A new report from The Baltimore Sun shows Gov. Larry Hogan on Tuesday pledged $21 million to assist Baltimore City in their efforts to stop the spread of the homicide crisis that has completely engulfed the town. Hogan has also endorsed the use of a controversial surveillance plane to fly thousands of feet above to record every movement of people and vehicles in the city.
As early as 2015, we reported that Persistent Surveillance Systems was flying a Cessna 182T Skylane over the streets of Baltimore during the riots. It turned out the plane was a secret FBI aerial surveillance program.
In a follow-up piece, “Meet The FBI’s Secret Eye In The Sky Overseeing The Baltimore Riots,” we postulated that the spy plane monitoring the riots may have been equipped with night vision equipment provided by Persistent Surveillance Systems, a company which has worked with the Baltimore Police Department in the past. Here’s a schematic (via WaPo):
Persistent Surveillance Systems conducted 300 hours of surveillance in 2016 in Baltimore as part of a pilot program, was able to record footage of 32 square miles of the city at any given moment.
Hogan is the highest-profile Maryland official to publicly endorse the use of the spy plane via a new letter to Baltimore City Mayor Bernard C. “Jack” Young.
“We urge you to implement this program immediately,” Hogan said in a letter to Young.
Young and Baltimore Police Commissioner Michael Harrison said there’s a strong possibility that the spy plane might fly again, which city officials grounded in 2016 after a massive uproar from the public.
Young and Harrison have recently held talks with Ross McNutt, founder of Ohio-based Persistent Surveillance Systems.
“You have inherited a difficult situation, but now is the time to show the people of the city that we are all serious about stopping this deadly violence and getting shooters off of the streets,” Hogan said in the letter.
However, not everyone is on board with the spy plane flying again.
David Rocah, a senior staff attorney of the American Civil Liberties Union of Maryland, warned Tuesday against a return of the spy plane.
“Governor Hogan is as wrong and misguided as Ross McNutt,” Rocah said. “His endorsement of it demonstrates the contempt with which he holds the residents of Baltimore, who are the ones who will have a virtual police officer following their every movement ― not the governor.”
Rocah also condemned McNutt’s lobbying effort.
“It’s being pushed by people outside of Baltimore,” Rocah said. “It’s a cynical attempt to use the failings of public safety in Baltimore as a government power grab. There’s nothing more despicable than that.”
McNutt told The Sun that the plane could resume flying for three years, without any cost to taxpayers, thanks to donations. He also said donors could pay for multiple spy planes that would allow round the clock coverage of the city. After the three-year pilot program, the city would then need to pay for the program.
“Baltimore needs all the help it can get,” McNutt said of Hogan’s letter. “We would be happy to come back and help as quickly as possible.”
Former City Councilwoman Rochelle Spector said the spy plane is a good idea. She plans on using the governor’s letter to push Young and Harrison to revive the program.
The 1987 stock market crash, better known as Black Monday, was a statistical anomaly, often referred to as a Black Swan event. Unlike other market declines, investors seem to be under the false premise that the stock market in 1987 provided no warning of the impending crash. The unique characteristics of Black Monday, the magnitude and instantaneous nature of the drop, has relegated the event to the “could never happen again” compartment of investors’ memories.
On Black Monday, October 19, 1987, the Dow Jones Industrial Average (DJIA) fell 22.6% in the greatest one-day loss ever recorded on Wall Street. Despite varying perceptions, there were clear fundamental and technical warnings preceding the crash that were detected by a few investors. For the rest, the market euphoria raging at the time blinded them to what in hindsight seemed obvious.
Stock markets, like in 1987, are in a state of complacency, donning a ‘what could go wrong’ brashness and extrapolating good times as far as the eye can see. Even those that detect economic headwinds and excessive valuations appear emboldened by the thought that the Fed will not allow anything bad to happen.
While we respect the bullish price action, we also appreciate that investors are not properly assessing fundamental factors that overwhelmingly argue the market is overvalued. There is no doubt that prices and valuations will revert to more normal levels. Will it occur via a long period of market malaise, a single large drawdown like 1987, or something more akin to the crashes of 2001 and 2008? When will it occur? We do not have the answers, nor does anyone else; however, we know that those who study prior market drawdowns are better prepared and better equipped to limit their risk and avoid a devastating loss.
History provides us with the gift of insight, and though history will not repeat itself, it may rhyme. While we do not think a 1987-like crash is likely, we would be remiss if we did not at least consider it and assign a probability.
Fundamental Causes
Below is a summary of some of the fundamental dynamics that played a role in the market rally and the ultimate crash of 1987.
Takeover Tax Bill- During the market rally preceding the crash, corporate takeover fever was running hot. Leveraged Buyouts (LBOs), in which high yield debt was used to purchase companies, were stoking the large majority of stocks higher. Investors were betting on rumors of companies being taken over and were participating in strategies such as takeover risk arbitrage. A big determinant driving LBOs was a surge in junk bond issuance and the resulting acquirer’s ability to raise the necessary capital. The enthusiasm for more LBO’s, similar to buybacks today, fueled speculation and enthusiasm across the stock market. On October 13, 1987, Congress introduced a bill that sought to rescind the tax deduction for interest on debt used in corporate takeovers. This bill raised concerns that the LBO machine would be impaired. From the date the bill was announced until the Friday before Black Monday, the market dropped over 10%.
Inflation/Interest Rates- In April 1980, annual inflation peaked at nearly 15%. By December of 1986, it had sharply reversed to a mere 1.18%. This reading would be the lowest level of inflation from that point until the financial crisis of 2008. Throughout 1987, inflation bucked the trend of the prior six years and hit 4.23% in September of 1987. Not surprisingly, interest rates rose in a similar pattern as inflation during that period. In 1982, the yield on the ten-year U.S. Treasury note peaked at 15%, but it would close out 1986 at 7%. Like inflation, interest rates reversed the trend in 1987, and by October, the ten-year U.S. Treasury note yield was 3% higher at 10.23%. Higher interest rates made LBOs more costly, takeovers less likely, put pressure on economic growth and, most importantly, presented a rewarding alternative to owning stocks.
