hope” trade is very high.

Of course, you combine the risk of a “fiscal policy” error with the Fed on a “monetary policy tightening” cycle and you have all the ingredients for a bad outcome.

But then again, maybe this time will indeed “be different.”

Just some things I am thinking about this weekend as I catch up on my reading.



Research / Interesting Reads

“The United States have developed a new weapon that destroys people but it leaves buildings standing. It’s called the stock market.” – Jay Leno

via Tyler Durden

Spicer Skewers Media For Defending Dr. Farkas, Calls Her Public Admissions of Collecting Intelligence on Trump ‘Devastating’

In today’s press conference at the White House, Sean Spicer shifted the conversation away from the nothing-burger of who told Chairman Nunes about the Trump team being surveilled by the Obama administration to the public comments made by Dr. Farkas — the former Deputy Assistant Secretary of Defense specializing in Russia, who said “get as much information as you can” to persons inside the intelligence apparatus — for the purposes of preserving intel on the Trump team in an effort to hide it from the incoming administration.

Spicer called her comments alone ‘devasting’ and posited the notion that had the media been treating the Trump administration fairly, they’d be more concerned with the intelligence leaks coming out of the Obama administration — surveilling Trump and his team — for reasons that are, indelibly, unclear.

Furthermore, he mentioned Hillary Clinton’s paid speaking fees from Russia, selling off 1/5th of America’s uranium supplies, and receiving personal phone calls from Vladimir Putin as actual legitimate Russian connections that should raise an eyebrow. In terms of Obama officials admitting to surveilling and safe keeping intelligence on the Trump team, Spicer thinks there was an attempt to do something that was politically motivated and should be investigated.

Immediately following Dr. Farkas’ comments were made on the Morning Joe show, revealing that the Obama administration had been surveilling the Trump team, the notion of how she might’ve come into contact with Trump team intelligence, after she had resigned from the pentagon, became a topic of discussion — which the media didn’t seem to grasp today with Spicer.

Here’s Spicer chastising the media for defending Dr. Farkas, instead of asking her questions as to how she had access to Trump intelligence, post resignation, and why she spread classified information in an effort to conceal it from the incoming administration.

Bradley Moss, an attorney who specializes in national security law, tweeted his dismay that Dr. Farkas’ public comments had become a topic of discussion, saying “OMG, yadda, yadda, yadda.” This is all a big inconvienence for those who’d rather spend their time mocking the President for alleging that Obama had, in fact, ordered ‘wiretapping’ done on him and his team. It’s even more troubling for them to learn, after the fact, that everything the President said was true.

Nevertheless, Dr. Farkas agreed with Moss, tweeting ‘Amen Brother. Who benefits from this fake news? R-U-S-S-I-A.’

Using her logic, anything that doesn’t impugn the character of the President of the United States, any defense for the rule of law as it pertains to the illegal transfer of classified documents and unmasking of persons, is, in fact, aiding and abetting the Russian government. In other words, she believes, arrogantly, that she is above the law — because she’s fighting the good fight against Mother Russia — defeating it for a second time in a renewed cold war.


Content originally generated at

via The_Real_Fly

D.C. Implements Oppressive Licensing for Child Care Workers at Behest of Early Education Advocates

Pre-schoolScientists say that higher education for pre-school child-care workers is a good idea. So of course D.C. is going to make it mandatory that child-care workers get associate’s degrees and completely screw over an entire class of lower-skilled workers.

Indeed, the argument is literally that lower-skilled workers shouldn’t be caring for children because that might mean that their precious, developing brains are not getting stimulated as much as they could be. But rather than passing that information along to parents to decide how much to evaluate the education of their child-care professionals as a priority, D.C. has decided to mandate more training.

The consequences are, of course, going to be absolutely awful for some people who are unable to get what the city’s demanding. From The Washington Post:

[F]or many child-care workers, who are often hired with little more than a high school diploma, returning to school is a difficult, expensive proposition with questionable reward.

