Month: July 2018

A violent Antifa cell based in Portland, Oregon is planning a “direct confrontation” with participants in a pro-Trump rally next Saturday, according to a call to action on the leftist website “It’s Going Down.“

“Rose City Antifa has continued their great work of doxxing the Portland area Proud Boys involved in this violence, and is also calling for militant antifascist resistance against Patriot Prayer,” reads the posting first reported by Cassandra Fairbanks of the Gateway Pundit. 

The Rose City Antifa group notably clashed with members of Patriot Prayer and the pro-Trump “Proud Boys” in early June, which resulted in a viral video of a member of Antifa being knocked out during a melee started by the violent “resistance” group. 

A spokesperson for Rose City Antifa told It’s Going Down said that the group plans to “show that the community will not allow violent nationalist opportunists to threaten our city and target our people. We will overwhelm them both by force of numbers and commitment to defending our community. Whatever it takes.“

As Fairbanks notes, the call to action urges members to engage in “direct confrontation” to “eliminate” the conservative groups’ ability to hold rallies. 

“Without direct confrontation, PP and other white nationalist groups will feel entitled to threaten people where ever and whenever they like. First they target Anti-Fascists and Anti-ICE activists, then they target Pride, marginalized community spaces, minorities, and migrants. They believe ‘might makes right’ and unless the community steps in to stop them, there is no telling who they will attack next for political gain,” the call to action continues. 

“Better bring our own guns too”

Journalist Tim Pool noted a Reddit discussion in the “Anarchism” subreddit in which Antifa members discuss arming themselves ahead of the event. 

“Only thing I’m worried about is some nut with a gun and a bunch of bullets,” says one user, to which another replied “Better bring our own guns too just to be safe.”

August 4th in Portland is already sounding like it is going to get really bad.

Activists call for bringing guns in preparation for escalation. pic.twitter.com/f0IZO387Bi

— Tim Pool (@Timcast) July 28, 2018

During the June “Battle of Portland,” police recovered knives and other weapons, as well as bear mace.  

Last April, 21 people were arrested after violence broke out between Trump supporters and members of Antifa in downtown Berkeley – leading to several injuries and the recovery of weapons from Antifa which included knives and spiked poles.

Here are some of the prohibited items that have already removed from the park today. https://t.co/3qx3smYwgk pic.twitter.com/A70VCxFYEu

— Berkeley Police (@berkeleypolice) April 15, 2017

Let’s hope we don’t see more of the same this Saturday in Portland – especially gunshot victims.

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Authored by Michael Snyder via The American Dream blog,

You may find it difficult to believe some of the things that I am about to share with you. Instinctively, most of us know that America is in trouble, but recently it has been impressed upon me that things are much worse than I originally believed.

Our cities are becoming cesspools, our nation is falling apart all around us, and it seems like the number of sick, twisted and depraved people is multiplying. We still have a relatively high standard of living for the moment, but the only reason we can maintain that standard of living is because we are on the greatest debt binge in human history. And once that bubble bursts, I fear for what this nation is going to become, because things are getting really bad out there.

The following are 10 signs that America is in much worse trouble than we all thought…

#1 America is “the most dangerous country in the developed world to give birth in”. We all know that our healthcare system is rapidly deteriorating, but I figured that the U.S. would be at least in the middle of the pack when it comes to women dying during childbirth. Sadly, I was completely wrong…

The U.S. is the most dangerous country in the developed world to give birth in according to a report.

About 50,000 women are “severely injured” during childbirth, and about 700 women die every year. Half of these deaths could have been prevented, as could the injuries, if correct safety procedures had been followed, according to an investigation by USA Today.

#2 America is absolutely teeming with sexual predators. When I read stories like the one I am about to share with you, it makes me want to vomit. According to a report that was just released, more than 300 “predator priests” were identified in just 6 Pennsylvania dioceses…

A landmark grand jury report identifies more than 300 “predator priests” in six of Pennsylvania’s Roman Catholic dioceses, the state Supreme Court said Friday in ordering the findings released. (Tap here to read the court ruling.)

The justices said the report on clergy child sexual abuse going back decades and allegations of cover-up efforts will be made public but without the names or “individual specific information” of priests and others who have challenged the findings, at least in the initial version to be released.