Deficit/Dollar- A frequently cited contributor to the market crash was the mounting trade deficit. From 1982 to 1987, the annual trade deficit was four times the average of the preceding five years. As a result, on October 14th Treasury Secretary James Baker suggested the need for a weaker dollar. Undoubtedly, concerns for dollar weakness led foreigners to exit dollar-denominated assets, adding momentum to rising interest rates. Not surprisingly, the S&P 500 fell 3% that day, in part due to Baker’s comments.
Valuations- From the trough in August 1982 to the peak in August 1987, the S&P 500 produced a total return (dividends included) of over 300% or nearly 32% annualized. However, earnings over the same period rose a mere 8.1%. The valuation ratio, price to trailing twelve months earnings, expanded from 7.50 to 18.25. On the eve of the crash, this metric stood at a 33% premium to its average since 1924.
Technical Factors
This section examines technical warning signs in the days, weeks, and months before Black Monday. Before proceeding, the chart below shows the longer-term rally from the early 1980s through the crash.
Portfolio Insurance- As mentioned, from the 1982 trough to the 1987 peak, the S&P 500 produced outsized gains for investors. Further, the pace of gains accelerated sharply in the last two years of the rally.
As the 1980s progressed, some investors were increasingly concerned that the massive gains were outpacing the fundamental drivers of stock prices. Such anxiety led to the creation and popularity of portfolio insurance. This new hedging technique, used primarily by institutional investors, involved conditional contracts that sold short the S&P 500 futures contract if the market fell by a certain amount. This simple strategy was essentially a stop loss on a portfolio that avoided selling the actual portfolio assets. Importantly, the contracts ensured that more short sales would occur as the market sell-off continued. When the market began selling off, these insurance hedges began to kick in, swamping bidders and making a bad situation much worse. Because the strategy required incremental short sales as the market fell, selling begat selling, and a correction turned into an avalanche of panic.
Price Activity- The rally from 1982 peaked on August 25, 1987, nearly two months before Black Monday. Over the next month, the S&P 500 fell about 8% before rebounding to 2.65% below the August highs. This condition, a “lower high,” was a warning that went unnoticed. From that point forward, the market headed decidedly lower. Following the rebound high, eight of the nine subsequent days just before Black Monday saw stocks in the red. For those that say the market did not give clues, it is quite likely that the 15% decline before Black Monday was the result of the so-called smart money heeding the clues and selling, hedging, or buying portfolio insurance.
Annotated Technical Indicators
The following chart presents technical warnings signs labeled and described below.
A: 7/30/1987- Just before peaking in early August, the S&P 500 extended itself to three standard deviations from its 50-day moving average (3-standard deviation Bollinger band). This signaled the market was greatly overbought. (description of Bollinger Bands)
B: 10/5/1987- After peaking and then declining to a more balanced market condition, the S&P 500 recovered but failed to reach the prior high.
C: 10/14/1987- The S&P 500 price of 310 was a point of both support and resistance for the market over the prior two months. When the index price broke that line to the downside, it proved to be a critical technical breach.
D: 10/16/1987- On the eve of Black Monday, the S&P 500 fell below the 200-day moving average. Since 1985, that moving average provided dependable support to the market on five different occasions.
E: August 1987- The relative strength indicator (RSI – above the S&P price graph) reached extremely overbought conditions in late July and early August (labeled green). When the market rebounded in early October to within 2.6% of the prior record high, the RSI was still well below its peak. This was a strong sign that the underlying strength of the market was waning. (description of RSI)
Volatility- From the beginning of the rally until the crash, the average weekly gain or loss on the S&P 500 was 1.54%. In the week leading up to Black Monday, volatility, as measured by five-day price changes, started spiking higher. By the Friday before Black Monday, the five-day price change was 8.63%, a level over six standard deviations from the norm and almost twice that of any other five-day period since the rally began.
A longer average true range graph is shown above the longer term S&P 500 graph at the start of the technical section.
Similarities and differences
While comparing 1987 to today is helpful, the economic, political, and market backdrops are vastly different. There are, however some similarities worth mentioning.
Similarities:
While LBO’s are not nearly as frequent, companies are essentially replicating similar behavior by using excessive debt and leverage to buy their own shares. Corporate debt stands at all-time highs measured in both absolute terms and as a ratio of GDP. Since 2015, stock buybacks and dividends have accounted for 112% of earnings
Federal deficits and the trade deficit are at record levels and increasing rapidly
The trade-weighted dollar index is now at the highest level in at least 25 years. We are likely approaching the point where President Trump and Treasury Secretary Steve Mnuchin will push for a weak dollar policy
Equity valuations are extremely high by almost every metric and historical comparison of the last 100+ years
Sentiment and expectations are declining from near record levels
The use of margin is at record high levels
Trading strategies such as short volatility, passive/index investing, and algorithms can have a snowball effect, like portfolio insurance, if they are unwound hastily
There are also vast differences. The economic backdrop of 1987 and today are nearly opposite.
In 1987 baby boomers were on the verge of becoming an economic support engine, today they are retiring at an increasing pace and becoming an economic headwind
Personal, corporate, and public Debt to GDP have grown enormously since 1987
The amount of monetary stimulus in the system today is extreme and delivering diminishing returns, leaving one to question how much more the Fed can provide
Productivity growth was robust in 1987, and today it has nearly ground to a halt
While some of the fundamental drivers of 1987 may appear similar to today, the current economic situation leaves a lot to be desired when compared to 1987. After the 1987 market crash, the market rebounded quickly, hitting new highs by the spring of 1989.
We fear that, given the economic backdrop and limited ability to enact monetary and fiscal policy, recovery from an episodic event like that experienced in October 1987 may look vastly different today.
Summary
Market tops are said to be processes. Currently, there are an abundance of fundamental warnings and some technical signals that the market is peaking.
