Month: February 2023

David Lat on Law Student Anonymity

Some very interesting observations and queries, much worth checking out. An excerpt:

Should law students be able to protest anonymously? I view school as a period of experimentation and exploration, and one reason I have argued against holding college writings against judicial nominees is because of the chilling effect it would have. Students would be much less willing to experiment, explore, and write and say controversial things—all valuable parts of the educational process—if they felt that their words and deeds would come back to haunt them, years later.

When I was in charge at Above the Law, we had a policy of generally not naming law students involved in controversies; instead, we would come up with (often cute) pseudonyms for them (e.g., Johnny Applethief). We did this because we didn’t think it fair for a law-school controversy—often a pretty silly law-school controversy—to dominate a student’s so-called “Google footprint,” i.e., what comes up when the student is the subject of a Google search.

One of the reforms that Yale Law instituted in the wake of last year’s protest debacle was a ban on surreptitious recording. In announcing the ban, Dean Heather Gerken pointed out that it “mirrors policies that the University of Chicago and other peer institutions have put in place to encourage the free expression of ideas.” And although the ban received criticism (from both the left and the right), one can see the logic of it. Students would be much less willing to participate in discussion, especially to voice a controversial opinion or to play “devil’s advocate,” if an out-of-context snippet of their remarks could make its way to Twitter or TikTok.

So that’s the pro-anonymity case. There’s a case to be made against anonymity, which Professor Nancy Rapoport makes in this blog post (discussing a situation in which anonymous law students filed complaints against a professor—complaints a university investigation concluded were unfounded):

Read the whole thing.

The post David Lat on Law Student Anonymity appeared first on Reason.com.

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Gag Order Bans Political Tweeter from Naming Man Who Accused American Conservative Union President of Groping

Plaintiff, a Republican political operative, had sued the ACU president for allegedly groping him:

In his time involved with the Republican Party, plaintiff “has served political campaigns and political committees as a field coordinator, field director, grassroots director, and political director, among others.” While working for one of these campaigns as a political staffer, plaintiff alleges that, “[o]n October 19, 2022, a high-profile person in conservative and Republican Party politics committed a sexual battery upon [him] in Georgia.” This sexual battery incident became more public on January 6, 2023, when the Daily Beast ran an article detailing the sexual battery incident, without naming plaintiff, and “[o]ther media outlets picked up the story, and the incident became widely known” [link -EV]. Although the Daily Beast and the other media outlets did not identify plaintiff’s name as the victim, plaintiff asserts that “many in the political and journalism communities were aware of his identity.”

Caroline Wren, herself a Republican political operative,

was aware of plaintiff’s identity and began attacking plaintiff on Twitter in the wake of the Daily Beast story. Specifically, defendant allegedly made false statements about the type of work that plaintiff did for the campaigns he worked on, and she accused plaintiff of being “fired from multiple campaigns for lying and unethical behavior” and for being a “habitual liar.” Because of these allegedly false and defamatory statements, plaintiff claims he “suffered damages, including … embarrassment, humiliation, distress, and reputational harm.”

Plaintiff then sued Wren for libel, and Chief Judge Beryl Howell (D.D.C.) in Doe v. Wren (1) allowed him to go forward pseudonymously, and (2) “prohibited [Wren] from publicly disclosing plaintiff’s identity or any personal identifying information that could lead to the identification of plaintiff by nonparties, except for the purposes of investigating the allegations contained in the Complaint and for preparing an answer or other dispositive motion in response.” Here’s the justification Chief Judge Howell gave for pseudonymity (all the quotes above and below are from the opinion):

First, as the description of plaintiff’s claim makes clear, plaintiff does not seek to proceed under pseudonym “merely to avoid … annoyance and criticism,” but to “preserve privacy in a matter of [a] sensitive and highly personal nature.” Although the substance of plaintiff’s claim concerns public statements made by defendant on Twitter, these statements are inextricably tied to plaintiff’s allegations of sexual assault against a third-party. Courts have routinely found that allegations of sexual assault implicate sensitive and highly personal matters, and they have permitted those plaintiffs to file their complaint by pseudonym. Given the ties between plaintiff’s claim here and his claim of sexual assault against a third party, the first factor weighs in favor of permitting plaintiff to proceed anonymously….

Plaintiff [also] points out that the third-party he accuses of sexual assault is a high-ranking person in well-known advocacy organizations that are active in Republican and conservative political circles, and defendant was “a key organizer of the January 6, 2021, ‘Stop the Steal’ rally that led to the attempted insurrection at the United States Capitol.” Given that defendant and the third-party appeal to a portion of the population who could view plaintiff’s allegations as a political attack, release of plaintiff’s name potentially “poses a risk of retaliatory physical or mental harm to the requesting party.” …

[P]aintiff seeks to vindicate only his own rights, and anonymity appears to be necessary to provide him the opportunity to do so without compounding the public revelations defendant already allegedly made about the sexual assault against plaintiff by identifying him in this litigation.

For whatever it’s worth, as best I can tell from searching based on a Tweet quoted in the Complaint, the plaintiff appears to have been fired several days ago from a job as a N.C. legislative staffer because of his past appearances on what seems to be a “pro-white” radio show; he is also apparently the same person who wrote a letter to a judge in support for a higher sentence for a Jan. 6 defendant. These aren’t directly legally relevant to the libel case, but I would think these are normal things that journalists who cover the libel case might want to write about, and that the defendant could legitimately want to continue writing about; that helps illustrate the problems with pseudonymous litigation in such cases, and with the gag orders like this in particular.

More broadly, I think it’s hard to justify the gag order, which directly restricts even accurate speech by Wren. That is especially so because the order appears to have been issued without giving Wren notice and an opportunity to appear to argue against it (see Carroll v. President & Comm’rs of Princess Anne (1968)). And Doe’s alleging that he was a victim of groping can’t justify the restriction; indeed, even subsequent punishment of the publication of the names of outright rape victims is generally unconstitutional (see Florida Star v. B.J.F. (1989)), so a prior restraint against the publication of the names of alleged groping victims seems even more clearly unconstitutional.

You can read more on The Law of Pseudonymous Litigation, if you’d like. That article notes that some courts had issued some similar gag orders (pp. 1375-76), and that some other courts had rejected those orders on First Amendment grounds. It also lays out the sharp split (pp. 1430-37) on whether pseudonymity in court records (even apart from a gag order) is improper even in sexual assault cases, a matter on which courts are split (and on which a few courts distinguish rape allegations from groping allegations, and allow pseudonymity as to the former and not the latter).

The case has been assigned to Judge Richard Leon, who is free to reconsider Chief Judge Howell’s order; I understand that Wren will fight the gag order, and it will be interesting to see what Judge Leon does.

The post Gag Order Bans Political Tweeter from Naming Man Who Accused American Conservative Union President of Groping appeared first on Reason.com.

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Government Keeps Meddling With Private Company Decisions


In the Twitter Files, every conversation with a government official contains the same warning: You can do it happily, or we’ll make you.

When I lollygagged or dragged my feet as a small child, my mom used to say, “You have two choices: You can do it happily, or I can make you.” Even as a preschooler, I understood that wasn’t a choice at all, only a warning about how unpleasant things could get for me if I failed to comply.

Employees at Twitter—and Facebook—chose to censor, suppress, and undermine dissenting viewpoints happily. But they were always facing a false choice. The public has now had the chance to peek at thousands of communications between government officials of various stripes and employees of Twitter (the so-called Twitter Files), released by Elon Musk after his acquisition of the social media company. The messages reveal the ways the lines between public and private were consciously eroded during the COVID-19 era in an attempt to eradicate “misinformation,” much of which turned out to be true and all of which was First Amendment–protected speech.

