Month: July 2024

Authored by Tho Bishop via The Mises Institute,

Following last week’s decisions, which represented a significant blow to the American administrative state, yesterday, the Supreme Court did what was widely expected: rule in favor of Donald Trump in a case related to federal prosecution over January 6. In a 6-3 decision, the court ruled that presidents have “presumptive immunity” for “official acts” while in office.

The decision does not necessarily kill the potential for federal prosecution, kicking the question to a lower district court about whether or not Trump’s actions constitute an “official act.”

In practice, however, it effectively delays any future decision until after the November election.

The unexceptional outcome has been met with predictable hysteria from critics of the former president, with rabid online fans suggesting that the Biden Administration would now have a green light to take extraordinary actions against a political opponent.

Of course, on this same day, a prominent Trump ally, Steve Bannon, has been ordered to turn himself into federal custody for failing to comply with a politicized Congressional probe illustrates the degree to which extraordinary action has already become commonplace in Washington.

Inane hysterics have not been limited to progressive keyboard warriors, however. Take, for example, a dissent opinion written by Justice Sonia Sotomayor.

She concludes with the following:

Never in the history of our Republic has a President had reason to believe that he would be immune from criminal prosecution if he used the trappings of his office to violate the criminal law. Moving forward, however, all former Presidents will be cloaked in such immunity. If the occupant of that office misuses official power for personal gain, the criminal law that the rest of us must abide will not provide a backstop.”

“With fear for our democracy, I dissent.

Those who desire a society with equal protection under the law would likely agree that no president should be “above the law.”

The problem, of course, is that what Sotomayor is describing is not a modern abomination foisted by an out-of-control, partisan court determined to protect a political patron. Instead, presidential immunity from misconduct has been the operating status quo in this country for decades.

It is the current objection to its application here that it is driven by petty partisan animus, not an idealistic concern for the sacred nature of American democracy. 

As has been well documented at sites like Mises.org for quite some time, the executive branch’s tradition of criminal behavior has become ingrained in the office itself. Modern obvious examples include unilateral declaring war without the authorization of Congress, often with the deliberate use of bad intelligence. It includes ordering the death of American citizens abroad under the guise of these military adventures. President Biden has ignored concerns from the Supreme Court itself regarding action on student loans. 

If one reassesses the presidency further, one could find numerous other examples, such as Franklin Delano Roosevelt’s secretive use of the loan-lease program to actively subsidize the Soviet Union before American involvement in World War II. Or the general erosion of the Bill of Rights by the gradual expansion of federal power dating back well over a century.

Still, reflexive defenders of the institution of the presidency may suggest that these official breaks of the rule of law should be considered separately from the more vulgar nature of what federal prosecutors are claiming Trump is guilty of: the exercise of the power of the presidency to serve his narrow self-interest. In the words of Sotomayor, “misuses [of] official power for personal gain.”

This, too, falls flat. After all, Bill Clinton was among those most effective at monetizing the office for him and his family. As he was on his way to the door, pardons were going for a few hundred thousand dollars. 

Once again, the regime’s critics of Donald Trump ring entirely hollow because his own actions, at their most condemnable, are all behaviors that they themselves have been comfortable enabling for those they consider their own.

The pearl-clutching of those who delude themselves as self-grandiose defenders of democracy has sowed the seeds for the growing disillusionment of American institutions. Though they are intellectually incapable of appreciating it, this absurd behavior has been their greatest contribution to American society. 

Despite the near-perfect track record of downward revisions over the last 17 months, the market seemed buoyed today by a better than expected JOLTS print – which was juiced almost entirely by government jobs

Source: Bloomberg

And that was enough to send rate-cut expectations (dovishly) higher

Source: Bloomberg

Which pulled stocks and bonds higher in price…

Source: Bloomberg

In equity land, Nasdaq was the biggest gainer while Small Caps lagged

…as the energy-tech/AI pair continued to flip-flop (today’s winner was tech over energy)…

Source: Bloomberg

TSLA had a big day, up almost 10% after beating expectations for deliveries (getting back towards unchanged for the year)…

Which helped lift the Mag7 to fresh record-er highs…

Source: Bloomberg

Treasury yields were lower across the curve with the belly outperforming (7Y -4bp[s, 2Y & 30Y -2bps)…

Source: Bloomberg

The dollar dived on the dovishness….

