JPM’s head quant, Marko Kolanovic, who from a chronic market skeptic has in recent months morphed into a raging bull, is out with a note in which he not only first mocks the bears…
Recently, financial press stories were dominated by fear. This is perhaps understandable given a long period of extremely low volatility before the recent turmoil. Negative stories also tend to attract more attention (clickbait). After running through various negative narratives – inflation, stagflation, hyper growth, rollover of growth, large deficits, tariffs to reduce trade deficits – the most recent bear narrative is trade wars (and particularly one with China).
… only to tease them by forecasting new all time highs…
We argue below that this risk is also very low, and if we take the 2015 turmoil as a template for flows from systematic and fundamental investors, markets are likely to reach all-time highs soon.
… even as his JPM cross-asset colleague John Normand warns that the time to sell may be approaching, now that the odds of a recession inside 3 years are over 70%.
Or, as Kolanovic would see when looking at the Rorschach test above, just the right conditions for all time highs.
More interesting is the JPM quant’s assertion that Trump will – or should – avoid launching a trade war at all costs, not least of all because he wants to avoid impeachment, which would be far more likely if Trump “destabilizes global markets” impairing the administration’s ‘market scorecard’ and likely leading to an election loss. And, as Marko adds, “lost elections open a path to impeachment, and other complications.”
Which is clearly a sensible thing to say for any bank employee, whose bonus would be similarly “complicated” if Trump “destabilizes global markets.” As for the “revelation” that a market crash could Trump the midterms – and potentially his liberty – well, that’s been the plan since November 8, 2016.
Here’s Marko:
A significant trade war started by this administration would destabilize global equity markets. Should this happen ahead of the November election, it would impair the administration’s ‘market scorecard’ and likely lead to an election loss. Lost elections open a path to impeachment, and other complications. The game is also non-zero sum, as one can both use tough rhetoric and at the same time do little disruptive action (e.g., players as we defined them can ‘have their cake and eat it’). Setting up a diagram (similar to the well-known ‘prisoners’ dilemma’) points clearly that there will be strong rhetoric, but weak or no action that would destabilize equities.
One could argue that a similar analysis can be applied to the risk of the Fed committing policy errors (see figure below, asymmetry in the case of the Fed would be causing a recession, and the public pinning the blame to specific individual central bankers responsible for the decision).
So after telling to the president that he should avoid a market crash if he knows what’s best for him, Kolanovic then goes back to prodding the bears, explaing that since there have been no further shockwaves from the record February VIX spike (which by the way Kolanovic said would not happen), what comes next for the market are fresh all time highs. To wit:
Unless there is a recession, all of these flows tend to reverse within 1-2 months. For instance, short-term momentum turns positive ~1 month after the initial shock, short-term options expire within a 1-month cycle (gamma rolls off), and realized volatility starts declining prompting volatility sensitive investors to buy. This all happened in 2015 and is happening again now. A very simplified price analogy is shown in the figure above, and suggests the market should reach all-time highs relatively soon.
Which, ironically differs substantially with what Kolanovic wrote at the end of January when he said that “In terms of timing market downside risk, we would be more concerned about the period after the Q1 earnings season, when fiscal reforms are likely to be priced in and central banks make further progress on the normalization of monetary policy.”
That would be right now.
Finally, the quant has one last card up his sleeve: if you don’t believe him, then believe JPM’s forecast of over $800 billion in stock buybacks:
There is also a substantial difference between Feb 2018 and Aug 2015. Right now, both macro (synchronized global growth) and corporate fundamentals (tax reform and record earnings) are much better than in 2015. This adds demand for equities and strengthens fundamental reversion flows. For instance, compare current fundamentals to 2015, when we had a US earnings recession, EM crisis, China crisis, Energy, and High Yield concerns. This year, we expect $800bn of buybacks vs. ~$600bn in 2015. The difference ($200bn) on its own, equates to all the value of all recent systematic strategies’ selling. And while systematic strategies will buy back most of what they sold, buybacks will not reverse.
… which incidentally will never materialize if i) rates jump making debt-funded buybacks impossible and ii) if there is a trade war.
None of this matters to Marko, however, who is about as bullish as we have ever seen him:
This is all supportive of the market reaching new highs relatively soon (e.g., with the onset of Q1 earnings season), and is consistent with our previous fundamental and quantitative research.
And so we wait to find out: will Kolanovic be right with his new all-time-high prediction, or will it be Gartman’s turn to finally have a last laugh after his “watershed call” that the market has now topped.
NBC Miami is reporting that there are multiple fatalities after a pedestrian bridge collapsed near Florida International University.
Notably, the bridge was brand new – and had not opened yet.
The collapse happened less than a week after crews dropped the elevated span in place over the Tamiami Trail in an effort to provide students a safe route across the busy roadway.
At least two people could be seen taken to ambulances while others were being treated by rescue crews, while at least two cars could be seen pinned by massive slabs of concrete.
NBC 6’s Andrea Cruz, who was near the school, reports that the bridge has completely collapsed.
NBC Miami account @nbc6 reports Florida Highway Patrol confirms that “several people are dead” after Miami pedestrian bridge collapses pic.twitter.com/yF055XsTdx
For the second time in the span of a week, the New York Times is once again rebutting reports that Special Counsel Robert Mueller’s wide-ranging probe into malfeasance by President Trump and his associates is finally winding down.
