Submitted by Eric Peters, CIO of One River Asset Management
Timelines:
(2006) China’s State Nuclear Power Technology Corp signs $8bln JV with Westinghouse then takes 75,000 technical docs on its latest AP1000 reactor.
(2006) Westinghouse’s PA servers are repeatedly penetrated by the Chinese, technical and R&D docs are stolen.
(2015) China breaks ground on the CAP1400 nuclear reactor, a Westinghouse AP1000 clone.
(2018) Brookfield buys bankrupt Westinghouse for $4.6bln.
(Today) China is building reactors in Pakistan and Romania, with scheduled projects in Argentina, Britain and Iran. They’re bidding on Saudi, South African and Turkish projects.
Perspectives:
“Russia at its very worst is a moderate threat to the US,” said the investor. “They have modest regional ambitions. They’re mischievous. But plenty of countries don’t do what we want.” If they wanted to nuke us, they would’ve during the Cold War. “China is the real strategic threat. They’ve coopted much of the US political and financial system,” he said. “Wall Street makes a ton of money from China.” No one that matters makes money from Russia. “It’s so telling that everyone is in hysterics over Russia. It’s a distraction that makes you wonder if the Chinese aren’t enabling or pushing the narrative.”
“The best way to bring Beijing to its knees is by running a tight monetary policy in the US,” continued the same investor. “China has the world’s most overleveraged, fragile financial system.” In 2008, China’s total debt-to-GDP was 140%. It is now roughly 300%, while GDP is slowing. “The economy is held together by capital controls. If those fail, the whole system fails.” The capital flight in 2015/16 cost the government $1trln in reserves, and that was with ultra-dove Yellen in charge. Imagine what would have happened with Volcker at the helm. “The Chinese are dying to get their money out.”
“Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run,” continued the same investor. Forget about the South China Sea, don’t bother with more aircraft carriers, just let Beijing try to cope with their financial system. “And we’re 80% of the way there – we instigated a trade war, implemented a massive fiscal stimulus, which created the room to raise interest rates,” he said. “The combined policy mix makes capital want to leave at the same time it makes the dollar more attractive and effectively shuts down new investment inflows to China.”
The Consigliere:
“Made in China 2025 is a policy that came out with great fanfare,” said Peter Navarro, White House Trade Advisor, referring to Beijing’s overarching strategic industrial plan, unveiled in 2015 by Premier Li to move China up the value chain. “The Chinese are now suppressing it from being referenced in public because they don’t want people to know the intent of the plan, which is to capture 70% of global production in the emerging industries of the future within the next 7yrs. Think about that. And as President Trump has said, ‘If we lose the industries of the future, we won’t have a future.’”
Another day, another lawsuit for Tesla, another set of bizarre tweets from Elon Musk.
According to Bloomberg, three former retail employees of SolarCity, the solar-panel installer acquired by Tesla in November 2016 under controversial circumstances (and allegations of less than arms-length dealings between related parties), have sued the company, alleging that managers discriminated against them on the basis of age or sexual orientation, resulting in their termination in 2017, according to a lawsuit filed in a San Diego state court (Staples v. Solar City, 37-2018-37100, California Superior Court, San Diego County).
Some details from the lawsuit:
One plaintiff said he complained to management, including Musk, about harassment related to his sexual orientation. He was subsequently fired on May 31, 2017
A 59-year-old plaintiff is suing after being fired and then replaced by a “significantly younger individual that was less than 30-years-old”
The lawsuit also claims that SolarCity created “fake potential sales accounts” used to “support unjustified sales bonuses” and an “unreasonably high valuation of SolarCity”
The complaint alleges the employees are owed back pay and benefits
This is not the first time Tesla has been accused of sexual discrimination of harassment:
Tesla has fired the woman who sued the company for ignoring her complaints over alleged sexual harassment. In June 2017, Engineer AJ Vandermeyden talked publicly about her 2016 lawsuit against Tesla earlier in the year year, saying “until somebody stands up, nothing is going to change.”
In an interview with the Guardian in February, Vandermeyden said there was “pervasive harassment” at Tesla, including catcalls on the factory floor.
She also said the company retaliated against her when she raised concerns about cars being sold in “a defective state.” In addition, she claimed that she was paid less than men for doing the same work at the company.
Tesla said then that it found Vandermeyden’s complaints were unsubstantiated.
Subsequently Tesla told SiliconBeat that it has fired Vandermeyden, saying it did so after an internal investigation as well as after “retaining a neutral, third-party expert to conduct an independent investigation of Ms. Vandermeyden’s claims.”
Tesla has been accused of various other employee-related woes, including an effort to unionize its workers, while a stuidy released in May 2017 showed that the company’s recorded safety incidents in 2015 were 31 percent higher than average for the auto industry. That followed a recent Guardian report that ambulances had been called to Tesla’s Fremont factory more than 100 times since 2014.
Iran’s rial flashed lower on Sunday against the US Dollar, as panicked Iranians scrambled into USD amid deepening economic woes and the imminent return of full US sanctions. The unofficial “black market” rate stood at 102,000 Rials by mid-Sunday according to website Bonbast, and confirmed to AFP by a currency trader.
The Rial has lost half its value against the US Dollar over the last four months – breaking through the 50,000:1 mark in March for the first time. In April, Tehran deployed a series of measures to try and stop the slide – including firing the governor of the central bank, fixing the Rial at 42,000 and threatening to crack down on black market traders.
But the selling continued as Iranians have panicked about a prolonged economic downturn, turning to dollars as a safe way to store their savings, or as an investment in the hope the rial will continue to drop, according to France24.
