The publisher of the New York Times, A.G. Sulzberger, responded to a Trump tweet from this morning, saying he “implored” President Donald Trump at a private White House meeting this month to reconsider his broad attacks on journalists, calling the president’s anti-press rhetoric “not just divisive but increasingly dangerous” and that Trump’s assault on the media is “putting lives at risk”
The war of words started on Sunday morning, when Trump tweeted that he “had a very good and interesting meeting at the White House with A.G. Sulzberger, Publisher of the New York Times. Spent much time talking about the vast amounts of Fake News being put out by the media & how that Fake News has morphed into phrase, “Enemy of the People.” Sad!” Trump wrote.
A.G. Sulzberger
A few hours later, Sulzberger issued a statement in which he said he decided to comment publicly after Trump revealed their off-the-record meeting held on July 20, noting that “Trump’s aides requested that the meeting be off the record” but with Trump tweeting this morning “he has put the meeting on the record, so A.G. has decided to respond to the president’s characterization of their conversation, based on detailed notes A.G. and James took.”
Sulzberger – who said said he accepted the meeting because Times publishers have a history of meeting with presidential administrations and other public figures who have concerns with the publication’s coverage of them – said his main purpose for accepting the meeting was to “raise concerns about the president’s deeply troubling anti-press rhetoric.”
“I told the president directly that I thought that his language was not just divisive but increasingly dangerous.”
Sulzberger also told Trump that that although the phrase “fake news” is untrue and harmful, “I am far more concerned about his labeling journalists “the enemy of the people.” I warned that this inflammatory language is contributing to a rise in threats against journalists and will lead to violence.”
Sulzberger, who went to the White House with James Bennet, who oversees that NYT’s editorial page, said he stressed “that this is particularly true abroad, where the president’s rhetoric is being used by some regimes to justify sweeping crackdowns on journalists.”
“I warned that it was putting lives at risk, that it was undermining the democratic ideals of our nation, and that it was eroding one of our country’s greatest exports: a commitment to free speech and a free press.”
In conclusion, the NYT owner said that “throughout the conversation I emphasized that if President Trump, like previous presidents, was upset with coverage of his administration he was of course free to tell the world. I made clear repeatedly that I was not asking for him to soften his attacks on The Times if he felt our coverage was unfair. Instead, I implored him to reconsider his broader attacks on journalism, which I believe are dangerous and harmful to our country.”
* * *
The president has repeatedly lashed out over media coverage of him that he deems unfair, and has labeled the news media the “enemy of the people” while regularly accuses reporters of spreading “fake news.” Just last week, Trump told hundreds of people attending the annual Veterans of Foreign Wars convention in Kansas City, Missouri: “Don’t believe the crap you see from these people, the fake news,” as he gestured toward journalists at the back of the room and the crowd erupted.
He also told them to remember “what you’re seeing and what you’re reading is not what’s happening.”
Trump has been especially vocal in his attacks on the “failing New York Times” and after the younger Sulzberger took over for his father as publisher on January 1, Trump tweeted that his ascension gave the paper a “last chance” to fulfill its founder’s vision of impartiality.
Trump urged the new Sulzberger to “Get impartial journalists of a much higher standard, lose all of your phony and non-existent ‘sources,’ and treat the President of the United States FAIRLY, so that the next time I (and the people) win, you won’t have to write an apology to your readers for a job poorly done!”
* * *
Shortly after the Sulzberger statement was published, Trump shot back with another extended attack at “anti-Trump haters in the dying newspaper industry”, who are “selling out our great country” and named the “failing New York Times” and the “amazon Washington Post”, split over 4 separate tweets:
When the media – driven insane by their Trump Derangement Syndrome – reveals internal deliberations of our government, it truly puts the lives of many, not just journalists, at risk! Very unpatriotic! Freedom of the press also comes with a responsibility to report the news accurately. 90% of media coverage of my Administration is negative, despite the tremendously positive results we are achieving, it’s no surprise that confidence in the media is at an all time low! I will not allow our great country to be sold out by anti-Trump haters in the dying newspaper industry. No matter how much they try to distract and cover it up, our country is making great progress under my leadership and I will never stop fighting for the American people! As an example, the failing New York Times and the Amazon Washington Post do nothing but write bad stories even on very positive achievements – and they will never change!
It is clear that this latest escalation in the simmering war of words between Trump and the NYT is only just beginning, and comes at a precarious time for the president, with Mueller’s probe reportedly in its last stages, with his former lawyer Michael Cohen threatening to “flip”, with the trade war with China set to accelerate should another $200BN in tariffs be imposed in mid August, with Trump threatening to shutdown the government over border security, and as the political bickering over the upcoming midterm elections hit fever pitch.
Meanwhile, the biggest tailwind going for Trump is the strength of the economy and the stock market, although the immediate future of both is increasingly in question after last week’s Facebook fireworks which threatens the growth narrative, while many predict that GDP in Q3 is set to post a steep decline when it is reported just a few days before the elections.
The city of Austin’s Equity Office has suggested renaming the Texas capital in a report about existing Confederate monuments that was published this week.
Known as both the “father of Texas” and the namesake of the state’s capital, Stephen Austin laid out the early outlines of Texas among his many accomplishments, however – and this is the reason for the proposal – as My Statesman reports, Austin also opposed an attempt by Mexico to ban slavery in the province of Tejas and said if slaves were freed, they would turn into “vagabonds, a nuisance and a menace.”
The report also identified several neighborhoods and 10 streets named in honor of the Confederacy or William Barton, a slave owner dubbed the “Daniel Boone of Texas,” that could be changed. The identified streets and parks are only suggested for reconsideration. And the city, Bouldin Creek, Pease Park and the Barton-related landmarks were included in a lower-tier list of “assets for secondary review” in the report. Still, the report did identify several streets staff consider related to the Confederacy and worthy of more immediate action. Those streets are:
Littlefield Street
Tom Green Street
Sneed Cove
Reagan Hill Drive
Dixie Drive
Confederate Avenue
Plantation Road
That said, actually renaming the state’s capital would likely require a citywide election since “Austin” would have to be struck from the city charter and replaced.
While the cost of such changes is trivial – the report estimated it would only cost $6,000 to rename the seven streets – opposition to similar renamings has tended to revolve around the inconvenience and expense faced by longtime homeowners and business owners who must deal with a new address. Complaints along those lines surfaced earlier this year when the Austin City Council changed the names of two streets recognizing Confederate leaders.
Before the council renamed Robert E. Lee Road as Azie Morton Road and Jeff Davis Avenue was changed to William Holland Avenue, the city gathered input from residents along those streets. A majority opposed the changes, which occurred in April.
In response, some residents have accused the city of whitewashing history.
The latest report acknowledged the likelihood of opposing viewpoints and nodded to inconveniences to businesses and residents and the view that changing the names could be considered a threat to historical preservation. Notably, it also asked whether the proposed changes reside on a slippery slope.
