Month: February 2023

Via Global Macro Monitor,

The following chart suggests the stock market still has an outsized influence on the economy. 

In theory, the market capitalization to GDP ratio should be a mean reverting time series.  

We don’t know for certain, but we suspect there is still way too much liquidity/money, however loosely defined, in the system. 

Markets don’t rip as they did in January with tight money.   

If the Fed downshifts too much, the stock market rips, and financial conditions will ease bigly. 

Consequently, inflation will turn up from a much higher base.   

Godspeed, Jay Powell!

Oil prices were weaker this morning following weak Manufacturing data and a poor ADP jobs report, and following last night’s across-the-board builds reported by API. Additionally, OPEC+ committee recommended keeping crude production steady as the oil market awaits clarity on demand in China and supplies from Russia.

“Everyone agrees that the situation is quite stable on the market,” Russian Deputy Prime Minister Alexander Novak, who represents the country at OPEC+ meetings, told the Rossiya 24 TV channel.

“Of course, we see a large number of uncertainties” ranging from inflation and interest rates to Chinese demand.

The nationwide ‘deep freeze’ has clearly been impacting the inventory data over the last few weeks. We suspect today could be the first ‘clean’ indication, but last night’s API data suggests it may not be over (or we have a serious demand dry up)…

API

• Crude +6.33mm (-1mm exp)

• Cushing +2.72mm

• Gasoline +2.73mm

• Distillates +1.53mm

DOE

• Crude +4.14mm (-1mm exp)

• Cushing +2.315mm

• Gasoline +2.576mm

• Distillates +2.32mm

The official EIA data confirmed API’s report of a major crude inventory build last week (the sixth straight weekly build). Cushing stocks rose for the 5th straight week and Distillates saw the largest build since early December…

Source: Bloomberg

With no crude withdrawn from, or put into, the Strategic Petroleum Reserve for a second week, the overall nationwide crude build was all in commercial inventories…

Source: Bloomberg

Overall US crude stockpiles are the highest since June 2021…

Source: Bloomberg

Stocks at the Cushing hub are also at their highest since July 2021…

Source: Bloomberg

US crude production remained flat at 12.2mm b/d (post-COVID highs) while the rig count has begun to rollover…

Source: Bloomberg

WTI was trading down around $78.75 and extended losses after the builds were reported…

“The main driver for oil lately has been the potential for a resurgence of oil demand out of China, which may continue into February considering how Chinese economic momentum picked up in the overnight PMI reports,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Finally, we note that after almost two straight years of collapse in participation in the oil markets, futures open interest has skyrocketed back in January…

Source: Bloomberg

Of course, a more hawkish Fed later today and higher interest rates could be bearish for crude since the moves are designed to slow down the economy and lead to a drop in demand.

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.

The health of the US manufacturing sector continued to decline at the start of 2023, according to the latest PMI data from S&P Global (albeit deteriorating at a very slightly reduced rate compared to December from 46.2 to 46.9) and the ISM data was even worse, falling to 47.4 (below the 48.0 expectation and down from 48.4) – the weakest since May 2020…

With only labor prints supporting macro surprise data, these Manufacturing indicators do nothing to support any ‘soft landing’ signals…

Source: Bloomberg

That is the 3rd straight month of ‘contraction’ (sub-50) for Manufacturing.

Under the hood, the PMI shows rising inflation, weaker production, and lower orders – screaming ‘stagflation’ – and ISM’s data confirms the rebound in prices…

Source: Bloomberg

Additionally, ISM new orders relative to inventories continue to sink in a ‘recessionary’-signaling manner…

Source: Bloomberg

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“Despite rising in January, the PMI remains at one of the lowest levels recorded since the global financial crisis, indicating a worryingly steep rate of decline in the health of the goods producing sector. Production has now fallen for three successive months, signalling a sharp fall in output which is now becoming increasingly evident in the official statistics and suggesting that the manufacturing sector has become a major drag on GDP.

“New orders are also slumping as demand from both domestic and export customers comes under increasing pressure from a mix of inflation and slower economic growth. The drop in orders also means that excess capacity is developing, which has in turn meant companies have scaled back their hiring and purchasing, and are also increasingly focusing on reducing their inventory levels.