The danger of this state of affairs is that eventually even friends of free association and free speech begin to wonder if the label “private company” still applies to Facebook or Twitter when the tendrils of the federal bureaucracy are so intimately entangled in the firm’s inner workings. But this temptation should be resisted. Government encroachment into what should be purely private corporate decision making doesn’t void the rights of private entities, no matter how infuriating the outcome.

What’s more, this line of argument creates dangerous incentives. In a scenario where private companies lose protections for their own speech and for the speech of their customers to government censors precisely because the feds are meddling in their affairs, that gives every reason for the feds to meddle more and for the companies to throw up their hands. This backdoor nationalization quickly brings about the unsavory state of affairs already found in so many authoritarian countries, where citizens understand that their private activities are fully exposed to the eyes of state actors and subject to their control, and simply behave accordingly—watching what they say and to whom they say it.

This also creates a self-perpetuating cycle, in which the only folks willing to work at social media companies in soft-censor roles will be people already aligned with the powers that be—or flexible enough not to mind bending over backward.

Still, neither the employees nor the companies themselves are the villains in this story. It would be an extraordinary act of bravery, and perhaps foolishness, to defy repeated requests from the state with the implicit threat those requests carry. The villains are the state actors, who—knowing full well the limits on their power—sought workarounds that violated the spirit of the law, and perhaps its letter.

The phenomenon is bipartisan. Once one side debuts a new technique for exerting control, the other side can’t help but avail itself when the opportunity arises. So former President Donald Trump’s chief technology officer queried Twitter about suppressing “misinformation” about “runs on grocery stores”—during a period when there were runs on grocery stores. And President Joe Biden’s FBI flagged accounts making jokes about the election, resulting in bans for “misinformation.”

In our cover story, Reason reveals what you might call the Facebook Files: secret internal communications containing proof of what you’d be a fool not to suspect—that the Centers for Disease Control and Prevention and other government bureaucrats flagged, alerted, and tattled on huge numbers of posts to Facebook as well. Here, as in the Twitter Files, there are no outright threats, but the undercurrent runs through even the most pleasant and collegial exchanges. Every conversation with a government official contains that same warning: You can do it happily, or we’ll make you.

The post Government Keeps Meddling With Private Company Decisions appeared first on Reason.com.

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Spot The Odd One Out (Jobs Edition)

Spot The Odd One Out (Jobs Edition)

While ‘soft’ survey data (and hard industrial data) have disappointed recently, the last few months have seen an oddly positive surge in labor market indications, serially outperforming analysts’ expectations…

Source: Bloomberg

From initial claims (near record lows) to JOLTS (near record highs) to ADP (slowing pace of job additions but “because of the weather”) and of course BLS (which refuses to stop trending higher), establishment indications of the labor market are anything but what The Fed wants to see from its mammoth rate-hikes… especially in the face of massive layoffs that have spread from some of the larger tech companies to more industrial (FedEx as the latest example).

For example, this morning’s initial claims print tumbled to its lowest since April 2022 (near its record lows)…

Completely decoupling from the ‘tightening monetary policy plan’ of The Fed…

All of which is a long-winded way to get to a discussion of today’s labor market data, from Challenger, Gray & Christmas which showed US employers in January announced the most job cuts since 2020.

Businesses reported 102,943 cuts in the month, more than twice those announced in December and up 440% from January 2022. The technology sector made up 41% of the planned reductions…

For some context, can you see the odd one out in the chart below…

“We’re now on the other side of the hiring frenzy of the pandemic years,” Andrew Challenger, senior vice president of Challenger, Gray & Christmas, Inc., said in a statement.

“Companies are preparing for an economic slowdown, cutting workers and slowing hiring.”

So, if you want to believe in the B(L)S, that’s fine, but as even Goldman Sachs admitted recently, both claims and JOLTS data is misrepresenting the underlying economic reality in an overly cheerful manner.

While the world and his pet rabbit is now sold (by Powell) on ‘peak Fed’, we wonder at what point does the establishment unleash the real picture of the labor market, that will then ‘allow’ The Fed to shift tone from ‘higher for longer’ to ‘shit, we need rate-cuts or the world will end?’

Maybe the market is on to something after all…

credittrader
Thu, 02/02/2023 – 08:17

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“The More He Talked, The More Dovish He Was”: Futures, Global Stocks Surge As Powell Steamrolls Bears

“The More He Talked, The More Dovish He Was”: Futures, Global Stocks Surge As Powell Steamrolls Bears

Global markets rose, with US futures solidly in the green as tech stocks were set to extend their rally on Thursday, lifted by Powell’s comments on inflation and Meta surging 20% in US premarket trading after the social-media giant’s earnings and buyback news. Summarizing yesterday’s market moving FOMC decision and presser, Goldman said that even though the “FOMC Statement was Hawkish: kept ‘ongoing’ and ‘appropriate’, however “more importantly presser was dovish: 1) Powell’s disinflation language (“we can say the disinflation process has started”, something that’s “welcome, encouraging, and gratifying”) and 2) the fact Powell didn’t warn markets RE easing financial conditions in the last few weeks.” In kneejerk reaction bears everywhere were steamrolled as Powell triggered a marketwide short squeeze.

Nasdaq futures were up 1.3% at 7:45 a.m. ET after the tech-heavy index jumped 2% during the previous session and closed at its highest level since September; the Nasdaq 100 is up 13% this year, having posted the best monthly gain since July in January. The recovery follows last year’s 33% slump, which was the worst since the 2008 global financial crisis. S&P futures added another 0.4% to yesterday’s surge, which pushed spoos to 4152, the highest since August as the consensus bearish trade (JPM, MS, GS, BofA are all bearish) gets steamrolled.

In premarket trading, it was all about Meta, whose gain of about 20% – the biggest one-day surge in the stock since 2013 – represents about 75 points in Nasdaq 100 futures’ advance, or about three quarters of the rise as the social media giant posted quarterly sales that topped estimates and boosted its stock-buyback authorization. If the gains hold, Meta will more than double its market value since a Nov. 3 low. The owner of Facebook is the best performer in the S&P 500 Index since the stock’s recent November 3 closing low of $88.91, and is poised to more than double in value since then. Shares of social-media companies such as Snap Inc. and other tech companies such as Alphabet Inc. gained in US premarket today. The Google parent, Apple and Amazon.com Inc. are among tech giants reporting results today. Here are some other premarket movers:

  • Bank stocks are higher in premarket trading Thursday amid a broader rally by risk assets following the Federal Reserve’s interest-rate decision. In corporate news, Citigroup’s wealth arm has stopped accepting securities of Gautam Adani’s group of firms as collateral for margin loans. Meanwhile, Bank of America’s global mining head Omar Davis, one of the most senior bankers covering the sector, is retiring
  • Carvana jumped as much as ~31%, putting the used car dealer on course for its sixth session of straight gains amid the rally in riskier assets.
  • Shares in companies exposed to cryptocurrencies gained as Bitcoin held at its highest level since last August.

The euphoric mood was set by Powell’s comment Wednesday that the “disinflation process has started” suggesting that the aggressive tightening cycle is starting to reduce the pace of price growth, even as he warned of a “couple” more hikes to come. Positioning in US swaps markets assumes the Fed is getting closer to cutting rates as traders bet that economic conditions are likely to keep it from the additional rate increases that policy makers still anticipate.

“The more he talked, the more dovish he was,” Charles-Henry Monchau, chief investment officer at Banque Syz, said of Powell’s briefing. “It’s possible we’ll continue to see a series of volatility, but definitely the conditions seems to be more risk-on than last year,” he said on Bloomberg Television.

