Month: November 2018

College Grads Vs High School Dropouts: A Disturbing Observation

A surprising trends has emerged when comparing the labor force participation rate of those with a college degree or higher versus high school dropouts. As the chart below shows, over the past 2 decades, the participation rate of college graduates has been steadily declining.

At the same time, the LFPR of high school dropouts – those with less than a high school education – has been rising ever since the mid 1990s, and is now just why of all time highs hit during the peak of the financial crisis.

To be sure, there are many ways to analyze, or spin, this data: college grads are getting older and as a result of hitting their retirement years, are dropping out of the broader labor force at an accelerating rate. Meanwhile, high school dropouts, mostly younger people, do not face the same demographic pressures and continue to gain “market share.” Alternatively, high school dropouts are increasingly in demand due to their non-existent wage demand leverage while college grads are increasingly pricing themselves out of the job market; Or simply employers don’t need to hire as many college grads and would rather hire cheap, unqualified, easily accessible workers whom they then train for their specific needs.

Whatever the reason, the difference in the labor force participation between college grads and high school dropouts has never been lower.

Extending and extrapolating this trend suggests that some time over the next two decades, the labor force participation rate of high school dropouts in the US labor pool may be the same, if not higher, than that of college grads.

And while one can debate what is causing this troubling compression, the implications for future US productivity should the US labor force become increasing saturated with minimally skilled workers at the expense of qualified college grads, is rather dire.

Then again, Bloomberg has yet to start tracking the labor force participation rate of robots: something tells us that the growth rate in this category will soon be off the charts.

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Whitey Bulger’s Killing May Have Been Result Of 38-Year-Old Revenge Plot

More underworld figures are stepping up to accuse the federal government of arranging the jailhouse murder of James ‘Whitey’ Bulger, the notorious boss of Boston’s Irish mob boss who was killed by a group of inmates at a West Virginia prison earlier this week mere hours after being transferred to the facility.

While the Federal Bureau of Prisons has refused to share any additional details regarding Bulger’s slaying, anonymous sources from inside the prison have already shared the brutal details with the press. A suspect in the murder has also been identified, a New England mafia hitman who may have killed Bulger due to Bulger’s notorious cooperation with the FBI.

Weichel

And late Thursday, the New York Post reported that the suspected killer, Fotios “Freddy” Geas, who was convicted in 2003 for participating in the murder of Springfield mafia leader “Big Al” Bruno, may have whacked Bulger as a gesture of revenge for Bulger framing a friend of Geas’s for a 1980 murder. Frederick Weichel, whom Geas befriended in prison, was released last year after spending 36 years in prison for the murder after a judge ordered a retrial and prosecutors declined to prosecute. The retrial order was precipitated by Bulger’s decision to turn over evidence that exonerated Weichel, though the Irish gangster refused to sign a sworn affidavit alleging Weichel’s innocence.

But as Weichel pointed out in an interview, a lot of factors had to fall into place for Bulger’s murder to have unfolded the way it did. And it would be naive to believe these were a string of coincidences.

“I think everybody in the world knew that Whitey screwed me,” Weichel told the Globe Wednesday.

Weichel couldn’t recall if he spoke about his theory with Geas. He added that he was shocked that Bulger, 89, was transferred to the same Hazelton penitentiary as Geas.

“I wouldn’t be surprised if this is a setup,” Weichel said about Bulger’s murder. “That’s a lot of coincidences there. I don’t believe in coincidences.”

Mob experts have also pointed out that two other New England gangland rivals of Bulger were also locked up in the Hazelton prison: “Cadillac Frank” Salemme and Paul Weadick, who were recently convicted for the killing in 1993 of a Boston nightclub owner.

But even if Bulger’s death was facilitated by federal law enforcement officials who were worried that Bulger might try to embarrass the bureau for a second time, it’s unlikely the world will ever know for sure.