Many already have more training than comparably paid jobs such as parking lot attendants, hotel clerks, and fast food workers. And unlike most professional fields, prospects are slim that a degree would bring a significantly higher income: a bachelor’s degree in early childhood education yields the lowest life-time earnings of any major.

Center directors have few resources to tap if they want to reward their better-educated employees. Many parents in the District are maxed out, paying among the highest annual tuitions nationally at $1800 a month. And government subsidies that help fund care for children from lower income families fall well below market rate.

In the end, early child-care teachers that go on to earn diplomas often leave their jobs to work in public schools, where they can earn substantially more.

One child-care center operator said that only two of her 16 employees have made it to associate’s degrees thus far, and one had quit because she simply couldn’t go back to school.

The news story doesn’t engage in the question of why parents can’t decide for themselves how important it is for their child-care workers to have advanced degrees. Perhaps that’s because early education advocates might not like the answers, once the realities of the likely cost increases get factored in.

There’s instead a heavy emphasis in the story on the mechanisms by which these poor workers might get subsidies or assistance to get the education they need to keep their livelihoods. There’s also no interest in exploring the increased attention to the major problems for the poor that are a direct result from occupational licensing programs. No doubt the same people who promote such programs would, for example, see Mississippi’s push to decrease the power of regulatory licensing programs as proof of how backward that southern state is.

To be sure, this D.C. law is a jobs program—it’s a jobs program for people who work in the field of post-secondary education itself. Nothing like using a regulatory mandate to create a demand for your educational services that might not exist otherwise. The story makes it abundantly clear that advocates for increased education of child-care workers—who, wouldn’t you know it, work in the field of education—want to spread this program well beyond D.C.’s borders.

Oh, incidentally, President Donald Trump and his daughter, Ivanka, have been proposing a massive child-care subsidy that would manifest via deductibles. That would perhaps help the wealthier D.C. residents cover increasing costs that would most certainly follow once child-care workers have advanced degrees.

But as has been noted, such a subsidy plan would not do much for lower-income families. And so not only would poorer families be even less able to afford child care, they’re also going to be locked out of jobs within the industry itself. Good work there, D.C.

By the way, as a useful reminder, science also says many of America’s early education programs are crap due to wasteful spending with poor oversight.

from Hit & Run

Stocks End Best Quarter In Years With A Whimper But Gold Is Winner

So Q1 is over and this happened…


And the message is clear…


Gold wins…

It's been an interesting quarter…

  • Nasdaq best Quarter since Q4 2013
  • S&P best quarter since Q4 2015
  • Dow up 6 quarters in a row – since The Shanghai Accord (the longest streak since Q4 2006)
  • Financials up four quarters in a row
  • USD Index second worst quarter since Q3 2010
  • Gold second best quarter since Q3 2012
  • WTI Crude's worst quarter (and first losing quarter) since Q4 2015
  • US Crude Production had biggest quarter since Q3 2014

Nasdaq the big winner in US equities… (Trannies and Small Caps melted up to green in the last few days)


Energy was Q1's big loser, Financials managed to bounce off unch, and Tech was the big gainer…


Only 2Y Yields were higher over Q1 – that's with 2 rate hikes-ish…

The USD Index was a one-way trade in Q1 – down!


And for the month of March, gold also led (though most assets were negative)

Highlights of the month

  • Nasdaq up 5 months in a row (longest streak since May 2013)
  • Dow worst month since Oct 2016
  • S&P up 5 months in a row
  • Financials worst month since Sept 2016
  • USD Index second worst month since April 2016
  • HY Bonds' worst month since Oct 2016
  • WTI Crude's worst month since Jul 2016
  • US crude production is up 6 months in a row

Small Caps squeezed up to unchanged on the month and every effort was undertaken to keep the S&P green for March…BUT FAILED!