That said, some bears were stuck in denial: “Markets heard what they wanted to hear from the Fed,” said Veronique Riches-Flores, economist and founder of RichesFlores Research. “Markets will likely surf on this wave in the short term and it’s a good environment for risk assets.”

“Moving forward though there will likely be a lot of volatility around key indicators, such as the jobs data on Friday,” she said. “At one stage, if the data shows the economy is really resilient, investors will need to anticipate that Powell will need to take back control and that can lead to even more volatility.”

European stock also rose, tracking Wednesday’s gains on Wall Street after the Fed downshifted to a 25bps rate increase and noted inflation had eased somewhat. The Stoxx 600 was up 0.8% with tech, real estate and retail the best performing sectors. Here are some of the biggest European movers:

  • Shell shares rise as much as 2.2% in London after the oil major launched a $4 billion share buyback, and posted full-year results that showed a record performance in 2022
  • Banco Santander shares jump as much as 4.3% after the Spanish lender beat estimates, and offered positive guidance that analysts said could lead to further consensus upgrades
  • Telecom Italia shares jump as much as 14%, the most intraday since November 2021, after KKR made a non-binding offer for a stake in the phone company’s multi-billion-euro network
  • Dassault Systemes shares gain as much as 5.4%, the biggest intraday climb since November, after the software company’s FY constant-currency sales growth forecast topped estimates
  • Siemens Healthineers gains as much as 6.8% as analysts flag solid order book momentum at the medtech group, offsetting a miss to first-quarter Ebit
  • Telenor shares gain as much as 6.8%, the biggest intraday climb since March 2020, after the telecom operator’s guidance for Ebitda growth in Nordic markets beat analyst expectations
  • Infineon shares jump as much as 8.8%, the most since March, after the chipmaker lifted its full-year margin forecast and kept its revenue outlook while factoring in a weaker dollar
  • ING shares drop as much as 8.2% in early trading as analysts said the lack of a new buyback announcement and some areas of weakness in the Dutch lender’s results offset a profit beat
  • Electrolux shares drop as much as 11% with analysts saying the appliances manufacturer’s update was much worse than anticipated
  • Roche falls as much as 1.4% after a cautious outlook weighed on an overall weak quarterly report from the Swiss pharmaceutical giant
  • Deutsche Bank shares drop 5.3%, most in four months, after the German lender’s earnings missed estimates. JPMorgan analysts say lack of buyback guidance also weighed

Asian stocks advanced as the Federal Reserve chair said efforts to quell inflation are making progress, supporting risk sentiment.  The MSCI Asia Pacific Index climbed as much as 1% before paring more than half of the advance. Interest-rate sensitive tech stocks led gains, with TSMC, Samsung and Baidu giving among the biggest boost to the gauge.  Tech-heavy benchmarks including Taiwan and South Korea led a rally in the region, while measures in Japan were mixed as the yen strengthened against the dollar. Key gauges in Hong Kong and Singapore fell, while Adani Group shares dragged on Indian benchmarks.

Investors cheered remarks by Jerome Powell that price pressures have started to ease, even as the Fed chair also said more interest-rate hikes are in store after delivering a quarter percentage-point rate increase. The dollar extended its fall following the Fed’s decision, helping boost foreign inflows to Asian equities.  “Markets are really charting out their own path right now, looking at what inflation has been doing,” Charu Chanana, a senior markets strategist at SAXO Capital Markets, said in an interview with Bloomberg TV, adding that she would be more careful about risks ahead.  “Even though Chair Powell highlighted dis-inflationary pressures that are there, we are potentially looking at inflation really being a monster,” she said.   The key Asian stock index briefly touched its highest level since April after climbing some 27% from its October trough amid euphoria over China’s reopening and growing bullish calls on Asia. The gauge has outperformed the S&P 500 Index by about two percentage points so far this year. 

Japanese equities ended mixed, bucking a broader rally in global stocks, as the Federal Reserve’s slower pace of rate hike strengthened the yen.  The Topix Index fell 0.4% to 1,965.17 as of market close, while the Nikkei advanced 0.2% to 27,402.05. Toyota Motor Corp. contributed the most to the Topix Index decline, decreasing 1.2%. Out of 2,164 stocks in the index, 608 rose and 1,462 fell, while 94 were unchanged. “Powell’s acknowledgment of a slowdown in inflation while mentioning that the labor market is strong were well received,” said Takashi Ito, a senior strategist at Nomura Securities. Still, Japanese stocks are unlikely to rise as much as US peers as the yen strengthened. 

Stocks in India were mostly higher on Thursday as investors looked beyond the rout in Adani Group shares, while companies continued to report strong earnings performance.  All but one of the 10 companies related to the Adani Group declined as a week-long selloff in the diversified conglomerate’s shares stretched to $108 billion. On Wednesday, the group’s flagship firm Adani Enterprises, abruptly scrapped its fully-subscribed $2.4 billion follow-on stock sale plan amid carnage in its shares. It was the worst performer on Thursday, falling 27%, while three firms extended slide by 10% each.  The S&P BSE Sensex rose 0.4% to 59,932.24 in Mumbai, while the NSE Nifty 50 Index was little changed. For the week, the Sensex is up 1% while the Nifty is steady, dragged by some of Adani companies and insurers, which have come under pressure following changes to India’s tax rules for the sector. Even as the carnage in Adani shares has dampened sentiment, investors are starting to focus on companies’ earnings performance and growth outlook. Tata Consumer was the latest to report higher-than-expected profit for the December quarter while mortgage lender HDFC and jewelry maker Titan’s earnings met the consensus view

The Dollar Index fell 0.1% following the Fed rate decision and after Chairman Jerome Powell said the central bank has made progress in its battle against inflation, while the Norwegian krone and British pound are the weakest among the G-10 currencies.  “The slowdown in the pace of Fed tightening to 25bps underlines the fact that the risk reward balance for central banks fighting the inflation threat is changing and after the aggressive action last year and the signs of easing inflation, greater caution in tightening policy is feasible,” MUFG analysts write in a note, adding that policy announcements from the ECB could highlight a policy divergence between the central banks. “The greater caution by the ECB last year means it has more work to do and that should be on show today with a 50bp hike coupled with still a hawkish message of more work to do to reach a level of policy consistent with price stability,” they add

  • EUR/USD rose as much as 0.4% to 1.1033, extending gains for the third day before the ECB is expected to hike rates and warn that it will maintain its position that more aggressive rate rises are in store. A more hawkish policy stance by the ECB compared with the Fed suggest that investors are likely to focus on rate differentials, which could push EUR/USD towards 1.15 in the coming months
  • USD/JPY slips 0.1%, after falling around after the Fed announcement
  • EUR/SEK hovers near 11.4 hit earlier in the week, its strongest since March 2020. The Swedish krona has come under selling pressure over the past two weeks amid growing concerns about Sweden’s sluggish growth and a deteriorating housing market due to higher inflation.

In rates, Treasuries were richer across belly of the curve, broadly holding Wednesday’s post-Fed move along with stocks. US yields richer on the day by up to 1.5bp across belly of the curve, the 10Y trading at 3.38% after closing around 3.42%; gilts had brief setback after Bank of England decision, followed by new yield lows for 10-year sector, richer by 16bp on the day (as reported earlier, Bank of England delivered a 50bp rate hike as expected with a vote split of 7-2 for a hike to 4%; statement said that inflation risks were skewed significantly to the upside). In Europe, focus now shifts to ECB rate decision at 8:15am New York time and President Christine Lagarde’s press conference.  Three-month dollar Libor +0.99bp at 4.80614%. US economic data slate includes January Challenger job cuts (7:30am), 4Q nonfarm productivity, initial jobless claims (8:30am) and December factory orders (10am)

In commodities, WTI trades around session lows under USD 76.50/bbl (vs a USD 77.24/bbl high) while its Brent counterpart sits under USD 82.75/bbl (vs a USD 83.61/bbl high). Shell CEO sees continued appetite for gas in China, too early to say if the European energy crisis over. Adds, gas business can keep growing next year. Spot gold is holding onto gains above the $1950/oz mark with the 19th April peak at USD 1981/oz ahead while LME Copper reclaimed USD 9.1k/T after slipping below the mark on Wednesday.