“Improved supply chains and weaker demand should meanwhile help keep a lid on manufacturing price pressures in the months ahead, though a slight uptick in the survey’s input cost and selling price gauges in January suggests that the road to lower inflation could be bumpier than previously anticipated, reflecting still elevated prices for many raw materials relative to pre-pandemic levels and sustained upward wage pressures.”

Finally, as a reminder, it is only the labor market data that has materially supported the ‘strong’ macro argument among market participants, dominating the weakness in ‘soft’ survey and industrial data in recent weeks…

Source: Bloomberg

Does The Fed really want a ‘strong’ labor market?

Via Rabobank,

Hawks And Roves

“We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors… and you, all of you, will be left to just study what we do.”

– Karl Rove

Those around at the time were appalled by the sheer arrogance of Karl “The Architect” Rove under the ‘imperial’ presidency of George W. Bush. The quote above seemed so unseemly, even if there really was no global power at the time that could stop what the US was doing.

Ironically, Rove’s policies were a foundation stone for the world of 2023 now challenging US power left, right, and centre. Indeed, geopolitics is currently full of ‘new realities’ being created by ‘history’s actors’ for others to study impotently – including the White House. If you think only the US offers a Melian dialogue to others then you really don’t read much, or only from select sources.

On which, Rove’s architecture ironically also built the towering challenge to neoconservative, neoliberal power, and even to the centre, from the new Left and new Right. Sadly, the “reality-based community” did not win: rather both Left and Right created their own empires of reality, shrink-wrapped in social and mainstream media echo chambers, and ring-fenced with politically correct and incorrect landmines. Indeed, if you think about it, radical-conservative Rove was in many ways Woke before that was even a thing – see these quotes:

“All politicians operate within an Orwellian nimbus where words don’t mean what they normally mean, but Rovism posits that there is no objective, verifiable reality at all. Reality is what you say it is.”

“You may end up with a different math, but you’re entitled to your math. I’m entitled to the math.”

Back to markets, which are now Rovist in many respects too.

First, in yet another thick layer of irony, they therefore aren’t pricing for a world in which neocons and neolibs are out and a new geopolitical reality is in.

For example, calls of a “Shiny new China!” are seeing investors pile into Chinese assets again, even if the money going in so far is from hedge funds, who see it as a tactical play, rather than mutual funds, who don’t see it as a strategic play yet. They are cheered by formerly neocon but still neolib The Economist publishing an article saying China is trying “to ease tensions” but the US isn’t, quoting “Don Chuling of the China Institutes of Contemporary International Relations, a think-tank linked to China’s state security ministry”(!), and by Davos, Paris, and Berlin insisting Beijing must be ‘in’ not ‘out’ of world trade plans.

However, that narrative now has to adapt to Xi Jinping reportedly set to travel to Moscow to visit Putin just before the first anniversary of the invasion of Ukraine, which may even coincide with a marked escalation in Russian fighting (and possibly via Belarus, opening up West Ukraine as a new front, as Minsk signs a new military training agreement with Moscow). Suggestions are the trip will reaffirm the 2022 Sino-Russian partnership rather than a new ‘peace now’ Chinese stance on the war. The timing alone is hardly auspicious, even if the agenda is unclear; a more pointed focus on tactics and strategy than markets now grasp could certainly see the current mood shift.  

In macro terms, markets loved that the US employment cost index (ECI) was 1.0% q-o-q, not 1.1% as expected, and down from 1.2%. Despite the data still being high, they justified the S&P pushing up to +6% year-to-date, the Nasdaq +11%, and US 10-year yields down to 3.50% again. There were fewer mentions that Timiraos at the Wall Street Journal said the ECI data wouldn’t move the needle for the Fed, and that US consumer confidence 1-year ahead inflation expectations rose from 6.6% to 6.8% y-o-y.

In broader terms, markets think they are ‘history’s actors’ now too.

By pushing long bond yields lower in tandem with Fed hikes they are creating their own reality, because the lower long bond yields go, the more most assets levitate, despite the damage coming from rate hikes (or some would say because of it). The Fed may be hawks, but the market are Roves.

Arguably, they are trying to show the Fed has no real power to act, except in a destructive manner that will bring about a huge backlash against it. It’s markets saying:

“We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors… and you, all of you, will be left to just study what we do.”

Even so, the nickname George W. Bush gave to Rove, Turd-Blossom, seems appropriate as a response.