Financials were March's biggest loser, Tech the leader again…


Given all the vol in equities and crude oil, bonds ended the month practically unch… Policy Error?


Treasury yields have been trading in a very wide range for 5 months…


The dollar tumbled after The Fed's dovish rate hike…


Despite USD weakness, commodites all ended the month in the red – with Gold almost breaking even and crude ugly…


And finally for the week (after a big whipsaw last Friday on the pulled healthcare vote)…massive squeeze for Trannies and Small Caps


Ugly close for stocks with a big MOC Sell order…NOT off the lows…


Treasury yields leaked lower today as Dudley's dovish words sent risk-off, leaving yields unch for the week…


The dollar dropped to a session low in choppy trading after New York Fed’s Dudley said that 2 more rate increases in 2017 seem about right, though there’s no need to hurry given that the economy is far from overheating, but ended the week marginally higher…


Despite the dollar's gains, Crude squeezed over 5% higher on the week… Gold unch


WTI ended the week back above $50…


And gold above $1250 with Silver over $18 holding gains post Fed rate hike…

via Tyler Durden

More Dangerous Than The NSA? The Massive Spy Agency You Haven’t Heard Of

Authored by Alice Salles via,

If you’re one of the countless Americans who was distraught to learn of the revelations made by former National Security Agency (NSA) contractor Edward Snowden, the mere idea that there might be yet another agency out there – perhaps just as powerful and much more intrusive –  should give you goosebumps.

Foreign Policy reports that the National Geospatial-Intelligence Agency, or NGA, is an obscure spy agency former President Barack Obama had a hard time wrapping his mind around back in 2009. But as the president grew fond of drone warfare, finding a way to launch wars without having to go through Congress for the proper authorization, the NGA also became more relevant. Now, President Donald Trump is expected to further explore the multibillion-dollar surveillance network.

Like the Central Intelligence Agency (CIA) and the National Security Agency (NSA), the NGA is an intelligence agency, but it also serves as a combat support institution that functions under the U.S. Department of Defense (DOD).

With headquarters bigger than the CIA’s, the building cost $1.4 billion to be completed in 2011. In 2016, the NGA bought an extra 99 acres in St. Louis, building additional structures that cost taxpayers an extra $1.75 billion.

Enjoying the extra budget Obama threw at them, the NGA became one of the most obscure intelligence agencies precisely because it relies on the work of drones.

As a body of government that has only one task — to analyze images and videos captured by drones in the Middle East — the NGA is mighty powerful. So why haven’t we heard of it before?

The Shadow Agency That Sees It All

Prior to Trump’s inauguration, the NGA only targeted the Middle East or whatever spy satellites orbiting the globe captured. As far as most of us knew, the agency refrained from pointing its ultra-high-resolution cameras toward the United States. That alone may be why the NGA has been able to stay out of scandals for the most part.

But under Trump, things may look much worse — as if spying on countless people abroad weren’t enough.

Recently, for instance, he gave the CIA the power to wage covert drone warfare, shielding important information on such operations simply by allowing the agency to carry out missions without first seeking authorization from the Pentagon.

Now, Trump might as well move on to NGA, hoping to boost “national security” by turning the agency’s all seeing eyes toward American soil.

As the president hopes to get more money for defense, many have speculated whether he will start to use drones at home, especially since he has already suggested he supports agencies like the NSA based on his desire to target “terrorists.” There’s nothing that implies he wants to slow down the surveillance state.  The White House has expressed its desire to renew Obama-era spying powers — even as the president battles critics who deny his claims that his conversations were intercepted at the same time foreign nationals were under surveillance in 2016.

A partially redacted March 2016 report released by the Pentagon revealed that drones had already been used domestically on about 20 or fewer occasions between 2006 and 2015. Though some of these operations mostly involved natural disasters, National Guard training, and search and rescue missions, quotes from an Air Force law review article found their way into the report. In it, Dawn M. K. Zoldi wrote that technology designed to spy on targets abroad could soon be used against American citizens.