Looking to the day ahead now, and the main highlights will be the ECB and BoE policy decisions, along with the subsequent press conferences from President Lagarde and Governor Bailey. Otherwise, US data releases include the weekly initial jobless claims, December’s factory orders, and the preliminary reading of nonfarm productivity in Q4. Lastly, earnings releases include Apple, Amazon and Alphabet.

Market Snapshot

  • S&P 500 futures up 0.4% to 4,150.25
  • STOXX Europe 600 up 0.6% to 456.03
  • MXAP up 0.2% to 169.87
  • MXAPJ up 0.3% to 557.20
  • Nikkei up 0.2% to 27,402.05
  • Topix down 0.4% to 1,965.17
  • Hang Seng Index down 0.5% to 21,958.36
  • Shanghai Composite little changed at 3,285.67
  • Sensex up 0.4% to 59,945.83
  • Australia S&P/ASX 200 up 0.1% to 7,511.65
  • Kospi up 0.8% to 2,468.88
  • German 10Y yield little changed at 2.26%
  • Euro little changed at $1.0994
  • Brent Futures little changed at $82.82/bbl
  • Gold spot up 0.2% to $1,954.63
  • U.S. Dollar Index little changed at 101.17

Top Overnight News from Bloomberg

  • The dollar has had its worst start to the year since 2018, and chances are the losses may deepen with some help from the European Central Bank on Thursday.
  • Currency option investors are looking for the Bank of England’s rate decision to have a bigger near-term impact on the pound than European Central Bank’s move later Thursday will have on the euro.
  • Traders who’ve shrugged off Federal Reserve Chair Jerome Powell’s repeated warnings that interest rates will remain elevated this year will have their wagers tested again within weeks by key economic data.
  • European stocks climbed with US equity futures, building on Wall Street’s advance after Federal Reserve Chair Jerome Powell said the central bank had made progress in its battle against inflation.
  • Bank of Japan Deputy Governor Masazumi Wakatabe signaled there will be no policy change next month shortly before the end of his term and warned against further adjustments to the central bank’s yield curve control program.
  • The Bank of Japan may be able to step toward normalizing policy this year by achieving its sustainable inflation target, according to Takatoshi Ito, an ally of Haruhiko Kuroda and a contender to replace him in April.
  • Investors are readying for the final stretch in the race to replace Bank of Japan Governor Haruhiko Kuroda, a decision that could whipsaw markets from the yen to Treasuries.
  • North Korea’s Foreign Ministry said the door remains shut for talks with the US on winding down its atomic arsenal, setting the stage for renewed provocations by pledging to respond to what it saw as threats from Washington.

More detailed look at global markets courtesy of Newsquawk

APAC stocks traded mostly higher in the aftermath of the FOMC meeting where the Fed slowed the pace of rate increases and Fed Chair Powell provided a slew of two-sided remarks in which he pointed to a couple more rate hikes to get to an appropriately restrictive stance but noted they are not very far from that level and acknowledged that the disinflationary process had begun. ASX 200 was led by outperformance in gold miners and tech but with gains limited by weakness in other commodity-related sectors and after mixed data. Nikkei 225 notched marginal gains with earnings releases driving the best and worst performing stocks and the 27,500 level continued to elude the index. Hang Seng and Shanghai Comp. initially gained although price action was then choppy after the HKMA raised rates in lockstep with the Fed and the PBoC continued its substantial post-holiday liquidity drain.

Top Asian News

  • Hong Kong Monetary Authority raised its base rate by 25bps to 5.00%, which was as expected and in lockstep with the Fed.
  • Australia-China trade discussions have the Australian PM Albanese “anticipating” a Beijing visit in 2023, via SCMP citing sources; adding, next steps amid the easing of tensions will see Trade Minister Farrell visiting Beijing prior to the PM. Subsequently, Chinese Commerce Minister Wentao and Australian Trade Minister Farrell will hold talks next week via video link, via Global Times.
  • Maker of $555,000 Flying Motorbikes to Begin Trading on Nasdaq
  • StanChart, HSBC Slip as Goldman Says Rates Boost Played Out
  • Kuroda Ally Ito Sees Chance of BOJ Starting Unwinding in 2023
  • Ex-BOJ Deputy Gov Nakaso Says to Serve on APEC Advisory Body
  • Gold Rises to Nine-Month High as Fed Signals End to Rate Hikes

European bourses are benefitting from post-FOMC tailwinds with heavyweight earnings reports bolstering performance in the Tech, Telecoms and Energy sectors, Euro Stoxx 50 +1.1%. Stateside, futures are firmer across the board with action more contained vs European peers, ES +0.4%, with the exception of the NQ +1.3% which outperforms post-META. Meta Platforms Inc (META) – The social media bellwether surged over 20% afterhours after Q4 results, where although EPS missed expectations, revenue topped estimates, as did DAUs for the group, while advertising revenue was also above the consensus view, and it boosted its buyback by USD 40bln. +19% in pre-market trade

Top European News

  • France’s Le Maire Expects Lawmaker Majority for Pension Reform
  • Lagarde May Further Fuel Euro’s Bullish Run: ECB Cheat Sheet
  • European Stocks Climb Before ECB as Fed Fuels Inflation Optimism
  • Swedish Home Developer Bonava Slumps as Sales Drop Sparks Cuts
  • European Gas Prices Mixed With Focus on Demand, LNG Shipments
  • German VDMA: 2022 engineering orders -4% YY, Domestic -5% Foreign -4%.

FX

  • The DXY has reclaimed and marginally extended above the 101.00 mark to a current 101.23 peak, after printing a fresh YTD trough at 100.81 post-Fed, to the modest detriment of peers ex-NZD.
  • NZD has reclaimed some of yesterday’s lost ground against the AUD in wake of mixed data releases for Australia overnight.
  • USD/CAD is contained near 1.32 pre-data while the EUR is essentially unchanged near 1.10 ahead of the ECB.
  • In slight contrast, GBP has been erring lower and currently resides at the lower-end of 1.2319-1.24 parameters pre-BoE, with EUR/GBP firmly above 0.89 given the differing conviction levels on the magnitude and guidance between the BoE and ECB.
  • PBoC set USD/CNY mid-point at 6.7130 vs exp. 6.7142 (prev. 6.7492)
  • Brazil Central Bank maintained the Selic rate at 13.75%, as expected. BCB will remain vigilant and assess if the strategy of maintaining the Selic rate for a sufficiently long period will be enough to ensure the convergence of inflation, while it will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected and noted that despite some recent moderation, consumer inflation and measures of underlying inflation are above the range compatible with meeting the inflation target.

Fixed Income

  • USTs have seemingly paused for breath after Wednesday’s rally with upside in EGBs also exhausted for the time being pre-ECB and perhaps to digest hefty issuance from France and Spain.
  • Currently, USTs are contained in 115.10-18 parameters while Bunds are at the lower end of a 137.00-62 band.
  • In contrast, Gilts continue to climb and have been within 20 ticks or so of 106.00 with the associated yield at 3.20% ahead of the BoE and the potential for a lessening to tightening guidance.