With banks often refusing to sell their dollars at the artificially low rate, the government has been forced to soften its line in June, allowing more flexibility for certain groups of importers. The handling of the crisis was one of the reasons behind last week’s decision by President Hassan Rouhani to replace central bank chief, Valiollah Seif.
Alas for the Islamic Republic, none of it has worked.
As Johns Hopkins economist and Senior Cato Institute Fellow Prof. Steve Hanke noted in late June, “The Islamic Republic of Iran remains in the ever-tightening grip of an economic death spiral. The economy is ever-vulnerable because of problems created by the last Shah, and added to massively by the incompetence and shenanigans of the theocratic regime. Indeed, the economy is more vulnerable to both internal and external shocks than ever. How fast the death spiral will spin is anyone’s guess.”
Three days ago, Hanke produced this chart:
The Iranian #rial is plummeting. Since yesterday, the black market rate has remained at 93,000 IRR/USD. pic.twitter.com/Hf9sYXwHWQ
The Weekly Inflation Roundup Table: #Venezuela has the highest inflation in the world (38,716%) leading the 2nd worse, #Iran (152%). Note how off the mark the IMF’s projections are. pic.twitter.com/HaFORqMu3y
Moreover, Hanke also described the “black-market premium” for US dollars in Iran – which describes the amount Iranians have been willing to pay over the official exchange rate to get their hands on USD.
For a fuller picture of the black-market premium, I have plotted it while President Hassan Rouhani has been in office. As we can see, the recent spikes have been associated with President Trump’s attacks on and subsequent cancellation of the JCPOA nuclear deal, as well as increased rhetorical and real attacks on Iran via the U.S. Treasury Department’s sanctions war machine.
Applying that to Sunday’s black market exchange rate of 102,000 vs. the official rate of 43,989 and we have a premium of 131%.
The currency collapse was exacerbated by President Trump’s May announcement that he was pulling out of the 2015 Iran nuclear deal which lifted certain sanctions in exchange for Tehran’s agreement that they would curb their nuclear program. Full sanctions are set to resume August 6 and November 4, which will force many foreign entities to cut off business ties with Iran, resulting in sliding oil exports and continued economic deterioration.
Suffice to say, things are getting heated…
Recent Anti-Govt Protests in Iran:
•Dec-Jan: Iran’s largest protests since 2009 amid double-digit inflation, unemployment
•Jun: Largest protests in Tehran in years as value of Iran’s currency plummeted
•Jun-Jul: Major protests in southern Iran sparked by water shortages pic.twitter.com/yjbKdq96E3
— Fox News Research (@FoxNewsResearch) July 23, 2018
A few weeks ago, SocGen asked what is arguably the most important question of the ensuing global trade wars: are tariffs inflationary or deflationary? While there were various nuances, its conclusion was simple enough: “Inflationary short term, disinflationary medium term.“
It now appears that the “short-term” part has finally arrived, because after several rounds of tit-for-tat tariffs and retaliations between the US and China, American consumers are about to be hit with sharply higher prices as tariffs on industrial metals put pressure on U.S. manufacturers.
In May, President Trump imposed steel and aluminum tariffs on the EU, Canada, and Mexico to help preserve America’s manufacturing base. The response: steel and aluminum prices have risen 33% and 11% respectively since the beginning of the year, as manufacturers began to price in the tariffs.
Moreover, tariffs on additional imported products from China have added even more costs for producers, which are now being aggressively passed through to the consumer.
“You’re going to see higher prices passed on to consumers…almost immediately” Matt Gold, a former deputy assistant U.S. Trade Representative for North America under former President Barack Obama, told CNBC. “A lot of goods are already warehoused that were imported months ago, so it takes a bit of time to catch up, but prices catch up pretty fast,” he added.
“The way it works is that a U.S. importer pays the taxes to the customs duties or customs tariffs to the U.S. Treasury,” Gold explained. “Of course, that’s going to effect the sale price [and] whatever price at which the exporter sells to the importer is going to lower, because the importer has to pay duties in addition to paying the purchase price.”
Gold added that for American consumers, those soaring costs would be spread “really across the board. With Chinese retaliatory tariffs, we’ve imposed those on $34 billion of different goods coming from China. It’s a very broad array of consumer products, industrial products.”
“So everything from the person who walks into Walmart is going to pay higher prices as well as the manufacturer buying material imports for their manufacturing processes,” the former official added.
To be sure, the latest Markit PMI already warned about the threat of sharply higher prices, noting that “July saw the steepest rise in prices charged for goods and services yet recorded by the surveys as firms passed rising costs on to customers, in turn frequently linked to tariffs.”
And here’s why.
This month, Winnebago Industries warned that the recreational-vehicle boom seen in the last several years could have popped: “We’ve had to go to the market a bit more frequently and a bit more aggressively with some price increases as of late,” said Michael Happe, chief executive of recreational-vehicle manufacturer Winnebago Industries Inc, who spoke with The Wall Street Journal.
Happe did not disclose how much the tariffs would affect prices but said the company had made changes such as altering recreational-vehicle floor plans to decrease costs.
The CEO of the Iowa-based company said that it has benefited from the recent recreational-vehicle boom. However, trade tensions and rising inflation could lead to a gloomy outlook for the company. “Uncertainty is never a great thing for the economy and the more noise there is there’s a risk that consumers will press pause,” he said.
Polaris Industries is another recreational-vehicle company raising prices on its vehicles including boats, motorcycles, snowmobiles to cover $15 million of the $40 million in tariff-related charges to pay for steel, aluminum, and components from China this year. The company is facing severe headwinds from retaliatory tariffs from other countries on products it exports from the U.S., including the Indian-brand motorcycles it ships to Europe.