As the nation winds down these wars,” the report explains, and ”assets become available to support other combatant command (COCOM) or U.S. agencies, the appetite to use them in the domestic environment to collect airborne imagery continues to grow.

Up until 2015, oversight was so loose that the capabilities provided by the DOD’s unmanned aircraft system weren’t under scrutiny by any other agency. Without statutes that specify the rules such federal government agencies should follow, watchdogs find it hard to keep track. But would it be any better if there were an agency or a branch of the same government overseeing what the government itself is doing?

The short answer is no.

NGA Has A Precedent, And Trump May Want To Explore It

As fears grow that Trump will revamp the NGA, domestic stories of police departments using drones to spy on locals are also resurfacing.

Some of the most highly publicized instances involved Baltimore and Compton, where police departments deployed aerial surveillance technology without issuing a warrant or seeking authorization from local or state lawmakers.

With a precedent already set, the president might as well ignite a new fight in his continued efforts to fight a war against an imaginary, impossible-to-target enemy. After all, he’s not a stranger to scandals and likely wouldn’t feel overwhelmed one bit if he decided to turn the country’s ultra-high definition cameras toward its citizens.

What could help to put an end to his plans might be exactly what helped halt President George W. Bush’s attempts at setting up spy satellites domestically. In 2007, Bush’s Department of Homeland Security set up an agency known as the National Applications Office with the goal of establishing direct spy satellite stakeouts in America. Thankfully, Congress stepped in and cut off the agency’s funding.

But with Americans seldom showing any interest for important violations of privacy or even basic human rights here and abroad, it’s easy to see how this massive spying agency could end up getting a carte blanche to do whatever it wants once Trump realizes he has the power to order it done. After all, who will pressure Congress to stop him?

via Tyler Durden

Watch Live: Trump Signs Executive Orders To Reign In Foreign Trade Abuses


After very quick statements from President Trump, Wilbur Ross, Peter Navarro and Vice President Pence, here were the key headlines:


* * *

One week ahead of his highly anticipated first meeting with Chinese President Xi Jinping next week at Mar-A-Lago, Trump took to twitter yesterday to set a fairly aggressive tone on trade discussions, saying “we can no longer have massive trade deficits and job losses. American companies must be prepared to look at other alternatives.”

“The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits and job losses. American companies must be prepared to look at other alternatives.”


In just a few moments, Trump is set to sign a pair of executive orders which will initiate a ‘yuge’ review of America’s trade deficits and look to impose restrictions on countries that perpetually “cheat on trade”, as the President would say.  Per CNN:

President Donald Trump on Friday will make the next move in his bid to reshape US trade policy, signing two executive orders aimed at combating foreign trade abuses that contribute to the US’s half-trillion-dollar trade deficit.


Trump’s executive orders will initiate a large-scale review of the causes of the US’s trade deficits with some of its largest trading partners and order stricter enforcement of US anti-dumping laws to prevent foreign manufacturers from undercutting US companies by selling goods at an unfair price. They show the administration’s ongoing efforts to shift toward policies aimed at bolstering US manufacturing and making good on Trump’s campaign rhetoric decrying other countries for taking advantage of the US’s free trade policies.

Tune in below for the Friday fireworks:

via Tyler Durden

Official Law of Georgia is Copyrighted, and the State Enforces That Copyright

A district judge has ruled that the Official Code of Georgia Annotated (OGCA), the official state law of Georgia, was subject to copyright, and that its dissemination was not covered by fair use, Ars Technica reports.

Open-records activist Carl Malamud purchased a hard copy of the OGCA for $1,207.02 (with shipping) from Lexis-Nexis (which compiles the OGCA for Georgia) and subsequently sent digital copies on USB drives to the state house speaker and a number of other Georgia politicians and lawyers and posted it on, Ars Technica explains.