Commodities

  • Crude benchmarks are in close proximity to the unchanged mark after paring back modest overnight gains amid a slight bounce in the USD with newsflow elsewhere limited.
  • WTI trades around session lows under USD 76.50/bbl (vs a USD 77.24/bbl high) while its Brent counterpart sits under USD 82.75/bbl (vs a USD 83.61/bbl high).
  • Shell (SHEL LN) CEO sees continued appetite for gas in China, too early to say if the European energy crisis over. Adds, gas business can keep growing next year.
  • Spot gold is holding onto gains above the USD 1950/oz mark with the 19th April peak at USD 1981/oz ahead while LME Copper reclaimed USD 9.1k/T after slipping below the mark on Wednesday.

Geopolitics

  • North Korean state media said the US and allies’ military drills have pushed the situation to an extreme red line and that US drills threaten to turn the peninsula into a huge war arsenal, according to Reuters and SCMP. Furthermore, the White House said it rejects the notion that US joint military exercises in the region serve as a provocation for North Korea and said the US has no hostile intent towards North Korea, while it seeks serious diplomacy and will work with allies to fully enforce UN Security Council resolutions aimed at limiting North Korean weapons programs.
  • Russian Foreign Minister Lavrov says will ensure that events organised by the West for the anniversary of the special operation in Ukraine will not be the only thing to attract world attention.
  • Russian President Putin to speak on Thursday at a “celebratory concert” in Volgograd, via NY Times.
  • Russian Foreign Minister Lavrov says that Moldova could become the new “anti-Russian” project after Ukraine. Adds, our relations with China are stronger than a military alliance, there is no limit.

US Event Calendar

  • 07:30: Jan. Challenger Job Cuts 440% YoY, prior 129.1%
  • 08:30: Jan. Initial Jobless Claims, est. 195,000, prior 186,000
  • 08:30: Jan. Continuing Claims, est. 1.68m, prior 1.68m
  • 08:30: 4Q Nonfarm Productivity, est. 2.4%, prior 0.8%
  • 08:30: 4Q Unit Labor Costs, est. 1.5%, prior 2.4%
  • 10:00: Dec. Factory Orders, est. 2.3%, prior -1.8%
  • 10:00: Dec. Factory Orders Ex Trans, est. 0.2%, prior -0.8%
  • 10:00: Dec. Durable Goods Orders, est. 5.6%, prior 5.6%
  • 10:00: Dec. -Less Transportation, est. -0.1%, prior -0.1%
  • 10:00: Dec. Cap Goods Orders Nondef Ex Air, prior -0.2%
  • 10:00: Dec. Cap Goods Ship Nondef Ex Air, prior -0.4%

DB’s Jim Reid concludes the overnight wrap

An FOMC meeting that was going as expected turned into a major positive event for both bonds and equities last night once Powell’s press conference developed. Next stop the ECB and the BoE today and then 12% of the S&P 500 reporting after the bell (Apple, Alphabet and Amazon) before payrolls tomorrow.

Reviewing the Fed now and the expected +25bps hike was accompanied by a statement where the FOMC said they anticipate, ”that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.” In a shift from previous statements, the Fed said that inflation “has eased somewhat but remains elevated,” as well as saying that future increases of the policy rate will be dependent on a number of factors including the “cumulative tightening” of monetary policy rather than the “pace” of tightening as it had said before. Markets initially grabbed on to the idea that there would still be multiple more rate hikes, with the S&P 500 and US 10yr yields down -0.8% and -2.0bps, respectively, as Chair Powell’s press conference started.

During Chair Powell’s press conference, equities started turning higher when the Chair said that the, “disinflation process has started.” Chair Powell also did not actively talk down risk markets when asked if financial conditions were too easy, by saying that the focus is “not on short-term moves but on sustained changes.” Powell also did not push back on markets pricing in rate cuts this year, saying that it reflects views that inflation will ease faster than the Fed expects. So whether it was Powell’s intention or not, the market takeaway was biased towards the Fed being relaxed about loosening financial conditions and that cuts could happen if inflation behaved as the market expects it too. See our economists’ review of the FOMC here. They still expect two more 25bps hikes in March and May, with the latter being a little more debatable.

By the close, the S&P had rallied 2.0% off the day’s lows to finish up +1.05% after trading in a 2.7% intraday range. The gains were led by semiconductors (+5.3%), autos (+3.9%), transports (+2.1%) and software (+1.9%), meaning the Nasdaq outperformed, having rallied 2.75% off the lows to end up +2.00%. Those moves took the S&P 500 and Nasdaq to their highest levels since late September. US 10yr yields fell -9.0bps to 3.417% (with yields remaining fairly stable overnight) while the more policy-sensitive 2yr yields were down -9.5bps on the day after being up +5.4bps on the FOMC statement release before rallying as the press conference began. In terms of fed futures, the market is pricing in a terminal rate of 4.89% in June, which was down -2.4bps on the day, as well as 41.1bps of rate cuts by the January ‘24 meeting, down around 8bps from the previous day.

After the close, equities saw further good news with Meta seeing shares spiking +20.16% in after-hours trading on the back of news of a $40bn boost to the company’s share buyback plan as well as outperforming on revenues and higher user engagement. Against that backdrop, in overnight trading, US stock futures are adding gains with those on the S&P 500 (+0.28%) and NASDAQ 100 (+0.91%) marching higher. Meanwhile, the US dollar (-0.32%) is extending its decline this morning, trading at 100.90 – its lowest level since April 2022 amid risk appetite spurred by easing rate-hike expectations.

Moving on to Asia, those overnight gains in US equities are also reverberating across regional markets with the KOSPI (+0.85%), Hang Seng (+0.41%), the Nikkei (+0.18%), the Shanghai Composite (+0.29%) and the CSI (+0.06%) all trading moderately higher.

In early morning data, South Korea’s CPI rose to a 3-month high of +5.2% y/y in January (v/s +5.0% expected), compared to a +5.0% rate seen in December, thus keeping open the possibility of additional policy tightening despite the nation’s economy weakening.

It might seem like ancient history now, but before the Fed took centre-stage, we got a few challenging data prints earlier in the day. First was the ISM manufacturing, where the headline slightly underwhelmed at 47.4 (vs. 48.0 expected), but the prices paid indicator rose for the first time since March with an increase to 44.5 (vs. 40.4 expected). There was a notable warning from the new orders component however, which fell to just 42.5, and has normally meant that a recession had either begun or was just months away. Indeed, you’ve got to go all the way back to 1952 for the last time the new orders component was that low and a recession was still more than a year away.

Alongside that, the latest JOLTS report pointed to a significantly tighter labour market than expected, with job openings in December at a 5-month high of 11.012m (vs. 10.3m expected). That also takes the number of job vacancies per unemployed worker up to 1.92, which again is the highest since July. In the meantime, the quits rate (which is strongly correlated with wage growth) remained at 2.7%, which is the same as it’s been throughout most of H2 last year.

The Fed may be out of the way now, but attention will remain on central banks today with the ECB decision at 13:15 London time. It’s widely anticipated that they’ll deliver another 50bps hike, which would take the deposit rate up to a post-2008 high of 2.5%. But the bigger question is what the ECB will signal going forward, with officials debating whether they should maintain the 50bps pace or downshift to 25bps at the next meeting in March. In their preview (link here), our European economists are expecting President Lagarde to say that “interest rates will continue to rise significantly at a steady pace”, and reiterate the meting-by-meeting, data-dependent approach.

The other big thing to look out for from the ECB will be any details about quantitative tightening, particularly given the last meeting statement said we’d get “the detailed parameters for reducing the APP holdings” at today’s meeting. For those looking for more on QT, our economists and strategists have also released a primer (link here).