“What’s next and where do we stop?” the report asks.
The report also identified numerous historical markers related to the Confederacy on city property that could be targeted for removal. Those include a marker for the Confederate States of America that’s located at Congress Avenue and Cesar Chavez Street.
However, the city would need approval from the Texas Historical Commission and the Travis County Historical Commission to move them.
The Austin report comes amid a national debate on Confederate monuments that was sparked following the 2015 massacre of black churchgoers in Charleston, S.C. It follows a 2017 recommendation from the Austin Commission for Women that any new street names should address gender and racial disparities in the naming of public symbols. The commission also suggested preference should be given to individuals connected to Austin and having a “positive relationship and history with the community.”
The Equity Office’s report concludes, “It is essential to acknowledge that societal values are fluid, and they can be and are different today compared to when our city made decisions to name and/or place these Confederate symbols in our community.
There is a huge difference between believing in gold and believing in the gold business. The former is about wanting a stable, dependable global monetary system, one very much like what survived thousands of years of history without a whole lot of changes to it. The latter is about convincing you who are likely to believe the same thing to actively buy as much gold as you possibly can.
To the gold business, deflation is a killer. To a true goldbug, either inflation or deflation suggests the monetary world is off its axis. The economics of gold in that situation has very little to do with its price, at least so far as the price in either direction denotes what’s wrong.
When you put gold and something like copper or even eurodollar futures together on a chart, they show very clearly one thing – that deflation.
Since 2011, there is a clear monetary impulse in that direction. Seven years is a very long time for there to have been anything else so substantial. It is textbook stuff, excepting that the actual monetary system which is bringing all this into our lives has never had written its required chapter in that book.
To those in the gold business, this cannot be possible. Central bankers are printing money, you see, furiously, therefore gold should be shooting to the moon. It’s not and hasn’t been for many years, therefore there has to be monkey business pegging the price of gold way, way less than its real price. And who better to perpetrate such insidious nonsense than the very central bankers who are killing the dollar with all their money printing!
If central bankers would stop their clandestine activities carrying out their visceral hatred of the metal, gold would reflect its “true” price, which is at the present time incalculably high. They say. Buy now, supplies are limited.
There is a corollary to this conspiracy stuff. It posits that Asians, the Chinese in particular, are playing some long game. They are buying up gold so as to create a solid alternative to the dollar. Every gyration in its price is due to this undercover future trap, the Chinese doing things to de-dollarize (with the Russians, naturally) with gold at the base of their new pyramid.
Gold’s not down, it’s just reflecting the reality of this curiously convoluted trap and when it finally gets sprung at some unknowable future date the price of gold will, say it with me, shoot to the moon!
Conversely, the dollar becomes worthless. Therefore the “weak dollar” is the currency’s “true” price while the “rising dollar” is just something else entirely. They say.
These unbelievably patient supergeniuses are biding their time while the idiots in the West are squandering every advantage.
The second part can be true, is true, without it necessarily defaulting to the first part. In other words, absolutely, Economists in the West are idiots a fact you don’t need more than the price of gold to establish. They had no idea why it was going up (I still chuckle every time I hear “global savings glut”), and they have even less about why it’s down.
But that doesn’t mean central bank Economists in China are by inverse transitive properties somehow supersmart and technocratically competent. They may look that way in direct comparison to their counterparts, but that’s a meaningless low standard. There is the possibility, and a very good one, that both sets of Economists are equally bad at economy. This shouldn’t be surprising nor controversial, especially since many if not most of Asian central bankers were trained somewhere in the vast network of worthless Western Economic schools.
The dollar doesn’t need the Chinese and the Russians to help undermine its authority, as Putin says today; that already happened on August 9, 2007. What has occurred over the nearly eleven years since is an on-again/off-again dance with every individual country around the world trying to deal with the fallout.
There are two simple facts at play here. The “dollar” system is broken, and there is no alternative to that broken system. If there was, it would have been ready and implemented long before now. This deflationary direction has given the Chinese and Russians every reason and incentive for a decade to have accomplished something else before they, too, suffered the fate of this global deflationary “L”, or double “L” for some.
Longtime PBOC Governor Zhou Xiaochuan wrote all the way back in March 2009:
The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies. [emphasis added]
You can understand why he might write about this in March 2009, for the BIS no less. Though the Western media publishing on behalf of incompetent Western central bankers characterized the panic and crash as subprime mortgages wreaking havoc on Wall Street, the truth which Governor Zhou realized is that it was really about eurodollar disruption wreaking havoc via Lombard Street to everywhere else on the planet.
Credit-based national currencies. Exchange the word “national” for “offshore” and he would’ve had it on the nose; eurodollar.
But reform never went anywhere. Why?
First, because in the immediate years following the global dollar crisis it looked like everything was going to go right back to normal, or what everyone in Asia at least thought was normal. There was to be a “new normal” in the West, but EM economies were surely insulated from such a glitch – according to Economists.
Urgency to build toward an international currency in 2009 and 2010 died out with what looked like an actual recovery, especially in China. That country enjoyed more of the privileges of the eurodollar system than any other place on earth, including the supposedly nominal national sponsor of this “dollar.” If it was going to work even reasonably well again, as it appeared, why mess with it?
It made perfect sense to complain in March 2009 when Chinese exports were falling by 20%, but not so much in May 2010 when they were up nearly 50%.
But that only got them through to 2011 when the reality of chronic dollar dysfunction dropped on them like a hammer. The deflationary wave that followed the 2011 break swept up everyone in its way – eventually.
It wasn’t like 2011 happened and then China’s economy suffered tragedy right then and there.
It slowed in 2012, seemed to have stabilized in 2013, and then got into real trouble in 2014.
That was three years where Governor Zhou could have been pushing a dollar alternative – but he didn’t.
And then 2015 and 2016, still no alternative even though the Chinese economy finally joined everyone else in the global economic “L.” Why wait until now, suffering so much trouble over the last seven years since 2011? Does it take more than seven years to get the de-dollar thing ready?
Where Chinese and other Asian officials differ from Economists in the West is only that they are aware this is an “L” and not an actual business cycle at record length expansion. They don’t appear to be able to do much about it, which is why 2018 has seen too much of this (again):
I seriously doubt any central banker anywhere spends his or her time manipulating the price of gold down to the penny. Why would they? The whole point of QE was to play upon inflation expectations, which means a higher price of gold would actually help them achieve (as they saw them) their economic goals!
Never ascribe to malice, or supergenius Chinese long-range planners, dollars which can be explained, easily, by incompetence on both sides of the Pacific.
True goldbugs know the difference. Instability is the factor that matters, however it comes. Sometimes, ladies and gentlemen, deflation is just deflation.