The state of Georgia, and the Code Revision Commission (CRC), a government body, brought a lawsuit against the website, accusing it of violating copyright. Attorneys for the website argued the lawsuit should be dismissed because the OCGA, as the official state law of Georgia, was not copyrightable, and that even if it were, public dissemination would fall under fair use.

The judge, Richard Story, disagreed, ruling that even though the OCGA is the official state law of Georgia, the annotations in it were copyrightable because the Copyright Law includes annotations as copyrightable material. He further dismissed the argument that disseminating the OCGA to the public fell under fair use, because the use was not “transformative” and because, even though it was non-commercial, courts have ruled that non-profit use of copyrighted material could yield “profits” such as “an indirect economic benefit or a non-monetary, professional benefit.”

The CRC, as Story noted, “has ‘the ultimate right of editorial control.” The lawsuit was brought by the commission, not Lexis-Nexis, the company the CRC hires to produce the official law of the state of Georgia. The commission receives royalties from sales of the CD-ROM and physical copies of the OCGA, and it collected $85.747.91 in fiscal year 2014. The purpose of copyright is supposed to be to “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” Contemporary copyright law already stretches the understanding of “limited time” to time periods generally greater than human lifespans. In this case, the promotion of progress is completely indiscernible. After all, would the commission and Georgia’s lawmakers in the legislative and judicial branches stop their work if it weren’t enforceable by copyright?

Read the opinion, via Ars Technica, here.

from Hit & Run

RBC Warns “Beware ‘The April Effect’… Risk Of A Nasty ‘Double Whammy'”

RBC's head of cross asset strategy Charlie McElligott dons his full wonksh equity analyst hat today, exposing "The April Effect," and the specific risk of "nasty double whammy" of levered long-short unwinds should momentum stall.

Quick note of warning as we transition into the new quarter, with potential for major thematic / sector / factor reversals in stocks.  The following observation regarding April seeing a seasonal ‘momentum’ factor market-neutral strategy unwind is ‘equities wonk-ish,’ but with real potential cross-asset impact.  As we know, the Fed watches equities because there are potential implications with regards to broad US ‘financial conditions’ on consumer and economic confidence.  Thus, the scale of potential equities volatility does matter across macro, especially in light of general buyside portfolio ‘crowding’ / ‘high beta’ exposure (into ‘growth’ right now especially) which could exacerbate the dynamic.

COMMENTARY: I have been monitoring a phenomenon seen in recent years (notably of escalating ‘violence’) where ‘momentum’ factor market-neutral strategies experience tremendous volatility / drawdown.  Huh?  Basically this is saying that “the stuff that’s been working” over the prior trail 12 months—both long and short—experiences a significant unwind.  The Dow Jones Momentum M/N index has been -1.8% on average over the past five years and down -2.6% on average over the trailing 15 years…while the three year trailing average in the month of April is an absolutely brutal -4.5%.

Why does this unwind occur?  For sure there are idiosyncratic macro factors at play at times throughout this window (i.e. you can probably ‘throw out’ the -27.2% strategy return in April ’09 as markets violently reversed off the crisis lows, or the recovery in crude post Yellen’s ‘weak USD policy dovish pivot’ last year swinging-us from deflation favorite ‘anti-beta’ to cyclical beta ‘value’ during this same period)…but it would seem that there is a ‘signal’ being generated in the market (perhaps it’s an expression of rotating into laggards ahead of “sell in May”?) which is driving a quantitative strategy factor rotation with strong seasonality into the quarter-change.