#3 America has a massive problem with pedophilia. This is particularly true in Hollywood, and actor Elijah Wood has decided to go public about it…

The actor, in a new interview with the Sunday Times, is accusing Tinseltown of having a pedophilia problem, saying “a lot of vipers” are preying on children in the business.

“Clearly something major was going on in Hollywood. It was all organized. There are a lot of vipers in this industry, people who only have their own interests in mind,” he said. “There is darkness in the underbelly. What bums me about these situations is that the victims can’t speak as loudly as the people in power. That’s the tragedy of attempting to reveal what is happening to innocent people: they can be squashed, but their lives have been irreparably damaged.”

#4 America is full of people that are looking to take advantage of others. During the recent horrific wildfires in northern California, authorities say that there was “a lot of looting”…

With so many people locked out of huge areas of the city, looters had moved in to take advantage, officials said, adding that police patrols are being increased and hat National Guard troops are being brought in to help.

“We’re experiencing a lot of looting and are beefing up our security,” Redding Police Chief Roger Moore told a crowd of about 250 residents Saturday afternoon. And Shasta County Sheriff Tom Bosenko received a round of applause when he announced the first arrest of a suspected looter.

#5 America has way too many politically-correct control freaks that want to ruin all of our lives. I never dreamed that the day would come when plastic straws would be banned in the United States, but now it is actually happening…

Only in California can you go to jail for offering restaurant patrons a straw. According to the ordinance, first-time offenders will be given a written warning. Second-time offenders will face steeper consequences. Based on the city’s municipal code, penalties for straw-peddling will include a “fine not exceeding one thousand dollars ($1,000), imprisonment for a term not exceeding six (6) months.”

The West Coast is home to many a plastic straw ban; the city of Seattle, WA, was the first city in the U.S. to ban plastic straws in early July. But in the Emerald City, a violation only warrants a $250 fine. California is not to be outdone in their regressive-progressive politics.

#6 America is a nation of addicts. Today, I came across a survey that found that nearly half of all Americans admit to shopping online (one addiction) while drunk (another addiction)…

If you’ve poured yourself a glass of wine or two and then started browsing Amazon, you’re not alone — and you may well have spent more than you meant to. A new survey finds that Americans who shop online under the influence spend over $40 each time.

Gin drinkers actually spend the most, about $82 on average, while whiskey drinkers are the cheapest buzzed buyers, according to addiction treatment facility the Archstone Recovery Center. They polled over 1,000 people who reported purchasing an item off of Amazon while under the influence of alcohol.

#7 America is on a path to financial suicide. The federal government is already 21 trillion dollars in debt, and it is being officially estimated that we will hit the 30 trillion dollar mark by 2028.

#8 America seems to have an endless supply of cruel people. Down in Louisiana, authorities have arrested 5 people that locked an autistic woman that they were related to in a cage and forced her to eat her mother’s ashes…

A Louisiana woman living with autism was locked up in a cage, threatened and abused and forced to eat her mother’s ashes by five people, who were indicted this week by a federal grand jury in New Orleans, officials said.

The indictments accuse five family members of abusing their 22-year-old relative until June 2016, according to court documents released by the U.S. District Court for the Eastern District of Louisiana.

#9 America’s major cities are rapidly being transformed into cesspools. The following is an excerpt from a letter that was recently penned by Portland’s police chief…

Our City has become a cesspool. Livability that once made Portland a unique and vibrant city is now replaced with human feces in businesses doorways, in our parks, and on our streets. Aggressive panhandlers block the sidewalks, storefronts, and landmarks like Pioneer Square, discouraging people from enjoying our City. Garbage-filled RVs and vehicles are strewn throughout our neighborhoods. Used needles, drug paraphernalia, and trash are common sights lining the streets and sidewalks of the downtown core area, under our bridges, and freeway overpasses. That’s not what our families, business owners, and tourists deserve.

#10 America is inhabited by way too many idiots. These days just about anyone will do just about anything for 15 minutes of fame, and one of the worst examples of this was when Florida resident Robby Stratton walked into a convenience store with a live alligator…

The man, identified by WJAX as Robby Stratton, is seen on video posted to Facebook walking into the store in Jacksonville with the gator’s mouth taped shut.

Stratton approaches the counter and asks the man behind it: ‘Y’all got beer still? Y’all ain’t out, are y’all?’

He then sees someone in the back of the store and says: ‘Is he taking the last bit of beer? You aren’t taking the last bit of beer are you?’