After all, it remains to be seen what the Fed will do today, and in March, and over 2023. Who really has the Mother of All Bombs? Markets or the Fed? If it’s still the Fed, does it get dropped today, or just taken for a warning fly past?

Naturally, as we wait to find out, few are paying attention to the architect of a very different kind of thinking, Taleb, who warns that ‘Disneyland is over’ for investors as cash-flows dry up.

“Disneyland is over, the children go back to school,” the author of “The Black Swan” said. “It’s not going to be as smooth as it was the last 15 years.”

That’s probably because some of the people taking Mickey Mouse positions have no vaunted skin in the game: all they have to do is meet the industry benchmark, and if those benchmarks are negative then so much the easier.

However, if you aren’t in that camp and think you are smarter than Taleb – you aren’t. Pinching an old joke from the TV Scot Rab C. Nesbitt –who looks like the 2023 Dorian Grey portrait of Karl Rove– Disneyland is not yet over for markets only in that they “dis’ nae listen, dis nae’ learn, an’ dis’ nae know what’s gonna hit ‘em!”

Day Ahead

Today sees final January PMIs globally and Eurozone January CPI, seen 0.1% m-o-m and 8.9% y-o-y, 5.1% core. Expect markets to swing on any tiny rounding-error under or overshoots.

In the US we see ADP employment and the ISM manufacturing survey.

Then it’s the Fed, where we expect a 25bp hike to 4.75% and indications another hike is to follow, and no cuts are (at least in 2023).

Brazil also has a rate decision, where the Selic rate is seen on hold at 13.75%.

Amid the escalating debt ceiling standoff which is sure to culminate with fireworks some time in September, the Treasury announced on Wednesday morning that it would offer $96 billion of Treasury securities to refund approximately $67.1 billion of privately-held Treasury notes and bonds maturing on February 15, 2023. The amount was inline with expectations and was unchanged from last month. This issuance will raise new cash from private investors of approximately $28.9 billion. Issuance plans for Treasury Inflation-Protected Securities, or TIPS, were also kept unchanged compared with sizes over the prior quarter.  The securities to be issued are:

• 3-year note in the amount of $40 billion, to be sold on Feb 7 and maturing February 15, 2026;

• 10-year note in the amount of $35 billion, to be sold on Feb 8 and maturing February 15, 2033

• 30-year bond in the amount of $21 billion, to be sold on Feb 9 and maturing February 15, 2053.

Explaining the unchanged auction size, the Treasury said it “believes that current issuance sizes leave it well-positioned to address a range of potential borrowing needs, and as such, does not anticipate making any changes to nominal coupon and FRN new issue or reopening auction sizes over the upcoming February 2023 – April 2023 quarter.”

The balance of Treasury financing requirements over the quarter will be met with regular weekly bill auctions, cash management bills (CMBs), and monthly note, bond, Treasury Inflation-Protected Securities (TIPS), and 2-year Floating Rate Note (FRN) auctions.

While there were no surprises in the refunding amounts, the elephant in the room, of course, is that the department is now operating under the constraints of the $31.4 trillion debt ceiling, having hit the level last month and begun using special accounting maneuvers to help preserve borrowing room.

Last month, Janet Yellen outlined in letters to Congress, that the period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future.  While Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations, it is unlikely that cash and extraordinary measures will be exhausted before early June.

“Until the debt limit is suspended or increased, debt limit-related constraints will lead to greater-than-normal variability” in the issuance of bills, as well as significant usage of CMBs the department advised. Dealers have pointed to the importance of tax receipts in coming months as a key variable for the Treasury’s borrowing needs.

Separately, as Bloomberg notes, at some point the Federal Reserve’s continuing QT – or active shrinkage of its portfolio of Treasuries – is expected to force the Treasury to boost issuance of coupons. That’s after the department steadily scaled back sales from November 2021 through last August, as pandemic-relief spending was phased out.

“Eventually, coupon auctions should start to rise again, but we doubt that this will occur until after the debt ceiling is increased or suspended,” Wells Fargo economists Michael Pugliese and Angelo Manolatos wrote in a note before Wednesday’s release. The bank currently sees auctions rising starting with the November refunding. Furthermore, as noted earlier this week and previously, the Treasury will instead drain its cash holdings at an accelerated pace as it struggles to keep the government working without a debt ceiling deal.