Source: Bloomberg

Gold traded sideways once again (despite the dollar weakness)…

Source: Bloomberg

Oil prices touched a new two-month highs before legging back down for the day with WTI holding around $83 into tonight’s API data…

Source: Bloomberg

Having rallied back up to the scene of the Mt.Gox headline crime, Bitcoin slipped back lower today…

Source: Bloomberg

…despite 5 straight days of ETF inflows leading into this…

Source: Bloomberg

Finally, for the first time on over a year, macro-economic surprises have turned negative across every major region in the world…

Source: Bloomberg

Tim for The Fed to save the world (from Tyrannical Trump… with Simple Joe?)

Several years ago we calculated that the cost to implement the “Green new deal”, and to fund the liberal crusade against “climate change” would cost no less than $150 trillion over 30 years, or about $5 trillion per year, a staggering amount, and one which would require constant QE by central banks in the trillions each and every year to have any chance of ever getting funded, a process which just incidentally would spark double (if not triple) digit inflation.

Which of course was the whole point: the bullshit “green” narrative was spewed by the top echelons of power not because these private jetsetters give a rat’s ass about the environment – if that was the case the CO2 footprint of the top 1% would not be greater than the bottom 90% – but because they always needed a palatable and “virtuous” justification to spend like drunken sailors, be it to destroy ideological enemy X in noble war Y (where the deep state is the biggest beneficiary of the flood in defense spending), or to destroy evil climate change.

Now, it is well-known that the framework for this gargantuan spending spree took place “before covid”, a world which was largely devoid of inflation and where there were tens of trillions in negative-yielding bonds – hardly the stuff that allows debt to be inflated away, in fact quite the opposite – and since the goal was precisely that, namely to inflate away the world’s hundreds of trillions in excess debt, the “unexpected but welcome arrival” of the covid crash and the runaway inflation that the resulting fiscal spendgasm unleashed, effectively obviated the green new deal. No longer would the world need to justify spending $150 trillion to “fix climate” in order to spark the runaway inflation that would inflate the world’s record debt.

But the presence of inflation eliminating the core need for the “climate change” crusade, also meant that suddenly there was a gaping hole for what the “next big thing” would be that would require trillions in (preferably taxpayer-funded, i.e. QE) spending, that would then by quietly transferred into the pockets of middlemen who took it upon themselves to “effectively” allocate said capital.

Enter the AI narrative.

Yes, just like Blu Rays, 3D TVs, 3D printers, the 5G revolution, and so many other gimmicks over the recent years, the true purpose of AI – which is nothing more than a glorified yet prone to catastrophic error and hallucination chatbot – is to force management teams (and taxpayers) to spend capex like drunken sailors, in the process creating a new order of ultra rich entrepreneurs, who return the favor and allocate purchase orders to the same management teams, while making the insurmountable moat separating the tech giants from the rest of the market even wider. In short: all AI does is create the illusion of some huge, unmet market (some idiots have even mentioned quadrillions in Total Addressable Market size) while in realty what it really does is allocate capital to a handful of soon to be super wealthy scam artists, while leaving the population – and gullible creditors – holding the bag when this latest ivory tower comes crashing down. But don’t take our word: here is Goldman expressing skepticism about the next big thing (full note available to pro subs in the usual place).

And while much of the equity has already been distributed to the lucky few, with Nvidia and OpenAI by far the biggest winners and with the “Next AI trade” – namely the energy infrastructure needed to keep all those thousands of electricity-guzzling data centers up and running – waiting in the wings for its day in the sun and your brokerage account, where the real bonanza will be is not equity at all but rather debt.

We touched upon this two weeks ago when we reported that according to Morgan Stanley, “The AI Revolution Will Unleash An Explosion In New Debt Issuance“.

Quoting the bank’s head of quantitative research, Vishwanath Tirupattur, we said that “It goes without saying that AI infrastructure will need substantial capex. Early on, much of the AI capex has been funded by a combination of venture capital and retained earnings from cash-rich technology companies, i.e., equity capital. As the focus shifts from early innovators and enablers to AI adopters, these needs are bound to grow significantly and will require more efficient forms of capital. We think that credit markets in various forms – unsecured, secured, securitized and asset-backed – will have a major role to play.“

In addition, we noted, “as the capex cycle broadens out from enablers to adopters, we note that most sectors are not as cash-rich as tech. While the median cash-to-debt ratio for the tech sector is over 50%, it stands at close to 15% for the remaining sectors. As capital needs driven by the AI infrastructure build-out increase, we expect reliance on credit markets to grow.”