In a move that is sure to infuriate President Trump, CEO Scott Wine said he could soon move production facilities of road bikes that it sells in Europe to Poland from Iowa to avoid European Union tariffs.
Last month, Harley-Davidson announced similar plans in June to move production to Europe, which drew substantial criticism from labor unions and the wrath of President Trump. Harley’s CEO Matt Levatich said last month that the transition would help keep costs down for its motorcycles in Europe and escape Trump’s tariffs. “We made the best decision given the circumstances,” he said last week.
His decision will soon be copied by dozens of other US manufacturers who face the challenge of keeping profits high amid sharply higher costs.
And while tariff costs for recreational-vehicles are slowly but surely being passed along to the American consumer, at least these are highly discretionary purchases for members of society’s upper-middle and top income class, and as such the hit to their wallet will be manageable.
But what’s worse is that far more Americans are about to suffer rising prices on their purchases of key staples. Last week, Coca-Cola CEO James Quincey said tariffs are going to inflate drink prices. “Clearly it’s disruptive for us. It’s disruptive for our customers,” Quincey said. He believes distributors and retailers will pass along increased prices to consumers in the third quarter.
Coca-Cola it raising soda prices because of rising costs, including freight rates as well as prices for plastic and aluminum. Photo: AP
Beverage inflation is not just coming to soda, executives at Sam Adams brewer Boston Beer warned their prices could move up 2 percent this year.
“At some point, increased commodity costs have to be passed through to some extent,” Chief Executive Jim Koch said in a recent earnings call.
And it appears that that time is now.
Industrial manufacturer Lennox International has also dramatically increased prices of its heating, ventilation, air conditioning, and refrigeration products because of the tariffs. The company has raised prices twice this year to cover an additional $50 million on steel. Lennox said it expects to pay $20 million more for freight and $5 million for tariffs on components from China this year.
“We haven’t seen any pushback on the price,” Lennox CEO Todd Bluedorn said on an investor call last week, although he probably should have added the word ‘yet.’ Bluedorn noted that he was not alone and all of his competitors have announced similar price increases.
The list goes on.
Office furniture producer Steelcase also raised prices in June for the second time this year as base metal prices accelerated. “It’s been a long time, if ever, that we’ve done two price increases back to back as quickly as we did,” Chief Executive James P. Keane said.
Meanwhile, the agriculture industry and farmers, especially of soybeans, have been crushed by retaliatory tariffs. Last week, the USDA issued a proposed $12 billion bailout for U.S. farmers: the farmer subsidy would include direct payments to soybean, corn, wheat, cotton, dairy, and pork producers impacted by tariff retaliation.
So with the 2018 Midterm Elections in sight, President Trump’s trade wars are hurting potential republican voters right where it hurts the most: in the wallet, and the higher prices are spreading to increasingly more goods and services. As a result, consumers are forced to dip into their savings and spend on credit to survive as the prices of goods soar.
The lingering question ahead of the elections is whether Americans will vote with their empty wallets or continue the status quo. One answer came last week from Iowa farmers, who criticized President Donald Trump’s $12 billion farm aid package and worried about trade wars impacting their business, yet many still turned out to support him on Thursday during a visit to the top corn-producing state.
Trump may be taking on fights with too many trading partners at once, said Bob Weber, a corn farmer in nearby Bellevue, Iowa. But Weber still turned out to watch Trump, for whom he voted, land on Air Force One.
“What he’s doing is right but he might be doing too much at the same time,” Weber said.
Meanwhile, others suffering farmers continue to give Trump the benefit of the doubt:
BJ Reeg, a farmer in nearby Bellevue, worries that trade tensions have hurt prices for the soybeans he grows and meat he produces from cattle.
“This trade war thing, it has to be done,” Reeg said as he leaned on his silver pickup truck. “In the long run, it’s gonna be good, if a guy can hang on.”
Come November, the answer to how much longer “a guy can hang on” could mean all the difference for Trump and the GOP.
While the media has been focused on Russia and porn stars, low unemployment and a roaring economy thanks to trillions in stimulus have forced employers across the country to relax their hiring standards in order to fill positions, reports the Wall Street Journal.
In short, Americans looking to break into their dream career or land their first job are in luck – as employers are having trouble finding employees using the stringent job requirements they were able to demand during the recession, when millions were out of work and HR departments were flooded with applicants.
Across incomes and industries, the lower bar to getting hired is helping self-taught programmers attain software engineering roles at Intel Corp. INTC and GitHub Inc., the coding platform, and improving the odds for high-school graduates who aspire to be branch managers at Bank of America Corp. BAC and Terminix pest control. –WSJ
Remember this?
Not so much anymore, though that MBA might not be quite the investment it once was thanks to a new practice called “down skilling.”
To attract more entry-level employees, toy maker Hasbro Inc. divided four marketing jobs, which it previously designed for business-school graduates with M.B.A.’s, into eight lower-level positions. The new full-time roles included a marketing coordinator, retail-planning analyst and trade merchandiser, all involving more routine activities supporting higher-level staff in the division.
Hasbro hiring managers originally sought candidates with a two-year degree for the jobs but ultimately dropped any college requirement, a spokeswoman said. The Pawtucket, R.I. company received more than 100 applications and hired nine people. –WSJ
“Candidates have so many options today,” said Amy Glaser, senior VP of staffing agency Adecco Group, which services around 10,000 corporate clients. “If a company requires a degree, two rounds of interviews and a test for hard-skills, candidates can go down the street to another employer who will make them an offer that day.”
