Yikes! New Seattle Bike Lanes Were Supposed to Cost $860k per Mile. Some Are Costing $13 Million Instead.

When the $930 million “Move Seattle” transportation levy appeared on the ballot in 2015, voters were promised some very specific things in exchange for a $275 yearly bump in the city’s average property taxes. This included 50 miles of protected bike lanes, 180 miles of repaved arterial roads, and the redesign of seven transit corridors to allow for easier bus, bike, and pedestrian travel.

Then–City Council President Tom Rasmussen also promised “accountability and transparency in how the levy dollars are spent.”

Fast-forward three years. Ballooning cost estimates now have city officials saying they will not be able to fulfill every pledge made to voters in 2015—promises that were known to be unrealistic when they were made.

“We do not have enough funding right now to do everything that was promised, we just don’t,” said the city’s interim Department of Transportation (SDOT) chief, Goran Sparrman, at an oversight meeting last week. Sparrman added that “some of those dollar amounts estimated for what projects would cost were clearly insufficient, even at the time.”

Take the bike lanes.

The original 2015 levy budgeted about $860,000 for each promised mile of new protected bike lane and greenway. That’s a smidge lower than the actual cost of the four-block bike lane project on Seventh Avenue in Seattle’s downtown, which came in at $3.8 million (about $13 million per mile). Another bike lane, on Second Avenue, cost $12 million a mile.

A review of the levy’s progress gives no precise dollar figure on how insufficient the bike lane budget is, saying only that the program needs “further review and adjustment.”

The review says the same for those 180 miles of arterial road repaving that need to be done and those plans to increase bus speed and service on seven congested corridors, not to mention the curb repairs promised at 775 intersections.

Plans to replace any old tree removed by the city with two new trees is still on track, as are stepped-up crosswalk repainting and seismic upgrades to 16 vulnerable bridges.

SDOT blames the cost overruns on a 2016 Americans with Disabilities Act consent decree requiring the city to ugrade more sidewalks than anticipated (despite the city claiming earlier that the consent decree would not affect the delivery of Move Seattle projects), uncertainly about the availability of federal grants (despite the feds boosting transit funding this year and greenlighting several Seattle funding awards), and faster-than-anticipated growth in real estate costs.

That latter explanation has been trotted out for a number of recent transit cost overruns in the Seattle area. Sound Transit, a separate entity from SDOT, said much the same thing when it was revealed that the agency’s Lynnwood light rail extension was coming in $500 million overbudget.

Sound Transit also leaned on this excuse when Seattleites learned that a $32 million park-and-ride garage that the agency was building would cost $65 million, or $100,000 a space. Outside estimates put the typical per-space cost of a Seattle parking garage at $25,000–$35,000.

Then there’s the Center City Connector streetcar project, managed by SDOT, which started with cost estimates as low as $108 million but has since seen its price tag jump to $200 million, in part because SDOT officials knowingly lowballed some costs by as much as 50 percent. Construction has since been halted while an independent review of the project is performed.

The Seattle government’s inability to deliver on the promises it has made to voters and taxpayers has so far failed to produce a political backlash. As Seattle Times columnist Danny Westneat writes, “this pattern of overpromising or outright deception…never seems to get the city in too much hot water with voters. Maybe because we’re so desperate for transit and infrastructure improvements.”

A big part of the problem is that the department that receives money from a voter-approved transportation levy—SDOT in the Move Seattle case—is the same agency tasked with informing the public what their vote will get them. Levies need only pass once, after all, so the incentive to overpromise is strong.

In the run-up to the Move Seattle vote, SDOT and the mayor’s office hosted five community coffee hours (and one happy hour), 35 community meetings, and three mayoral round tables attended by 40 stakeholder groups. SDOT also circulated information via its blog, the Move Seattle website, and online surveys, and it distributed materials at farmers markets, press events, and pop-up tables at community centers.

The stated purpose of this community outreach was to hear what kind of projects community stakeholders wanted. It’s not hard to see this all as an effort to butter the public’s bread, particularly given that it resulted in an extra $30 million in projects added without any rise in the costs of the levy itself.