Those looking back at 1987 may blame tax legislation, portfolio insurance, and warnings of a weaker dollar as the catalysts for the severe declines. In reality, those were just the sparks that started the fire. The tinder was a market that had become overly optimistic and had forgotten the discipline of prudent risk management.
When the current market reverses course, as always, there will be narratives. Investors are likely to blame a multitude of catalysts both real and imagined. Also, like 1987, the true fundamental catalysts are already apparent; they are just waiting for a spark.We must be prepared and willing to act when combustion becomes evident.
Trump Slams ‘Phony Suppression Poll’ By WaPo-ABC Which Shows Him Getting Smoked By 2020 Democrats
President Trump on Wednesday slammed a WaPo-ABC poll that has him ‘significantly or modestly’ trailing the top Democratic candidates in the 2020 general election.
“In a hypothetical poll, done by one of the worst pollsters of them all, the Amazon Washington Post/ABC, which predicted I would lose to Crooked Hillary by 15 points (how did that work out?), Sleepy Joe, Pocahontas and virtually all others would beat me in the General Election,” tweeted Trump.
“This is a phony suppression poll, meant to build up their Democrat partners,” Trump continued. “I haven’t even started campaigning yet, and am constantly fighting Fake News like Russia, Russia, Russia. Look at North Carolina last night. Dan Bishop, down big in the Polls, WINS. Easier than 2016!”
….This is a phony suppression poll, meant to build up their Democrat partners. I haven’t even started campaigning yet, and am constantly fighting Fake News like Russia, Russia, Russia. Look at North Carolina last night. Dan Bishop, down big in the Polls, WINS. Easier than 2016!
Trump then slammed the “never ending Fake News” about him, claiming “with all that I have done (more than any other President in the first 2 1/2 years!), I would be leading the “Partners” of the LameStream Media by 20 points. Sorry, but true!”
If it weren’t for the never ending Fake News about me, and with all that I have done (more than any other President in the first 2 1/2 years!), I would be leading the “Partners” of the LameStream Media by 20 points. Sorry, but true!
John Bolton has been dismissed, and folks on the left and right are celebrating. The warmongering and walrus-mustachioed national security advisor lasted just 15 months in the Trump administration—thank goodness. As Christian Britschgi wrote here yesterday, “the fact that Bolton will no longer have a direct role in setting U.S. foreign policy is a huge win for those who think the U.S. should be fighting fewer wars.”
Bolton claimed on Twitter that he had not been fired and the president only said so because Bolton had offered to resign. But even if that’s the case, I have to say I’m with Stephen Colbert on this one.
“I have never been more grateful for the president’s pettiness and stupidity,” said Colbert on last night’s Late Show. “Because today, he was stupidly petty enough to save us from a very smart warmonger.”
Or, as Jacobin writer Liza Featherstone nicely puts it: “The disappearance of John Bolton from a position of power is a net gain for humanity no matter who made the decision and no matter what the reason.”
Trump’s decision to ditch his national security advisor comes as the famously hawkish Bolton butted heads with others in the administration about Afghanistan. Trump wanted to invite Taliban leaders to Camp David for peace talks, which Bolton opposed, and to withdraw more troops from Afghanistan than Bolton wanted to bring back. And this was far from the first time Trump and Bolton disagreed on foreign policy matters, with Bolton ballyhooing for interventions in Iran, Venezuela, and elsewhere. (The president apparently joked that Bolton evenwanted to invade Ireland.)
“Washington can and will focus for days on litigating that question of who called off the relationship,” notes Jim Newell at Slate. “The important thing, though, is that John Bolton, whose proximity to the president’s ear made the world a more dangerous place, is gone.”
Financial Times writer Edward Luce suggests that the firing of Bolton “ends Donald Trump’s hawkish phase.” With Bolton out of the picture, it “paves the way for the president to open talks with the Iranians, which he has long wanted and Mr Bolton has fiercely resisted. It would not be a wild exaggeration to say that prospects for world peace rose markedly on Tuesday.”
On Fox News last night, Tucker Carlson—who has referred to Bolton as a “tapeworm” infecting Republicans—cheered on Bolton’s dismissal, albeit with the nonsensical assertion that Bolton was a man of the left.
Laura Ingraham said on her show that she she liked Bolton but he wasn’t a good fit in the Trump administration, since “Trump’s allegiance isn’t to any particular process or to any particular cabinet member” and “he came like a freight train at the old GOP foreign policy establishment that had gotten us bogged down in two costly wars.”
“With Bolton gone, the Trump administration is now almost free of influence and advice from the old Republican Party,” writes The Atlantic’s Graeme Wood:
Neither the so-called neoconservative wing of the party, which had influence under George W. Bush, nor the Cold War Republicans, who held power before him and of whom Bolton is a late example, remain, with the exception of Attorney General William Barr.
One gets the impression that Wood finds this to be a dismaying thing (“also absent is anyone other than Barr with pre-Trump White House national-security experience”). It’s not hard to find similar sentiments in other establishment circles—especially among Democratic leadership.
John Bolton's sudden departure is a symbol of the disarray that has unnerved our allies since day one of the Trump Administration. Steady leadership & strategic foreign policy is key to ensuring America’s national security. https://t.co/MQIYet8pnA
I’m legitimately shaken by the grave instability of American foreign policy today.
I’m no Bolton fan, but the world is coming apart, and the revolving door of U.S. leadership is disappearing America from the world just at the moment where a stable American hand is most needed.
Rather than revel in Bolton’s departure as a good sign for global affairs, Democratic leaders have taken it as yet another opportunity to slam Trump. And in so doing, they’re implicitly backing the belligerent Bolton mindset. Which I suppose should come as no surprise…
Bolton may well have been the GOP “tapeworm” Carlson conjured, but his brand of foreign policy machismo—blind optimism in U.S. intervention mixed with blithe indifference to the lives of both American troops and those we drop bombs on—could be better likened to a bunch of cockroaches. Pervasive. Seemingly indestructible. Indiscriminate in their infestations. And—no matter where they appear—needing to be stamped out.