Glaser says around 25% of the agency’s corporate clients have made drastic changes to their job requirements since the start of 2018 – such as skipping drug tests or criminal background checks, and dropping requirements for a higher degree or even a high-school diploma.
The biggest and best results coming out of the good GDP report was that the quarterly Trade Deficit has been reduced by $52 Billion and, of course, the historically low unemployment numbers, especially for African Americans, Hispanics, Asians and Women.
Relaxed job requirements are understandably more common in regions with low unemployment such as Dallas and Louisville, says Glaser. In Thornton, Colorado – Amazon is trying to fulfill a 1,500 worker requirement for a new warehouse later this summer, with positions starting at $12.50 an hour – but may find it difficulat considering Denver’s ultra-low 2.3% unemployment rate.
“We are hiring quickly to open later this summer,” said Lauren Lynch, a spokeswoman for the online retailer. The new wave of hires will more than double the 1,300 people the Seattle-based company now employs at two facilities in Aurora.
The company hopes its benefits package will attract employees – which includes medical, dental and vision coverage, up to five months of paid parental leave, a 401(k), stock awards and performace-based bonuses.
“Any employer that is offering health care will instantly have a leg up. That seems to be one of the primary concerns for job seekers,” said Kyle Kensing, an online content editor at San Diego-based CareerCast, which track labor market trends. –Denver Post
The lack of highly qualified candidates has left employers with three options: Offer more money upfront, lower standards, or retrain current staff to perform other necessary skills.
Despite their warehouse hiring spree, Amazon’s overall hiring rate has slowed thanks to internal shuffling vs. external hires. While its headcount of 575,700 employees is still up 50% over a year ago, 87,000 of those came from the Whole Foods acquisition, and YTD headcount is only up around 2% thanks to internal transfers.
“What we are doing is probably hiring and transferring more people internally in the last six months, so the net hiring hasn’t been driven by external hiring, it’s been more by internal transfers and re-leveling in some areas and seeing where we maybe need to add back,” said Amazon CFO Brian Olsavsky on a Tuesday conference call with reporters.
Overall, the percentage of job postings which requested a college degree fell to 30% from 32% last yerar, while minimum qualifications have been drifting lower since 2012 – when companies required degrees for 34% of the same positions.
Length of employment requirements have also fallen:
Only 23% of entry-level jobs now ask applicants for three or more years of experience, compared with 29% back in 2012, putting another 1.2 million jobs in closer reach of more applicants, Burning Glass data show. Through the end of last year, another one million new jobs were opened up to candidates with “no experience necessary,” making occupations like e-commerce analyst, purchasing assistant and preschool teacher available to novices and those without a degree. –WSJ
Staffing companies have been forced to tell employers who are unwilling to relax their standards the harsh truth;
Asheville, NC-based SCM Talent Group CEO Rodney Apple told the Journal that if companies won’t budge on compensation, experience or education requirements, he walks away.
“We tell them, ‘I’m sorry, but we can’t help you fish for the few underpaid or unaware applicants left out there.’ ”
SCM recruits workers for dozens of small and midsize companies looking for supply-chain managers and warehouse employees across the US. Apple says he hasn’t seen this type of talent shortage in his nearly 20 years of recruiting.
Another company forced to lower the bar for new hires is Terminix – which revised their requirements for pest-control branch and service manager positions from a “mandatory” two-year degree or bachelor’s degree to “preferred,” according to Betsy Vincent, senior director of talent acquisition.
Anthony Whitehead worked for five years as a Terminix branch manager in Florida before he was promoted to regional director in early July. That position now accepts candidates with college degrees or equivalent experience, helping Mr. Whitehead clinch the role despite his earlier decision to enter the military instead of college.
Mr. Whitehead, 35, said his approach to jobs requiring a degree has been “apply anyways if I have the right experience, and then have the education conversation if I need to,” he said, acknowledging his luck in working for companies like Terminix with flexible requirements. –WSJ
Meanwhile, as college requirements are dropping, the percentage of Americans with increasingly irrelevant bachelor’s degrees continues to rise. Bank of America, for example, has 7,500 job openings worldwide, and less than 10% of them require a degreeaccording to company spokesman Andy Alridge. From bank tellers to customer-service to fraud-protection, that shiny expensive four-year degree and all the debt that came with it are no longer required for an increasing number of jobs.
In June, BofA announced plans to hire 10,000 more retail workers from low-income neighborhoods over the next five years, with or without college degrees, according to Chris Payton, head of talent acquisition.
GitHub, recently acquired by Microsoft Corp. , said it hasn’t required college degrees for most positions in years. Degrees are optional for many “experienced hire” positions at chip maker Intel Corp., which also has a “tech grad” job category the company describes as fitting candidates with relevant classroom or work experience from technical programs, such as coding boot camps. –WSJ
Will the music ever stop? Of course it will. Until then, basement-dwelling boomerang millennials can peel themselves off that vinyl couch and get to work – since they’re all out of excuses.
At one time or another, you’ve surely been advised not to fight the Fed, maybe by the same guy who likes to remind you that the trend is your friend (until it isn’t) and that pigs get slaughtered.
But how should you use that advice during the third year of a tightening cycle that’s currently adding 25 basis points to the fed funds rate every three months?
Is it time to cut risk or even go to cash?
Let’s look at a Fed policy–related indicator that has a history of signaling market tops and might help you decide.