Ahead of all that, yesterday saw the release of the Euro Area flash CPI print for January. That showed headline inflation coming down by more than expected to 8.5% (vs. 8.9% expected), which is its third consecutive monthly decline. However, the more concerning detail was that core inflation held steady at its record 5.2%, rather than falling back a touch as the consensus had expected. One thing to note is that we don’t have actual data for Germany (the Euro Area’s biggest economy) because of the data processing issues, so estimates are being used there. So we might see some more attention than usual on the final number on February 23.

Against that backdrop, European markets put in a steady performance before the Fed’s decision, with the STOXX 600 down just -0.03%. Bank stocks continued to outperform as well, with the STOXX Banks up a further +1.12%, bringing their YTD gains to +17.22%. Sovereign bonds also held steady, with yields on 10yr bunds (-0.2bps), OATs (+0.1bps) and gilts (-2.5bps) seeing little movement as well. Italian BTPs were the one underperformer on the day, with yields up +14.2bps as inflation data was hotter than expected. Incidentally, the decline in Treasury yields meant that the spread of 10yr Treasuries over 10yr bunds fell to its tightest level since September 2020 at 112.7bps, which is in line with our rates strategists’ call for a tighter 10yr UST-Bund spread. They’ll likely be a bit of re-wideneing this morning as Bunds follow the US story but then the ECB will be pivotal.

Given all that’s happening at the moment, the Bank of England’s decision today is unlikely to get as much attention as usual, but the consensus and our own economists are similarly expecting a 50bp hike. That would take Bank Rate up to 4%, and we should also get the MPC’s updated forecasts, which our economists’ preview (link here) expects to show a dramatically improved economic outlook. In terms of the forward guidance, they think the MPC will signal that “some further modest tightening may be appropriate in the coming months depending on the economic outlook”. After today’s 50bp move, they’re expecting another couple of 25bp moves in March and May that would take the terminal rate to 4.5%.

To the day ahead now, and the main highlights will be the ECB and BoE policy decisions, along with the subsequent press conferences from President Lagarde and Governor Bailey. Otherwise, US data releases include the weekly initial jobless claims, December’s factory orders, and the preliminary reading of nonfarm productivity in Q4. Lastly, earnings releases include Apple, Amazon and Alphabet.

Tyler Durden
Thu, 02/02/2023 – 08:15

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Pound Tumbles After BOE Hikes 50bps In 7-2 Vote, Signals Pause At Lower Rate Of 4%

Pound Tumbles After BOE Hikes 50bps In 7-2 Vote, Signals Pause At Lower Rate Of 4%

In the first of two big central bank decisions today, moments ago the Bank of England hiked by 50bps – as expected – raising the overnight rate for a 10th time to 4%…

… in a 7-2 vote (the two doves on the committee Swati Dhingra and Silvana Tenreyro voted for no hike) which was a two-way split and not a repeat of December’s bizarro three-way.

Looking at the statement, the Committee continued to judge that the risks to inflation are skewed “significantly to the upside”

At the same time the committee dropped language in its statement saying it could act “forcefully” in future, adding that further rate rises would only be needed if there were new signs that inflation would stay too high for too long, i.e., this was struck down: “the Committee continues to judge that if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.”

The BOE also said that If there “were to be evidence of more persistent pressures, then further tightening in monetary policy would be required” vs the previous comment that a “majority” of the Committee judges that further increases in Bank Rate may be required for a sustainable return of inflation to target.

The new statement, which makes further increases conditional on bad inflation news, suggests interest rates might peak at the new rate of 4%, lower than the 4.5% expected by financial markets.

Discussing the economy, the statement said that:

  • Both private sector regular pay growth and services CPI inflation have been notably higher than forecast in the November Monetary Policy Report.
  • Labor market remains tight and domestic price and wage pressures have been stronger than expected suggesting risks of greater persistence in underlying inflation
  • Some survey indicators of wage growth have eased, alongside a gradual decline in underlying output
  • The increases in Bank Rate since December 2021 are expected to have an increasing impact on the economy in the coming quarters.

Looking at the BOE’s MPR Forecasts, the 2023 inflation forecast was revised down, while 2023 growth view was revised up.

  • Says in projections conditioned on the alternative assumption of constant interest rates at 4%. the unemployment rate rises by slightly more in the medium term than in the MPC s forecast conditional on market rates
  • In projections conditioned on the alternative assumption of constant interest rates at 4%. CPI inflation is projected to be 0.8% and 0.2% in two years’ and three years’ time respectively, slightly lower than the Committee’s forecasts at the same horizons conditioned on market rates.

GDP Growth Forecasts:

  • 2022 GDP 4.0% (prev. 4.25%)
  • 2023 GDP -0.5% (prev.-1.50%)
  • 2024 GDP -0.25% (prev-1.00%)
  • 2025 GDP 0.25%(prev. 0.50%)

Unemployment Rate Forecasts:

  • 2022 Unemployment Rale 3.75% (prev. 3.75%)
  • 2023 Unemployment Rale 4.5% (prev. 5.00%)
  • 2024 Unemployment Rale 4.75% (prev. 5.75%)
  • 2025 Unemployment Rale 5.25% (prev. 6.50%)

CPI Inflation Forecasts:

  • 2022 CPI: 10.75% (prev. 10 75%)
  • 2023 CPI: 4.00% (prev. 5.25%)
  • 2024 CPI: 1.50% (prev. 1 50%)
  • 2025 CPI: 0.50% (prev. 0 00%)

Since a 50 basis-point hike wasn’t fully priced in, the news offered some support to sterling at least initially. Yet it’s mostly the comments on inflation persistence and the vote split that sent the UK currency higher on knee-jerk flows. Cable briefly erased losses and now stands 0.2% lower on the day at 1.2348; it fell as much as 0.5% to 1.2311 before the policy decision.

Still not everyone was convinced the BOE decision was purely hawkish, with Vanda’s Vitaj Patel noting that while the headlines are hawkish, the “key word in the statement is “IF there is more persistent price pressures… further tightening will be required”. I think that’s a pause & pivot from the BoE. Not entirely clear though. Presser will tell us more $GBP”

And indeed, after the initial hawkish reaction, markets realized that there was no attempt by the BoE to suggest that financial markets were misguided in expecting interest rate cuts later this year (not very much unlike Powell yesterday), even as the committee made it clear it needed to see evidence that underlying inflation was coming down and it was not yet declaring victory.

As a result, after initially spiking, cable has since dumped to session lows with markets starting to price in the possibility that the BOE’s hiking cycle is now over.

Tyler Durden
Thu, 02/02/2023 – 07:26

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The Forgotten Lessons Of 2008: Seth Klarman

The Forgotten Lessons Of 2008: Seth Klarman

Authored by Conor MacNeil via ‘Investment Talk’ Substack,

Seth Klarman outlines the lessons that investors were quick to forget only two years following one of the greatest financial meltdowns in modern history…

Two years after the great financial crisis of 2008, Seth Klarman shared a memo explaining how he felt that investors were quick to forget the lessons learned from one of the greatest financial meltdowns in modern history. He would remark that these lessons “were either never learned or else were immediately forgotten by most market participants”. Not quite a like-for-like comparison, but today we are ~2 years post one of the strangest exogenous shocks to ever hit the market. In this short time, we witnessed excess, despair, and everything in between. Some are now calling for a recession and a prolonged bear market while others suggest we are on the precipice of a young bull market.

I have no idea myself, but I noticed that following one strong month (January) of 2023; the behaviours amongst retail investors that faded during 2021/22 (posting returns, portfolio breakdowns et al) have made a return. I don’t think there is anything inherently wrong with that; transparency is useful as far as contextualising people’s opinions is concerned. But it appears that some individuals are quick to forget the lessons of 2020 through 2022; deploying the same strategies that landed them in hot water previously.