This time, a report from Politico published earlier today claimed that Trump’s lawyers were nearing an agreement on a sit-down with Mueller…
But barely six hours later, NYT reported that Mueller has subpoenaed records from the Trump Organization pertaining to Russia. The request is clearly intended to gather more information about Trump Tower Moscow, which has reportedly become a focus of the Mueller probe. As the Times explains that “The subpoena is the latest indication that the investigation, which Mr. Trump’s lawyers once regularly assured him would be completed by now, will drag on for at least several more months.”
As a reminder, the Moscow deal initially caught Mueller’s attention when he learned that Trump Organization lawyer Michael Cohen had reached out to a spokesman for Russian President Vladimir Putin to inquire about getting the necessary permissions to restart the project, which had stalled.
The Trump Organization has said that it never had real estate holdings in Russia, but witnesses recently interviewed by Mr. Mueller have been asked about a possible real estate deal in Moscow. In 2015, a longtime business associate of Mr. Trump’s emailed Mr. Trump’s lawyer Michael Cohen at his Trump Organization account claiming he had ties to President Vladimir V. Putin of Russia and said that building a Trump Tower in Moscow would help Mr. Trump’s presidential campaign.
Mr. Trump signed a nonbinding “letter of intent” for the project in 2015 and discussed it three times with Mr. Cohen.
Wary of the risks that his tax return might become part of the investigation, Trump publicly warned Mueller during an interview in July that his family’s finances should be off limits to the Mueller probe.
…However, it appears that ship has sailed.
Mr. Mueller could run afoul of a red line the president has warned him not to cross. Though it is not clear how much of the subpoena is related to Mr. Trump’s business beyond ties to Russia, Mr. Trump said in an interview with The New York Times in July that the special counsel would be crossing a “red line” if he looked into his family’s finances beyond any relationship with Russia. The president declined to say how he would respond if he concluded that the special counsel had crossed that line.
While Congressional investigators have demanded documents from the Trump Organization, this is the first time Mueller has done so. The request suggests that Mueller is once again zeroing in on Trump’s finances, and the finances of his associates (and you know what that means)…
The Times added that Trump’s lawyers are still negotiating with Mueller’s team about the parameters of a possible sit-down (or written) interview. Trump recently brought on another Washington lawyer to join the team of lawyers who are handling the Mueller probe.
As far as we know, Mueller’s probe isn’t focusing on collusion so much as it’s focusing on Trump’s and his family’s (i.e. Kushner’s) business ties with Russia and other foreign powers like the United Arab Emirates. Obstruction of justice has also been bandied about, but given that former FBI Director James Comey has already declared during a Congressional hearing that the president didn’t obstruct justice, it might be difficult to convince a jury otherwise. And the notion that the Trump campaign was in direct contact with Putin – and furthermore that their partnership (which didn’t exist) had a meaningful impact on the outcome of the election – has also been discounted…
…That leaves Trump’s incredibly complex and murky financial history. Financial misdeeds proved to be Paul Manafort’s undoing – but then again, he had already been on the FBI’s radar before he even met Trump.
Stocks erased most of their earlier gains on the news…
After the New York Times revealed that Attorney General Jeff Sessions is considering firing former FBI Deputy Director Andrew McCabe before his pension vests over malfeasance discovered by the DOJ’s Inspector General, the Wall St. Journal’s Del Quentin Wilber reports that McCabe is headed over to the DOJ to beg for his pension.
“Former Deputy FBI Director Andrew McCabe to meet today w/ staff of Deputy Attorney General Rosenstein as final appeal in his poss firing, says person familiar. Decision rests w/ AG Sessions.” tweeted Wilber:
Former Deputy FBI Director Andrew McCabe to meet today w/ staff of Deputy Attorney General Rosenstein as final appeal in his poss firing, says person familiar. Decision rests w/ AG Sessions. devping…story from last night on latest twist in saga: https://t.co/DrWoUS9O1X
*BREAKING* Fox News has learned former Deputy FBI Director Andrew McCabe is meeting with Senior DOJ Officials now, making his final case to keep his job. I am told one Officials in the meeting is long time senior DOJ official Scott Schools. @foxnewspolitics@FoxNews
McCabe stepped down in late January, however many believe he was forced to step down. According to Fox News, McCabe was “removed” from his post as deputy director, “leaving the bureau after months of conflict-of-interest complaints from Republicans including President Trump.”
According to reports, McCabe was set to exhaust his remaining accrued vacation time as service credits towards his retirement – however an early firing would make him ineligible.
Attorney General Jeff Sessions is considering a recommendation to fire former Deputy FBI Director Andrew McCabe and could order his ouster this week, shortly before Mr. McCabe’s expected retirement, according to a person familiar with the matter. Mr. McCabe allegedly wasn’t forthcoming with investigators probing the disclosure of information to a Wall Street Journal reporter for an October 2016 story about an inquiry into the Clinton Foundation, said the person. Mr. McCabe left his post in January after he was told to step aside, but had been expected to take leftover vacation time until he was eligible to retire this month after a decades long career with the agency. A spokeswoman for Mr. Sessions said in a statement that the Justice Department “follows a prescribed process by which an employee may be terminated,” and said she had “no personnel announcements at this time.”
Fox News guest Sara Carter has been reporting since January that McCabe allegedly ordered FBI agents to alter their “302” forms – the paperwork an agent files after interviewing someone:
6) The 302 reveals the content of interview as well as identify ALL PARTICIPANTS. The 1023 outlines who met who, where, when, and why.