Stratton planned this stunt well in advance, and he made sure to have it recorded so that he could post it on Facebook.

This is what America has become. We need to take a long look in the mirror, because we are in an advanced state of decline.

Hopefully the American people will start to wake up, because time to turn things around is quickly running out.

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The week’s first of three major central bank meetings will take place in a few hours, with the decision due after the Tokyo lunch break at 0330AM BST/1030PM EDT. The BoJ may announce changes to YCC, and ETF buys, and according to reports, it may also cut its inflation forecasts.

* * *

The Bank of Japan concludes its latest 2-day policy meeting on Tuesday (late Monday evening EDT) in what will be the most anticipated of this week’s 3 central bank announcements – alongside the Fed and the BOE – and will be more eventful than recent meetings, considering there are mixed views on what the central bank might do following numerous media reports of a possible yield curve tweaking as well as an overhaul of the BOJ’s ETF purchases.

As RanSquawk recaps, recent source articles have suggested that the BoJ will discuss potential policy changes to its Yield Curve Control framework on the basis of sustainability, not tightening, of monetary policy which could lead to an adjustment of the yield curve target – where the 10Y JGB trades – to allow a long-term natural rise. This is said to be the cause due to the central bank’s admission that it may take even longer to hit the 2% price target, and therefore would need to ensure its policy measures can be sustained, while a policy tweak could also help alleviate some of the side-effects from its prolonged ultra-loose policy which has squeezed banks’ profits.

And yet, few expect that the BOJ will make an explicit YCC determination today, as an increase in the JGB yield target appears unlikely at a time when it is expected to revise downward its inflation forecast; instead in consideration of the adverse side effects of its policy, the BoJ will likely declare at the end of its statement that, based on its analysis in its quarterly Outlook Report, that it will maintain its easing policy for an extended period but will conduct financial market operations and asset purchasing operations to address the mounting cumulative side effects.

One likely easing measure to deal with such side effects will include an overhaul of its JPY6 billion ETF purchasing operations, a shift from Nikkei 225-linked ETF to Topix-linked ETF, which would likely spur investors to follow suit in rebalancing their portfolios should this materialize.

Conversely, virtually nobody is convinced a hawkish tweak will be announced, considering that inflation remains far from the 2% target and with BoJ Governor Kuroda denying any knowledge of the aforementioned “YCC adjustment” reports. Furthermore, several BoJ watchers view the central bank as unlikely to tighten monetary policy before October, despite all the speculation, while some have even suggested further easing could be on the table to support inflation.

Considering the sharp rate steepening – both in Japan and abroad – observed ever since the first BOJ rumors were two weeks ago, any major disappointment in the BOJ announcement which precludes a YCC tweak, could see global 10Y and 30Y yields “plunge like a rock” to use a Donald Trump term. This is especially likely in the aftermath of three consecutive fixed-rate operations – the latest one this morning – in which the BOJ announced it would purchase unlimited amounts of government bonds at yields of 0.11% and 0.10%, an attempt to cap gains in long-term yields, and keep them near the 0% target, something it would not do if it intended to prepare the market for higher yields.

* * *

The BoJ will also release its Outlook Report consisting of board members’ median forecasts for real GDP and core CPI;

From the latest Outlook Report:

• Fiscal 2018 forecast at 1.6%.
• Fiscal 2019 forecast at 0.8%.
• Fiscal 2020 forecast at 0.8%.

Core CPI

• Fiscal 2018 forecast at 1.3%.
• Fiscal 2019 forecast at 1.8% (excluding effects of sales tax hike).
• Fiscal 2020 forecast at 1.8% (excluding effects of sales tax hike).

This may be the most eventful part of the BOJ announcement, as reports have suggested that the BoJ will likely miss its inflation target for another three years, and accordingly, may reduce its inflation forecasts to around 1.0% from 1.3% for FY18 and to 1.5% from 1.8% for FY19. This follows softer than expected headline national CPI for June at 0.7% versus expectations of 0.8% (and unchanged from from May).

Sellside calls:

MUFJ Morgan Stanley expects the BoJ to maintain policy at the upcoming meeting, but states that action in the October meeting is a possibility in which the BoJ could adjust the long-term yield target to between -0.1% and +0.2%.