The Treasury on Monday estimated its cash balance at $500 billion for the end of March, slightly below where it is now, but caveated that this number assumes a debt deal is in place, which is not the case, and is also why the cash level will be drained much faster than the TSY forecasts. It also lifted its projections for federal borrowing for the current quarter to $932 billion.

Separately, Bloomberg noted that T-bills are currently hovering near the bottom of the recommended 15% to 20% share of total debt, as specified by the TBAC (aka the shadow group that runs the world).

Also on Wednesday, the Treasury highlighted that it’s continuing to examine the idea of launching a buyback program, something that, in October, it asked dealers their views on when illiquidity in the Treasury market prompted some to evaluate Treasury or Fed intervention to unfreeze the bond market (since then a surge in foreign demand has helped alleviate much of the lack of liquidity).

Buying back less-traded securities and selling more of the current benchmarks could be one way to address continuing concerns about illiquidity in the Treasuries market. TBAC in a statement Wednesday said the Treasury “should consider buybacks to provide liquidity support to the overall Treasury market and to achieve cash management goals.” “Treasury expects to share its findings on buybacks as part of future quarterly refundings,” the department said.

Treasury continues to study a potential buyback program.  Over the last quarter, Treasury has conducted further outreach with a broad variety of market participants in order to assess the costs and benefits associated with several potential uses for buybacks, including liquidity support and cash and maturity management.  In addition, the Treasury Borrowing Advisory Committee provided additional analysis on buybacks at yesterday’s meeting.  Treasury expects to share its findings on buybacks as part of future quarterly refundings.  Treasury has not made any decision on whether or how to implement a buyback program but will provide ample notice to the public on any decisions.

Some more details from the TBAC Executive Summary on the TSY buyback charge:

Committee presented on considerations for designing a “regular and predictable” Treasury buyback program.

Presenting member proposed a series of guiding principles, noting they should be used “mainly for liquidity support and cash management purposes, but are not intended to mitigate episodes of acute market stress.” Here is the full list:

• Operate within the “regular and predictable” framework to minimize negative externalities.

• Main purposes are liquidity support and cash management.

• Maintain neutrality to the maturity structure of marketable debt outstanding

• Be accretive to the taxpayer, through direct or indirect benefits

• Do no harm: mitigate uncertainties by approaching gradually and analyzing carefully.

• Treasury buybacks are intended to support healthy market functioning but not mitigate episodes of acute stress in markets

The TBAC recommended that if the Treasury moves forward with a buyback program that it start small and “expand cautiously”

• “Additionally, any program should be undertaken deliberately and dynamically with frequent monitoring of the impact to ensure Treasury’s objectives are being met,” they wrote adding that the Treasury should also “carefully consider” many issues before deciding to move forward. Those include:

  • Short-end buybacks could provide a beneficial cash-management tool to be used on an “as-needed basis”

  • Whether a buyback program could provide direct liquidity to specific securities and sectors, but the ultimate benefit should be enhanced overall market functioning

  • Program should be at least large enough to have some “observable impact on liquidity conditions or cash management” yet shouldn’t be so large as to overwhelm new issue demand and “materially erode the on-the-run liquidity premium”

  • Treasury could monitor several quantitative and qualitative measures to assess the impact of a potential buyback program, including bid/offer spreads, auction tails, trading volumes and dispersion of off-the-run spreads

The presentation then reviewed potential use cases, discussed a framework to size buyback operations, and ended with several considerations for structuring a buyback program.

• Presenting member concluded Treasury buybacks “should result in both direct and indirect benefits for the taxpayer, with the indirect benefits potentially outweighing the direct benefits”

• Another presenting member emphasized designing and executing a buyback program would be “highly complex and would require Treasury to conduct additional analysis”

• Committee noted Treasury could announce buyback amounts within the context of quarterly refundings, but there was debate about the importance for the department to retain flexibility regarding operations, such as times when the market didn’t require liquidity support.

• Members generally agreed flexibility could be achieved in a manner consistent with Treasury’s regular and predictable issuance framework

• Regarding financing for upcoming quarters, TBAC recommended Treasury maintain nominal coupon auction sizes at current levels and noted “there is ample scope to increase bill supply”

• TBAC noted in the future it may be appropriate to consider increases to nominal coupon auction sizes in order to maintain T-bills’ share of total debt within the committee’s recommended range of 15%-20%; it also said it was important to monitor how borrowing needs would evolve, given significant uncertainty related to the economic outlook and SOMA redemptions

• TBAC also discussed capacity to increase TIPS issuance and recommended “modest” increases focused in the 5-year tenor to support their share as a percentage of total debt outstanding

The conclusion to the buyback discussion:

And the full presentation is below (pdf link).