After last week’s collapse in Facebook shares, Goldman’s clients are hardly happy: after all, Goldman – which has a Buy rating on the stock – not only upped its price target from $205 to $225 back on April 26, which it then promptly trimmed back to $205 after the biggest value destroying event in history, but at the start of June explicitly said there was no danger of a bubble forming in tech stocks for years. And it’s hardly only Goldman clients: as Goldman’s David Kostin writes in his latest Weekly Kickstart, “FB ranks at the top of our Hedge Fund VIP List, with 97 funds owning it as a top 10 portfolio position”…
… although in a curious move, the bank also notes that investors that did own FB and sold following its results “apparently rotated into other stocks rather than holding cash; on Thursday the S&P 500 excluding FB rose by 10 bp, seven of 11 sectors posted positive returns, and share prices of FB’s FANG peer GOOGL rose by 75.”
Yet while Goldman clients appear to have taken Facebook’s collapse in stride, they are expressing another growing worry namely the “bad breadth”, or increasingly more narrow leadership, of the market. We first noted this one month ago when we discussed that just the Top 4 stocks have been responsible for 84% of the S&P’s upside in the first half of the year.
First forward 4 weeks, when Goldman’s Kostin writes that the biggest concern expressed in client conversations has been the increasingly narrow breadth of the equity market in that “the top 10 contributors have accounted for 62% of the S&P 500 7% YTD return”, and this even after Facebook’s record plunge which also dragged down some of the other most prominent tech names.
Kostin continues:
Of these 10 stocks, nine are technology or internet firms. The Technology sector alone accounts for 56% of the S&P 500 YTD return (76% including Consumer Discretionary members AMZN and NFLX).
As a result, Goldman’s proprietary “Breadth Index” currently reads 0 out of 100.
Other, more conventional measures of market breadth also show a recent narrowing. The next chart shows the distance of the S&P 500 from its 52-week high with the corresponding distance for the median constituent: “when only a small number of stocks act to lift the broad index, that gap turns negative and signals narrow breadth.”
Think of this chart as the risk momentum behind market leadership names turns negative. Meanwhile, from a fundamental perspective, narrow market leadership typically reflects narrow earnings strength, which is often a symptom of a weakening operating environment. To be sure, there are several prominent examples of this occurring:
in addition to the well-known episode of narrow breadth during the Tech Bubble, previous narrow breadth markets occurred ahead of the recessions in 1990 and 2008 as well as the non-recessionary economic slowdowns of 2011 and 2016.
And yet, despite the increasingly narrow breadth, there is the silver lining is that from a historical perspective, “market breadth has not yet narrowed enough to signal investing danger.”
In the past, sharp declines in breadth have signaled below-average 1-, 3-, and 6-month returns for the S&P 500 as well as larger-than-average prospective drawdowns. Relative to history, however, the recent narrowing of market breadth has not been sharp enough to trigger alarm.
Which brings us to the second risk mentioned by Goldman’s clients: concentration.
Here the logic is similar to breadth, only instead focus is on market cap and earnings for the handful of market leaders, where the 10 largest firms now account for 23% of index market cap. As Kostin notes in the past, most instances of rising market cap concentration among a handful of stocks corresponded with an increase in earnings concentration as well, and cautions that “usually, these narrow bull markets eventually led to large drawdowns when investors lost confidence in the increasingly expensive handful of crowded market leaders.”
Here the saving grace is that whereas the Top 10 companies are now the most concentrated they have been since the financial crisis in terms of market cap, the continued earnings growth – which as we noted yesterday has so far seen a record number of stocks beat expectations – helps to stem fears:
Unlike past episodes of narrow market breadth, the earnings environment today appears healthy and broad-based. The top 10 S&P 500 stocks currently account for 20% of index earnings, roughly the same as in each of the last few years, and slightly below the 30-year average of 21%. In 2019, consensus expects the median S&P 500 stock to grow EPS by 10%, slightly faster than the 9% growth expected for the index.
Ok, but why in this time of strong profit growth is stock performance not distributed in a more even fashion? The answer, according to Goldman is due to investor concerns about global growth, including risks from trade conflict, which explains the “unusual current combination of strong fundamentals and narrow market breadth.” Meanwhile, elevated valuations discourage investors in many sectors.
Finally, the herding of most investors into a handful of stocks was the result of solid momentum and strong secular growth profiles of the largest market leaders have continued to attract investor assets. At least, that was the case before Facebook and Twitter both tumbled by 20% and have yet to see BTFDers emerge.
To Goldman, the irony of defending momentum-driven tech names while warning about potential “bad breadth” is not lost, and as Kostin observes, Facebook’s decline this week highlights the risk inherent in a narrow-breadth market, but instead of turning more cautious, the bank’s chief equity strategist writes that market performance in Facebook’s wake “supports our strategic preference for Technology and growth stocks.”
And so Goldman – whose prop desk may well be selling its tech exposure to marginal buyers – will continue to urge clients to be longs stocks until more such shock events take place,
For now, hedge funds believe the firm, and even after the Facebook fiasco, tech remains a hedge fund and mutual fund favorite, even though the latest 13-F filings showed that tilts in the sector are smaller now than they were in 2016 and 2017.
Goldman’s parting words to its “concerned clients” are of encouragement:
Other positioning data including our Sentiment Indicator suggest overall portfolio length has declined significantly in recent months, reducing concerns of crowding. While government policy remains a key risk, the pricing power of many Tech firms should help insulate them from the margin risks posed by escalating trade conflict.
In other words, “don’t worry not everyone is on the same side of the boat.” Perhaps, although after we beg to differ after just one look at this chart from Bank of America which shows that if one strips away tech and commerce, world stocks have barely moved this decade.
And if Facebook’s collapse showed one thing, it is just how flimsy the foundation supporting this sector has become, as investors panic sell first in some cases not even bothering to ask questions later…
President Trump’s attorney Rudy Giuliani went on the defense Sunday morning, telling Face the Nation that former Trump attorney Michael Cohen made at least 183 recordings of separate conversations, among which the president is “discussed at any length” on 11 or 12, and only recorded on one.
.@RudyGiuliani tells @FaceTheNation on additional tapes from Cohen:
-183 unique conversations on the tapes and President Trump is on one of them
-12 other tapes discuss President Trump. Giuliani said it is Cohen talking to reporters. pic.twitter.com/bF20QuGRpo
CNN aired that conversation between Trump and Cohen, in which they discuss the purchase of rights to a Playboy model’s claim that she and Trump had an affair. Cohen’s attorney, longtime Clinton operative Lanny Davis, leaked it.
Giuliani now says that the tape was altered, telling Fox that two experts and retired FBI agents who have analyzed the tape believe it was “played” with.
Tampered tapes? President Trump’s lawyer, Rudy Giuliani says expert analysis shows ‘someone messed’ with Cohen tapes pic.twitter.com/Mf2h3YZWz8
Avowed Democrat Alan Dershowitz, a recent Trump defender, said that Giuliani is doing the right thing, and that any good lawyer would conduct a forensic examination of the tape.