SDOT now has the uninviting task of paring down projects or scrapping up more revenue to give voters something close to what they’ve been promised.

This process is happening at the same time that development is getting underway for another Seattle-area transit expansion, the $54 billion Sound Transit 3 project, which includes a promise to build 62 miles of new light rail.

Expect to keep hearing about an unanticipated spike in real estate prices.

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Another Socialist Success: Venezuela Imports Oil from U.S.

VenezuelaCollapseAlessandroScagliusiDreamstimeVenezuela has the world’s largest proven reserves of petroleum. In 1998, when Bolivarian socialist Hugo Chavez was elected president, the country was producing about 3.5 million barrels of oil a day. As recently as 2013, when Nicolas Maduro ascended to the presidencey upon Chavez’s death, the country was still pumping out about 2.8 million barrels a day. Since 2016, month daily production has dropped to 1.5 million barrels.

Venezuela’s heavy crude oil needs to be diluted with lighter petroleum products so that it can be refined into fuels. The Independent reports that as a result of the ongoing collapse of domestic refining, the South American country is now obliged to import about 200,000 barrels a day of diluents from the United States. The Venezuelan government sells gasoline at 1 cent per liter (80 cents in the U.S.). Even with the fanciful assumption that all the petroleum in a barrel could be refined into vehicle fuel, a rough calculation implies a value of $1.60 per barrel. The diluents from the U.S. cost about $80 to $90 per barrel.

“One of the craziest things is that a part of Venezuela’s imports is for the domestic market, but given its price, they practically give gasoline away for free,” Francisco Monaldi, a fellow in Latin American energy policy at Rice University, tells The Independent. “They are importing barrels that cost $80 to $90 and selling them at $0.”

Despite Chavez’s dysfunctional economic policies, Venezuela’s GDP ascended along with oil prices during the first decade of the 21st century. But since peaking at $334 billion in 2011, the country’s GDP has dropped to $215 billion. The economy shrank by 16 percent last year, and the International Monetary Fund projects it will shrink by another 15 percent this year. Inflation, meanwhile, is nearing an annual rate of 9,000 percent.

As The Independent notes:

Oil makes up more than 90 per cent of the nation’s exports, but a combination of government corruption, lack of investment and the migration of qualified staff have left the industry in ruins. It’s a crisis that has directly hit the country’s ability to import resources like food or medicine for the Venezuelan population.

It is a vicious spiral. It is estimated that 10 per cent of the population has emigrated. Almost two thirds of all households have at least one family member living abroad. And among those 3 million migrants are young and competent workers who have escaped from a country that sinks deeper into crisis.

This is what real socialism looks like.

For more background on the sad but entirely predictable collapse of Venezuelan socialism, see Reason‘s articles here, here, and here.

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Politics Is Not Pretty: Podcast

This is a real photograph. ||| STAFF/REUTERS/NewscomAs there is no escape from the culture-war nontroversies surrounding this weekend’s White House Correspondents Dinner, the least you can do is go meta about the always-ugly apparitions of industrial self-congratulation and concentration of power in Washington, D.C.

And so this week’s editorial roundtable edition of the Reason Podcast, featuring Katherine Mangu-Ward, Nick Gillespie, Peter Suderman, and me, begins with a brief such discussion before pivoting quickly to other news, including peace talks on the Korean peninsula, tonight’s midnight deadline on steel/aluminum tariffs on the European Union, the looming Iran-nuclear-deal implosion, the strange and wonderful imagery from French President Emmanuel Macron’s state visit, and a surprise new book from Zora Neale Hurston.

Subscribe, rate, and review our podcast at iTunes. Listen at SoundCloud below:

Audio production by Ian Keyser.