“I have been told tonight by a number of sources … that McCabe may have asked FBI agents to actually change their 302s,” Carter told host Sean Hannity.
—
“So basically every time an FBI agent interviews a witness, they have to go back and file a report,” Carter explained.
Hannity pointed out that, if true, it would constitute a case of obstruction of justice, and Carter agreed. She said the matter was being investigated by FBI Inspector General Michael Horowitz.
“If this is true — and not just alleged — if this is true, McCabe will be fired,” Carter said. “They are considering firing him in the next few days. If this turns out to be true,” she added.
Moreover, while the NYT reported a confrontation between FBI Director Christopher Wray and McCabe over unspecified findings in the DOJ inspector general report, the Washington Post reported in late January that McCabe is also being probed over his involvement in examining emails found on former Rep. Anthony Weiner’s laptop.
In other words, for anyone who might cry foul over McCabe losing his pension, it appears that the DOJ can simply point to the mounting pile of evidence from the Inspector General pointing to a laundry list of misconduct… and as a reminder, the IG’s report is due soon, and it will provide a much needed look deep inside what may be ground zero for what many unaffectionately call the “deep state.”
Wal-Mart stock is sinking fast following reports that, according to a new whistle-blower lawsuit, that in its desperate race to catch Amazon in online retailing, Wal-Mart issued misleading e-commerce results and fired an executive who complained the company was breaking the law.
Bloomberg reports that Tri Huynh, a former director of business development at Walmart, claims in a lawsuit filed in San Francisco Thursday that he was terminated “under false pretenses” after repeatedly raising concerns about the company’s “overly aggressive push to show meteoric growth in its e-commerce business by any means possible — even, illegitimate ones.”
Investors are not waiting for a response for now…
The question is – did Wal-Mart go full-Theranos in their ‘fake news’ results for online growth? Judging by the move after a few minutes… maybe yes?
Yesterday, in “Here Comes The Main Event: Trade War With China, And What Is Section 301“, we wrote that Trump’s recently announced global steel and aluminum tariffs were just a (Section 232) preview of the (Section 301) main course: Trump’s imminent trade war with China, which will be unveiled any moment in the form of tariffs and restrictions on trade with China, reportedly in retaliation for Chinese IP violations.
Today, Goldman’s chief political economist Alec Philips, picks up on this and confirms that he too expects “the Trump Administration to announce tariffs on imports from China in coming weeks, as part of an intellectual property-related investigation that could also include restrictions on Chinese corporate investment in the US and restrictions on the export of intellectual property to China.”
Conveniently, we already know in rough terms what this escalation will look like: in a preview of his trade war with China, Trump in January said in a Reuters interview that “we have a very big intellectual property potential fine going, which is going to come out soon,” and more recently announced that the “U.S. is acting swiftly on Intellectual Property theft” after a series of tweets on trade policy.
And while the White House has not provided its own estimate of the cost of IP infringement, a frequently cited estimate from the Commission on the Theft of American Intellectual Property puts the annual cost to the US economy at $225bn overall. The US International Trade Commission (US ITC) placed the cost of lost sales, royalties, and licensing fees due to infringement by Chinese companies at $48bn in 2009 (or over $60bn in 2017, if held constant as a share of world GDP).
As we explained yesterday, and as Goldman reiterates, in 2017, US imports from China totaled around $500bn, so tariffs equal to the low end of the range of estimated economic damages from IP-related policies would require a 12% tariff on all imports from China, or a much higher rate on a narrower segment.
This is confirmed by recent reports by Politico and Reuters suggesting that the categories of imports targeted could total $30bn to $60bn. This suggests that the Trump Administration might be leaning toward high tariff rates on a narrow segment of imports.
But which Chinese imports will be targeted: that is a critical question as the resulting tariffs will send prices of the products surging, with significant downstream consequences for both US producers and consumers, as well as corporate margins.
Ultimately, the decision which factors to consider will depend in part on who is advising the President on trade policy. Goldman here expects that USTR Robert Lighthizer will take the lead in developing the list, with input from White House trade adviser Peter Navarro and, ultimately, the President himself. The Treasury will play a larger role in determining the investment restrictions.
With that in mind, in attempting to answer what goods might be targeted when/if Trump decides to follow through with Chinese import tariffs, Goldman has looked at imports from China in 57 categories. The answer is shown in the table below.
Commenting on the ranking above, Goldman first separates categories in which the US runs a bilateral trade surplus, as it seems unlikely that the Administration would impose tariffs here. These categories are shown at the bottom of the table. From there, industries are ranked using a weighted average z-score across the five criteria shown:
the US-China bilateral trade balance,
the US-China tariff differential,
the share of imports that go to final use (generally consumption or investment) rather than use as intermediate inputs into other industries,
imports from China as a share of total domestic intermediate and final demand,
and whether the category was highlighted as a priority in the Made in China 2025 report.
Power tools and electrical appliances top the list, based on a substantial bilateral trade deficit, higher tariffs applied in China versus the US, and high share of imports going to final (in this case, consumer) use.
Sporting goods, toys, jewelry, and consumer electronics like TVs rank highly, for the same general reasons. However, in most of these categories, imports from China constitute a large share of total domestic sales of these products.
This is not true in the next set of product categories, ranging from aeronautical and marine navigation equipment , rail equipment and ships to furniture and household appliances, where Chinese imports represent a small share of total domestic sales, in some cases because domestic production still exists.