Each new generation of investors suffers from involuntary amnesia; not being blessed with the scars from volatile periods in the market like their more tenured peers. I was not an investor during the GFC. Despite reading about it at length, I will never have the “benefit” of knowing what that felt like. These moments, while at times costly (both to your asset values and pride) are supposed to shape you; to make you a better investor for the decades to come. If you are fortunate enough to be young, then the lessons won’t appear so expensive further down the line. But the worst outcome is the investor who does experience something and learns nothing from it; voluntary amnesia.

As such, I thought this excerpt from Klarman’s 2010 shareholder letter would be an appropriate read. The individual who makes mistakes is not a fool. Rather, it is the person who makes the same mistakes, time and time again.

The Forgotten Lessons of 2008

Seth Klarman

One might have expected that the near-death experience of most investors in 2008 would generate valuable lessons for the future. We all know about the “depression mentality” of our parents and grandparents who lived through the Great Depression. Memories of tough times colored their behavior for more than a generation, leading to limited risk taking and a sustainable base for healthy growth. Yet one year after the 2008 collapse, investors have returned to shockingly speculative behavior. One state investment board recently adopted a plan to leverage its portfolio – specifically its government and high-grade bond holdings – in an amount that could grow to 20% of its assets over the next three years. No one who was paying attention in 2008 would possibly think this is a good idea.

Below, we highlight the lessons that we believe could and should have been learned from the turmoil of 2008. Some of them are unique to the 2008 melt- down; others, which could have been drawn from general market observation over the past several decades, were certainly reinforced last year. Shockingly, virtually all of these lessons were either never learned or else were immediately forgotten by most market participants.

Twenty Investment Lessons of 2008

  1. Things that have never happened before are bound to occur with some regularity. You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse.

  2. When excesses such as lax lending standards become widespread and persist for some time, people are lulled into a false sense of security, creating an even more dangerous situation. In some cases, excesses migrate beyond regional or national borders, raising the ante for investors and governments. These excesses will eventually end, triggering a crisis at least in proportion to the degree of the excesses. Correlations between asset classes may be surprisingly high when leverage rapidly unwinds.

  3. Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return. Conservative positioning entering a crisis is crucial: it enables one to maintain long-term oriented, clear thinking, and to focus on new opportunities while others are distracted or even forced to sell. Portfolio hedges must be in place before a crisis hits. One cannot reliably or affordably increase or replace hedges that are rolling off during a financial crisis.

  4. Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty – such as in the fall of 2008 – drives securities prices to especially low levels, they often become less risky investments.

  5. Do not trust financial market risk models. Reality is always too complex to be accurately modeled. Attention to risk must be a 24/7/365 obsession, with people – not computers – assessing and reassessing the risk environment in real time. Despite the predilection of some analysts to model the financial markets using sophisticated mathematics, the markets are governed by behavioral science, not physical science.

  6. Do not accept principal risk while investing short-term cash: the greedy effort to earn a few extra basis points of yield inevitably leads to the incurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments, or to make compelling long-term investments.

  7. The latest trade of a security creates a dangerous illusion that its market price approximates its true value. This mirage is especially dangerous during periods of market exuberance. The concept of “private market value” as an anchor to the proper valuation of a business can also be greatly skewed during ebullient times and should always be considered with a healthy degree of scepticism.

  8. A broad and flexible investment approach is essential during a crisis. Opportunities can be vast, ephemeral, and dispersed through various sectors and markets. Rigid silos can be an enormous disadvantage at such times.

  9. You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.

  10. Financial innovation can be highly dangerous, though almost no one will tell you this. New financial products are typically created for sunny days and are almost never stress-tested for stormy weather. Securitization is an area that almost perfectly fits this description; markets for securitized assets such as subprime mortgages completely collapsed in 2008 and have not fully recovered. Ironically, the government is eager to restore the securitization markets back to their pre-collapse stature.

  11. Ratings agencies are highly conflicted, unimaginative dupes. They are blissfully unaware of adverse selection and moral hazard. Investors should never trust them.

  12. Be sure that you are well compensated for illiquidity – especially illiquidity without control – because it can create particularly high opportunity costs.

  13. At equal returns, public investments are generally superior to private investments not only because they are more liquid but also because amidst distress, public markets are more likely than private ones to offer attractive opportunities to average down.

  14. Beware leverage in all its forms. Borrowers – individual, corporate, or government – should always match fund their liabilities against the duration of their assets. Borrowers must always remember that capital markets can be extremely fickle, and that it is never safe to assume a maturing loan can be rolled over. Even if you are unleveraged, the leverage employed by others can drive dramatic price and valuation swings; sudden unavailability of leverage in the economy may trigger an economic downturn.

  15. Many LBOs are man-made disasters. When the price paid is excessive, the equity portion of an LBO is really an out-of-the-money call option. Many fiduciaries placed large amounts of the capital under their stewardship into such options in 2006 and 2007.

  16. Financial stocks are particularly risky. Banking, in particular, is a highly lever- aged, extremely competitive, and challenging business. A major European bank recently announced the goal of achieving a 20% return on equity (ROE) within several years. Unfortunately, ROE is highly dependent on absolute yields, yield spreads, maintaining adequate loan loss reserves, and the amount of leverage used. What is the bank’s management to do if it cannot readily get to 20%? Leverage up? Hold riskier assets? Ignore the risk of loss? In some ways, for a major financial institution even to have a ROE goal is to court disaster.

  17. Having clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm.

  18. When a government official says a problem has been “contained,” pay no attention.

  19. The government – the ultimate short- term-oriented player – cannot with- stand much pain in the economy or the financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. The government will take enormous risks in such interventions, especially if the expenses can be conveniently deferred to the future. Some of the price-tag is in the form of back- stops and guarantees, whose cost is almost impossible to determine.

  20. Almost no one will accept responsibility for his or her role in precipitating a crisis: not leveraged speculators, not willfully blind leaders of financial institutions, and certainly not regulators, government officials, ratings agencies or politicians.

Below, we itemize some of the quite different lessons investors seem to have learned as of late 2009 – false lessons, we believe. To not only learn but also effectively implement investment lessons requires a disciplined, often contrary, and long-term-oriented investment approach. It requires a resolute focus on risk aversion rather than maximizing immediate returns, as well as an understanding of history, a sense of financial market cycles, and, at times, extraordinary patience.

False Lessons

  1. There are no long-term lessons – ever.

  2. Bad things happen, but really bad things do not. Do buy the dips, especially the lowest quality securities when they come under pressure, because declines will quickly be reversed.

  3. There is no amount of bad news that the markets cannot see past.

  4. If you’ve just stared into the abyss, quickly forget it: the lessons of history can only hold you back.

  5. Excess capacity in people, machines, or property will be quickly absorbed.

  6. Markets need not be in sync with one another. Simultaneously, the bond market can be priced for sustained tough times, the equity market for a strong recovery, and gold for high inflation. Such an apparent disconnect is indefinitely sustainable.

  7. In a crisis, stocks of financial companies are great investments, because the tide is bound to turn. Massive losses on bad loans and soured investments are irrelevant to value; improving trends and future prospects are what matter, regardless of whether profits will have to be used to cover loan losses and equity shortfalls for years to come.

  8. The government can reasonably rely on debt ratings when it forms programs to lend money to buyers of otherwise unattractive debt instruments.

  9. The government can indefinitely control both short-term and long-term interest rates.

  10. The government can always rescue the markets or interfere with contract law whenever it deems convenient with little or no apparent cost. (Investors believe this now and, worse still, the government believes it as well. We are probably doomed to a lasting legacy of government tampering with financial markets and the economy, which is likely to create the mother of all moral hazards. The government is blissfully unaware of the wisdom of Friedrich Hayek: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”)

*  *  *

Investment Talk creates and curates a range of articles about the stock market and the companies within it and shares them with tens of thousands of investors. Reader supported.