Goldman Sachs expects BoJ to maintain policy settings and cut core CPI forecasts, while it also sees BoJ asserting additional easing is unnecessary and that momentum in prices is being sustained. Furthermore, Goldman Sachs thinks policy adjustments would be challenging due to subdued inflation and state the BoJ are unlikely to come to a definitive conclusion in regards to policy tweaks.

Here are more details from Goldman’s Naohiko Baba:

We expect the BOJ to sharply lower its inflation outlook at the Monetary Policy Meeting (MPM) on July 30-31, but to maintain its current monetary policy. However, we note that several media outlets (Reuters, July 20; Jiji, July 20) have reported that the BOJ will debate adjustments to its monetary easing policy at this MPM. Our base case remains that the BOJ will defer any decision on concrete measures for future discussion, but we do not rule out the possibility of the BOJ making some form of adjustments at the upcoming MPM.

And while few expect the BOJ to make any major, actionable decisions, here is Goldman’s menu of the six possible options before the BOJ:

1. Raising short- and long-term (10-year) interest rate targets

Interest rate targets are directly linked to the 2% inflation target. Accordingly, if the BOJ raised its interest rate targets at the same time as it sharply cut its inflation outlook, the markets would likely view such action as signaling that the BOJ had effectively abandoned its inflation target and started to search for an exit. This would likely give rise to considerable upward pressure on the yen and would therefore be difficult to implement, in our view.

2. Shortening the long-term interest rate target term

Another option would be to shorten the long-term interest rate target term to 5 years, for example, from the current 10 years. As with option (1), however, this would probably be viewed by the markets as the BOJ looking for a premature exit. In addition, it could result in a large rise in interest rates looking at the overall yield curve and would therefore be difficult to implement out of concerns about yen appreciation, in our view.

3. Widening the tolerable band from its 10-year yield target

With this option, the BOJ could keep its 10-year yield target, but widen the tolerable band somewhat from around the present ±10 bp. In our view, this is the most likely option given the difficulty of options (1) and (2) in terms of the consistency with the 2% inflation target. By emphasizing that it was prepared to tolerate a larger movement either way (up or down), the BOJ would send a neutral message regarding its interest rate target. In this case, the BOJ would only tweak its policy statement without specifying any particular new range, and the new degree of tolerance would likely be shown in unlimited fixed-rate operations. According to our FX strategist team, even a small tweak like this could be seen by market participants as the first step in an ongoing adjustment, rather than a one-time measure, and as a result, the USD/JPY could strengthen to ¥108 (or possibly ¥105 if risk sentiment worsened; click here ).

4. Removing the guideline for JGB purchases (¥80 tn a year)

The net increase in BOJ JGB purchases in the past year was just over ¥40 tn, meaning the guideline of ¥80 tn per year has already become a guideline in name only. As such this would likely be the option of least resistance for the BOJ under normal circumstances. That said, an issue could emerge with respect to how to assuage potential concerns of reflationist Policy Board members (Deputy Governor Masazumi Wakatabe, Yutaka Harada, and Goushi Kataoka). If the BOJ were to place priority on preventing complications in discussions, and sought the cooperation of the reflationist camp, it could conceivably opt to keep its ¥80 tn/year guideline, while acknowledging that it has already lost substance.

5. Reducing its ETF purchase guideline (¥6 tn/year)

Equity markets are a little unstable at present, partly due to concerns about trade friction, and thus announcing a reduction of ETF purchases at this juncture could potentially trigger a correction in share prices. We assume the BOJ and the government would prefer to avoid this scenario, especially in the lead-up to the Liberal Democratic Party’s leadership selection on September 20-21. Therefore, the likelihood of the BOJ reducing its ETF purchase guideline is quite low, in our view.

6. Changing the composition of the ETF purchase program

Reducing Nikkei 225-linked ETF purchases and increasing TOPIX-linked purchases while maintaining the annual ETF purchase guideline is a realistic option, in our view. However, this would merely be the default route given it has already been done once before, in October 2016.

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Authored by James Howard Kunstler via Kunstler.com,

On The Beach

Comes August now, the month of vacancy, idleness, the slap and hiss of waves on sand, furtive romance on the dunes, perhaps, sweet corn, country roads, and county fairs, and more furtive romance, perhaps, on a blanket in the high meadow under a blood moon – and respite from the hellish host of foolish ideas, dark trends, and bad faith driving life in this demolition derby of a nation.