By contrast, the White House seems very unlikely to apply tariffs in categories where the US enjoys a trade surplus, such as aircraft, soybeans and other agricultural exports.
Of course, these will be the first categories Chinese policymakers consider when they impose retaliatory tariffs against the US, which should happen just days after Trump launches the China trade war.
In 2004, Ascension Alverez-Tejeda and his girlfriend were stopped at a traffic light in Oregon when their car was rear-ended by a drunk driver. The police arrived and arrested the drunk, but while Alverez-Tejeda was outside dealing with the situation, a thief jumped in his car and tore off down the road.
Police recovered the car and, after obtaining a search warrant from a judge, found in it cocaine and methamphetamine that Alverez-Tejeda was trafficking from California to Washington.
It looked like a case of very bad luck for Alverez-Tejeda. The truth didn’t come out until the trial: The whole thing had been staged. The only ones who weren’t in on the plot were Alverez-Tejeda, his girlfriend, and the judge who signed the warrant. The Drug Enforcement Administration (DEA), relying on surveillance and wiretaps, had tipped off local law enforcement to Alverez-Tejeda. The cops then constructed an elaborate ruse to gain probable cause to search his car, writes C.J. Ciaramella for the April print edition of Reason.
Science writer Gary Taubes has a knack for subverting the conventional wisdom. Sixteen years ago, he published a groundbreaking feature in the The New York Times Magazine, arguing that decades of government-approved nutritional advice attacking fatty foods and praising carbohydrates was flat-out wrong, ideologically motivated, and contributed to rising rates of obesity and diabetes.
Reason‘s Nick Gillespie sat down with Taubes in his kitchen in Oakland, California, to talk about his latest book on nutrition, The Case Against Sugar, which recently came out in paperback.
Produced by Zach Weissmueller. Interview by Nick Gillespie. Camera by Paul Detrick, Justin Monticello, and Weissmueller. Additional graphics by Brett Raney.
“The Rat King is Coming” by Krackatoa is licensed under a Creative Commons Attribution license (http://ift.tt/1bFo3O7) Source: http://ift.tt/1o6W4v7)
The interview has been edited for clarity. Check all quotes against the audio for accuracy.
Nick Gillespie:The Case Against Sugar is framed as a kind of prosecutorial case. Can you lay out the opening arguments that you make against sugar for us?
Gary Taubes: We have obesity and diabetes epidemics everywhere in the world. Worldwide, they manifest whenever a population shifts from whatever their traditional diet is to westernized urban diet and so you could think of the western diet and lifestyle as the vector that carries obesity and diabetes into these populations. Then the question is, what is it in that diet?
Gillespie: Describe the western diet? Does that mean processed foods?
Taubes: Well, so that’s a question. Processed foods, sedentary living-
Gillespie: Totino’s pizza rolls, microwaved food?
Taubes: Pizza rolls, Kentucky Fried Chicken, and McDonald’s, Coca-Cola-
Gillespie: So the whole reason that we live, the things we wait for, are the things that are killing us?
Taubes: It’s a simplistic way to think about it, probably wrong, the things many of us live for and many of us wait for. Anyway, so this is the issue. Something in our diet and lifestyle cause obesity and diabetes.
We see these chronic diseases appearing in populations when they make this nutritional shift, so the question is what is it? The argument I make in this book is that sugar is the prime suspect, always been the prime suspect, cause you can track these epidemics back in time.
Gillespie: Now, you say it’s always been a prime suspect but really at least in the past 40 or 50 years, we’ve been told and this is a lot of your work, what we’ve been told is don’t worry about sugar, worry about fat, worry about meat and that beautiful arc of fat around the edge that you might gristle up a little bit?
Taubes: That’s key to the story, and that’s how I entered into it as an investigative journalist is we had this belief system that began as a hypothesis in the 1950s and started to be tested in the 1960s and was never confirmed, which is that dietary fat causes heart disease. So by the 1980s, a healthy diet was being defined as a low-fat, low-salt diet.
Gillespie: And this explains Snackwell cookies and things like that.
Taubes: One of the things that happened in the 80s when we embraced this low fat healthy diet synchronicity is the government, the CDC, started telling industry to produce low fat foods. So, we could take foods like the iconic example is yogurt, a high fat food by definition. You remove some of the fat and now you have this kind of insipid watered-down, tasteless thing and to make it taste good, you put back fruit and sugar, high fructose corn syrup, and now you’ve got a heart healthy diet food that they sell in these little packets and we see them everywhere.
Gillespie: Did the shift from a higher fat, or a more balanced diet actually, to a low fat, low salt, sugar, did it achieve the goals that were predicted for it?
Taubes: You could look at heart disease mortality and it’s come down. The nutrition community said, “Well, look, people aren’t dying from heart disease as much, therefore, our advice is right.” And then people like me say, “Yeah, but, we’re not interested in mortality, cause we’re also selling billions of dollars in statins every year and billions of dollars in blood pressure drugs. We’re doing hundreds of thousands of heart surgeries a year, putting in stents, doing bypasses. If mortality wasn’t coming down, we’d have a real problem. Question is what’s happening to incidents. Are we seeing less heart disease because we’re preventing it with changes in diet? And there’s no evidence.”