Authored by John Seiler via The Epoch Times,

It’s getting more dangerous to make money and create jobs in California…

Under Assembly Bill 259, by Assemblyman Alex Lee (D-San Jose) the state would “impose an annual tax at a rate of 1.5 percent of a resident of this state’s worldwide net worth” in excess of $1 billion starting in 2024.

Starting in 2026, the threshold would drop to just $50 million of worth, taxed at 1 percent.

Note it’s a “worldwide” tax. So property in other states or countries would be taxed. That would be a headache right there. How does one assess value in another country, with different systems of valuation, even different languages? Maybe you could do it in Singapore, which has an advanced economy where many people speak English. But how about investing in cobalt mines in the Congo, subject to price fluctuations, local upheavals, and the interference of Communist Chinese mining interests?

AB 259’s language says the tax would be imposed for an asset sale “at any time within the past 10 years … the taxpayer shall report the valuation” to the Franchise Tax Board (FTB). This apparently means the taxpayer would be liable for such transactions even if he left the state, until the 10 years of “valuation” eventually expired.

The tax would be on top of the current 13.3 percent top state income tax rate, the highest in the country.

And get this. AB 259’s administrative costs alone would start at $300 million a year, then be “adjusted the second year for inflation using the California Consumer Price Index.” Plus another $100 million a year for the next three years, also adjusted for inflation. That comes to $600 million, plus inflation, just to grab the taxes.

No doubt AB 259 would be challenged in court. But the FTB has a history of harsh litigation, as in the nearly three-decades-long case it ran against microchip inventor Gilbert Hyatt after he moved to Nevada to avoid California’s high taxes. When the third of three U.S. Supreme Court cases was decided in 2019, Dan Walters wrote, “Although California won last week, it was something of a hollow victory, since Hyatt largely prevailed on the initial dispute over his residence. The state spent an estimated $25 million to pursue the inventor so probably wound up in the red.”

AB 259 has been joined by similar proposed new tax laws in seven other states, all blue (Democratic) states, of course: Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York and Washington. The anomaly is Washington, which currently boasts no state income tax.

The idea of the states colluding like this is to prevent tax refugees from taking advantage of the low taxes in other states. Although why anyone would move from California to New York is a mystery. At least California has great weather. The general movement is of tax refugees is to low-tax red states. That can be seen in the recent reshuffling of congressional districts, in which California and New York lost one each, while Florida gained one and Texas, two.

And what if taxpayers flee to other countries and sell all their U.S. assets? How will California be able to tax them? If they don’t pay, will the FTB send the California National Guard to collect?

For now, at least, AB 259 is likely to follow similar proposals into oblivion. Such as last year’s Assembly Bill 2289, also by Sen. Lee. Gov. Gavin Newsom has opposed such tax increases because he doesn’t want to be seen as a tax-hiker before an expected presidential bid.

But with President Biden in trouble from his classified documents scandal, the prospects of Newsom entering the White House have increased. If Lee keeps pushing AB 259 and similar bills every year, eventually a new governor could back it.

According to Lee on Jan. 23, “With this modest tax on the ultra-wealthy who pay a lower effective tax rate than the bottom 99 percent, we would have sustained investments in our schools, tackle homelessness, maintain and expand needed services, and much more.”

Actually, the tax, if it becomes law, further would drive the wealthy from California. The U.S. Supreme Court seems unlikely to uphold the part grabbing taxes for 10 years from anywhere on the planet.

And even if that were upheld, AB 259 would be a kind of tax Teflon, repelling any rich people from moving here, or even investing here.

In my 36 years of writing on California taxes and budgets, this is the nuttiest idea yet.

The United States has once again charged that Russia is endangering the last agreement left regulating the world’s two largest nuclear arsenals – the New START nuclear treaty.

The Biden Administration said this week that Russia is refusing to allow on-the-ground inspections to resume, which is central to the treaty stipulation that both sides are able to ensure compliance of the other. “Russia’s refusal to facilitate inspection activities prevents the United States from exercising important rights under the treaty and threatens the viability of U.S.-Russian nuclear arms control,” the State Department said Tuesday.