Relevant links from the show:

It’s Time To End the White House Correspondents’ Dinner,” by Nick Gillespie

CNN Won’t Cut Away from White House Correspondents’ Dinner, Reassures Viewers They’ll ‘Find Out All of What Happened in the Streets of Baltimore by This Time Tomorrow’,” by Jesse Walker

The White House Press Correspondents’ Dinner is About as Bad as You Think, Only a Little Bit Worse and a Little Bit More Fun,” by Lucy Steigerwald

Is This Prom Dress an Act of Cultural Appropriation?,” by Nick Gillespie

North Korea Claims It Will Suspend Its Nuclear Weapon and Missile Tests,” by Brian Doherty

Trump’s Economic Illiteracy Has Deep Roots,” by Eric Boehm

Shocker! American Steel Prices Spiked in April.,” by Eric Boehm

How Trump’s Steel Tariffs Harm America,” by Veronique de Rugy

3 Ways Kanye West Is Confounding Everyone with His MAGA Tweeting,” by Brian Doherty

‘Black People Don’t Have To Be Democrats’,” by Nick Gillespie

Fire!!: The Zora Neale Hurston Story,” by Brian Doherty

Zora Neale Hurston: ‘America’s favorite black conservative’,” by Damon Root

Zora Neale Hurston, Libertarian?,” by Damon Root

Mostly Weekly: Why I’m Boycotting the White House Correspondents’ Dinner,” by Andrew Heaton and Sarah Rose Siskind

Don’t miss a single Reason Podcast! (Archive here.)

Subscribe at iTunes.

Follow us at SoundCloud.

Subscribe at YouTube.

Like us on Facebook.

Follow us on Twitter.

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There’s Nothing Golden About This Nazi Treasure Show: New at Reason

Hermann GoeringTelevision critic Glenn Garvin checks out American Heroes Channel’s Nazi Treasure Hunters and finds the vault empty:

The first episode of Nazi Treasure Hunters concentrates on the incredible collection of stolen artwork amassed by Hermann Goering, head of the German air force and the second most powerful man in Hitler’s regime.

But whoever’s got the Goering goodies—If, indeed, they still exist; the final days of Hitler’s Germany were a frenzy of Allied bombing and Red Army annihilation—probably has nothing to fear from the wannabe Indiana Joneses of this show.

With much fanfare, they find a hole leading into a decrepit old bunker beneath the site of a Goebbels mansion where much of his art was stored. (Purloined paintings covered so much wall space that Goebbels began mounting them on the ceilings.) The magnificence of this discovery is only somewhat diminished by the fact that modern graffiti artists have preceded them; or that the bunker was thoroughly searched by East German authorities before they razed the house above it.

View this article.

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Congress Wants to Add a Popular Fitness Drug to the List of Controlled Substances

If an athlete was suspended in the last year (or so) for using a performance-enhancing drug that wasn’t a testosterone-based steroid, it was probably because they tested positive for a SARM. SARMs—”selective androgen receptor modulators”—have been around for years; they’re popular because they work and because they aren’t regulated. But that last part may be about to change.

Sens. Orrin Hatch (R-Utah) and Sheldon Whitehouse (D–R.I.) introduced legislation last week that would criminalize the entire SARM class of compounds. The SARMs Control Act of 2018 would place the drugs in schedule III under the Controlled Substances Act, alongside testosterone and substances intended to cause muscle growth.

Drugs in schedule III are legal to prescribe if they’ve been approved by the Food and Drug Administration (FDA); without a prescription, they are illegal to possess, buy, or sell. Since SARMs have not been approved by the FDA, and likely won’t be for years (if ever), the Hatch-Whitehouse bill will make them illegal in nearly every context.

In a statement released late last week, Hatch declared that SARMs “pose the same safety risks as anabolic steroids.” That’s a remarkable claim, considering that we don’t actually know these substances’ safety profile. There are no extensive human trials for any of them. Maybe they have the same long-term effects of steroids (which are themselves overblown), but right now it’s impossible to say for sure.