If one word defines the preoccupying affairs of USA these days it’s tiresome. The entire population seems to be enacting the old myth of Sisyphus, every, man, woman, child, swamp-creature, and non-binary child-of-God in the land, legal and undocumented, pushing that boulder uphill to the tippy top, only to have it roll back down to the bottom… repeat ad infinitum.

Take Mr. Robert Mueller, for example, the sphinx-like figure looming over the political landscape with his lawyer’s attaché case full of radioactive secrets. He has already done yeoman’s service in his mission by indicting two dozen Russian Facebook trolls and Internet hackers – who will never be extradited or set foot in a US courtroom, sparing taxpayers the expense of trying them (and testing the theory of “collusion” with the current POTUS). It’s a little hard to picture old horse-face popping a third beer at the clambake, let alone the stories he might tell around the fire (with necessary redactions). When he awakes hung over in the sand the next morning to the shrieking gulls, next to someone not-his-wife, will he be overwhelmed with regret for a year spent chasing gremlins from the Kremlin? The public appears to be good and goddamn sick of him. Even The New York Times has stopped squealing about Russia. Standing by for September histrionics….

Have we reached Peak Sexual Confusion in America? Maybe it’s time we stopped handing out brownie points to people who don’t agree with some of the fundamental conditions of being a mammal, such as the apportionment of X and Y chromosomes. Of course the big idea behind that is the crypto-Gnostic wish to transcend nature, human nature especially, and fly away to the liberating vales of some boundary-less utopian ether where nobody has to be anything in particular — or else in a constant state of transformational flux, like the computer-graphic imagery that saturates our movies. Life without boundaries, I think we’ll discover, is not the Great Idea it’s been cracked up to be. I suspect the groups behind this fad are finally fresh out of new astonishments.

Had enough reverse racism? I know I have. All this howling about the horror of the white patriarchy. It will be interesting to see how the world gets on when that force of wickedness is finally vanquished. No more annoying string quartets, tedious dental implants, boring brass bushings, or hopeless theories of surplus value. Thank God for that. The unburdened public can finally give its full attention to hair care and dieting. When women and people-of-color fill all the seats in congress we can look forward to the glorious day when the USA is run as well as Baltimore.

The buzzword harkening to Democratic Party big dawgs on the Hampton lawns and the briny bluffs of Martha’s Vineyard is Universal Basic Income, the suddenly amazing proposal to put the whole country on welfare. I’m all for it — as long as we can get the Martians to pay for it. Why not? A thousand bucks a month just for walking-around money? Wahoo! You could help pump the GDP a little more by taking that dough to the nearest casino and investing it in the excellent economy-building activity known as blackjack. With a little luck, you might increase your nut sufficiently to get that longed-for sex reassignment surgery, to correct the clerical error that the stork made when you were dropped down the chimney.

Well, these are, after all, only my own personal August fantasies. I await September with as much excitement as all y’all. But I’m not going anywhere. I’m lashing myself to the mast and awaiting heavy seas.

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“All of a sudden your communications won’t work, or you can’t call for fire, or you can’t warn of incoming fires because your radars have been jammed and they can’t detect anything” — a retired Army colonel who specializes in electronic warfare told Foreign Policy.

A new report details the Pentagon’s growing alarm at increased instances of Russian electronic jamming attacks on American troop positions in Syria, which number according to public Pentagon statements at 2000 or more, located on and near a dozen or more “secret” bases mostly in Syria’s northeast and embedded among the mostly Kurdish US-backed Syrian Democratic Forces.

The Foreign Policy report begins:

Officers who have experienced the jamming—known as electronic warfare—say it’s no less dangerous than conventional attacks with bombs and artillery. But they also say it’s allowing U.S. troops a rare opportunity to experience Russian technology in the battlefield and figure out how to defend against it.

Since Russia intervened in Syria at the request of the Assad government in 2015, the two superpowers have butted up against each other on multiple dangerous occasions, but have communicated through an emergency “military-to-military hotline” meant to avoid aerial collisions and direct troop confrontation.

Russia, alongside the Syrian government sees US troops as foreign uninvited occupiers, which have committed acts of aggression against the Syrian state, killing hundreds of Syrian Army soldiers (and instances of Russian mercenaries killed, though they were not under orders by Moscow) during multiple incidents near front lines in Deir Ezzor.