New START is being widely seen as a final frontier of badly needed US-Russia cooperation, particularly important as the Ukraine war has lately involved nuclear saber-rattling, and following the collapse of other end of Cold War era treaties such as the now defunct INF and Open Skies.

The Associated Press summarizes of the timeline: “Inspections of U.S. and Russian military sites under the New START treaty were paused by both sides because of the spread of the coronavirus in March 2020.” Following this, “The U.S.-Russia committee overseeing implementation of the treaty last met in October 2021, but Russia then unilaterally suspended its cooperation with the treaty’s inspection provisions in August 2022 to protest U.S. support for Ukraine.”

The new US statement has urged Russia’s return to the key safety guardrails of inspections: “It is all the more important during times of tension when guardrails and clarity matter most,” the State Dept said.

The US position in response to Russia’s complaint that full compliance to the treaty’s terms has been harmed and made impossible due to US sanctions including travel restrictions, placed on Russian officials was previously stated as follows: “US sanctions and restrictive measures imposed as a result of Russia’s war against Ukraine are fully compatible” with New START.

You will find more infographics at Statista

Both sides have expressed willingness to avoid escalation on concerns that the nuclear armed superpowers could enter direct conflict. However, Moscow has condemned what it says is the US fueling a full-fledged proxy war, and currently sliding into potential direct war, utilizing Ukrainian forces.

Authored by Charles Hugh Smith via OfTwoMinds blog,

Should bubble symmetry play out in the S&P 500, we can anticipate a steep 45% drop to pre-bubble levels, followed by another leg down as the speculative frenzy is slowly extinguished.

Bubble symmetry is, well, interesting. The dot-com stock market bubble circa 1995-2003 offers a classic example of bubble symmetry, though there are many others as well. The key feature of bubble symmetry is the entire bubble retraces in roughly the same time frame as it took to soar to absurd heights.

Nobody could see bubble symmetry coming, of course. At the peak and for some time after, bubbles are viewed as the natural order of markets and so they should continue expanding forever.

Alas, the natural order of markets is mean reversion and the collapse of whatever is unsustainable. This includes speculative manias, credit bubbles, asset bubbles and projections of endless expansion of margins, profits, sales, consumption, tax revenues and everything else under the sun.

There’s a well-worn psychological path in the collapse of bubbles. This path more or less tracks the Kubler-Ross phases of denial, anger, bargaining, depression and acceptance, though the momentum of speculative frenzy demands extended displays of hubris and over-confidence, i.e. the first wobble “must be the bottom.”

There’s also repeated spikes of false hope that “the bottom is in” and the bubble is starting to reflate.

This pattern repeats until the speculative fever finally breaks and all those betting on a resumption of the bubble mania finally give up.

This process often takes about the same length of time that it took for the bubble mania to become ubiquitous. If it took about 2.5 years for the bubble to expand, it takes about 2.5 years for the bubble to pop and the market to return to its pre-bubble level.

Once again we hear reasonable-sounding claims being used to support predictions of a never-ending rise in stock valuations.

What hasn’t changed is humans are still running Wetware 1.0 which has default settings for extremes of emotion, particularly manic euphoria, running with the herd (a.k.a. FOMO, fear of missing out) and panic / fear.

Despite all the assurances to the contrary, all bubbles pop because they are based in human emotions. We attempt to rationalize them by invoking the real world, but the reality is speculative manias are manifestations of human emotions and the feedback of running in a herd of social animals.

With all this in mind, let’s consider the current bubbles in stocks and housing. Should bubble symmetry play out in the S&P 500, we can anticipate a steep 45% drop to pre-bubble levels, followed by another leg down as the speculative frenzy is slowly extinguished.

Housing is notoriously “sticky” when it comes to price declines, as sellers show remarkable tenacity in the denial phase. The last few greater fools buying on the first modest decline spur the hopes of sellers that the flood of mania-driven buyers is about to resume, but manias don’t last nor do they resume.

If bubble symmetry plays out, we can anticipate a relatively steep drop of about 30% to pre-mania levels, followed by a longer decline to pre-Bubble #1 and Bubble #2 levels, a roughly 60% drop from bubble heights.

Such declines are of course “impossible.” There are always endless reasons why bubbles can’t possibly pop and why 60% declines are impossible, even as history tells us that 60% declines are inevitable, and in the bigger picture, rather modest. It’s the 90% declines that really hurt.

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