.@AlanDersh: Any good lawyer would have a forensic examination on taped evidence, so Rudy Giuliani is doing the right thing for President Trump pic.twitter.com/r9OwH19K1D
Responding to a New York Times report that special counsel Robert Mueller is digging through Trump’s tweets to make an obstruction case, Giuliani told Face the Nation on Sunday that President Trump may not have to testify at all because his tweets lay out his defense.
“A lot of his tweets have been very helpful. The reason he may not have to testify is that he’s laid out his defense very clearly,” Giuliani said, adding “”Obstruction by tweet is not something I think works real well.”
“Generally obstruction is secret it’s clandestine it’s corrupt. I’ve looked at those tweets and they don’t amount to anything.”
Has Giuliani told @realDonaldTrump to stop tweeting after reports Mueller is investigating the president’s tweets?@RudyGiuliani : Good luck about tweeting…Obstruction by tweet is something that doesn’t work so well. pic.twitter.com/O4utVBBqbY
While The Times said Mueller isn’t focused on any particular tweet or comment, he will attempt to tie Trump’s tweets to the Russia investigation; public attacks; misleading White House statements; and possible offers to pardon potential witnesses.
In particular, Mueller is focusing on tweets concerning Attorney General Jeff Sessions and former FBI Director James Comey in order to stitch together a mosaic leading to the “obstruction” chapter of the saga, according to “three people briefed on the matter,” the gold standard in anonymous sources.
Several of the remarks came as Mr. Trump was also privately pressuring the men — both key witnesses in the inquiry — about the investigation, and Mr. Mueller is examining whether the actions add up to attempts to obstruct the investigation by both intimidating witnesses and pressuring senior law enforcement officials to tamp down the inquiry. –NYT
Trump’s lawyers argue that none of what Mueller is targeting constitutes obstruction, including the firing Comey in May 2017 – which falls under Trump’s authority as President.
Trump tower meeting
Finally, Giuliani told Fox News Sunday that Michael Cohen’s claim that Trump had advance knowledge of the Trump Tower meeting between Trump Jr. and a Russian attorney during the 2016 election false, saying Cohen’s “default position is to lie.”
“If he taped everything else, why the heck didn’t he tape this?” Giuliani asked rhetorically, adding that he believes Cohen is “capable of doctoring tapes.”
CNN reported late Thursday that Cohen is prepared to tell special counsel Robert Mueller that then-candidate Donald Trump knew in advance about a June 9, 2016 meeting at Trump Tower between Donald Trump Jr. and Russian lawyer Natalia Veselnitskaya – a Fusion GPS associate who is not a fan of Trump Sr.
“It’s just flat out untrue,” Giuliani told Fox. “I would’ve been surprised back then, but now that I know all this about (Cohen), it seems to me his default position is to lie.”
A good friend urges me to “sign up” for Obamacare.
He knows about the extortion letters I have been receiving from the federal thugs who are now the enforcers for the health insurance mafia – which succeeded in getting a law passed which forces us to buy their services.
Or else.
The “or else” being punishing fines – plus interest. These are called “shared responsibility” payments but – in the first place – nothing is being “shared” (I am being forcibly mulcted) and in the second place for whom am I “responsible”?
Note the increase SRP for future years. NTTC Training 2014.
Myself, certainly.
But that is precisely the point and the fulcrum of my objection to Obamacare – to this business of being forced to be responsible for other people’s “care” at the expense of my own.
I could afford a high-deductible, catastrophic care insurance policy – something which would “cover” just that, a catastrophic and therefore not-likely event, such as a heart attack or cancer. And precisely because such an event is unlikely, the cost of such a “plan” would actually be insurance and so affordable.
I could therefore afford to be responsible for myself.
But Obamacare has turned the concept of insurance on its head. What is going on now is not insurance. It is wealth redistribution – mostly to the insurance mafia. The law forces me – and you – to pay for things we don’t need or use (for example, maternity care “coverage” for a divorced middle-aged man and “substance abuse counseling” for a man who doesn’t abuse any substances) which means no value received for the money extorted. The money lines the pockets of the mafia, which may perhaps dole out a portion to “cover” some portion of other people’s maternity care or substance abuse counseling.
I resent being mule-hitched to the insurance mafia’s profit wagon and also having the bit shoved into my mouth so that I may be forced to pull other people’s wagons rather than my own wagon – the only wagon for which I am morally “responsible.”
Which brings me back to my dilemma – and my friend’s solution.
Obamacare has made it financially impossible for me to afford “coverage” and so am not “covered,” which makes me all of a sudden a criminal for seeking to take care of myself and not filch other people’s pockets.
For this I am the object of punishment – like any criminal – except I fail to see how I am one given I’ve harmed no one. Not even myself – and even if I do harm myself, that is a matter between me and myself – the aggrieved party. Certainly I have aggrieved no one else, assuming I am not the property of someone else.
Which of course I am, apparently. And you, too. We will get to that momentarily.
At any rate, I am the object of punishment. “Shared responsibility” fines – technically, taxes – which is how the federal thugs legitimated the illegitimate, arguing that the Congress (more thugs) having empowered themselves to tax us – that is, to steal our money as and how they wish, by voting to do so – therefore has the power to vote to tax us for failing to send money to the insurance mafia as ordered by their other edict.
So, $695 so far – plus interest, accumulating. My punishment for failing to be “covered” last year. It will be another $695 plus interest for this year, too.
I cannot afford this, either – not without being unable to afford the care I actually do need, such as the old filling I just had replaced and the crown I had to have done last year, which together cost me about what my “shared responsibility” payment would be for last year and this year except I decided to be responsible for myself instead.
My friend urges me to “sign up” for Obamacare” on the “exchanges.” He says it will cost less – and by “signing up” I will avoid the “shared responsibility” fines (taxes) going forward.
This is all true – but entirely beside the point. Or rather, it is exactly the point.
If I “sign up,” I will be as Lee at Appomattox. I will have surrendered. I will have accepted the idea that I am not a sovereign individual who owns himself absolutely – and the corollary of that, which is the absolute right of others to ownership of themselves. That we are each free individuals, responsible for ourselves and our actions only.
Not for the actions of others, nor they for ours.
If we “sign up,we have accepted that we are all somehow each others’ collective property and as such are subject to being used and controlled by our owners, just like a mule or any other form of property.
That we are enslaved – to each other.
This is why I will not “sign up” – in the spirit of Giles Corey, the refusnik of Salem Witch Trials fame, who declined to go along to get along by witnessing falsely against his neighbors. More weight was all he said – with a contemptuous smile – as his tormentors attempted to get him to “share responsibility” by piling stones upon his chest.
If it comes to it, they can do that to me as well.