FREE MINDS
“While Silicon Valley faces an endless cavalcade of outrage, the telecom sector is suddenly seeing no scrutiny whatsoever,”notes Karl Bode at Techdirt. But it’s been “Big Telecom” that has been driving calls for heightened action against internet companies.
It’s routinely understated how telecom lobbying, not a sincere worry about market power or privacy, is what’s driving much of this current policy paradigm in DC (including much of the hyperventilation over nonexistent Censorship of Conservatives). The telecom sector is pushing hard into an online advertising sector traditionally dominated by Silicon Valley. As such, telecom lobbyists have spent several years now pushing to hamstring their direct competitors with the help of cash-compromised lawmakers and full blown regulatory capture.
Yet somehow, there are still a lot of folks in tech policy circles who see the lopsided focus on “big tech” as entirely authentic, and any failure to police telecom as somehow coincidental.
Spiked sparkling water is outselling beer among millennials:
Millennials are drinking staggering amounts of hard seltzer instead of beer. In the most recent reported sales figures, White Claw and Truly outsold every craft beer brand put together. In July, White Claw claims it outsold Budweiser. Yes, Budweiser. https://t.co/3tKc5e0gQb
Interestingly, the way these beverages are made lets them avoid the stiffer taxes placed on spirits relative to beer and wine:
All of the seltzers are brewed, not formulated. It’s an important distinction, because of the taxation regulations of the federal and state governments. If beverage alcohol is brewed, it is taxed at a much lower rate than beverage alcohol that is distilled after brewing. (Wine and cider are taxed at an intermediate rate.) If these seltzers were actually “spiked” with vodka or neutral grain spirits, they’d be significantly more expensive on the shelf thanks to higher taxes.
The Federal Trade Commission is going after a kid who reviews toys on YouTube.
A California church has been indicted by a grand jury for forcing homeless people into work:
This church is trafficking people, including under-age girls. Will we see any major anti-traffickers or orgs talking about this story? Give you ONE guess. https://t.co/5PFz8GmYYH
John Bolton has been dismissed, and folks on the left and right are celebrating. The warmongering and walrus-mustachioed national security advisor lasted just 15 months in the Trump administration—thank goodness. As Christian Britschgi wrote here yesterday, “the fact that Bolton will no longer have a direct role in setting U.S. foreign policy is a huge win for those who think the U.S. should be fighting fewer wars.”
Bolton claimed on Twitter that he had not been fired and the president only said so because Bolton had offered to resign. But even if that’s the case, I have to say I’m with Stephen Colbert on this one.
“I have never been more grateful for the president’s pettiness and stupidity,” said Colbert on last night’s Late Show. “Because today, he was stupidly petty enough to save us from a very smart warmonger.”
Or, as Jacobin writer Liza Featherstone nicely puts it: “The disappearance of John Bolton from a position of power is a net gain for humanity no matter who made the decision and no matter what the reason.”
Trump’s decision to ditch his national security advisor comes as the famously hawkish Bolton butted heads with others in the administration about Afghanistan. Trump wanted to invite Taliban leaders to Camp David for peace talks, which Bolton opposed, and to withdraw more troops from Afghanistan than Bolton wanted to bring back. And this was far from the first time Trump and Bolton disagreed on foreign policy matters, with Bolton ballyhooing for interventions in Iran, Venezuela, and elsewhere. (The president apparently joked that Bolton evenwanted to invade Ireland.)
“Washington can and will focus for days on litigating that question of who called off the relationship,” notes Jim Newell at Slate. “The important thing, though, is that John Bolton, whose proximity to the president’s ear made the world a more dangerous place, is gone.”
Financial Times writer Edward Luce suggests that the firing of Bolton “ends Donald Trump’s hawkish phase.” With Bolton out of the picture, it “paves the way for the president to open talks with the Iranians, which he has long wanted and Mr Bolton has fiercely resisted. It would not be a wild exaggeration to say that prospects for world peace rose markedly on Tuesday.”
On Fox News last night, Tucker Carlson—who has referred to Bolton as a “tapeworm” infecting Republicans—cheered on Bolton’s dismissal, albeit with the nonsensical assertion that Bolton was a man of the left.
Laura Ingraham said on her show that she she liked Bolton but he wasn’t a good fit in the Trump administration, since “Trump’s allegiance isn’t to any particular process or to any particular cabinet member” and “he came like a freight train at the old GOP foreign policy establishment that had gotten us bogged down in two costly wars.”
“With Bolton gone, the Trump administration is now almost free of influence and advice from the old Republican Party,” writes The Atlantic’s Graeme Wood:
Neither the so-called neoconservative wing of the party, which had influence under George W. Bush, nor the Cold War Republicans, who held power before him and of whom Bolton is a late example, remain, with the exception of Attorney General William Barr.
One gets the impression that Wood finds this to be a dismaying thing (“also absent is anyone other than Barr with pre-Trump White House national-security experience”). It’s not hard to find similar sentiments in other establishment circles—especially among Democratic leadership.
John Bolton's sudden departure is a symbol of the disarray that has unnerved our allies since day one of the Trump Administration. Steady leadership & strategic foreign policy is key to ensuring America’s national security. https://t.co/MQIYet8pnA
I’m legitimately shaken by the grave instability of American foreign policy today.
I’m no Bolton fan, but the world is coming apart, and the revolving door of U.S. leadership is disappearing America from the world just at the moment where a stable American hand is most needed.
Rather than revel in Bolton’s departure as a good sign for global affairs, Democratic leaders have taken it as yet another opportunity to slam Trump. And in so doing, they’re implicitly backing the belligerent Bolton mindset. Which I suppose should come as no surprise…
Bolton may well have been the GOP “tapeworm” Carlson conjured, but his brand of foreign policy machismo—blind optimism in U.S. intervention mixed with blithe indifference to the lives of both American troops and those we drop bombs on—could be better likened to a bunch of cockroaches. Pervasive. Seemingly indestructible. Indiscriminate in their infestations. And—no matter where they appear—needing to be stamped out.