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Stocks Slammed Into Red As Apple Tumbles, Trade Deal Hopes Evaporate

After a brief bounce this morning, Apple is trading down over 7% and back below the trillion-dollar market cap level

(yes we know new shares outstanding are imminent)

This has weighed on an already weak market as hopes for a China trade deal evaporate…

Three senior administration officials now telling me there is no indication of an imminent trade deal with China. Options are always being discussed behind the scenes, but no significant progress, I’m told.

With cash markets finding some support…

As Yuan continues to leak lower…

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Lacalle: “The Question Is Not If, But When” The Next Financial Crisis Strikes

Authored by Daniel Lacalle via Dlacalle.com,

We have been reading numerous comments recently about a forthcoming recession and the next crisis, particularly on the tenth anniversary of the collapse of Lehman Brothers.

The question is not whether there will be a crisis, but when. In the past fifty years, we have seen more than eight global crises and many more local ones, so the likelihood of another one is quite high. Not just because of the years passed since the 2007 crisis, but because the factors that drive a global crisis are all lining up.

What drives a financial crisis? Three factors.

  • Demand-side policies that lead investors and citizens to believe that there is no risk. Complacency and excess risk-taking cannot happen without the existence of a widespread belief that there is some safety net, a government or central bank cushion that will support risky assets. Terms like “search for yield” and “financial repression” come precisely from artificial demand signals created from monetary and political forces.

  • Excessive risk-taking in assets that are perceived as risk-free or bullet-proof. It is impossible to build a bubble on an asset where investors and companies see an extraordinary risk. It must happen under the belief that there is no risk attached to rising valuations because “this time is different”, “fundamentals have changed” or “there is a new paradigm”, sentences we have all hears more times than we should in the past years.

  • The realization that this time is not different. Bubbles do not burst because of one catalyst, as we are told to believe. The 2007-2008 did not start because of Lehman, it was just a symptom of a much wider problem that had started to burst in small doses months before. Excess leverage to a growth cycle that fails to materialize as the consensus expected.

What are the main factors that could trigger the next financial crisis?

  • Sovereign Debt. The riskiest asset today is sovereign bonds at abnormally low yields, compressed by central bank policies. With $6.5 trillion in negative-yielding bonds, the nominal and real losses in pension funds will likely be added to the losses in other asset classes.

  • Incorrect perception of liquidity and VaR (Value at Risk). Years of high asset correlation and synchronized bubble led by sovereign debt have led investors to believe that there is always a massive amount of liquidity waiting to buy the dips to catch the rally. This is simply a myth. That “massive liquidity” is just leverage and when margin calls and losses start to appear in different areas -emerging markets, European equities, US tech stocks- the liquidity that most investors count on to continue to fuel the rally simply vanishes. Why? Because VaR (value at risk) is also incorrectly calculated. When assets reach an abnormal level of correlation and volatility is dampened due to massive central bank asset purchases, the analysis of risk and probable losses is simply ineffective, because when markets fall they fall in tandem, as we are seeing these days, and the historical analysis of losses is contaminated by the massive impact of monetary policy actions in those years. When the biggest driver of asset price inflation, central banks, starts to unwind or simply becomes part of the expected liquidity -like in Japan-, the placebo effect of monetary policy on risky assets vanishes. And losses pile up.

The fallacy of synchronized growth triggered the beginning of what could lead to the next recession. A generalized belief that monetary policy had been very effective, growth was robust and generalized, and debt increases where just a collateral damage but not a global concern. And with the fallacy of synchronised growth came the excess complacency and the acceleration of imbalances. The 2007 crisis erupted because in 2005 and 2006 even the most prudent investors gave up and surrendered to the rising-market beta chase. In 2017 it was accelerated by the incorrect belief that emerging markets were fine because their stocks and bonds were soaring despite the Federal reserve normalization.

What will the next crisis look like?