So if this phenomenon were to occur again, what are the implications?  We’d need to watch both the ‘high flyers’ and ‘biggest losers’ over this 12 month period for reversals.  On a generic GICS sector level, that would mean that Financials (+30.4% over trailing 1 year period), Tech (+23.2%), Materials +17.1%), Industrials (+16.0%), Consumer Discretionary (+11.6%) and Energy (+11.1%) could be exposed from the long-side (for underperformance risk), while Healthcare, Utes, Consumer Staples, REITS and Telcos would be the sectors to watch from the short side (potential outperformance).  Obviously from the long-side, the 12m window captures a lot of the run which ‘value’ saw last year (cyclicals, inflation)…so with regards to current portfolio allocation, ‘growth’ would then seemingly be most dangerously positioned for a drawdown, especially ‘secular growers’ (MS pointing out that Tech has accounted for ~50% of the S&P’s return YTD, with those 5 FAANG stocks at 30% of the index return!). 

Why is this EXTRA critical into this upcoming April?  Well, “factor exposures”…that’s why.  AlphaBetaWorks and their recent analysis of 4Q16 hedge fund 13F’s shows us that “…nearly 70% of the hedge fund industry’s long equity risk comes from factor crowding.”  And of all of those potential factor inputs, the data shows us that 50% of HF relative factor variance is your ‘Beta’ or ‘Market’ exposure…a.k.a. hedge funds’ ‘long’ equity portfolio characteristics are of exceedingly ‘high beta’ right now.  As such, “HF Aggregate thus partially behaves like a leveraged market ETF, outperforming during bullish regimes and underperforming during bearish ones.”

Right-o.  So basically, there is risk of a nasty “double-whammy,” because IF this momentum long-short were to unwind with violence, not only would popular longs get hit and popular shorts rip higher….but because the ‘longs’ are ‘high beta’ and the ‘shorts’ are ‘low beta,’ you’d get that ugly ‘leveraged’ market impact as well!

DOW JONES ‘MOMENTUM’ MARKET NEUTRAL SEASONALITY SHOWS AN UGLY APRIL ‘UNWIND’ TREND: -1.8% on average over the trailing 5 years, -2.6% over the trailing 15 years and most-acutely, -4.5% over the past 3 years.

‘HIGH BETA’ (‘MARKET’ FACTOR) IS THE MOST CROWDED HF FACTOR: i.e. Equity HF’S are running very ‘high beta’ long portfolios.  As such, a potential factor reversal in ‘momentum’ could see a painful ‘shakeout’ of this crowding.

Below chart and table from AlphaBetaWorks:

And now a final thought – perhaps the macro data divergence between ‘animal spirits’ soft data (beating at a 2 z-score rate) vs relatively ‘benign’ hard data (avg of housing & real estate, industrial sector, labor mkt, personal  household sector and retail & wholesale ‘surprise’ indices z-scores essentially running ‘slight beat’) will ‘true-up’ come April, which could then act as the ‘macro trigger’ to exacerbate this dynamic further?

‘HARD-‘ VS ‘SOFT-‘ DATA MEAN-REVERSION IMMINENT?  2 Z-SCORE AVG BEAT IS TOP OF 10 YEAR RANGE: Potential catalyst?  Trump “animal spirits” fade in coming months with no further clarity on tax policy until Summer ‘deadline.’

via Tyler Durden

Venezuela Bonds Crash As Political Situation Turns “Explosive”

Venezuela sovereign bonds crashed on Friday as a result of soaring political tensions after the annulment of the country’s legislature by its high court on Wednesday, a move that ignited protests, invoked international condemnation and prompted the opposition to call for a military response to what it deemed a “coup.”

One day after our report on the latest attempt by Maduro to seize unilateral control of the government and to isolate the opposition, the political situation turned “explosive” on Friday when Venezuela’s powerful attorney general Luisa Ortega broke ranks with President Nicolas Maduro’s government after the Supreme Court annulled congress, a rare show of internal dissent as protests and international condemnation grew. As a reminder, the pro-Maduro Supreme Court on Wednesday said it was assuming the legislature’s functions because it was in “contempt” of the law. The opposition promptly slammed the decision as a “coup” against an elected body.