FREE MINDS
“While Silicon Valley faces an endless cavalcade of outrage, the telecom sector is suddenly seeing no scrutiny whatsoever,”notes Karl Bode at Techdirt. But it’s been “Big Telecom” that has been driving calls for heightened action against internet companies.
It’s routinely understated how telecom lobbying, not a sincere worry about market power or privacy, is what’s driving much of this current policy paradigm in DC (including much of the hyperventilation over nonexistent Censorship of Conservatives). The telecom sector is pushing hard into an online advertising sector traditionally dominated by Silicon Valley. As such, telecom lobbyists have spent several years now pushing to hamstring their direct competitors with the help of cash-compromised lawmakers and full blown regulatory capture.
Yet somehow, there are still a lot of folks in tech policy circles who see the lopsided focus on “big tech” as entirely authentic, and any failure to police telecom as somehow coincidental.
Spiked sparkling water is outselling beer among millennials:
Millennials are drinking staggering amounts of hard seltzer instead of beer. In the most recent reported sales figures, White Claw and Truly outsold every craft beer brand put together. In July, White Claw claims it outsold Budweiser. Yes, Budweiser. https://t.co/3tKc5e0gQb
Interestingly, the way these beverages are made lets them avoid the stiffer taxes placed on spirits relative to beer and wine:
All of the seltzers are brewed, not formulated. It’s an important distinction, because of the taxation regulations of the federal and state governments. If beverage alcohol is brewed, it is taxed at a much lower rate than beverage alcohol that is distilled after brewing. (Wine and cider are taxed at an intermediate rate.) If these seltzers were actually “spiked” with vodka or neutral grain spirits, they’d be significantly more expensive on the shelf thanks to higher taxes.
The Federal Trade Commission is going after a kid who reviews toys on YouTube.
A California church has been indicted by a grand jury for forcing homeless people into work:
This church is trafficking people, including under-age girls. Will we see any major anti-traffickers or orgs talking about this story? Give you ONE guess. https://t.co/5PFz8GmYYH
Blain: What Really, Really Worries Me Is That Markets Are Losing Faith In Central Banks
Blain’s morning porridge, submitted by Bill Blain of Shard Capital
“It is not enough to serve our enemies with legal papers…”
Many of my readers think I’m some sort of uber-bear, repeatedly predicting some inevitable and unavoidable market Armageddon is imminent and just moments away. While Scotsmen are seldom mistaken for a sunny day, I’m actually a fairly cheerful soul. Even while foretelling the dire and bloody end of the financial world I always caveat it with no matter how bad the next downturn might be – the sun will come up the following morning. However, and but again (dark clouds blank the sun) I do think we should be aware of just how tenuous all this market euphoria in Bonds and Stocks still is.
This morning we wake up to lots of stuff that could move markets:
It’s no surprise We Work’s IPO now looks in serious trouble. Largest stockholder, Softbank, asked the firm to postpone the IPO. Its junk bonds are crashing because without the IPO, We Work loses access to an agreed $6 bln bank credit-line finance. While the Junk debt price tumbles, it’s unlikely the firm launch a new bond to cover the shortfall in its curious lose more money to make less business strategy. Investors are turning away. We Work is now caught in the classic liquidity death spiral. There are few ways to successful escape such a terminal stall. Their CEO, Adam Neumann, has made himself one of the most disliked and divisive figures in Tech world, and could find himself at the receiving end of unpalatable demands he surrenders control, gives up his controlling stock – which could uncover a host of interesting surprises on how he’s milked it.
Meanwhile, the latest White House whammy, John Bolton’s departure as NSA, leaves Trump surrounded by a coterie of empty yes-men. It might lead to less aggressive USA foreign policy, but the image of a Roman Emperor surrounded by horses he’s elevated into Senators sticks in the mind. I guess we better figure out what Mike Pompeo is thinking to figure out what Trump will tweet next.
And, I’m delighted to see the UK’s Labour Party is adopting a fairness policy towards Brexit. Deputy Leader of the Party Tom Watson has decided it’s only electorally equitable if they split themselves as divisively as the Conservatives by announcing Labour policy is now to have a new Remain referendum before a general election, and Labour’s stance is “unequivocally” to remain. Not quite how labour policy was described to me yesterday, but it’s marvellous stuff. We now have even less idea what Labour policy might be – which puts them in same league as Boris.
As the UK tumbles towards political civil war with both parties divided, can no one else perceive the horrible danger ahead of us? Is anyone else trying to figure out just how terrible a UK government controlled by “nice” “sensible” “caring and understanding” Liberals might be??? Imagine patronising 300 School Head Teachers telling us what to do… It’s just too frightening to contemplate… (PLEASE MAKE IT STOP!)
However, all these above are just the starters…
What really, really worries me this morning is the very real possibility markets are losing their faith in Central banks.
What if Central Banks were to ‘fess-up and admit ZIRP and QE has been utter bunkum, hasn’t worked and we need to do something else? What if such an outbreak of honesty triggers a Taper Tantrum of monstrous proportions? It would kill the bond market – just a time when investors are still putting in money to bonds out of stocks in search of yield and because they believe most corporates will weather the looming global recession!
Such a confidence collapse might be about to happen.
The last 10-years of distorted markets and addiction to Central Banks has been the consequence of unwise monetary experimentation,(aided and abetted by some extraordinarily stupid political decisions, like austerity, stupid regulation and bureaucratic behaviour – read my book: The Fifth Horseman for the whole picture).
Collectively, they’ve got the financial markets into their current mess. Bond yields are a massive bubble. Stocks are overvalued. We’re due a reset. Personally, I want to put more money into alternatives – real assets decorrelated from the distortions in financial assets. As a private PA investor, I’m struggling to find such funds to invest in! (IDEAS PLEASE?)