Gillespie: You know, you describe an early battle over many of these questions between academic nutritionists who overwhelming took the energy balance approach to nutrition: you lose weight of you burn more calories than you take in versus what they characterize as quack doctors who writing diet fad books that you can eat all the fat you wan. And yet you say the quacks were actually closer to being right.
Taubes: So you have an academic research community that dominated post-World War II in the U.S. by nutritionists, who are studying animals for the most part. 1959, ’60, Rosalyn Yalow and Solomon Berson invent the technology that allows hormones to be measured accurately and the school of endocrinology explodes. The science of endocrinology finally has the tools they need to understand things like hormonal regulation of fat accumulation. Yalow and Berson say, look, insulin drives fat accumulation, so maybe this link between type two diabetes and obesity, maybe the type two diabetics are obese because of the insulin. And nobody cares, except the doctors.
The doctors are like all of us. They’re getting fat, right? What do you do if you’re getting fat? Well, you try what everyone tells you to do, which is eat less and exercise more and if that doesn’t work, which it doesn’t, then, if you’re smart, you look for other methods. Some of them read the diet book literature and try various diets. Some of them actually read the same medical literature I did, so Atkins famously read the same studies I read 40 years later. Maybe if I get rid of the carbohydrates and replace it with fat, because fats are the one macro-nutrient that doesn’t stimulate insulin secretion, maybe I’ll lose weight.
If you try it and it works-
Gillespie: So it is a place where kind of people outside of the official research community were desperate to get skinny or have their patients get skinny so they tried a bunch of different things?
Taubes: They try a bunch of different things. When you find one that works, after a lifetime of failing … Obesity is one of these subjects where it helps to have a weight problem. If you don’t understand what it’s like to get fatter and fatter, year in and year out, regardless of what you do, or to be 50 pounds fatter than your schoolmates in high school regardless of what you do, you just don’t understand obesity.
Gillespie: You’re a trim guy. Were you a fat load at some point?
Taubes: Nah, I was chubby when I was a kid. It was one of the interesting things, cause my brother who is a mathematician was … you could see every vein on his body, and I was a chubby. He was taller and thin. He couldn’t gain weight if he wanted to, and I was just a chubby kid. Puberty helped and then I became an athlete and that helped. But my brother at his peak was 6’5″ and weighed about 195 was a rower. Remember Freud said anatomy is destiny. So he rowed crew. I was 6’2″ and could get up to 240, and I played football. We both ate as much as we could. That’s what we did. We were kids. He was tall and thin. I was short and thick. Not … shorter and thick. That’s just how we were built. I often wonder it’s like why would you possibly think that I was thicker than him because I ate more or exercised less. I was just thicker than him. That was my body.
Gillespie: In the book, you document a long history of public nutrition advice being intertwined with politics in this country. So let’s talk about the sugar lobby. How did king sugar get its crown in the American economy and kind of in the American diet?
Taubes: Well, sugar used to be very expensive and hard to get. It’s hard to grow. It only grows in specific and tropical regions. You can’t just transport the sugar cane around the world and then refine the sugar out of it afterwards. You’ve got to get the sugar out quickly on refining. It’s a horrible job.
Gillespie: It was done by slaves.
Taubes: It was done by slaves. The sugar industry is at the heart of the slave trade. The industrial revolution comes along. Now beginning in the late 18th Century and suddenly sugar gets cheaper and cheaper to refine. 1840s the candy industry, the chocolate industry and the ice cream industry all start up. In the 1870s, 1880s, you get the soft drink industry with Coca-Cola and Pepsi-Cola and Dr. Pepper and suddenly not only are you creating entirely new ways to consume sugar and new vehicles to do it, and you can consume it all day long, you are targeting children and women as the consumers of sugar, children specifically. The soft drink industry in particular just explodes.
By 1900, we’re consuming about 90 pounds per capita, which is almost a 20-fold increase in a century. Every industry, it’s like an arms race, every industry, the nutritionist say, no, no, no, no, no, and the marketers say “If we don’t do it also, we’re out of business.” They fall one after another. By the 1960s, you’ve got cereals that are 40, 50 percent sugar-
Gillespie: And that are advertising as such. Right? This is like Sugar Smacks. It was originally Sugar Frosted Flakes.
Taubes: Tastes like a milk shake. You’ve got all of the smartest minds on Madison Avenue in the PR industry creating not just cartoon characters to sell but entire Saturday morning cartoons, the ones we grew up on, like Rocky and Bullwinkle. I loved Rocky and Bullwinkle. It was a vehicle to sell cereal.
Gillespie: Gosh, I didn’t realize. So in the Hague trial of cartoon characters against humanity, Rocky and Bullwinkle are as bad as Boris and Natasha then?
Taubes: Yes, you could look at it that way. Horrible thing. Fruit juices come in in the 1930s. Okay, Sunkist, the coalition of California orange growers, they have to do something with their oranges cause they all come into season at once. You can’t sell enough and you can’t move enough so you turn them into juice. You sell them as juice and you advertise them as healthy because of the vitamin C. We’re coming off this age of the new nutrition, which was all about vitamins and vitamin deficiency diseases.
You go back to what we evolved to eat and the sugar in those apples, and kids are now getting that within 20 minutes of waking up in the morning and they aren’t going more than an hour and half, two hours over the course of the day without. Over the course of a day, they’re consuming almost a year’s worth of what they evolved to eat.
Gillespie: At various points, the USDA or other government agencies that kind of gave dietary recommendations wouldn’t even think to say, “Well, glasses of apple juice or orange juice are sugar.”