Do not overlook the “curve”
The indicator, which I call VCURVE, combines monetary policy and inflation risks. By wrapping the two risks together, I approximate where the Fed stands versus the curve, as in whether policy is ahead of the curve, behind the curve or somewhere in between.
Here’s the calculation:
From the current fed funds rate, subtract the lowest rate since the last market correction.
Add the change in inflation over the past twelve months.
The stock market is most exposed to a tumble when VCURVE is high, whereas a low VCURVE reading is good for stocks. And the indicator is highest when the Fed tightens aggressively but inflation is rising nonetheless, suggesting policy makers are behind the curve. But the indicator can still flash a warning when just one of the two major risks (policy risk and inflation risk) is elevated.
VCURVE spiked upward near all S&P 500 (SPY) corrections of the last 64 years, as shown in the chart below. If you can take a minute to look at the corrections individually, you’ll see VCURVE increasing every time – either before, during or (usually) before and during the correction.
As market indicators go, the chart shows a stellar track record. For example, VCURVE predicted market corrections better than that Hollywood diva of economic and market indicators, the slope of the yield curve, and that’s a result you wouldn’t have guessed from the relative sizes of the indicators’ respective followings.
But VCURVE’s effectiveness wasn’t quite as strong during the recent tech and housing booms as in the period from the mid-1950s to the late 1980s. Showing a few more head fakes than it did previously, the indicator became a 50-50 proposition as to whether a high reading signaled a correction.
We can’t know exactly why the indicator’s performance tailed off during the tech and housing booms, but I would say the Greenspan put had something to do with it. Alan Greenspan’s policies encouraged stock investors to power through setbacks, lest they find themselves on the wrong side of a Fed-led rescue. I don’t expect Jerome Powell to be as market-friendly as Greenspan (see here and here for discussion), so maybe the indicator’s earlier history (before the 1990s) and more recent history (last ten years) are better guides to what we should expect going forward.
VCURVE flashes yellow
So the indicator’s history is intriguing, but if you’re evaluating the current reading, line charts aren’t the best way to parse the data. For that, it’s helpful to create a histogram that shows subsequent real S&P 500 returns:
When we last discussed VCURVE in January, it was distinctly nonthreatening at 1.4%, which is right in the middle of the histogram’s third bar. But after two more rate hikes and a pop in inflation, the indicator currently stands at 2.9%, more than twice its January reading and higher than any other reading since the market correction in mid-2010. Moreover, the Fed’s tightening bias should keep VCURVE trending upward for the foreseeable future, although with recurring dips and jumps due to inflation volatility.
In other words, we’re now at the right-hand edge of the histogram’s fourth bar, and more bad news on inflation would bring the fifth into play. That doesn’t mean VCURVE is predicting an immediate market reversal, but it is signaling increased risk. Or you can interpret the current reading as implying a lower return. Let’s say that whatever your expectations were in 2015 (before the Fed started raising rates), you might knock them back by about a third, matching the data shown in the histogram.
Of course, that’s before widening your perspective to consider earnings, fiscal policy, Trump’s trade war and anything else you think might affect market performance.
And don’t forget: the trend is your friend (until it isn’t).
Defense Distributed, founded by Cody Wilson, provides the means for people to make weapons at home via software and 3D-printing and milling machines. Today that company, along with the Second Amendment Foundation, has sued the attorney general of New Jersey and the city attorney of Los Angeles.
Gurbir S. Grewal, the attorney general of New Jersey, sent a threatening letter to Defense Distributed last week that claimed the company’s “plans to allow anyone with a 3D printer to download a code and create a fully operational gun directly threatens the public safety of New Jersey’s residents….Posting this material online is no different than driving to New Jersey and handing out hard-copy files on any street corner.”
Grewal ordered the company “to cease and desist from publishing printable-gun computer files for use by New Jersey residents….Should you fail to comply with this letter, my Office will initiate legal action barring you from publishing these files before August 1, 2018.”
Defense Distributed’s legal right to post its information was won by the company via settlement this month after a long legal battle with the federal government. Before that settlement, the feds essentially wanted to treat the act of hosting or distributing such files as illegal arms exporting.
Defense Distributed informed Grewal on Friday that “all actions contemplated by Defense Distributed are fully protected by the First Amendment, and [Grewal’s] attempts to prevent such actions constitute an unconstitutional prior restraint and otherwise violate the United States Constitution and the New Jersey Constitution.”
It reinforced that argument with today’s suit against Grewal and Michael Feuer, city attorney of Los Angeles, who issued a similar threat against Wilson’s company last week. The lawsuit calls the officials’ efforts “an ideologically-fueled program of intimidation and harassment.”
The suit asserts that the threats from New Jersey and Los Angeles
violate the First Amendment speech rights of Defense Distributed and its audience, including [the Second Amendment Foundation’s] members; run afoul of the Dormant Commerce Clause; infringe upon the Second Amendment rights of those who would make use of the knowledge disseminated by Defense Distributed; constitute a tortious interference with Defense Distributed’s business; and are in any event, federally pre-empted by Congress’s export control laws as well as Defense Distributed’s export license, by which the State Department has explicitly authorized the speech that the Defendants are seeking to silence. Plaintiffs are entitled to declaratory and injunctive relief, damages, and attorney fees.
Josh Blackman, one of Defense Distributed’s lawyers, adds via email that “States do not have the power to censor speech or commerce in other states, especially when that commerce is licensed by the federal government.”
Cody Wilson announced via twitter today that his Defcad website is currently not accessible in New Jersey. This is at this point his own choice, given the legal threat he faces, a threat he hopes to eliminate with this lawsuit.