Nothing like the last one, in my opinion. Contagion is much more difficult because there have been some lessons learnt from the Lehman crisis. There are stronger mechanisms to avoid a widespread domino effect in the banking system.

When the biggest bubble is sovereign debt the crisis we face is not one of the massive financial market losses and real economy contagion, but a slow fall in asset prices, as we are seeing, and global stagnation.

The next crisis is not likely to be another Lehman, but another Japan, a widespread zombification of global economies to avoid the pain of a large re-pricing of sovereign bonds, that leads to massive tax hikes to pay the rising interests, economic recession and unemployment.

The risks are obviously difficult to analyse because the world entered into the biggest monetary experiment in history with no understanding of the side effects and real risks attached. Governments and central banks saw rising markets above fundamental levels and record levels of debt as collateral damages, small but acceptable problems in the quest for a synchronised growth that was never going to happen.

The next crisis, like the 2007-08 one, will be blamed on a symptom (Lehman in that case), not the real cause (aggressive monetary policy incentivising risk-taking and penalising prudence). The next crisis, however, will find central banks with almost no real tools to disguise structural problems with liquidity, and no fiscal space in a world where most economies are running fiscal deficits for the tenth consecutive year and global debt is at all-time highs.

When will it happen? We do not know, but if the warning signs of 2018 are not taken seriously, it will likely occur earlier than expected. But the governments and central banks will not blame themselves, they will present themselves -again- as the solution.

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Where The Jobs Were In October: Who’s Hiring And Who Isn’t

After a disappointing payrolls report last month, which was downward revised to 118K jobs mostly due to a hurricane impacting hiring and resulting in a sharp drop in retail and hospitality jobs, October was the payback month with many of the jobs “lost” in September coming back and headline payrolls printing at 250K, 50,000 more than the 200K expected.

Notably, it was not just last month’s hurricane which impacted the data, but also last year’s duo of Hurricanes which negatively impacted hourly earnings in Oct 2017 as SouthBay Research notes. It was this weakness that created the “base effect” wage spike this month, resulting in the artificially high 3.1% average hourly earnings print, the highest since April 2009.

Hurricanes aside, the job market continues to grow at a blistering pace with the following key highlights of greatest impact:

  • Manufacturing has soared with +296,000 jobs added this year
  • Construction wages +4.2%, beating overall 3.1% rate (best in nearly a decade)
  • Lowest Hispanic unemployment rate ever

To be sure, much of this overheating in the US labor market is the result of Trump’s fiscal stimulus, whose impact will soon begin to fade at a rapid pace as payback time comes. Until then, however, the labor market remains especially strong  – in fact not a single major category saw a drop in employment – with the following industries especially hot right now:

  • Employment in the well-paying professional and business services increased by 35,000.
  • Health care employment rose by 36,000 as hospitals added 13,000 jobs, and employment in ambulatory health care services continued to trend up, +14,000.
  • Employment in transportation and warehousing rose by 24,000. Job gains occurred in warehousing and storage (+8,000) and in couriers and messengers (+8,000).
  • Construction employment continued to trend up in October, up +33,000.
  • Employment in manufacturing continued to trend up in September, rising +18,000
  • Employment in mining, employment in support activities for mining rose by +5,000

And visually:

Looking over the past year, the following charts from Bloomberg show the industries with the highest and lowest rates of employment growth for the prior year. The latest month’s figures are highlighted.

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The San Diego Police Department Doesn’t Know How Many Civilians Have Accused Officers of Sexual Misconduct

|||MIKE BLAKE/REUTERS/NewscomAn unusually high number of sexual misconduct incidents have placed an unwanted spotlight on San Diego County’s law enforcement. San Diego’s CBS News 8 launched an investigation into the prevalence of these incidents, only to find that the truth may be difficult to uncover.

A report from News 8 looked into the number of civilian complaints of sexual misconduct against officers. After filing requests under the California Public Records Act to find the number of civilian complaints made against both the San Diego Police Department and the San Diego County Sheriff’s Department since 2008. The police department responded by saying that it did not track sexual misconduct complaints, because the California Department of Justice does not require it to.