Taubes: To this day, when you are told to eat a lot of fruits and vegetables, it’s because they’re vitamin rich. The conventional thinking, orange juice is healthy cause it’s full of vitamins, and in the alternative thinking, the world I live in now, it’s unhealthy because it’s basically sugar water. You could take Coca-Cola, add the vitamin C tablet, and you got the same thing.
Gillespie: Talk about why the government would kind of push that or have that blind spot and the role of the sugar industry bringing that pressure to bear.
Taubes: The sugar industry, always a very powerful lobby, cause sugar was a very vital product import. The food industry was dependent on it, so the sugar lobby was always considered incredibly powerful. Beginning of the 1920s, the industry creates the sugar association basically to help advertise sugar consumption. Post-World War II, the diet, artificial sweetener industry begins to come of age. Saccharine had been around since the 1890s and cyclamates since the 1930s, and they’re used in products that are sold for diabetics.
People started thinking, ‘Hey, I’m getting fatter, I could drink these sugar-free, calorie-free drinks as well.’ The industry starts producing and the newspapers now have something to measure, which is the amount of diet sodas being produced, so they can write about the diet craze. And the sugar industry has a problem because people are saying sugar is fattening. So the sugar association starts saying a calorie is a calorie. That’s the general … that’s the bedrock belief of the nutritional obesity community, so they start advertising widely and started PR campaigns to combat this argument that sugar is fattening. They do it by basically just taking what the nutritionists are giving them. The nutritionists are giving them bad science. The obesity researchers are giving them bad science, and all serves to exonerate sugar.
Gillespie: Is the sugar lobby actually paying for studies or are they paying nutritionists for-
Taubes: They are paying for research. They began paying for research in World War II, but that, again, was common practice. The sugar industry kind of pioneered it. I don’t think they did it for public relations reasons. They wanted to find other uses for sugar, so they funded some of the best sugar biochemists in the world, and they wrote about it. Science magazine would annually run articles about the sugar industry, who they were funding, and why they were funding it, because it was a good thing. It helped cement some allies later. Because if somebody’s been paying your bills for 20 years, you tend to be fond of them. That’s where the conflict of interest come in.
Then in the 1960s with this idea that dietary fat was a problem, dietary fat caused heart disease, some of the people pushing that happened to be long time recipients of sugar industry largess. Now they could pay those people to write articles saying dietary fat is a problem, not sugar. This was conventional thinking. The only people who were claiming sugar was the problem were these sort of fringe British nutritionists who were perceived as quacks.
Gillespie: So what about the attack on artificial sweeteners, so saccharine, certainly cyclamates was banned in the late 60s, early 70s?
Taubes: ’69, yeah.
Gillespie: Saccharine was almost banned, or it was for a bit. But it carries warnings on it. Where did the interest in saying these were carcinogenic or these were problematic-
Taubes: Oh, they came from the sugar industry. So the saccharine and cyclamates were direct competitors. Interestingly, the beverage—and here’s where the beverage industry and the sugar industry split—the beverage industry was happy to sell artificially sweetened and artificial sweeteners are cheaper. So the beverage industry starts, Coke and Pepsi, they all put out Tab and Diet Rite, they were low calorie-
Gillespie: Fresca. Now, I’m trying to think of all the horrible acid tasting pre-Diet Coke diet sodas.
Taubes: Yeah, but they were happy. But the sugar industry saw it as a direct threat to their viability and it was. There’s a quote in TheNew York Timesthat I quote in my book, a sugar industry executive saying if he’s copping to spending a half million dollars on research trying to find anything that artificial sweetener does that’s damaging, they would give female rats the equivalent of 60 cans a day of soda and then hope that they would produce rats with birth defects so they could say it was as bad as thalidomide. I mean they were looking for anything. This executive in The New York Times is quoted as saying “If someone could undersell you one cent to a dime, wouldn’t you throw a brick bat at them if you could?”
Gillespie: So if our government and other public health institutions, universities, what not, if they’re consistently offering bad nutritional advice, and bad dietary guidelines, what do you do about that? What is the response?
Taubes: That’s the problem, isn’t it?
Gillespie: Is there a solution here or do we just kind of say screw it and you know?
Taubes: In the science in which I was raised, so physics and the people who taught me science when I wrote my first two books in physics and chemistry, the hard sciences, the last thing you want to do is get an assumption accepted into the theory of how things work without rigorously testing it, because then people will build on it from there and it will grow and infect the whole thought construction. You end up with, I’m going to beat this metaphor to death, sort of a house of cards. And there will be no way to go back on it. Those are sciences that have no influence on every day life. So in a field like nutrition and obesity research, you’ve now got these enormous institutional dogmas built in that I and others are arguing are simply wrong. Who do you trust and how do you get the institutions to change their belief systems?
Right now I’m co-authoring an article … the British Medical Journal is running a series on nutrition policy and their way of dealing with it is by assigning writers from these different belief systems, so I’m a co-author on an article on dietary fat along with the former head of the Harvard nutrition department who thinks I’m the worst journalist he’s ever met and who does a form of science that I consider a pseudo-science.