Tyler Durden
Thu, 02/02/2023 – 07:20

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Morgan Stanley Expects More “EV Deflation” After Ford Cuts Prices On Its Mach-E

Morgan Stanley Expects More “EV Deflation” After Ford Cuts Prices On Its Mach-E

Morgan Stanley says it expects more price cuts in EVs after Ford followed in the footsteps of Tesla and cut the price to its EV competitor, the Mach E.

In a note out on Tuesday, Morgan Stanley wrote: “In our opinion, cutting price on Mach-E is relatively minor (approx. $100mm on price/mix prior to volume offsets). The more significant question for Ford and other Tesla challengers is what are they doing on the cost side to create enough room to follow Tesla’s current and future price cuts without compressing margins.”

It continued: “Tesla is expected to elaborate upon its cost advantages in Giga castings, 4680 structural battery pack and other significant savings needed to ultimately bring forth a sub-$30k EV. Does Ford or GM have equivalent innovations to preserve margin as they work with their respective battery partners?”

The Mustang Mach-E GT Extended Range has seen its price fall to $64,000 from $69,900 before, according to CNN Business. The price of the standard Mach-E model has moved from $46,900 down to $46,000, the same report says. The move comes after Tesla lowered prices as much as 20% on many of its models to start 2023. 

“It’s no surprise to see competitors follow Tesla’s 13 to 20% price cuts across its Model Y and Model 3 range a couple weeks ago,” the investment bank said, before weighing in on what it sees for the sector going forward.

“We expect to see a flurry of subsequent price cuts across EV competition throughout the year from startups and legacy players. In a year defined by slower growth, rising rates and consumer austerity we believe manufacturing and design innovation will separate EV winners from the pack,” the note concluded.

Recall, we noted yesterday, that Ford had announced priced cuts for their electric Mustang Mach-E along with several other models ‘across the board.’ The company will also increase production, “underscoring the company’s commitment to lead the EV revolution by increasing the value of its EVs for customers,” according to a Monday press release.

“We are not going to cede ground to anyone. We are producing more EVs to reduce customer wait times, offering competitive pricing and working to create an ownership experience that is second to none,” said Marin Gjaja, Chief Customer Officer, Ford Model e. “Our customers are at the center of everything we do – as we continue to build thrilling and exciting electric vehicles, we will continue to push the boundaries to make EVs more accessible for everybody.”

Customers who are awaiting delivery of their Mach-E’s will automatically receive the adjusted price, while Ford will ‘reach out’ to anyone who bought one after Jan 1, 2023.

Tyler Durden
Thu, 02/02/2023 – 06:55

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“Objectivity Has Got To Go”: News Leaders Call For End Of Objective Journalism

“Objectivity Has Got To Go”: News Leaders Call For End Of Objective Journalism

Authored by Jonathan Turley,

We previously discussed the movement in journalism schools to get rid of principles of objectivity in journalism. Advocacy journalism is the new touchstone in the media even as polls show that trust in the media is plummeting. Now, former executive editor for The Washington Post Leonard Downie Jr. and former CBS News President Andrew Heyward have released the results of their interviews with over 75 media leaders and concluded that objectivity is now considered reactionary and even harmful. Emilio Garcia-Ruiz, editor-in-chief at the San Francisco Chronicle said it plainly: “Objectivity has got to go.” 

Notably, while Bob Woodword and others have finally admitted that the Russian collusion coverage lacked objectivity and resulted in false reporting, media figures are pushing even harder against objectivity as a core value in journalism.

We have been discussing the rise of advocacy journalism and the rejection of objectivity in journalism schools. Writers, editors, commentators, and academics have embraced rising calls for censorship and speech controls, including President-elect Joe Biden and his key advisers. This movement includes academics rejecting the very concept of objectivity in journalism in favor of open advocacy.

Columbia Journalism Dean and New Yorker writer Steve Coll decried how the First Amendment right to freedom of speech was being “weaponized” to protect disinformation. In an interview with The Stanford Daily, Stanford journalism professor, Ted Glasser, insisted that journalism needed to “free itself from this notion of objectivity to develop a sense of social justice.”

He rejected the notion that journalism is based on objectivity and said that he views “journalists as activists because journalism at its best — and indeed history at its best — is all about morality.” 

Thus, “Journalists need to be overt and candid advocates for social justice, and it’s hard to do that under the constraints of objectivity.”

Lauren Wolfe, the fired freelance editor for the New York Times, has not only gone public to defend her pro-Biden tweet but published a piece titled “I’m a Biased Journalist and I’m Okay With That.” 

Former New York Times writer (and now Howard University Journalism Professor) Nikole Hannah-Jones is a leading voice for advocacy journalism.

Indeed, Hannah-Jones has declared “all journalism is activism.” Her 1619 Project has been challenged as deeply flawed and she has a long record as a journalist of intolerance, controversial positions on rioting, and fostering conspiracy theories. Hannah-Jones would later help lead the effort at the Times to get rid of an editor and apologize for publishing a column from Sen. Tom Cotten as inaccurate and inflammatory.

Polls show trust in the media at an all-time low with less than 20 percent of citizens trusting television or print media. Yet, reporters and academics continue to destroy the core principles that sustain journalism and ultimately the role of a free press in our society. Notably, writers who have been repeatedly charged with false or misleading columns are some of the greatest advocates for dropping objectivity  in journalism.

Now the leaders of media companies are joining this self-destructive movement. They are not speaking of columnists or cable hosts who routinely share opinions. They are speaking of actual journalists, the people who are relied upon to report the news.

Saying that “Objectivity has got to go” is, of course, liberating. You can dispense with the necessities of neutrality and balance. You can cater to your “base” like columnists and opinion writers. Sharing the opposing view is now dismissed as “bothsidesism.” Done. No need to give credence to opposing views. It is a familiar reality for those of us in higher education, which has been increasingly intolerant of opposing or dissenting views.

Downie recounts how news leaders today

“believe that pursuing objectivity can lead to false balance or misleading “bothsidesism” in covering stories about race, the treatment of women, LGBTQ+ rights, income inequality, climate change and many other subjects. And, in today’s diversifying newsrooms, they feel it negates many of their own identities, life experiences and cultural contexts, keeping them from pursuing truth in their work.”

There was a time when all journalists shared a common “identity” as professionals who were able to separate their own bias and values from the reporting of the news.

Now, objectivity is virtually synonymous with prejudice. Kathleen Carroll, former executive editor at the Associated Press declared “It’s objective by whose standard? … That standard seems to be White, educated, and fairly wealthy.”

Outlets like NPR are quickly erasing any lines between journalists and advocates. NPR announced that reporters could participate in activities that advocate for “freedom and dignity of human beings” on social media and in real life.

Downie echoes such views and declares “What we found has convinced us that truth-seeking news media must move beyond whatever ‘objectivity’ once meant to produce more trustworthy news.”

Really? Being less objective will make the news more trustworthy? That does not seem to have worked for years but Downie and others are doubling down like bad gamblers at Vegas.

Indeed, the whole “Let’s Go Brandon” chant is as much a criticism of the media as it is President Biden.

If there is little difference between the mainstream media and alternative media, the public will continue the trend away from the former. MSM has the most to lose from this movement, but, as individual editors, it remains popular to yield to advocates in their ranks. That is what the New York Times did when it threw its own editors under the bus to satisfy the mob.

As media outlets struggle to survive, these media leaders are feverishly sawing at the tree branch upon which they sit.

Tyler Durden
Thu, 02/02/2023 – 05:44

via ZeroHedge News https://ift.tt/0ovGqwM Tyler Durden