If you’re a law abiding US citizen, a team of armed undercover US Air Marshals could be following you on your next flight, taking minute-by-minute notes whether or not you engage in such threatening behavior as sleeping on the plane, using a phone, going to the bathroom or talking to other passengers.
The Boston Globe has revealed a new federal program that profiles and surveils ordinary US citizen travelers who otherwise have no legitimate reason for being profiled. The secret program, called “Quiet Skies”, was set up to monitor US citizens with no prior record and who don’t result in red flags being raised at the airport. The people surveiled and followed in this program are, according to a TSA memo cited by the Globe article, “not under investigation by any agency and are not in the Terrorist Screening Data Base”.
In essence, the program gives the TSA the option to monitor and track whoever it likes for any reason whatsoever, effectively granting TSA agents a green light to violate anyone’s personal privacy even as the legal and constitutional implications of such profiling remain unknown. And, understandably, internal pushback against the relatively new program has emerged as some Federal Air Marshals have noted that it is a drain on resources and is way too time consuming and costly.
Further, concerns have been raised by legal experts, like Jonathan Turley, a George Washington University law professor, who said that “if this was about foreign citizens, the government would have considerable power. But if it’s US citizens — US citizens don’t lose their rights simply because they are in an airplane at 30,000 feet.”
Predictably, the TSA defended the program to the Boston Globe when asked and declined to note for the article whether or not the program has been successful in stopping any threats. In fact, it wouldn’t even confirm that the program existed. But documents provided to the Boston Globe by FSA sources confirm that this highly controversial program does, in fact, exist.
So if you’re not on any terrorist watch list and you are not under investigation by the Federal Government, what exactly do armed Air Marshals look for when a “small team of them” watches you as you fly or home to visit relatives for the holidays?
Amazingly, the red flag “triggers” for in depth surveillance involve behaviors that essentially all passengers are susceptible to, such as:
whether or not passengers fidget
whether or not they are using a computer on the flight
whether or not they stare off into space
face touching
exaggerated emotions
whether or not a subject has lost or gained weight from the information provided to authorities
whether or not the subject has facial hair, tattoos, piercings,
whether not they slept during the flight
whether not they use the bathroom on the flight
how they were picked up when they arrive.
The full “behavior checklist”, uploaded on the Boston Globe website, is both astonishing and frightening.
A casual skim of the above “threats” narrows down the list of potential suspects to – well, everybody who flies or has ever flown in an airplane.
And yes, Air Marshall have been instructed to focus especially on people who have “gained weight”, have a beard, checked their baggage, and either talk on the phone or have a computer: almost as if the government has granted explicit permission for the FSA to profile just about anyone, for any reason whatsoever.
The article did not reveal how people are initially chosen for the screening, and the TSA naturally refused to share the information. However, what we do know is that once one has made the list and is selected for surveillance…
…a team of air marshals is placed on the person’s next flight. The team receives a file containing a photo and basic information — such as date and place of birth — about the target, according to agency documents.
The teams track citizens on domestic flights, to or from dozens of cities big and small — such as Boston and Harrisburg, Pa., Washington, D.C., and Myrtle Beach, S.C. — taking notes on whether travelers use a phone, go to the bathroom, chat with others, or change clothes, according to documents and people within the department.
Despite its relative recency, the program is already operational across virtually all major airports.
And just like Edward Snowden and the NSA, the Globe points out that pushback against this kind of indescriminate profiling is rising as “dozens of air marshals have raised concerns about the Quiet Skies program with senior officials and colleagues, sought legal counsel, and expressed misgivings about the surveillance program, according to interviews and documents reviewed by the Globe.”
Sensing an avalanche of legal fees, experts that specialize in civil liberties and citizens’ rights believe that the program may not be lawful:
Experts on civil liberties called the Quiet Skies program worrisome and potentially illegal.
“These revelations raise profound concerns about whether TSA is conducting pervasive surveillance of travelers without any suspicion of actual wrongdoing,” said Hugh Handeyside, senior staff attorney with the American Civil Liberties Union’s National Security Project.
“If TSA is using proxies for race or religion to single out travelers for surveillance, that could violate the travelers’ constitutional rights. These concerns are all the more acute because of TSA’s track record of using unreliable and unscientific techniques to screen and monitor travelers who have done nothing wrong.”
George Washington University law professor Jonathan Turley said Quiet Skies touches on several sensitive legal issues and appears to fall into a gray area of privacy law.
The biggest irony, as several Air Marshals observed, is that that potentially illegal program which infringes on the privacy and constitutional rights of US citizens, is also being paid for by those very same US citizens. Just like with the NSA.
Even the president of the Air Marshal Association has spoken out against the program:
Several air marshals, who spoke on the condition of anonymity because they are not authorized to speak publicly, told the Globe the program wastes taxpayer dollars and makes the country less safe because attention and resources are diverted away from legitimate, potential threats. The US Federal Air Marshal Service, which is part of TSA and falls under the Department of Homeland Security, has a mandate to protect airline passengers and crew against the risk of criminal and terrorist violence.
John Casaretti, president of the Air Marshal Association, said in a statement: “The Air Marshal Association believes that missions based on recognized intelligence, or in support of ongoing federal investigations, is the proper criteria for flight scheduling. Currently the Quiet Skies program does not meet the criteria we find acceptable.
“The American public would be better served if these [air marshals] were instead assigned to airport screening and check in areas so that active shooter events can be swiftly ended, and violations of federal crimes can be properly and consistently addressed.”
Finally, for those unlucky enough to have “gained weight” since their last observations – or heaven forbid grew a goatee – and triggered the TSA’s red flag, once selected for the list they are surveilled for up to 90 days or for their next three encounters, whatever comes first.