Here’s what we do know: Enobosarm, one of the most popular SARMs, holds promise as a treatment for muscle wasting, which is a symptom of more than a dozen serious diseases ranging from HIV to cancer. RAD140, another popular SARM, may protect brain tissue from degeneration much the way testosterone appears to. Along with several other compounds, both Enobosarm and RAD140 are designed to offer the tissue regeneration benefits of testosterone without the latter’s pesky effect on secondary sexual characteristics. This is why pharmaceutical researchers began working on SARMs in the first place. A drug that could deliver testosterone’s anabolic effects (muscle growth, increase in red blood cell count) without the androgenic effects (facial hair, acne, thickening of the vocal cords) would be quite useful for female and pediatric patients, not to mention male patients with an elevated risk of prostate cancer (testosterone makes everything grow faster, including tumors).

You won’t learn any of that from Hatch, because discussing drugs in a nuanced way generally undermines the argument for banning them. But you should be able to learn all of this from the Food and Drug Administration, which has thus far declined to respond to the rise of research chemicals in a way that educates consumers. That’s a shame, considering the wealth of misinformation about SARMs.

These drugs are often marketed as a side-effect-free alternative to pharmaceutical testosterone, which is almost certainly not true. One study of the SARM LGD-4033 found that while it increased lean body mass compared to a placebo, it also greatly reduced endogenous testosterone production. In other words, it made men’s balls stop working. This was with doses as small as 0.1 mg, while the largest dose used in the study was 1 mg. Yet the LGD-4033 available online—if it is in fact LGD-4033—is dosed anywhere from 3 to 5 mg per serving, which is more than necessary and likely to produce even greater negative effects.

The anecdotal reports I’ve read from SARM users confirm that most formulations cause suppression of testosterone production in men, which is a trait the drugs share with anabolic steroids. That doesn’t necessarily make them dangerous. Rather than tell people, “Don’t do this thing you clearly intend to do regardless of what we say,” the FDA could try, you know, educating. Aggregate the information that studies have found, emphasize the low dosages used therein, and discourage consumers from taking more than the available evidence suggests is necessary. The agency could also discuss potential side effects, and when to seek treatment. Crazy, I know!

The Hatch-Whitehouse approach—criminalizing everything that looks remotely like a steroid—will not discourage a certain type of consumer from buying gains in a bottle. Criminalizing anabolic steroids in the 1990s didn’t do that, nor did criminalizing prohormones in the 2000s. In fact, the most significant consequence of banning drugs we understand really well—like testosterone, which was first synthesized nearly a century ago—is that research chemists are now constantly looking for new substances that aren’t yet illegal, but also aren’t all that well understood. In other words, Congress created the SARMs “problem” by banning the thing that was popular before SARMs. If Hatch’s bill becomes law, we’ll know even less about the long-term consequences of whatever drug class comes next.

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Clintons Orchestrate Rise From Ashes With $100,000 Dinner, Bill’s Novel, And Chelsea’s Twitter Game

We’re about to see a lot more of the Clintons, according to Axios

After laying low for 18 months, aside from Hillary once again insulting half of America and slip-sliding down a flight of stairs hours later, the former first family will be making a bona-fide attempt to rise from the ashes and jumpstart the Clinton Foundation ATM – despite the FBI launching a new investigation into the organization in January. 

Last week, longtime Clinton supporters received an invitation offering access to the family at a May 24 Clinton Foundation benefit in New York, shelling out between $2,500 (“Friend”) for a cocktail party and dinner, up to the $100,000 (“Chair”) level which buys a “Leadership Reception for two, a premium table of ten, program recognition as a Gala Chair and invitations to the Clinton Foundation Annual Briefing.” 

Meanwhile, Hillary Clinton is leading the first meeting of her Onward Together political group on Monday on New York’s Upper East Side – in which she and Howard Dean will welcome 11 partner organizations for a day of “about harnessing the energy and activism post-election.

We can only imagine their pitch:

Step 1. Lose an election the entire MSM tried to help you win

Step 2. Never get over it, refuse to take personal responsibility

Step 4. Become a pariah to your party right before midterms

Step 5. Work on your primal scream (bonus session) 

Of course, not all Democrats are exactly excited to see the Clintons regroup – as Axios reports “plenty of top Democrats we talk to would prefer new energy and faces to Clinton nostalgia/redemption.”