And now, as Gen. Raymond Thomas, head of U.S. Special Operations Command, recently stated at an intelligence and military tech conference, Syria has become “the most aggressive [electronic warfare] environment on the planet.” 

He said of Russian, Iranian, and Syrian “adversaries”: “They are testing us every day, knocking our communications down, disabling our EC-130s [the Air Force’s large Airborne Battlefield Command and Control Center aircraft].”

Foreign Policy (FP) indicates that electronic jamming by Russian forces signifies an “escalatory” threat in an already confused environment given the broad array of groups and state actors operating in Syria. 

The report says the Pentagon officially acknowledged successful Russian jamming efforts last week as follows: 

U.S. Army Col. Brian Sullivan described one recent episode to reporters at the U.S. Defense Department last week. He said his troops had encountered a “congested … electronic warfare environment” while fighting in northeastern Syria during their nine-month deployment, which stretched from September 2017 to May 2018.

And the report cites Col. Sullivan further as saying, “It presented challenges to us that we were able to successfully contend with, and it gave us an opportunity to operate in an environment that can’t be replicated anywhere at home station, including our combat training centers.”

In a particularly disturbing quote reminiscent of the Cold War, the colonel notes “It’s a great opportunity for us to operate particularly in the Syrian environment where the Russians are active.” 

Former CIA Acting Director/Deputy Dir. Michael Morell: We need to be killing Russians in Syria. 

Of course there’s the much larger issue and contradiction of US troops being in Syria in the first place with no Congressional authorization or mandate from the American people whatsoever (unless, as President Donald Trump apparently believes, the old post-9/11 Authorization for Use of Military Force, AUMF, means US troops can just stay in the Middle East forever). 

The FP describes further that electronic warfare involves stopping communications and navigation capability on the ground and by air, something especially dangerous in a crowded battle space like Syria: 

Daniel Goure, an expert on national security and military issues at the Lexington Institute, says Russia’s new electronic warfare systems are sophisticated. They can be mounted on large vehicles or aircraft and can impair targets hundreds of miles away.

Goure adds of the potential for an unintended clash between major powers like the US and Russia, “The trouble with [electronic warfare] broadly speaking is it can really screw with your picture of the battle space, your operating picture, and that can lead to really horrendous mistakes.”

Russia has reportedly made huge advances in its electronic warfare systems capability over the past 15 years as it perceives the threat of NATO encroachment on its borders to be growing. 

Meanwhile Russia has indicated it is aware of future military actions that Washington and Western allies may be plotting against it. 

Russian Foreign Minister Sergey Lavrov said this week in public statements at a Russian educational forum, “Our awareness of what plans the US and other Western countries’ militaries are preparing in relation to the Russian Federation is guaranteed.” He added that Russia and its air and land borders area secure “no matter what happens in the world,” in what appeared to be reference to recent leaps in Russian defense and intelligence technology. 

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Chipotle Mexican Grill shares are down over 3% after hours following reports that it shut a restaurant in Ohio on Monday following reports of customers getting sick after eating there.

Of course, this is not the first time Chipotle has seen its share price impacted when customers are affected by food-related illness and thanks to the website  IWasPoisoned.com, it is easier than ever to track just where Chipotle is poisoning customers.

In this case, Business Insider reports that three reports were made to the website, indicating that at least nine customers fell sick after eating there over the last several days – with symptoms such as vomiting, nausea, severe stomach pain, dehydration, and nausea.

“We take all claims of food safety very seriously and we are currently looking into a few reports of illness at our Powell, Ohio restaurant,” Chipotle spokesowoman Laurie Schalow said.

“We are not aware of any confirmed food borne illness cases, and we are cooperating with the local health department.”

This outbreak comes just days after McDonalds suffered a much larger problem as over 160 customers across 10 states were hit with a parasitic illness.

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Authored by Nicholas Colas via DataTrekResearch,

Can the S&P 500 rally if Technology stocks don’t? Last week’s sloppy action in the group, capped by Friday’s selloff, make that the question of the moment. This isn’t only relevant to US investors, by the way. Chop up various all-world equity indices from MSCI and others and you will find US large cap Tech is the only reason global stocks are positive on the year.

The central problem here is simple math:

• The Tech sector is 26.2% of the S&P 500.