Luisa Ortega, appointed attorney general in 2007 and a staunch ally of the Socialists who have ruled for the last 18 years, made an unexpected ideological U-turn and rebuked the Supreme Court’s controversial move to take over the opposition-led National Assembly’s functions.

In a speech before reporters, Ortega said Wednesday’s ruling against the congress “violates the constitutional order.” She was speaking at a scheduled briefing on the state of her office. “It’s my obligation to express my great concern to the country.” Ortega added that she was speaking in the name of her office’s 10,000 workers and 3,000 prosecutors. “We call for reflection, so that you take democratic paths that respect the constitution” and “guarantee peace,” she said, receiving a standing ovation

At that moments, state television immediately cut off transmission of her talk but other private media outlets continued to carry her remarks, which were quickly picked up by social media.

Venezuelan Attorney General as seen Friday on state-owned VTV television
broadcast before the channel pulled the plug on her criticism of the Supreme
Court’s move against congress

While various prominent political figures have leveled criticism after leaving the government, it is extremely rare for a senior Venezuelan official to criticize Maduro in this manner. One person who has known Ortega for years said it was not the first time she had expressed dissent within government, though never so publicly.

“Luisa has suffered a lot of threats from all sides for her principled actions,” the person said quoted by Reuters, asking not to be named for fear of reprisals.

Ortega had carefully toed Maduro’s line for years, jailing his opponents on trumped-up charges and declining to prosecute cases of endemic corruption the WSJ added. In recent months, however, she had distanced herself from the government, issuing release orders for detained opposition activists and meeting secretly with opposition leaders. Ortega’s speech could trigger even more defections within Venezuela’s sprawling bureaucracy and armed forces, said retired Maj. Gen. Cliver Alcalá, a top confidant of Mr. Chávez who broke ranks with Mr. Maduro last year  the WSJ added.

The military and bureaucrats have up to now maintained a show of iron unity in the face of the spiraling economic and political crisis, however in the most troubling development since the start of Venezuela’s crisis, the army may soon turn against Maduro, effectively leading to a presidential coup.

“The Armed Forces are part of Venezuelan society and as such have an obligations to put themselves in defense of the constitution,” Gen. Alcalá said.

The opposition alliance has lauded Ms. Ortega’s speech and called Venezuelans to a campaign of civil disobedience to prevent what they call the country’s slide into dictatorship. The opposition plans to march in Caracas Saturday.

* * *

Meanwhile, throughout Friday, pockets of protesters blocked roads, unfurled banners and chanted slogans against Maduro’s unpopular government. In Caracas, several dozen students marched to the Supreme Court, but were pushed back by soldiers with riot shields.

Some protesters also briefly blocked highways in the capital, holding banners reading: “No To Dictatorship.”

Police moved them on, and several were detained, according to a local human rights group. “We have to demand our rights, in the streets, without fear,” said opposition lawmaker Miguel Pizarro, who led a knot of demonstrators into a subway train. In volatile western Tachira state, several dozen demonstrators tore up copies of court sentences in front of local judicial buildings.

* * *

While some government critics were skeptical of Ortega’s criticism, speculating her comments may have been a show to feign separation of powers and give the government an excuse to tweak the controversial decision, the market disagreed and in response to the political situation which appeared on the verge of collapse, the price on Venezuela’s 9.25% bonds of September 2027 fell by more than 3.5 cents to around 46.4 cents on the dollar, the yield surging to 23%, the highest since last August. It was the largest one-day rise in yield since October.

Longer-dated bonds plunged even more: the more illiquid 7% of March 2038s were bid at 40 cents on the dollar, down from 42.6 cents on Thursday. Their yield rose to 18.22% from 17.17%.

It is unclear how much downside Venezuela’s sovereign debt has should the already explosive political situation escalate further, leading to the ouster of Maduro.  And perhaps an even more relevant question is what wil happens to the price of crude should this more dire scenario play out.

via Tyler Durden