Then there’s Bill Clinton – who is publishing a novel on June 4 co-authored by thriller writer James Patterson, titled “The President Is Missing.” Clinton and Patterson will appear together at BookCon on June 3 at the Javits Center in New York. And don’t try to get tickets – they’re sold out.

Not to worry though – the pair will be embarking on a multi-city book tour in June, both together and separately, while an eight-part series is scheduled for Showtime sometime in 2019. 

Chelsea Clinton, meanwhile, is doing her part for the Clinton Comeback™ with her astounding Twitter game.

She has been repeatedly critical of the campaign memoir by the N.Y. Times’ Amy Chozick, “Chasing Hillary,” shouting out to people who comment on the book: “Hi Ana Marie! … Thank you Max … Hi Dan! … Hi Katy! … Hi Jeet! … Hi Amy! … Hi @amychozick!” –Axios

We wonder how many GOP consider this a gift?

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Stormy Daniels Files Defamation Lawsuit Against Trump

Stormy Daniels’ legal team – led by lawyer Michael Avenatti – must be getting bored since a federal judge in Los Angeles ordered a 90-day delay of her lawsuit against President Trump and his former personal attorney Mike Cohen (who has promised to plead the fifth during the proceedings). Because Stormy has filed another defamation lawsuit, this time exclusively against President Trump, as Reuters reports.


The lawsuit, which was filed in federal court in New York on Monday, seeks damages from Trump for a tweet he sent earlier this month where he criticized a composite sketch that, Daniels said, depicted a man who had threatened her in 2011. He reportedly demanded that she stay quiet about her sexual encounter with Trump. That would’ve been around the time she gave an interview about her affair with Trump to In Touch magazine which wasn’t published until recently.

Her previous lawsuit, filed in Los Angeles, sought to have her released from an NDA she signed shortly before the 2016 vote where she also accepted a $130,000 “hush money” payment from Cohen.

“A sketch years later about a nonexistent man. A total con job, playing the Fake News Media for Fools (but they know it)!,” Trump said.

According to the filing, cited by the Associate Press and Reuters, the tweet was “false and defamatory” arguing that Trump knew what he was saying out Daniels’ claim was false and also disparaging.

The lawsuit also claims Daniels has been exposed to death threats and other threats of “physical violence.”

Daniels, whose given name is Stephanie Clifford, is seeking a jury trial and unspecified damages.

“We intend on teaching Mr. Trump that you cannot simply make things up about someone and disseminate them without serious consequences,” Avenatti said.

As the Associated Press points out, Daniels, aided by Avenatti, has sought to keep her case in the public eye. She revealed the sketch that Trump mocked during an appearance on the View earlier this month. Trump is facing another defamation lawsuit in New York, this one filed by Summer Zervos, a former “The Apprentice” contestant who says Trump made unwanted sexual contact with her in 2007. She sued him after Trump dismissed her claims.

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Decision Time: Will The US Impose Tariffs Or Not?

Authored by M.K.Matthews via The Organic Prepper blog,

A few things you need to watch for economically this week could very well set the table for what comes next week and beyond.  The influencers will be both geopolitical and earnings driven.  It’s important to note that Trump’s decision about the looming tariffs will not just affect Russia and China, but also, our allies in Europe.

Here’s what to look out for this week.

Watch for reactions to the tariff decision on the geopolitical front

The midnight hour when Trump has to deliver his decision on tariffs arrives 12:01 Tuesday.  He has set intentions to impose a 25% tariff on steel and a 10% tariff on aluminum on the companies that obtained a temporary exemption.  This list includes and affects some of our closest allies.   The temporary exemptions extended to the EU, Canada, Mexico, Australia, Brazil and Argentina, which if revoked would throw the global markets into turmoil and international supply chains into a deep well of uncertainty, as the exemptions add up to almost half of the U.S. steel imports.