A records request denial letter from the San Diego Sheriff’s Department, meanwhile, explained that it also did not keep track of sexual misconduct complaints. The answer could be obtained, however, if a person read through every single civilian complaint made in the last 10 years.

Though the departments have failed to track complaints, Philip Stinson, an associate professor at Bowling Green State University, told News 8 that the number of public arrests for officer sexual misconduct indicates that there are likely more incidents than in other, similar-sized counties. Since 2005, at least five San Diego police officers and four deputies have been arrested for sexual misconduct.

Earlier this week, San Diego agreed to pay 17 strippers $1.5 million in damages after police detained them, conducted questionable inspections, and forced them to take pictures, including documenting their tattoos like they would gang members. The women also accused the officers of making demeaning comments and threatening arrest if they tried to leave. The city attempted to have the case dismissed before the settlement was reached.

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Factory Orders Growth Slows In September As War Spending Plunges

Amid significant revisions, September’s factory order growth slowed from +2.6% MoM in August to +0.7% MoM as it seems the pre-tariff surge is over…

 

Year-over-year growth in factory orders also slowed notably but remains solid…

Notably, New orders ex-transports for September rose 0.4%, and New orders ex-defense were unchanged for September after rising 1.5% in August as defense new orders plunged 14.5% MoM.

And down 9.4% YoY – the worst since Dec 2017…

It seems we’re gonna need more war…

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Happy 50th Birthday to Us: Reason Roundup

Not fade away… If this magazine were a person, it would now be eligible to join the AARP (not that it would, obviously). This week we celebrate “50 Years of Free Minds and Free Markets” with a spate of Los Angeles events and the release of our December 2018 issue. How did we get here?

Reason was founded in 1968 by Boston University student Lanny Friedlander. (Read more about Reason‘s origin story here.) Here’s an excerpt from Friedlander’s first editor’s note:

When REASON speaks of poverty, racism, the draft, the war, student power, politics, and other vital issues, it shall be reasons, not slogans, it gives for conclusions… Proof, not belligerent assertion. Logic, not legends. Coherence, not contradictions. This is our promise: This is the reason for REASON.

Then an “irregularly published mimeographed ‘zine,” it wasn’t long before Reason was purchased by Robert Poole, Manny Klausner, and Tibor Michan, and professionalized. In 1978, they started the Reason Foundation, the nonprofit now behind Reason magazine.

When Katherine Mangu-Ward took over as editor-in-chief in 2016, she heard a lot about how Reason “finally” had a female lead. But Reason had a woman editor-in-chief as early as 1984, when Marty Zupan took over. Zupan was succeeded by Virginia Postrel in 1989, who held the position until Nick Gillespie took the reins in 2000, followed by Matt Welch in 2008.

These different periods of Reason history saw some major aesthetic shifts as well as the striking of different tones—from mostly manifesto- and policy-focused to a more balanced blend of policy, politics, polemics, and pop culture; from a publication that aimed to bring libertarians together, to one that also strives to spread libertarian ideals and “logic, not legends” to the broader world.

What does it mean, these days, to be a libertarian and to spread libertarianism? In the latest issue, libertarian icons, from Cato Institute president David Boaz to former ACLU head Nadine Strossen, give their answers. You’ll also find Postrel looking back on predictions from Reason’s 25th birthday to see how they panned out, Mangu-Ward on “zombie statistics”—those bad bits of baseless received wisdom that, with any luck, Reason will still be debunking decades from now—and Damon Root on the five worst legal decisions of the past five decades. (See the whole December issue’s lineup here.)

But Reason‘s core passions since 1968—free speech, free trade, less militarism, more personal freedom—have been steady, and often quite ahead of the time. As Jacob Sullum points out, Reason supported things like the decriminalization of marijuana and same-sex marriage decades before most Republicans or Democrats did.