My current worry is Central Bankers are increasingly trapped. If they don’t keep interest rates artificially low rates, then both the bond and stocks bubbles will burst. Even if they sustain the illusion, but keep on cutting, its effectiveness is weakening. The bubbles may burst anyway. It will result in that most of amusing of financial moment… discovering who has been swimming without any swimwear.
Stocks should be in trouble because the global economy is going to slow. Bonds should be in trouble because low rates are not justified by inflation expectations (which are rising) or by deflationary threats – which are real, but not powerful enough to justify NIRP in a real world. Something has to give.
There are two forces at play.
The first is political: In the US, the president is trying to boost his re-election chances by screaming it’s the fault of the Central Bank for not juicing the economy more by slashing rates. In more sensible places, politicians are realising monetary policies don’t drive growth, so they want to juice economies with Fiscal policy – borrow more money to spend into growth.
The second force is overcoming the orthodoxy – which holds fiscal policy is dangerous because it hikes debt to levels where investors lose confidence in the economy. It’s a fair point that’s been proven many times.
All of which makes me look at the recent headlines in Europe; the number of ECB members openly disagreeing with Draghi’s calls to further ease, or German politicians arguing against a fiscal boost for the ailing German economy. These sound very negative and orthodox. But are we looking at a under the radar Central Banking coup in Europe?
According to a number of well briefed papers and articles, the ECB may not give us the easing and bond buying bonanza the markets have been promised. Even French members of the ECB committee are saying “Non!”. We’ve got senior economists like Jurgen Stark, former ECB Chief Economguesser saying “With a second asset-purchase programme the ECB will continue to disturb markets and prices do not reflect the risks anymore.” Or how about Olli Rehn’s recent gem: “if you don’t do anything, then you don’t have any side effects, but you don’t have any impact on the economy either!” Or the French Finance Minister, Bruno Le Maire: “We are at the end of the efficiency of monetary policy. The risks we are now facing are not related to financial stability, but how to fuel growth. The response is not only in hands of the ECB.”
Is it deliberate? If the ECB can’t keep buying.. then maybe its time for Plan B? These comments above all play into the hands of new ECB head, Christine Legarde, whose job will be to politically herd the felines of the ECB and European governments into a Fiscal Union to boost German and European fiscal spending.
Tomorrow’s ECB meeting is going to be critical. Don’t miss it!
Every generation has a defining moment. For my generation, it was 9/11/2001.
Here are my memories of 9/11/2001. It was a Tuesday.
I was a Senior at Staten Island Technical High School, which is about 20 miles from ground zero. We were about 1 week into the school year. I was sitting in Ms. Endriss’s 2nd Period A.P. Political Science class. We were going over some NYC Public School discipline policy, and discussing what kinds of weapons were forbidden in schools (brass knuckles were a no-no). A student walked into the classroom late. He had heard a rumor that a Cessna airplane had hit the World Trade Center. A girl in my class exclaimed that her father worked in the World Trade Center. I could see the look of fear in her eyes, even though none of us had any clue what was going on. She wanted to call her dad. I was the only student in the class with a cell phone, which I promptly gave her. The call did not go through–he worked on one of the upper floors of the tower, and passed away.
We finished second period, apprehensively. I logged onto a computer, and attempted to check the news. I recall one friend told me to check MTV.com for news. At that point, the reports were unclear, and no one knew what was going on. We proceeded to 3rd period A.P. Calculus with Mr. Curry. At that point, someone told us that it was not a Cessna, but in fact a passenger jet. We were all getting nervous, and didn’t quite know what was going on. Later in class, a student came into the class and said a second plane had crashed into the other tower. We also heard that there was an explosion at the Pentagon. At that point, we knew it was not an accident.
I remember leaving the class (something I never did) and walked up to the library where I knew there was a T.V. Just as I arrived in the library, I saw the first tower collapse. I watched it live. I was stunned and could not believe what was happening before my eyes. I grabbed my cellphone to call home, and almost immediately after the tower collapsed, I lost all service. I was not able to call my mom in Staten Island, though I could call my dad who was working in Long Island. Long distance calls seemed to work, but local calls were not working. I remember my dad told me that this was a life-changing event, and he had no idea what would happen. I heard some rumors on TV that there were 15 planes that were hijacked, and unaccounted for in the skies.
By lunch time, the school guidance counselor set up a conference room where students could go to talk. I remember seeing student after student who had a family member or friend who worked in the World Trade Center or in Manhattan. A large number of firefighters and police officers reside in Staten Island. Tragically, many of the emergency responders who perished were from Staten Island. What could we even tell those students?
After that, the day become a blur. I remember hearing that the second tower had collapsed, though I did not see it. I remember watching the entire United States Congress sing God Bless America on the steps of the Capitol. I had never been so afraid in my life. Later that night, I took a bus home. The New York City public buses were still running, and I remember the driver was not collecting fares. On the bus, people were talking about the imminent war (against whom, no one knew) and the imminent draft. Some were saying that students were exempt from the draft.
The next morning, September 12, 2001, I woke up and smelled this horrible smell. The air had this pungent odor, that reminded me of burned flesh at a BBQ. I went to school that morning, and attendance was low. In all of my classes, we were talking about war. I asked whether the US would need to use nuclear weapons. My teacher explained that carpet bombing–a phrase I had never heard of–could wreak plenty of damage in Afghanistan. Later that week students began making sandwiches for the relief workers, and collecting goods to donate to the relief effort.
From Staten Island, I could see the smoldering Ground Zero. It was surreal. The skyline looked so very empty. To this day, whenever I look at the Skyline, a sight I had seen thousands of times, I have the most bizarre feeling. Additionally, whenever we saw an airplane fly overhead, we all freaked out. This lasted for months.