• Five names represent 15.5% of the index: Apple (4.0% weight), Microsoft (3.5%), Google/Alphabet (3.2%), Amazon (3.0%), and Facebook (1.8%).

• The same 5 names are 7.9% of the MSCI World Index, greater than the allocation for all Japanese equities (7.5%).

Any scenario where the S&P 500 continues its 2018 advance in the face of a decline in Tech shares is therefore something like those “Paths to victory” analyses you see during US presidential elections. If a candidate loses big states like California and New York, what other states must they win to prevail? It is difficult, but as we know from 2016 entirely possible.

As a simplifying assumption, let’s say Tech stocks decline 10% between now and year-end – what the financial press calls a “Correction”. This wouldn’t actually be enough to put Tech in the red for the year, but it would mean a mere 1.1% advance in 2018. After nearly a decade of dramatic outperformance, that would be enough for many to write the sector’s obituary.

Here’s how the S&P’s “Path to Victory” works in that scenario:

#1. To compensate for this decline, we would need 1:1 offsetting positive performance (or slightly better) from at least two of the following four sectors:

• Health Care (14.3% weighting in the S&P)

• Financials (14.0%)

• Consumer Discretionary (12.6%)

• Industrials (9.7%)

• In aggregate, these represent 50.6% of the S&P 500.

#2. Importantly, the rest of the S&P’s sectors (Energy, Materials, Real Estate, Telecomm, Staples and Utilities) have only a 23.2% aggregate weighting.Given their differing fundamentals, it seems unlikely they would work uniformly enough to offset a 10% Tech correction. In our election analogy, they are Hawaii and Rhode Island.

#3. Good news: growth investors will most likely flock to Health Care if Technology starts to falter. Some of this may already be underway: the group is +5.8% over the last month, beating Tech’s 4.7% advance. FactSet earnings estimate data also shows Health Care is cheaper than Tech on 12-month forward earnings (15.8x vs. 19.0x) and expected 2019 bottom line growth (9%) isn’t far off Tech’s expected pace (11%).

#4. Bad news: Consumer Discretionary isn’t likely to help. Some 29% of this sector is Amazon (23.9% weight) and Netflix (5.2%). The rest of the group would have to offset declines here, but since media M&A is in high gear (and these companies are +10% of the sector) that is plausible enough.

#5. That makes Financials and Industrials the make-or-break groups in our 10% Tech correction analysis, as long as you buy the notion Health Care will rally due to sector rotation. A few thoughts:

• Financials are working right now (+6.7% over the last month), thanks to a steepening yield curve and decent earnings. They are cheap to 12-month forward earnings (12.7x) and are one of the few sectors still below their 2007 highs. The group also has an outsized weighting in Value indices, likely winners of capital rotation in a Tech meltdown.

• Industrials aren’t especially cheap (16.5x forward earnings), but the group is still +6.5% over the last month and now even up on the year (0.5%). Trade tensions obviously still weigh on the sector, even with recent positive news on that count.

Summing up: there is a “Path to victory” for the S&P 500 if the index loses the Tech sector, and it runs straight through Financials and Industrials. The former needs the yield curve to steepen (something we think likely). The latter could really use some good news on the trade front (possible, if only because the president likely wants some wins to campaign with ahead of midterm elections).

A few caveats to round out the discussion:

• Our mental model here assumes a slow grind lower for Tech, not a violent decline. Given the sector’s heavy weighting, that would likely spur rapid money flows out of US stocks generally. There would be little chance, in other words, for offsetting capital rotations such as we outlined in this note.

• Our base case also assumes continued strength in the US economy as well as low sector correlations (something we’ve seen for much of the year, and highlighted in these notes).

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We now may have an idea what was the reason for today’s selloff in Treasurys which pushed the 10Y yield just shy of 3.00%.

According to the NYT, the Trump administration is granting a $100 billion unilateral tax cut mainly helping the wealthy and hopes to bypass Congress in implementing it, “a legally tenuous maneuver that would cut capital gains taxation and fulfill a long-held ambition of many investors and conservatives.”

However, despite the NYT’s alarmist take, Trump’s proposal actually does make some sense: what it calls for is to inflation-adjusted one’s long-term cost basis when calculating capital gains tax. Considering that various welfare programs like Social Security are already indexed for Cost of Living Adjustments, the idea is probably not that outlandish, especially if inflation were to suddenly explode higher.

Here’s how it would work.