There is a slight possibility that the date will be extended but that won’t erase the uncertainty that will remain in the interim. It is still unknown if some countries can negotiate limited quotas, make deals on goodwill, or if all countries will be slapped with tariffs.


The New York Times reports that Ms. Merkel (Germany), Mr. Macron (France) and Ms. May (U.K.) released a joint statement that if the U.S. tariffs go into effect, “The European Union should be ready to decisively defend its interests within the framework of multilateral trade rules.”  It is possible that if the tariffs go into effect ships carrying steel could be barred from entering U.S. ports of delivery.  This would definitely interrupt the international supply chain and the global economy as the U.S. and E.U. account for fully one-third of world trade.

If the tariffs are imposed this would be asking our trade partners to break World Trade Organization rules.  If favored E.U. countries are released from the tariffs that would break E.U. Treaty Rules.


For Canada and Mexico, the tariffs are being tied to the NAFTA negotiations, which in their current form set forth a trilateral agreement that the three countries share in the preferential tariff agreement.  Negotiators from the three countries are scheduled to meet again May 7th to further hammer out the final agreement.


May 12th is the next cliffhanger date to mark on your calendars as that is the date we will know whether the U.S. stays in the T.P.P. or not.

“Commonly known as the TPP, the trade agreement was a key policy for the Obama administration. Until Trump pulled the country out, the United States had been a signatory along with 11 other countries including Japan, Vietnam, and Australia. The deal aimed to lower tariffs among the countries and counter Chinese influence in the region.”

I strongly encourage all to read here to gain understanding on the current administrations wavering positions on the TPP.

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A Jury Rejected the Charges, but He Still Has to Register As a Sex Offender for Life

In New York a defendant can be forced to register as a sex offender for the rest of his life based on accusations a jury rejected. So the state’s highest court ruled last week in a case that illustrates how fear and loathing of sex offenders lead to results that would be recognized as unjust and illogical in any other context.

Quinn Britton’s 13-year-old niece, identified in court documents as A.B., accused him of raping her during a Thanksgiving Day visit to her grandmother’s home in Brooklyn, where her uncle lived, when she was 11. Britton denied any inappropriate behavior, and his mother said A.B. had spent the whole evening watching TV in the living room with her.

The girl’s older brother said she had described a sexual assault to him, but it differed in key details from the account she gave police. A.B. told her brother Britton had tried to engage in vaginal intercourse with her but couldn’t because his penis “wouldn’t fit.” By contrast, she told police Britton had penetrative sex with her for about 10 minutes. A detective testified that Britton had admitted touching, kissing, and performing oral sex on A.B., but he had no recording or written statement to corroborate the confession, which Britton denied making.

The jurors struggled to make sense of these conflicting accounts. Since there was no physical evidence, the case came down to a question of whether to believe A.B. or Britton. During three days of deliberations, the jurors sent the judge three notes indicating that they were deadlocked. Each time he told them to keep deliberating.

Finally the jurors emerged with a verdict that seemed to split the difference between those inclined to believe Britton and those inclined to believe A.B. They found Britton guilty of second-degree sexual abuse, a misdemeanor, based on the allegation that he kissed A.B.’s breasts, but not guilty of three felonies: first-degree rape, based on the allegation of penetrative sex, and two counts of a first-degree sexual act, based on allegations that he performed oral sex on the girl and forced her to perform oral sex on him.

During a post-trial hearing, the judge nevertheless assumed that Britton had committed the felonies and therefore assigned him to risk level two under New York’s Sex Offender Registration Act (SORA), which triggers lifetime registration. Had the judge considered just the crime of which Britton was convicted, he would have been assigned to risk level one, which requires registration for 10 years.

In a 6-to-1 ruling last week, the New York Court of Appeals upheld Britton’s classification, noting that it was supposed to be based on “clear and convincing evidence,” a less demanding standard than the proof beyond a reasonable doubt required for a criminal conviction. It is possible, in other words, for an alleged crime to figure in a defendant’s risk level even when there is not enough evidence for a guilty verdict.