I won’t go to the “exchanges.” Will not voluntarily send a single penny of my money to the cretinous insurance mafia. I will not pay the “shared responsibility” tax, either.
I will continue to be responsible for myself.
If that makes me a criminal in a system gone criminal, so be it.
The Sunday Times is out with a bombshell front page story this morning that’s stirring fresh outrage over longtime rumors and accusations of wrongdoing and corruption in Qatar’s campaign to secure hosting for the 2022 World Cup, which it was awarded by FIFA in 2010.
The Times has obtained emails it says shows a successful “black ops” campaign involving ex-CIA agents working on behalf of Qatar to smear chief rivals Australia and the United States, as well as countries like Japan and South Korea.
Emails from a whistleblower show how the bid paid a public relations firm and former CIA agents to pump out fake propaganda about its main rivals, the United States and Australia, during its successful campaign to host the next World Cup.
The campaign involved recruiting influential people to attack the bids in their own countries, seeking to create the impression that there was “zero support” for the World Cup domestically.
This is perhaps the most interesting twist to the story — the charge that “influencers” were paid to propagandize inside their own countries to the impression there was “zero support” among the population to host the World Cup. Thus former CIA agents used their experience to allegedly manipulate public opinion domestically while on the dime of an Arab gulf country.
Image source: Zee News India
Crucial to understanding the significance is the fact that FIFA, soccer’s powerful governing body, requires that bidding countries demonstrate strong support from within their domestic population to host the World Cup; yet bidders are prohibited under FIFA guidelines from making “any written or oral statement of any kind, whether adverse or otherwise, about the bids or candidatures of any other member association.”
The Times, however, says Qatari authorities launched an aggressive campaign to do just this when they hired a US-based PR firm, paying huge sums to provoke a negative public reaction to the rival bids through “fake propaganda”.
Tomorrow’s front page: Exposed: Qatar sabotaged World Cup rivals with ‘black ops’ pic.twitter.com/NHlvIZ3M52
One email was sent to Qatar’s deputy bid leader Ali al-Thawadi, and allegedly includes awareness and discussion of plots to spread “poison” against other bidders.
While the specific leaked emails, which the Times says were provided by a whistle-blower that was part of the Qatar team that spearheaded the 2022 bid, have not been published, the BBC summarizes their contents as follows:
A respected academic was paid $9,000 to write a negative report on the huge economic cost of an American World Cup, which was then distributed to news media around the world.
Journalists, bloggers and high-profile figures were recruited in each country to hype up negative aspects of their respective bids.
A group of American physical education teachers were recruited to ask their US Congressmen to oppose a US World Cup on the grounds that the money would be better used on high school sports.
Grassroots protests were organised at rugby games in Australia opposing the country’s bid.
Intelligence reports were compiled on individuals involved in rival bids.
We find the allegation involving Congressional especially alarming, as other media reports emphasize the group of American educators paid by Qatar planned a resolution for US lawmakers to consider on the “harmful” effects of the World Cup during the very week FIFA voting was underway.
Thus far many of the specifics of the leaked emails have not been available, such as names of American “influencers” and PR representatives involved.
Qatar for its part vehemently denies the allegations, saying through the state Supreme Committee for Delivery and Legacy that it “rejected” all the claims made by the Sunday Times.
Over the past number of years Qatar has faced significant scrutiny concerning what’s been described as an army of migrant laborers building its World Cup facilities while given severely inadequate pay and housing.
Emir of Qatar Tamim bin Hamad Al Thani, FIFA President Gianni Infantino, and Russian President Vladimir Putin in a recent World Cup hosting handover ceremony. Image source: AFP/Getty via The Week
Just when you thought economic commentary in the Washington Post couldn’t get any more insipid, Roger Lowenstein proves otherwise. In a business section “perspective” (7/20/18), he tells readers:
But what if inequality is the wrong metric. Herewith a modest proposition: economic inequality is not the best yardstick. What we should be paying attention to is social mobility.
Wow, what a novel idea, as though right-wingers have not been pushing this line since the dawn of time: “Don’t worry that your standard of living is awful, the important thing is that your kids will be able to get rich.”(It doesn’t help his story that his poster child for the rich being good is Lloyd Blankfein, who made his fortune shuffling financial assets at Goldman Sachs, and benefited from a massive government bailout.)
But let’s be generous, and try to take Lowenstein’s story seriously. He goes on: “Rising inequality, although a fact, is also very hard to find a culprit for. Not that economists haven’t tried.”
Really? There are plenty of really good explanations for rising inequality, many of which are in my (free) book Rigged. I suppose in the Age of Trump, it is appropriate that the Post has a business columnist determined to flaunt his ignorance.
But then we get the real payday:
It’s also far from proved – to me, it’s not even intuitive – that high incomes on Wall Street and elsewhere are the reason for, say, flatter wages in manufacturing. The fact that Mark Zuckerberg is so rich is annoying, and his separateness from Main Street may not be a great thing socially, but in an economic sense, his fortune did not “come from” the paychecks of ordinary workers.
OK, let’s explain this one so that even someone profoundly ignorant of economics can understand. Suppose that someone, we’ll call them Jeff Bezos or Mark Zuckerberg, were really good at printing counterfeit bills. Imagine that they printed up trillions of these counterfeit bills. This would make them incredibly rich, if they could get away with it. But, as Lowenstein says, how does this make anyone else worse off?
While Lowenstein doesn’t see any problem with our incredibly rich counterfeiters, in the real world, we have the problem that they are creating demand for goods and services with their consumption. If the economy is below full employment, this would be good news, since any source of demand will generate more output and jobs. However, if we are near full employment, or the Federal Reserve Board thinks we are near full employment, then this demand comes at the expense of the paychecks of ordinary workers.
Prices like house prices and rents are driven up by our counterfeiters and the demand created by their servants. The Fed raises interest rates to slow growth and employment, and lessen the ability of ordinary workers to get pay increases, since the labor market will be weaker.
Now, folks may object that Bezos and Zuckerberg are not like counterfeiters; they actually generate value for the economy.
While this undoubtedly partly true, it is also the case that much of Bezos’ wealth came from avoiding the requirement that retailers collect state and local sales taxes. Zuckerberg’s wealth came from control of a monopoly platform, and Blankfein’s wealth came from running a too-big-to-fail institution with friends in high places.
Insofar as people get incredibly wealthy from being successful in earning rents at the expense of others in the economy, rather than generating wealth, they are very much like counterfeiters. Furthermore, since productivity has been growing at an incredibly slow rate for the last dozen years (just over 1.0 percent annually), it seems in aggregate that these incredibly rich folks are much better at generating wealth for themselves than for the economy as a whole. This makes the rent-seeker story look very plausible.