While the long running practice of Air Marshals Performing surveillance on those who are the focus of government investigations makes sense – this clear abuse of power and disregard for the rights of US citizens is so egregious that even those tasked with enforcing it can’t get behind it.
Over the past month we have observed China announcing a slew of easing measures, both monetary and fiscal, in quick succession: there has been a cut in the reserve ratio requirement (RRR) for commercial banks, easing of regulatory norms to support broader credit growth, a call for more “proactive” fiscal policy, and accelerated issuance of local government bonds to support infrastructure investment. As these steps contradict the tightening path that Beijing has pursued since April 2016, it has provoked confusion from investors.
So, in an attempt to answer some of these lingering question, Morgan Stanley’s chief Asian economist Chetan Ahya writes that he thinks China’s easing is defensive in nature, aimed at sustaining a moderate pace of growth, and not a shift to an offensive stance (i.e., to accelerate GDP growth). Nonetheless, he also note that “it signals a readiness to act” and adds that “if trade tensions create a meaningful risk to growth, we should expect a much more vigorous – though still defensive – policy response.”
Here are the key questions asked by investors, and Morgan Stanley’s responses:
(1) Do these measures indicate a change in China’s policy stance?
We think China’s recent easing measures aim at maintaining a neutral policy stance. Our framework for assessing policy is to look at the pace of broad credit growth, which policy-makers call ‘total social financing’. Our chief China economist, Robin Xing, believes that broad credit growth will stabilise at around 11%Y in 2H18. Before these measures were announced, investors probably believed that policy-makers would stay on a tightening path, with the expectation that broad credit growth would continue to decelerate (as it had since April 2016 when it was growing at 16%Y). The recent measures have changed these expectations, while increasing confidence that policy-makers will be able to stabilise credit growth.
(2) Why have policy-makers taken these measures?
This easing is defensive and pre-emptive in nature. We think policy-makers have adopted these measures to guard against potential negative repercussions of trade tensions and their knock-on impact on external demand, not in reaction to slowing domestic demand. Indeed, our recent work suggests a 16bp effect on China’s growth from the trade measures implemented recently, considering both direct and supply chain effects, though this could rise to 70bp if a 10% tariff were imposed on all US imports from China (a total of US$500 billion).
(3) Are they sacrificing their policy reform agenda to protect growth?
We think the reform agenda remains in place. Since 2016, policy-makers have been at work on supply-side reforms (cutting excess capacity) and cleaning up the financial system. They have made good progress, according to our materials analyst Rachel Zhang and financials analyst Richard Xu, with the rate of improvement currently pegged at 60-70%. We believe financial clean-up remains in focus, as the RRR cuts are designed to avoid over-tightening. And policy-makers are continuing to implement supply-side reforms via increased focus on environmental protection.
(4) Will RMB face significant depreciation pressure again?
The recent depreciation has been triggered by concerns about trade tensions and the potential divergence between the US and China on monetary policy. Despite comments from policy-makers aimed at stabilising the exchange rate, market pressures have led to continued depreciation. However, to put the recent currency moves in a broader context, much of the seemingly sharper depreciation in fact has reversed the appreciation that occurred from February to mid-June (with RMB strengthening by 3% against its currency basket even though the trade-weighted USD appreciated by 7%). We think RMB will likely return to a regime of relative stability in the trade-weighted exchange rate. In other words, if the broad trade-weighted USD depreciates, RMB should appreciate.
Morgan Stanley concludes that “all things considered, given that the policy stance in China should not be a game-changer, our strategy teams remain cautious on both DM and EM risk assets.” But perhaps an even greater threat to China’s stability than trade wars or slowing credit growth, are “the lingering concerns about the ongoing Fed tightening cycle, elevated trade tensions and their attendant impact on global growth.“
In other words, if the US wants to truly hurt China, it can simply by ratcheting up rates, which eventually could cause a series of financial crises in Beijing, a topic which will be further discusses in a subsequent post by One River Asset Management CIO Eric Peters.
This week is the 40th anniversary of the publication of my first attack on the Postal Service. “Time to Stamp Out the Postal Monopoly” was the lead article on the Boston Globe oped page . A dozen years later, the chief postmaster of Boston denounced me as “the nation’s number one postal basher.”
I forgot to thank the postal unions for clinching the 1978 sale of that piece – my first in a major paper. I had pitched the piece to the Globe a couple months earlier and revised it to their specifications. But then I heard nothing and I assumed the piece was dead. Then the postal unions threatened a nationwide strike, kindly providing a newspeg (and perhaps also enraging some Globe editors). The Carter administration placated the unions with hefty raises and guaranteed lifetime jobs.
Back in those days, the U.S. mail was practically the only way an aspiring writer could afflict editors in distant cities with his work. Stamp prices were skyrocketing and service was wildly erratic, delaying the arrival of vital reject slips. Mail delivery ceased entirely for a week after the postman became frightened of the Dobermans owned by the drug dealers on the ground floor of the rickety apartment building where I lived. To visit a Boston post office was to descend into a netherworld of zombies and psychopaths who hated anyone who approached them with an unstamped envelope. The worst outrage was that it was a federal crime for anyone else to provide better mail service.
The next year, I whacked the Postal Service in the Washington Star and followed up, after I moved to the Midwest, with a hit in the Chicago Tribune in 1980. That piece led to my first talk show – an appearance on Chicago’s WVON radio station. It did not occur to me that I should be conversational instead of responding warily, like I was being cross-examined late at night at a police road block. The talk show host utterly misunderstood the article and her questions seemed inane. When I asked her to clarify, she repeated her lines louder. I was unaware that interview questions are often written by an assistant or an intern. For a talk show host to read an entire 700-word article is like a normal person reading Moby Dick.