For days, weeks, and months after 9/11, people in Staten Island were waiting for their loved ones to come home. Many patients were alive, but were so badly burned that they could not be identified. People prayed that these unnamed patients would soon come home. One woman whose husband was a firefighter waited outside her home every single night for months. She eventually put a candle in her window every night. Later, she put a memorial lamp in her window. He never came home. Others were simply waiting for remains of their loved ones to be returned. Many were never identified.
I ordered a gas mask from eBay, which I kept in my car, fearing a biological weapon attack on New York City. I remember I tried it on once and I almost suffocated. I wanted to order some Cipro for an anthrax attack, but I could not locate any.
It is hard to encapsulate what a New Yorker went through on 9/11. Thinking back on that day, when I was just 17 years old, I realized that I had to grow up awfully quick. It was a new world we were living in.
Never forget. Ever.
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Every generation has a defining moment. For my generation, it was 9/11/2001.
Here are my memories of 9/11/2001. It was a Tuesday.
I was a Senior at Staten Island Technical High School, which is about 20 miles from ground zero. We were about 1 week into the school year. I was sitting in Ms. Endriss’s 2nd Period A.P. Political Science class. We were going over some NYC Public School discipline policy, and discussing what kinds of weapons were forbidden in schools (brass knuckles were a no-no). A student walked into the classroom late. He had heard a rumor that a Cessna airplane had hit the World Trade Center. A girl in my class exclaimed that her father worked in the World Trade Center. I could see the look of fear in her eyes, even though none of us had any clue what was going on. She wanted to call her dad. I was the only student in the class with a cell phone, which I promptly gave her. The call did not go through–he worked on one of the upper floors of the tower, and passed away.
We finished second period, apprehensively. I logged onto a computer, and attempted to check the news. I recall one friend told me to check MTV.com for news. At that point, the reports were unclear, and no one knew what was going on. We proceeded to 3rd period A.P. Calculus with Mr. Curry. At that point, someone told us that it was not a Cessna, but in fact a passenger jet. We were all getting nervous, and didn’t quite know what was going on. Later in class, a student came into the class and said a second plane had crashed into the other tower. We also heard that there was an explosion at the Pentagon. At that point, we knew it was not an accident.
I remember leaving the class (something I never did) and walked up to the library where I knew there was a T.V. Just as I arrived in the library, I saw the first tower collapse. I watched it live. I was stunned and could not believe what was happening before my eyes. I grabbed my cellphone to call home, and almost immediately after the tower collapsed, I lost all service. I was not able to call my mom in Staten Island, though I could call my dad who was working in Long Island. Long distance calls seemed to work, but local calls were not working. I remember my dad told me that this was a life-changing event, and he had no idea what would happen. I heard some rumors on TV that there were 15 planes that were hijacked, and unaccounted for in the skies.
By lunch time, the school guidance counselor set up a conference room where students could go to talk. I remember seeing student after student who had a family member or friend who worked in the World Trade Center or in Manhattan. A large number of firefighters and police officers reside in Staten Island. Tragically, many of the emergency responders who perished were from Staten Island. What could we even tell those students?
After that, the day become a blur. I remember hearing that the second tower had collapsed, though I did not see it. I remember watching the entire United States Congress sing God Bless America on the steps of the Capitol. I had never been so afraid in my life. Later that night, I took a bus home. The New York City public buses were still running, and I remember the driver was not collecting fares. On the bus, people were talking about the imminent war (against whom, no one knew) and the imminent draft. Some were saying that students were exempt from the draft.
The next morning, September 12, 2001, I woke up and smelled this horrible smell. The air had this pungent odor, that reminded me of burned flesh at a BBQ. I went to school that morning, and attendance was low. In all of my classes, we were talking about war. I asked whether the US would need to use nuclear weapons. My teacher explained that carpet bombing–a phrase I had never heard of–could wreak plenty of damage in Afghanistan. Later that week students began making sandwiches for the relief workers, and collecting goods to donate to the relief effort.
From Staten Island, I could see the smoldering Ground Zero. It was surreal. The skyline looked so very empty. To this day, whenever I look at the Skyline, a sight I had seen thousands of times, I have the most bizarre feeling. Additionally, whenever we saw an airplane fly overhead, we all freaked out. This lasted for months.
For days, weeks, and months after 9/11, people in Staten Island were waiting for their loved ones to come home. Many patients were alive, but were so badly burned that they could not be identified. People prayed that these unnamed patients would soon come home. One woman whose husband was a firefighter waited outside her home every single night for months. She eventually put a candle in her window every night. Later, she put a memorial lamp in her window. He never came home. Others were simply waiting for remains of their loved ones to be returned. Many were never identified.
I ordered a gas mask from eBay, which I kept in my car, fearing a biological weapon attack on New York City. I remember I tried it on once and I almost suffocated. I wanted to order some Cipro for an anthrax attack, but I could not locate any.
It is hard to encapsulate what a New Yorker went through on 9/11. Thinking back on that day, when I was just 17 years old, I realized that I had to grow up awfully quick. It was a new world we were living in.
Never forget. Ever.
from Latest – Reason.com https://ift.tt/2ZU077W
via IFTTT
Farage Reaches Out To Johnson About Possible Election “Non Aggression Pact”
With the conservative party in chaos due to its botched handling of Brexit, many – including Brexit Party leader Nigel Farage – suspect that, if an election is held in the not-too-distant future, Boris Johnson and his fellow Tories won’t come out on top. Farage has long maintained that if the UK remains a member of the EU after Oct. 31, something that looks increasingly likely, then many of those who voted ‘Leave’ during the Brexit referendum will defect from the conservatives to the Brexit Party.
And with Prime Minister Boris Johnson having already lost his majority thanks to expulsions and defections, Farage has offered his one-time ally an election pact, according to Reuters, in order to give him a chance to win a majority. Otherwise, he suspects Johnson’s conservatives will “take a real kicking” in the upcoming vote.
Brexit Party leader Nigel Farage offered Prime Minister Boris Johnson an election pact on Wednesday but warned that unless there was a clean-break Brexit, the Conservatives would take a “real kicking” in any election and could not win a majority.