While Lowenstein’s plea for greater mobility is about as old as capitalism and has been incredibly unsuccessful, let me propose something considerably more original that you probably won’t see in the Washington Post. Since we have so completely bombed at providing anything like equal opportunity, and no serious person can think this is about to change in the decades ahead, how about we structure our economy so that it makes less difference whether someone ends up at the top end, like Jeff Bezos, or at the bottom, earning the minimum wage?
That one is almost certainly far too simple for the great minds to ever consider.
[ZH: In case pictures are easier to comprehend than Dean Baker’s words, here is a rather depressing chart from Deutsche Bank showing the collapse of ‘The American Dream’ that children will outdo their parents… only 50% of current 30-year-olds are earning more than their parents…]
Finally, a journalist for a mainstream UK media outlet is methodically tracking weapons shipment serial numbers and English-language paperwork recovered from al-Qaeda groups in Syria, and he’s literally showing up at arms factories and questioning arms dealers, including officials at the Saudi Embassy in London, asking: why are your weapons in the hands of terrorists?
Veteran Middle East war correspondent Robert Fisk recently published a bombshell report entitled, I traced missile casings in Syria back to their original sellers, so it’s time for the west to reveal who they sell arms to. In it Fisk recalls a bit of detective sleuthing he’s lately been engaged in after stumbling upon a batch of missile casings and shipment paperwork last year hidden in what he describes as “the basement of a bombed-out Islamist base in eastern Aleppo” with the words “Hughes Aircraft Co/Guided Missile Surface Attack” emblazoned on the side of the spent tubes.
Of course, the Syrian government recaptured the area from Islamist insurgents including al-Nusra terrorists and their allies in December 2016, and has made rapid gains throughout the country’s east and south since; and Fisk has been trekking around the country to see what he can find.
Image source: Washington Business Journal
His “detective story” as he calls it actually seems to solicit the help of the public, and begins as follows:
Readers, a small detective story. Note down this number: MFG BGM-71E-1B. And this number: STOCK NO 1410-01-300-0254. And this code: DAA A01 C-0292. I found all these numerals printed on the side of a spent missile casing lying in the basement of a bombed-out Islamist base in eastern Aleppo last year. At the top were the words “Hughes Aircraft Co”, founded in California back in the 1930s by the infamous Howard Hughes and sold in 1997 to Raytheon, the massive US defence contractor whose profits last year came to $23.35bn (£18bn). Shareholders include the Bank of America and Deutsche Bank. Raytheon’s Middle East offices can be found in Saudi Arabia, the United Arab Emirates, Israel, Egypt, Turkey and Kuwait.
There were dozens of other used-up identical missile casings in the same underground room in the ruins of eastern Aleppo, with sequential codings; in other words, these anti-armour missiles – known in the trade as Tows, “Tube-launched, optically tracked and wire-guided missiles”…
A prior spent missile tube in Syria with “Hughes Aircraft Company” listed as manufacturer which surfaced in 2014 (not part of the same batch of weapons analyzed in Fisk’s report). Notice the attempt to scratch off the serial numbers. Via Armament Research Services
Robert Fisk, however, represents the rare instance of a prominent journalist on a lone mission to trace weapons serial numbers recovered from the foreign-backed Syrian insurgency back to their origins in the United States (worrisome for US intelligence and military leaders, as The Guardian has called him “one of the most famous journalists in the world” for his being unrelenting in his investigations).
Fisk continues by relating the moment he confronted a former Hughes Aircraft (now Raytheon) executive about finding their product in the hands of terrorists:
Some time ago, in the United States, I met an old Hughes Aircraft executive who laughed when I told him my story of finding his missiles in eastern Aleppo. When the company was sold, Hughes had been split up into eight components, he said. But assuredly, this batch of rockets had left from a US government base. Amateur sleuths may have already tracked down the first set of numbers above. The “01” in the stock number is a Nato coding for the US, and the BGM-71E is a Raytheon Systems Company product. There are videos of Islamist fighters using the BGM-71E-1B variety in Idlib province two years before I found the casings of other anti-tank missiles in neighbouring Aleppo. As for the code: DAA A01 C-0292, I am still trying to trace this number.
Fisk writes further that even if he doesn’t ultimately come up with the American base from which the missiles originated, as well as specific factory they were made, he knows one thing for sure, that both Hughes/Raytheon and the US government have erected a paper trail system designed to shield them from violating anti-terror laws.
Robert Fisk recently drew controversy after writing that he failed to find evidence of a government chemical weapons attack on Douma as the first journalist to enter the site and interview eyewitnesses.
He explains of this legal cover, “This missile will have been manufactured and sold by Hughes/Raytheon absolutely legally to a Nato, pro-Nato or “friendly” (i.e. pro-American) power (government, defence ministry, you name it), and there will exist for it an End User Certificate (EUC), a document of impeccable provenance which will be signed by the buyers – in this case by the chaps who purchased the Tow missiles in very large numbers – stating that they are the final recipients of the weapons.”
And yet there’s no actual way of knowing that the official “recipients” identified as the “end user” are in fact the end users, as Fisk’s investigation proves (for the fact that he found the missile batch in a former Nusra/ISIS/al-Qaeda stronghold).
How many of these advanced Raytheon-made weapons does al-Qaeda still have in its possession? Does anyone in Washington or London even care?
He points out that “there is neither an obligation nor an investigative mechanism on the part of the arms manufacturers to ensure that their infinitely expensive products are not handed over by ‘the buyers’ to Isis, al-Nusra/al-Qaeda – which was clearly the case in Aleppo – or some other anti-Assad Islamist group in Syria branded by the US State Department itself as a ‘terrorist organisation'”. So much for US anti-terror material support laws huh?
Naturally, Fisk follows up with an appropriately sarcastic quip:
Of course, the weapons might have been sent (illegally under the terms of the unenforceable EUC) to a nice, cuddly, “moderate” militia like the now largely non-existent “Free Syrian Army”, many of whose weapons – generously donated by the west – have fallen into the hands of the “Bad Guys”; i.e. the folk who want to overthrow the Syrian regime (which would please the west) but who would like to set up an Islamist cult-dictatorship in its place (which would not please the west).
Indeed it confirms what former MI6 spy and British diplomat Alastair Crooke once stated — that the CIA knowingly established the basis of a “jihadi Wal-Mart” of sorts — to which ISIS had immediate and easy access. Crooke noted that the weapons program was set up with “plausible deniability” in mind, which would allow its American intelligence sponsors to be shielded from any potential future legal prosecution or public embarrassment.
Crooke noted in a 2015 BBC interview that, “The West does not actually hand the weapons to al-Qaida, let alone to ISIS…,but the system they’ve constructed leads precisely to that end.”
Fisk confirms this analysis when he concludes, Thus al-Nusra can be the recipients of missiles from our “friends” in the region – here, please forget the EUCs – or from those mythical “moderates” who in turn hand them over to Isis/al-Nusra, etc, for cash, favours, fear or fratricidal war and surrender.