Currently, capital gains taxes are determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference, usually at 20 percent. If a high earner spent $100,000 on stock in 1980, then sold it for $1 million today, she would owe taxes on $900,000. But if her original purchase price was adjusted for inflation, it would be about $300,000, reducing her taxable “gain” to $700,000. That would save the investor $40,000.

Treasury Secretary Steven Mnuchin hinted at the idea during last weekend’s G-20 meeting in Buenos Aires, when he told reporters that his department was studying whether it could use its regulatory powers to allow Americans to account for inflation in determining capital gains tax liabilities. The Treasury Department could change the definition of “cost” for calculating capital gains, allowing taxpayers to adjust the initial value of an asset, such as a home or a share of stock, for inflation when it sells.

“If it can’t get done through a legislation process, we will look at what tools at Treasury we have to do it on our own and we’ll consider that,” Mnuchin said, emphasizing that he had not concluded whether the Treasury Department had the authority to act alone. “We are studying that internally, and we are also studying the economic costs and the impact on growth.”

To be sure, any such move would face near-certain court challenges, not to mention cause further turmoil inside the bond market, which is already rather displeased with Trump’s recent busting of the US deficit. It would certainly reinforce a liberal critique of Republican tax policy at a time when Republicans are struggling to sell middle-class voters on the benefits of the tax cuts that President Trump signed into law late last year.

Chuck Schumer was, as usual, ready to hand out criticism:

“At a time when the deficit is out of control, wages are flat and the wealthiest are doing better than ever, to give the top 1 percent another advantage is an outrage and shows the Republicans’ true colors,” said Senator Chuck Schumer of New York, the Democratic leader. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”

Still, no matter whether an inflation adjustment is justified or not, it is indeed the case that high earners would be the biggest beneficiaries of a reduction in capital gains taxes, which however were untouched in the $1.5 trillion tax law that Trump signed last year.

According an independent analyses cited by the NYT, more than 97% of the benefits of indexing capital gains for inflation would go to the top 10 percent of income earners in America, while nearly two-thirds of the benefits would go to the super wealthy — the top 0.1 percent of American income earners.

In other words, the rich are about to get even richer.

Liberal tax economists see little benefit in it beyond another boon to the already rich.

“It would just be a very generous addition to the tax cuts they’ve already handed to the very wealthy,” said Alexandra Thornton, senior director of tax policy at the liberal Center for American Progress, “and it would play into the hands of their tax advisers, who would be well positioned to take advantage of the loopholes that were opened by it.”

And while the proposal is sure to have a contested fate in Congress – and the courts – two questions remains: how would Trump pass such a law, and who would pay for it.

Making the change by fiat would be a bold use of executive power — one that President George Bush’s administration considered and rejected in 1992, after concluding that the Treasury Department did not have the power to make the change on its own. Larry Kudlow, the chairman of the National Economic Council, has long advocated it.

Conservative advocates for the plan say that even if it is challenged in court, it could still goose the economy by unleashing a wave of asset sales. “No matter what the courts do, you’ll get the main economic benefit the day, the month after Treasury does this,” said Ryan Ellis, a tax lobbyist in Washington and former tax policy director at Americans for Tax Reform. So… would this wave of asset sales also lead to the market crash that Trump so desperately dreads?

The decades-long push to change the taxation of investment income has spurred a legal debate over the original meaning of the word “cost” in the Revenue Act of 1918, and over the authority of the Treasury Department to interpret the word in regulations.

“I think we ought to look at not penalizing Americans for inflation,” said Representative Kevin Brady of Texas, the Republican chairman of the Ways and Means Committee, who said he would like to see the Treasury Department make the change through regulation.

* * *

As for who pays, the answer is simple: yield starved investors across the globe who remain inert to any suggestion that  the ballooning US debt load could lead to a crisis.

According to the Wharton budget model, indexing capital gains to inflation would reduce government revenues by $102 billion over a decade, with 86 percent of the benefits going to the top 1 percent. A July report from the Congressional Research Service said that the additional debt incurred by indexing capital gains to inflation would most likely offset any stimulus that the smaller tax burden provided to the economy.

Trump’s proposal is surprising as taxation of capital gains was not featured in the framework for the second round of tax cuts, released by the Ways and Means Committee last week. It is highly unlikely that Congress will pass another tax bill this year because of the slim Republican majority in the Senate.

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