Johnson, who has lost his working majority in the House of Commons, wants to hold an election but parliament has ordered him to ask the EU to delay Brexit until 2020 unless he can strike a transition deal at an EU summit on Oct. 17-18.
Even though Johnson’s pleas for another general election have been rebuffed so far, Farage said it’s clear that there will be an election soon. But when that vote is held, Labour and the Conservatives will find that traditional party loyalties have shifted thanks to the Brexit impasse.
“If we go beyond the 31st of October and we are still a member of the European Union – which looks increasingly likely – then a lot of votes will shift from the Conservative Party to the Brexit Party,” Farage told reporters.
“The Conservatives will take a real kicking from Nov. 1 onwards,” he said. “I very much hope that Boris Johnson will simply look at the numbers. If we stand against them, they cannot win a majority.”
Farage said the Brexit Party had reached out to the Conservative Party about a possible non-aggression pact during the next election, but that the Brexit Party had not yet received a clear response. After emerging as the biggest gainer in May’s European Parliament elections, Farage warned that his party would likely win seats in the Midlands, south Wales and northern England, stealing votes from both Labour and the Conservatives, during another vote.
Asked what he thinks will happen during the coming weeks, Farage said he expects the EU will make some last-minute concessions to Johnson before Oct. 31, and that Johnson would try and push the deal through parliament.
“There is going to be give from Brussels – there is going to be some sort of change to the Withdrawal Agreement on the backstop but I suspect absolutely nothing else,” he said.
“My sense is that he (Johnson) comes back to the House of Commons and tries to get that through,” he said.
But if the past is any guide, Johnson likely won’t succeed. At that point, with Parliament demanding another delay, an election will likely become inevitable.
How things have changed in 18 years and how they have scarily remained the same…
It has been 18 years, and for those Americans who watched the horror of Sept. 11, 2001, unfold on every major news market, the images are indelibly burned into their minds. Who could forget the day that changed the way US citizens lived as confident and secure to immediately afraid as high-value targets of terrorists, all in the name of Allah?
Most Americans had not experienced that level of hate in their lifetime. Our free capitalist society – heralded around the globe – lost the easiness of hard-earned independence with the minutes-long hijacking of four jetliners, fueled to capacity and weaponized into killing machines.
Nearly 3,000 died that day, more than 6,000 others were injured.
Among the victims were first responders – 343 firefighters and 71 law enforcement officers. Sadly, thousands of people who worked and lived in and around Ground Zero during the attacks and shortly thereafter are being diagnosed with cancer and other chronic diseases even to this day.
How Did They Get So Far In The US?
The Center for Immigrant Studies published a report one year after the attacks to enlighten the public on how the events were allowed to unfold:
“They have come as students, tourists, and business visitors. They have also been lawful permanent residents (LPRs) and naturalized US citizens. They have sneaked across the border illegally, arrived as stowaways on ships, used false passports, or been granted amnesty. Terrorists have even exploited America’s humanitarian tradition of welcoming those seeking asylum.”
Imagine! This country once experienced national security shortcomings that opened the door to the worst terrorist attack on US soil. And is America on the brink of yet another act of war from our enemies?
The Used And Abused Patriot Act
Democrats and Republicans – all Americans – demanded that 9/11 never be allowed to happen again. The late Sen. John McCain (R-AZ) was interviewed on Sept. 12 and warned the terrorists behind the downing of the four airliners: “May God have mercy on your souls because we won’t.”
The 107th Congress went into protective mode and drafted legislation – based on then Sen. Joe Biden’s (D-DE) 1995 Omnibus Counterterrorism Act. It labeled the legislation “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001” – commonly known as the USA Patriot Act – which passed easily with a vote of 357-66 in the House and 98-1 in the Senate.
In a nutshell, the Patriot Act provided federal agents the right to:
Surveil and wiretap to investigate terror-related crimes.
Request court permission for roving wiretaps in tracking a specific terrorist suspect.
Seek federal court permission to obtain bank records and business records to aid in national security terror investigations and prevent money laundering for terrorism financing.
Sounds a bit more like former Special Counsel Robert Mueller’s last two years of hunting Halloween characters and less like seeking the next suicide bombers’ whereabouts. And Mueller loves the Patriot Act. In his 2004 testimony before the US Senate Committee on the Judiciary, he declared:
“The Patriot Act has proved extraordinarily beneficial in the war on terrorism and has changed the way the FBI does business. Many of our counterterrorism successes, in fact, are the direct results of provisions included in the Act …”
He certainly called that right.
The legislation has helped keep the country safe. The Heritage Foundation recently reported 50 terrorist attacks have been thwarted since 9/11, with 47 being the direct result of the investigative work of law enforcement and intelligence agencies.
As Mrs. Clinton Said, What Happened?
Why have Americans fallen so far from the sentiments, patriotism, strength, and courage of Sept. 11 in the mere 18 years since this nation was attacked so brutally?
We went from Sen. Bernie Sanders (I-VT) making an impassioned speech on the House floor for the first anniversary on Sept. 11, 2002:
“We have learned we are a vulnerable nation … what we learned on that day is that we could be attacked and that thousands of men and women could be killed. And we also have learned we must lead an international coalition against bigoted religious fanatics … who believe they have the right to kill innocent people in order to impose their reactionary ideology on others.”
To our frumpy senator and his open friendships with known friends of terrorist sympathizers today.
How do you reconcile McCain’s sentiments with those of Rep. Ilhan Omar (D-MN), who recently discussed the attacks of 9/11 by coyly stating, “Some people did some things.”
Where did America go?
During the attacks, the now bag-packing National Security Advisor John Bolton reminisced about his experience on 9/11. He was at the State Department across the Potomac facing the iconic Pentagon building’s western side when American Airlines Flight 77 hit. Whether or not one is a fan of the man, his words today should be heeded: “After 9/11, proliferation and terrorism were not problems to be managed. They were mortal threats to be stopped. They still are.”