And then he shreds both the weapons companies and Western governments that make it all happen, noting that though a certain weariness, banality and self-imposed ignorant laziness has generally set in when it comes to major media investigating these things, this continues to be a huge, scandalous story of epic dimensions that ought to demand exposing all involved.
Fisk rages:
Why don’t Nato track all these weapons as they leave Europe and America? Why don’t they expose the real end-users of these deadly shipments? The arms manufacturers I spoke to in the Balkans attested that Nato and the US are fully aware of the buyers of all their machine guns and mortars.
Why can’t the details of those glorious end user certificates be made public – as open and free for us to view as are the frightful weapons which the manufacturers are happy to boast in their catalogues.
Though dutifully ignored in the American mainstream press (and thus we feel it our duty to continue the coverage), Fisk is in the midst of a multi-part investigative series for his the Independent (UK) — recently tracking foreign supplied arms to the doorsteps of US-partnered suppliers in the Balkans, as well as the Saudi embassy in London, where he presented shipping and manufacturer’s paperwork proving that various medium weaponry went straight from European factories to terrorist group in Syria via the Saudis (including munitions factory workers’ eyewitness accounts of Saudi officials inspecting the facility).
The Independent has published over a dozen items of paperwork recovered from al-Nusra (Syrian al-Qaeda) positions in Aleppo.
Predictably, Saudi officials denied the evidence, saying the Kingdom did not give “practical or other support to any terrorist organisation [including Nusrah and Isis] in Syria or any other country” and described the allegations raised by The Independent as “vague and unfounded”.
These papers were not “vague” – nor was the memory of the Bosnian arms controller who said they went with the mortars to Saudi Arabia and whose shipment papers I found in Syria. Indeed, Ifet Krnjic, the man whose signature I found in eastern Aleppo, has as much right to have his word respected as that of the Saudi authorities. So what did Saudi Arabia’s military personnel – who were surely shown the documents – make of them? What does “unfounded” mean? Were the Saudis claiming by the use of this word that the documents were forgeries?
And Fisk answers his own question in concluding, “I bet they’re not,” explaining, “For I don’t think either Nato or the EU has the slightest interest in chasing the provenance of weapons in the hands of Islamist fighters in Syria or anywhere else in the Middle East – certainly not in the case of Damascus, where the west has just given up its attempt to unseat Assad.”
* * *
We might also recall, lest it disappear down the collective public memory hole forever, that all the way back in 2013 when as all analysts agree the Obama White House came very close to launching an Iraq-style war of regime change against Damascus… guess who was a foremost media “expert” aggressively lobbying for regime change?
At that time Stephen Hadley, then a Raytheon director (since 2009) and former National Security Advisor to George W. Bush, made multiple appearances on FOX, CNN, MSNBC, and Bloomberg News during the height of the national debate over whether the US should go to war in Syria. In all of these appearances, as well as in an influential Washington Post op-ed piece, he argued for a U.S. missile strike on Damascus as a matter of national security.
In each case, Hadley was presented as an objective national security expert – it was only his role as former national security advisor that was revealed.
In each case, Hadley’s audience was not informed that he serves as a director of Raytheon, the weapons manufacturer that makes the Tomahawk cruise missiles that were widely cited as a weapon of choice in a potential strike against Syria. Hadley earns $128,500 in annual cash compensation from the company and chairs its public affairs committee. He also owns 11,477 shares of Raytheon stock, which traded at all-time highs during the Syria debate ($77.65 on August 23, making Hadley’s share’s worth $891,189). Despite this financial stake, Hadley was presented to his audience as an experienced, independent national security expert.
Sadly as the study confirmed across multiple networks, such an example as Hadley is still pretty much par for the course in terms of major “experts” who “independently” lobby for war on news talk panels.
Raytheon, the manufacturer of the BGM-71 TOW (Hughes was bought out by Raytheon in 1997), has been heavily invested in the course of the Syrian conflict from the beginning— the TOW missile system being the weapon of choice the CIA handed out to “rebels” for years as part of operation ‘Timber Sycamore’, and its Tomahawk cruise missile being what was used when President Trump ordered a massive single-night strike on Damascus in April of 2017 (about 59 were launched at an estimated over $1 million a pop).
“What happens in the middle of the week is of little consequence to us. We are only truly interested in where the week ends. In that regard, the bulls remained stuck at the ‘Maginot Line’ which continues to keep the majority of our models on hold for now.”
Despite a rough week for Facebook ($FB), which was an outcome which should have been a surprise to no one, the market did manage to clear the “Maginot Line” last week which brings January highs into focus.
In the intermediate-term, the market is moving back to rather extreme overbought conditions. The market can most assuredly get even more overbought from current levels, but does suggest that upside is becoming more limited from current levels. However, with the weekly “buy signal” triggered this past week, we must give the bulls some room to run.
With our portfolios nearly fully allocated, there is not a lot of actions we need to take currently as the markets continue to trend higher for now. We will continue to monitor our exposure and hedge risk accordingly, but with the weekly “buy signal” registered we are keeping our hedges limited and are widening our stops just a bit.
As noted above, a short-term correction is needed before adding further equity exposure to portfolios. That correction likely started on Friday and I will not be surprised to see it continue into next week. A retest of 2800 is likely at this point which would keep Pathway #1 intact. However, a violation of that level will likely trigger a short-term sell signal which could push the market back towards previous support at 2740.
There is a lot of support forming at 2740 which should be supportive of the market over the next couple of months. A violation of that level suggests something has likely broken and more protective actions should be taken. However, until that happens, we will give the markets the benefit of the doubt for now.
I have updated the current projected paths as we think they will play out over the next couple of weeks.
Pathway #1: remains intact currently and a rally next week should push the markets to the January highs and the top of the current bullish trend channel from the April lows.
Pathway #2a: a pullback next week that violates 2800, as stated above, will likely test the bottom of the bullish trend channel. This would likely be enough of a short-term correction to re-energize the bulls to make a run towards the January highs.
Pathway #2b: A break of the bullish trend channel will quickly find a lot of support at 2740 as stated above. However, such a break will bring more concern in the short-term about the bullish trajectory and will raise the specter of a continued trading range through the end of the year.
Pathway #3: has been removed for now as a more bearish outcome is not currently a high possibility.
Currently, all indications currently suggest a test of all-time highs remains likely by the end of the year.
For now.
It Wasn’t All That
I have a couple of thoughts on market drivers this past week:
While the market popped on Thursday due to a perceived “trade deal” between Trump and Juncker,there was no deal really. There was a lot of hand shaking, back slapping and talk – but nothing of substance came from the meeting. At best, the agreement set the tables with the EU back to where they were before Trump manufactured the whole trade/tariff issue to begin with. So, I guess you can credit Trump for effectively solving the problem he created to start with, but not much more than that. Expect trade-related issues to return to the market sooner rather than later.