Writing in dissent, Judge Jenny Rivera charges her colleagues with improperly applying the “clear and convincing evidence” standard, which requires “a high degree of probability” that an allegation is true. A.B.’s testimony should not be treated as reliable under SORA, Rivera argues, because the jury did not find it credible.

“The verdict can only be understood as reflecting that the jurors did not fully credit A.B.’s version,” Rivera writes. “The acquittals here powerfully reflect the unreliability of A.B.’s testimony. As the trial judge recognized, the jurors were presented with two versions and they had to choose one. In other words, they either believed A.B. or they did not when she testified that defendant had penetrative and oral sex with her in his room.”

The Appellate Squawk blog, written by a New York attorney who specializes in criminal appeals, portrays the majority’s willingness to second-guess the jurors by crediting testimony they rejected as another example of the special rules that seem to apply in cases involving sex crimes. “Naturally the Court doesn’t admit that it moves the goalposts for sex cases,” it says. “But these days, when it comes to accusations of sexual misconduct, the standard of proof is that they were made. The Court is simply going with the flow—which, by definition, is downhill.”

[Thanks to Bill Dobbs for the tip.]

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How To Trade The End Of The Biggest Monetary Experiment In History: JPM Explains

The persistent panic about yield curve flattening and the focus on the 3.00% US 10Y is not one that JPMorgan’s cross-asset fundamental strategy team ascribes to.

Critically, John Normand – head of JPM’s team – notes that as global markets (and their progonsticating analysts) struggle to cope with the implications of what is apparently a hike-at-all-costs Fed bringing an end to easy money, it is equities’ trivial gains that are more anomalous (should be better for now) than credit’s notable weakness, dollar strength, or weakness in gold.

“Equities’ tepid response to strong earnings is worrisome…

As cash rate expectations rise to levels acknowledging restrictive policy by late 2019/2020, should equities now price the end of easy money? Such an early peak would have no precedent, so requires a shock.

Notably, JPM points out that only one of the 10 largest bond sell-offs in the past 15 years has been associated with stock market weakness. And while they blame higher Treasury yields as one of the factors behind February’s equity tumble, the strategists said that “this month, U.S. rates have risen only half as much as they did earlier this year, but stocks are still side-winding despite bumper earnings.”

Normand and his fellow strategists admit that two-year rates, which have had “the most momentum,” recently may be drawing some focus, since markets are within 40bps of pricing the Fed’s cash-rate projection for the end of 2019, 2.9 percent.

“That level is significant because it would mark the end of accommodation, after which usually comes restrictive policy.”

Since The Fed hiked rates in March, 30Y Yields are 2bps lower and 2Y yields are 14bps higher…

Additionally, they noted that credit spreads tend to bottom out well before equities reach a top. Well that has certainly happened…

“A peak in equities this soon in the late cycle has no precedent,” the strategists wrote.

“Peak margins mean less equity outperformance, not losses.”

But, according to Normand, this is the sequence of late-cycle trades JPMorgan suggests:

  • Late 2017 through 2018: Short duration, long breakevens, and long oil while Fed policy is still accommodative.

  • 2018: Underweight credit versus equities to reduce beta to a very old business cycle.

  • 2018: A pairwise approach to FX rather than a blanket USD view.

  • 2019: Underweight equities, long duration, long gold, and long the yen as Fed policy slows the economy and real rates collapse.

From this JPM concludes:

2019 could be the true late-cycle year when almost every asset underperforms cash.

But that scenario is too medium-term to price in now such that equities never reclaim or surpass their February highs.”

Which, as we annotated succinctly last night, can be summarized thus:

According to JPM, everything will peak in 2019, but the equity market is too dumb to price it in now so keep buying…

Meanwhile, other notable market participants disagree with JPM’s short-term ebullience, as we noted previously, David Tepper  and Morgan Stanley have both recently warned that equities have peaked for this cycle.

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