Gillespie: But that is kind of the enlightenment model of science, right, that you have competing truth claims and you kind of put them in a cockfighting ring-
Taubes: What’s the cockfighting ring? That’s the key. The cockfighting ring is experimental tests. It is a hypothesis and tests. You have a hypothesis, you do an experiment, you intervene, limiting the number of variables you change. The problem with these sciences, which is you can’t really test these hypotheses. They’re too hard to do. I mean you could if you had enough societal motivation. If you’re willing to spend 10 billion dollars, the way we do to try and find out if the Higgs boson exists in high energy physics. You get everyone to work together. You identify the key questions and you spend whatever money is necessary to do it.
Gillespie: Do you think food producers, obviously they have institutional legacies that they want to protect, but they also … groups like, I don’t know, General Mills or Proctor and Gamble, or what not, private industry spends billions of dollars a year on research. Are they capable of doing disinterested research?
Taubes: Well, the assumption is no. Now days there’s a whole journalistic industry of identifying conflicts of interest when researchers do take money from industry. There are models which work better, where you just have the industry donate basically money for research to clearing houses or the government, which then identifies what things have to be studied. But if I’m right the argument I’m making is you have entire multiple generations of nutrition and obesity research who really fundamentally don’t know how to do science. They don’t know how to think critically, how to keep multiple hypotheses in their head at one time, what it means to rigorously test hypotheses. So even if you had them do the studies, they would probably do a bad job.
Gillespie: At various points you compare sugar to a drug. To go into kind of a different register of government malfeasance, the government has arbitrarily declared certain drugs good and certain drugs illicit. The war on drugs has been a failure. The war on tobacco I guess has been successful in terms of helping to drive down the amount of people who smoke. Are you proposing anything along the lines of a war on sugar?
Taubes: No, government interference worries me. The same way I think it worries you guys. This whole story is about government interference that went awry. If they had stayed out of things in the ’60s through the ’80s, and never inflicted us with this, what I think are incorrect ideas—that a healthy diet is inherently low in fat, low in salt—the scientists might have had time to get the science right. We might have really understood what’s happening.
The null hypothesis should be it’s something simple. Sugar’s not just at the scene of the crime when it happens in populations. It’s at the scene of the crime in the human body, which is the liver. If that’s true, and you get the message across that these are disorders that nobody wants—nobody wants them in their family, nobody wants their children to have them—I think there will be, if we truly understood the cause, if we got it right, if we knew how to fix it, if that message was consistent from diet doctor to diet doctor to insurance agents to hospitals to physicians—’There is a cause’—if we understand that, then I think there will be a societal move to fix it. But again, we have to get it right. We have to get the science right.
Gillespie: Well, we will leave it there. We have been talking with Taubes. He’s a science writer, whose most recent book is The Case Against Sugar, out in paperback. Gary, thanks for talking to Reason.
There are fresh rumors out of the West Wing that H.R. McMaster and John Kelly are the next dominoes to fall in what some White House employees are referring to as a “purge,” reports CBScorrespondent Major Garrett.
The next to go could be National Security Adviser H. R. McMaster, expected to be replaced by former Bush administration official and frequent Fox News analyst John Bolton. Bolton is a hawk on Iran and North Korea, like new Secretary of State nominee and current CIA chief Mike Pompeo.
The man brought in last summer to impose order in the White House, Chief of Staff John Kelly, may also be on the way out, according to congressional and administration sources. –CBS News
Veterans Affairs Secretary David Shulkin may also receive a pink slip, after the VA Inspector General determined that Shulkin used taxpayer dollars on a lavish trip to Europe for his wife. The money was repaid after it became public.
Trump joked last summer about firing Shulkin, who would be replaced by Energy Secretary Rick Perry.
“It will be properly implemented, right David? It better be David, or [mouths “you’re fired”]. We’ll never have to use those words on our David,” Mr. Trump said.
HUD director Ben Carson’s job is also at risk, after a $31,000 order for an office dining room set was discovered and subsequently canceled.
So far over 20 senior administration staffers have been fired, resigned or reassigned. Last week, Vanity Fair‘s Gabriel Sherman wrote that Trump is reportedly “tired of being reined in,” and is ready to clean the slate in the West Wing to his liking.
With the departures of Hope Hicks and Gary Cohn, the Trump presidency is entering a new phase—one in which Trump is feeling liberated to act on his impulses. “Trump is in command. He’s been in the job more than a year now. He knows how the levers of power work. He doesn’t give a fuck,” the Republican said. Trump’s decision to circumvent the policy process and impose tariffs on imported steel and aluminum reflects his emboldened desire to follow his impulses and defy his advisers. “It was like a fuck-you to Kelly,” a Trump friend said. “Trump is red-hot about Kelly trying to control him.” –VF
Sherman writes that the purge is a total changing of the guard: “Trump is going for a clean reset, but he needs to do it in a way that’s systemic so it doesn’t look like it’s chaos.”
In late February, both CNNand Reuters reported that Kelly and McMaster were reportedly close to quitting or being fired over various issues, including Jared Kushner’s security clearance which was downgraded two weeks ago.
“There have been running battles between Trump and his generals,” said one of the officials, speaking on the condition of anonymity. Kelly is a retired Marine general and McMaster an Army lieutenant general.
“But the clearance business is personal, and if Trump sets special rules for family members, I‘m not sure if Kelly and McMaster would salute,” the official said. –Reuters
While there haven’t been any new rumors about Jared Kushner and wife Ivanka Trump, last week we reported that Kushner may be out over recent negative headlines over his family’s financial frustrations with their infamous 666 5th avenue property. Kushner’s finances are reportedly a central focus of Special Counsel Robert Mueller’s probe into Russian meddling in the 2016 election. The president’s son-in-law is in a weakened position, which Trump may feel will be a detriment going forward.