We remain underweight industrials, materials, emerging and international markets.
Amazon ($AMZN) had a blow out quarter for earnings which was a good thing given the large contribution it has made to the markets advance this year. However, while the earnings at the bottom line were fantastic it was due almost solely to a sub-3% tax rate. Had it not been for the changes to the tax law last year, it is highly likely the shortfalls in revenue would have equated to a Facebook type plunge in the shares on Friday versus less than a 1% gain. There is no argument the behemoth has turned the corner profitability wise, however, the huge boost to bottom line earnings from a highly-reduced tax rate will fade in the coming quarters and operating margins will again become an issue. At 286x trailing earnings and 90x projected earnings, which will likely prove to be to low, the risk of a deeper correction in the company outweighs the potential reward.
We currently have no positions in $AMZN
The 4.1% GDP number left MUCH to be desired. While Trump was busy taking victory laps on Friday following the print, and making claims we could see 8 or 9% in the future, the reality is very little actually changed economically speaking. As I showed on Thursday, when I penciled in a 4% gain (I was 0.1% short on my estimate):
“Making similar adjustments for wages and productivity, we find the 5-year averages change very little. More importantly, current action is more typical of a late cycle expansion as opposed to the beginning of a new one.”
“An unusually large number of one-off factors appear to have boosted 2Q GDP, many of which are directly related to escalating trade concerns. As companies and countries race to secure supplies that may become expensive later on, exports have surged and inventories have swelled. If these trends are one-time adjustments (and our economists believe they are), the ‘payback’ in 2H could be significant. Enjoy the 2Q GDP number, which may be the last best print for a while.”
But more importantly, despite the fact the BEA just revised the trailing GDP numbers UP by almost $1 Trillion (going all the way back to 1967) Trump’s hopes are just a bit more than outlandish when you consider the 10-year trailing average of real GDP just rang in at 1.5%.
While fighting trade wars, pushing tax cuts and increasing government spending may provide short-term boosts to the economy by pulling forward future consumption – they do not address the issues which are detracting from longer-term growth.
Debt
Spending Hikes
Demographics
Surging health care costs
Structural employment shifts
Technological innovations
Globalization
Financialization
Our friends at the Committee for a Responsible Federal Budget concurred with our views on Friday stating:
“Unfortunately, even 3 percent growth is unlikely to continue over the medium and long terms. An economy cannot operate above potential capacity indefinitely, as timing shifts and the sugar high fade. And potential GDP – which grows when people work more hours, new factories and machines and software are built, and society learns how to more efficiently produce goods and services – is limited by an aging population. As we outlined in our paper How Fast Can America Grow?, population aging means lower labor force growth, less investment, and perhaps even less productivity. As a result, nearly every forecaster projects a long-term growth rate of around 2 percent per year above inflation. The Congressional Budget Office projects a rate of 1.8 percent.
(Note: there is no assumption by the CBO, or the BEA, for a recession in the next decade. This is highly unlikely to be the case and resultant GDP numbers will be disastrously worse than current projections.)
As I stated on Thursday:
“These factors (noted above) will continue to send the debt to GDP ratios to record levels. The debt, combined with these numerous challenges, will continue to weigh on economic growth, wages and standards of living into the foreseeable future.
So, while the economic report on Friday will be a “rosy” picture in the short-term, it is likely going to be the best print we see between now and the onset of the next recession.”
Seen This Before
Last week, I compared charts from 2007-2008 to the 2017-present run-up. One of the biggest points being made currently for an uninterrupted bullish advance from current levels into the foreseeable future is that with earnings and economic growth strong, there is no reason for the party to end.
I have added GDP and S&P 500 valuations to those charts from last week.
In 2007, both economic growth and earnings were rising along with the market which was not surprising given the bullish exuberance of market participants at the time along with a booming housing market, excess liquidity and rising oil prices. The Fed was hiking interest rates and the “Goldilocks economy” was set to continue indefinitely. (There was no recession predicted at the time for the next decade according to the CBO/BEA)
The current environment is much the same as it was in the first half of 2007. Rising earnings and GDP, no prediction of a recession anywhere (despite a falling yield curve) and the Fed is raising rates and reducing monetary liquidity without consequence.
As I noted last week:
“From an investment management standpoint, there is absolutely ‘no doubt’ how this current evolutionary cycle in the market ends. We just don’t know the “when,” and becoming aggressively under-allocated to equity risk too soon not only impacts performance in the short-term but also subjects us, as portfolio managers, to career risk.”
However, that is a game I must play as a portfolio manager…you don’t. This is particularly if you are within 3-5 years of retirement.
Investing is not a game, or a competition, that YOU must win. There is no prize for winning but a heavy toll that will be paid for losing.
As Doug Kass noted last week:
“Investing is a complicated mosaic – making decisions on only one or two factors often leads to a dangerous journey, particularly when valuations and stock prices are elevated, when a market’s leadership seems to be narrowing and certainly with the recent emergence of a ‘two-sided market’ (from a formerly one-sided and bullish market) which often leads to a one -sided and bearish market. And, our investment world is more transparent and the transmission of news quicker and more universal than it has ever been. Communication is instantaneous and through a plethora of broadcasting and social media platforms, we are almost all armed with the same information about at the same time. It is how we interpret and analyze that information and our willingness to be open to changing data is what sets our opinion and investment performance apart.
I worship not at the altar of price momentum but rather at the altar of security analysis and margin of safety. That process provides me with a relatively concise analysis of the relationship of reward and risk.
At the core of my near-term concern are the deterioration (and worsening rate of change) in reward v. risk, the growing ambiguity of the trajectory of global economic growth, the pivot in monetary worldwide monetary policy, the likelihood of a steady move higher in short-term interest rates (and a higher risk free rate of return), evidence of a loss of any fiscal responsibility (on the part of Democrats and Republicans), expanding policy risks in part based on the behavior of our President, the possibility of a ‘Blue Wave’ in November and the evolution of a one-sided (long) market structure (and a rising role of FAANG stocks).”
While we remain long-biased in portfolios currently, Doug’s view of the risk should not go unnoticed.
It is often thought that since we openly recognize and understand prevailing risks, which may or may not come to fruition, that such means we are bearish and sitting in cash. That is never the case.
Without a thorough understanding of the prevalent risk, making an assumption of the possibilities and probabilities of a given market environment, and associated return and allocation assumptions, is impossible. In other words, without understanding the risk, you are effectively “driving with a blindfold, hoping for a positive outcome.”
Such is rarely the case over the longer-term.
We prefer to drive with our eyes open, aware of our surroundings, and arrive safely at our destination. This is particularly the case when we have passengers (clients) riding along with us.
While we are prudently aware of the risk, we are long equity and allowing the market to work for us. But, we also have a strategy and investment discipline to deal with “accident” should one occur.
Drive long enough, particularly blindfolded, and one will happen.