After I moved to Washington, I often visited the lavish new headquarters of the Postal Service – thanks to their top floor library with panoramic views and a nook where stogies could be puffed all day. Old histories and dog-eared reports proved that the Post Office had been warring against its competitors ever since Congress gave it a monopoly over letter delivery prior to the Civil War. I burst out laughing when I to read the Post Office’s 1960 annual report’s proclamation of “the ultimate objective of next-day delivery of first-class mail anywhere in the United States.”
I smacked the Postal Service in publications ranging from Inquiry to the Los Angeles Herald Examiner to the Washington Times. Beginning in 1984, I regularly slammed the Postal Service in the Wall Street Journal, whose editorial features editor Tim Ferguson was the best and stoutest libertarian-leaning editor I encountered at a major outlet. I hammered the theme that “mail service is becoming slower, more expensive and less reliable.” I also pointed out how the Postal Service’s delivery tests – endlessly touted in their advertisements – were utterly fraudulent.
Every time the Postal Service raised postage rates or slashed service, I gave them another wallop. In a 1987 New York Times op-ed, I wrote that “First-class mail is becoming the ghetto of American communications… The U.S. cannot afford to enter the next century with a communications system little changed from the 18th century.” Assistant Postmaster General Frank Johnson responded that “Bovard continues to play his fanciful intellectual demolition derby… He often allows his bandwagon to run amok, rolling over much that is good. Pedestrian facts end up flattened.” Earlier in 1987, Johnson complained to the Wall Street Journal that I was “the Pied Piper of Privatization.”
Mauling the mail service led to my first gig as a scarecrow. The National Association of Postmasters invited me to speak to their annual Washington conference so that members would have “a clear picture of the very real threats that are bombarding us daily,” the association’s chief, a grizzled Irish postmaster-politician from Massachusetts, declared. I ambled up to the lectern at 9 a.m. Five minutes later, I had all 300 audience members on their feet howling with homicidal intent.
I spoke about how government monopolies lacked incentives to provide good service and asked: “If you had to invest your life savings in one company – would you choose United Parcel Service or the Postal Service?” “We already invested our lives in the Postal Service!” came the thunderous response. Oops.
The Boss Postmaster repeatedly jumped on stage to simmer the audience down so I could finish. Afterwards, he unleashed a podium-pounding tirade that flailed my views up-and-down and strutted before his members as if he’d just slain an anti-postal dragon. I only wish I could pocket $500 every time I get heartily cussed.
In 1989, nudged by Tim Ferguson, I spent five months seeking an interview with Postmaster General Anthony Frank. But a Postal Service spokesman told me that since the Postmaster General had recently appeared on “The Pat Sajak Show,” he did not need exposure in the Wall Street Journal. Besides, the spokesman said, my previous postal articles had been “tainted with bias.” Though the Postal Service was losing $2 billion a year, Frank scorned fundamental reforms, claiming that privatization would be “the Wino and Derelict Full Employment Act…. A lot of [the private carriers] would only work until they get the price of a bottle of Ripple and then they’d quit.” I scoffed in a WSJ piece that “the American people no longer need a monopoly that appears more interested in storing letters than in delivering them.” In a reply to the Journal, Frank complained that the piece was “just another case of Mr. Bovard mixing facts with fancy to suit his own” agenda.
In a 1991 Wall Street Journal piece, I jibed that “the Postal Service is the only delivery business that believes speed is irrelevant” and said that a pending four-cent hike in stamp prices “will help finance the greatest intentional mail slowdown in U.S. history.”
After I smacked the postal monopoly in USA Todayin 1995, the Postal Service’s “media relations” manager claimed it was “utter nonsense” that the Postal Service was intentionally slowing the mail and lamented: “We find it very frustrating when individuals with an agenda and a pen are given a forum to spread malicious misinformation.” Since then, the Postal Service has become far more forthright about its slowdowns – which never produce the savings anticipated. But since they have captive customers, why not abuse them?
The Postal Service has a long history as a tool of government surveillance and suppression. Writing in USA Today in 1999, I hammered the Postal Service’s crackdown on private mail boxes and touted corrective legislation championed by Rep. Ron Paul. That piece concluded that “the only real solution is to demilitarize the Postal Service’s legal arsenal and end its power over other businesses and American citizens.”
In 2011, after the Postal Service announced plans to largely abolish overnight mail delivery, I slammed them in the Los Angeles Times: “When people bought ‘forever’ stamps, they didn’t realize that the name referred to the delivery time, not stamp prices.” The Times published a letter from an angry postal fan who demanded to know: “Was James Bovard bit by a mailman as a child?”
In 2013, the Justice Department and Postal Service filed suit against Lance Armstrong’s bike racing team (which received $40 million from the Postal Service), claiming that Armstrong had conspired to defraud the feds by using illegal stimulants. I commented in the Washington Times that “that conspiracy charge sounded like a good summary of the Postal Service’s own public relations strategy.” Besides, it made “no sense to to bankroll a bicycle-racing team at the same time that postal employees were widely perceived as a bunch of slackers.”
At this point, the Postal Service is rapidly becoming little more than an income maintenance program for the 630,000 employees.The big question is which will reach zero first– mail delivery targets or the Postal Service’s actual performance. Either way, the Postal Service continues to provide some of the starkest and most comical reminders of the folly of relying on the government.