One scenario being discussed is that Kushner would return to New York to oversee Trump’s 2020 re-election campaign with his ally Brad Parscale, who was hand-selected by the Trump family. One Trump friend referred to it as a “soft landing.” Ivanka will likely stay on longer, perhaps through the summer, before decamping home to New York to enroll the children in a Manhattan private school. Both are presumed to remain in close contact with Trump, who often places significant value on the opinions expressed outside his administration, anyway. –VF
What about Sessions?
According to CBS, “there are conflicting interpretations of Attorney General Jeff Sessions’ job security,” following a contentious relationship between the president and his Attorney General. Word has it that EPA administrator Scott Pruitt would replace him, however other sources suggest Sessions’ job may be safe because a the battle over his replacement’s confirmation would be “too drawn out.”
OPEC has finally acknowledged what everybody else had concluded some time ago: U.S. shale output is soaring.
In its March Oil Market Report, OPEC revised up its forecast of non-OPEC supply for 2018 by 280,000 bpd, a major revision. That equates to year-on-year growth of 1.66 million barrels per day (mb/d).
The group couched the change in boring technical jargon, noting that “the upward revision is mainly due to higher-than-expected output in 1Q18 by 360 tb/d in OECD (Americas and Europe), FSU and China.” But make no mistake, OPEC is conceding that U.S. shale is surging, which complicates the cartel’s calculations for rebalancing the oil market.
Crucially, the forecast now acknowledges that oil supply will outpace demand this year, a conclusion that the IEA had been predicting for a few months.
The trend is worrying for OPEC. The effects of the production cuts of 1.2 mb/d (plus nearly 0.6 mb/d from Russia and other minor partners) had little effect in early 2017, likely because of the ramp up in production and exports just prior to the implementation of the deal.
However, as 2017 wore on, the cuts started to really bite. Inventories plunged toward the end of last year, tightening the market and forcing up oil prices. Some analysts have even predicted that the oil market could already be rebalanced.
The IEA was an early spoilsport, however, predicting at the start of 2018 that despite the run up in prices, inventories would start climbing again in the first half of the year. In January, oil traders shrugged off this bearish assessment, driving Brent up to $70. From there, the rally stalled, and U.S. shale began to take off again, pushing prices back down.
In subsequent weeks, the forecasts for U.S. shale growth have been ratcheted up leaps and bounds, and the expected strong gains in output from shale have transformed into expectations of a tidal wave of new supply that will push U.S. production over 11 mb/d by the end of this year. Most analysts have since followed in the IEA’s footsteps and offered their own takes on how fast U.S. shale would grow.
OPEC is just getting around to acknowledging this fact. OPEC now says that global oil demand will rise by 1.6 mb/d this year, which will be more than offset by a global supply increase of 1.66 mb/d. Ultimately, this means that a little less OPEC production will be needed. The group revised down the need for its production by 200,000 bpd for 2018.
This complicates things for OPEC, but for now, the group will stay the course. OPEC’s report pointed to the sharp decline in inventories since last year. “It should be noted that the overhang has been reduced by 289 mb from January 2017,” OPEC wrote. OECD crude inventories are only 74 million barrels above the five-year average while refined product stocks are actually in a 24-million-barrel deficit relative to the seasonal norm. This suggests that the OPEC cuts have had a huge impact.
Nevertheless, as expected, inventories have begun climbing again. OPEC noted the 13.7-million-barrel increase in stocks in January, the first increase in five months. If inventories continue to rise, even at a slow rate, the goal of bringing stocks back to the five-year average will remain elusive. All the while U.S. shale is surging, taking market share away from the cartel.
While there is speculation about what that might mean for the resolve of OPEC membersin regards to the production limits, a more immediate response could come in the form of altering the overall metric used to define success. Reuters reports that Saudi oil minister Khalid al-Falih is looking at other measurements that could guide the OPEC cuts, such as non-OECD inventories, floating storage, and oil that is in transit. The problem with that is OECD inventories have always been the main metric precisely because that offers the best available data. Data on oil stocks in non-OECD countries is tricky and opaque.
Another metric looks more promising: days of forward cover. This measures the amount of oil in storage relative to how many days that supply could cover. Because demand has climbed substantially over the last few years, the world needs more oil in storage than it used to.
For instance, OECD commercial stocks held 60 days’ worth of global demand in January, which is actually 5.3 days below the same period a year ago. Crucially, it is 0.6 days of cover lower than the five-year average – in other words, the oil market is balanced according to this measurement.
It’s not clear how this will inform OPEC’s decision-making; U.S. shale is still surging, keeping a lid on oil prices, regardless of the metric OPEC wants to use. If OPEC were to declare victory and return to full production, oil prices would likely fall sharply. “OPEC and Russia would probably be better off signaling a gradual approach or a ‘tapering’ of sorts,” said analysts at Bank of America-Merrill Lynch.
Indeed, the recognition that U.S. shale is going to grow more than expected likely means that OPEC realizes it will need to keep the cuts in place longer than it had planned.
In 2004, Ascension Alverez-Tejeda and his girlfriend were stopped at a traffic light in Oregon when their car was rear-ended by a drunk driver. The police arrived and arrested the drunk, but while Alverez-Tejeda was outside dealing with the situation, a thief jumped in his car and tore off down the road.