Reason carried an editorial in 1975 supporting gay marriage. Even more impressively, the following year the Libertarian Party endorsed the idea. As for marijuana legalization, Reason has been on that case since at least 1969.

In the past few years, “dramatic reversals of long-established public opinion” on both issues “broke through at the same moment”—a good reminder that while being libertarian can seem like a Sisyphean battle against authoritarians on the left and right, a lot of significant and positive changes have happened. And while it can seem like major public opinion and policy changes like these swelled up almost overnight, the reality is that pioneers of liberty have been patiently pushing their fellow Americans along for decades.

Here’s to 50 more years of placing liberty for all above all else.

FREE MINDS

Good news on Title IX trials. New guidelines from Secretary of Education Betsy DeVoss are slated to change the way schools handle sexual assault and misconduct cases under Title IX. “Under the revised Title IX guidelines, universities must afford accused students the right to question their accuser,” reports National Review, “though the questions can be communicated through a neutral third party and the two parties never have to face each other in the same room.”

FREE MARKETS

On the fiscal impact of ballot initiatives:

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49ers Cheerleader ‘Takes A Knee’ During National Anthem

It’s not just the players; an unidentified 49ers cheerleader dropped down on one knee during the national anthem Thursday night before the team faced the Oakland Raiders, according to a picture tweeted by NBC Bay Area‘s Damian Trujillo.

NFL players have been kneeling in solidarity with former 49ers quarterback Colin Kaepernick. 

“I am not going to stand up to show pride in a flag for a country that oppresses black people and people of color,” said the former QB – whose kneeling movement which began in 2016 under the Obama administration has become a thorn in President Trump’s side. 

Nike’s decision to spotlight Kaepernick in a September advertising campaign drew the ire of not only the President, but current and former members of the military along with many conservatives in general. Incensed Americans began protesting the footwear and apparel company – making videos of themselves burning Nike shoes and vowing never to buy from the the company again. 

In May, NFL owners voted to fine players who knelt during the Anthem, however they backed off two months later and decided to let the players do their thing. 

And know we have kneeling cheerleaders… 

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Putin, Trump To Meet On Sidelines Of G-20 Summit

As the US’s impending withdrawal from the INF and continuing drumbeat of bellicose rhetoric from senior Trump administration officials strain ties between President Trump and Russian President Vladimir Putin, Russia revealed on Friday that the two world leaders are planning to meet on the sidelines of the G-20 summit in Buenos Aires.

Putin

The two leaders are also expected to meet briefly in Paris on Nov. 11 during an event to commemorate 100 years since the end of World War I. A spokesman for the Kremlin said that, while the meeting in Paris will be “brief”, the meeting at the G-20 will be somewhat more involved, according to Sputnik.

“The G-20 meeting will be long and thorough, and in Paris, it will be short, brief,” presidential aide Yuri Ushakov said.

Trump is also reportedly expected to meet with Chinese President Xi Jinping on the sidelines of the conference, a meeting that was recently upgraded to a “meeting plus dinner”, according to media reports. While a tentative agreement is in place, the exact timing of the meeting is still being worked out. The summit is expected to begin later this month.

“It’s hard to say an approximate meeting time, it’s impossible at present,” Ushakov noted.

Since the US first informed Russia about its plans to withdraw from the INF, Putin has insisted that Russia has complied with the treaty, while a Russian diplomat confirmed that the country is “preparing for war”, including rounding out its “unstoppable” missile arsenal, but only so it can defend its people from an attack.

Last month, National Security Advisor John Bolton invited Putin to Washington for a meeting with Trump in early 2019 after meeting with Putin and other senior Kremlin officials in Moscow to discuss the fate of the INF. The two leaders famously met in Helsinki earlier this year and demonstrated a close relationship that elicited howls of outrage from liberals and the media.

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