Financing for AI infrastructure, particularly data centers, will not come from corporate credit markets alone. Data centers can be owned by the companies using them or by a data center operator that leases space to them. The data centers themselves and/or the tenant lease payments can be treated as the underlying collateral to access securitization markets. This is already happening. The first data center ABS was issued in 2018, and the market has now grown to over US$20 billion and is poised for rapid growth.”

The bottom line, we said, is that “as AI-driven technology diffusion takes center stage, credit markets, broadly defined, will likely play a growing role. As always, there will be winners and losers, but AI as a theme for credit investors is here to stay.“

This may have been an understatement, because fast-forwarding to today, Blackstone Credit and Insurance’s global chief investment officer, Michael Zawadzki, said on Bloomberg Television that the $1.7 trillion private-lending industry is still “in batting practice” before it swells to a $25 trillion market.

And what will drive this expansion? Take a wild guess: according to Zawadzki, the funding needs will be to finance the energy transition (he didn’t get the memo yet that the “Green” narrative is dead) and – of course – data centers (this is the narrative that is now stepping in to justify the coming debt tsunami, now that the “green new deal” is dead).

“You’re financing the real economy — you’re not waiting for M&A transactions to happen,” Zawadzki said. “You’re financing consumers, you’re financing data centers, you’re financing energy transition. Huge growth capital expenditures, that’s what’s really driving the growth.”

And that’s how, when you repeat the lie enough times, a hallucinating chatbot becomes “the real economy.”

Higher base rates, the shift from banks to private lenders and the proliferation of strategies to access private credit allow the market to grow larger, Zawadzki said. The private investment grade strategies like asset-backed finance and infrastructure credit are “really compelling” in today’s market, he said. The size of the asset-based finance market is about $5 trillion to $10 trillion, he said.

Naturally, having become the largest commercial and residential landlord in the US, Blackstone is now seeking to monopolize the next big thing: data centers in general, and the private debt to fund them in particular. Not surprisingly the private equity giant has been active in the asset-based finance markets, leading debt packages for cloud computing firm CoreWeave tied to assets including microchips. And as is well known, CoreWeave has been one of the first and biggest drivers of growth at Nvidia (and we aren’t even going into the conspiracy theories). So, if one is so inclined, one can directly trace the flow of money: from Blackstone debt to CoreWeave purchase orders, to Nvidia AI chip backlogs, to trillions in market cap gained for a handful of firms, to the S&P and Nasdaq at daily all time highs.

Talk about leverage, and that is just the start.

Of course, it’s not just AI: Zawadzki said that spreads in public markets have become “awfully tight” due to investors flowing into the asset class. So Blackstone has encouraged clients to enter private credit due to excess spread and the illiquidity premium it offers. But credit is nothing without the demand for it, and right now, nothing screams demand more than AI and the need to fund the tens of trillions in infrastructure growth over the next few years.

Just don’t call it the “Green Next Deal.”

More: “The AI Revolution Will Unleash An Explosion In New Debt Issuance.”

Submitted by QTR’s Fringe Finance

I had the wonderful pleasure of interviewing my friend Chris Martenson from Peak Prosperity this week. Martenson, PhD (Duke), MBA (Cornell) is an economic researcher and futurist specializing in energy and resource depletion, and founder of PeakProsperity.com.

He is one of a small list of favorites of mine that I am constantly reading and following on Twitter and on his site. He was also one of the first to sound the alarm about Covid in the U.S. while the mainstream media (and the rest of the nation) hadn’t figured out the obvious yet.

In our 75 minute audio interview, we discussed a wide range of topics, including the potential for World War 3, the immigration crisis, the state of the economy in the U.S., our nation’s response to Covid and looking back on the events of 9/11 more than 20 years later.

Chris told me right off the bat that he has significant concerns about the Russia/Ukraine war escalating due to the U.S. war machine making unilateral decisions: “So here’s the event that bothers me the most right now. A month ago, we hear that Ukraine has used some of their first long-range capabilities to attack Russia’s over-the-horizon nuclear early detection radar system. One of them, right?”

“A couple of weeks later, a second one. All right. Do you think anybody listening to this really believes that we voted for somebody who made that decision to target those things?”

He continued: “They didn’t consult any congressmen or senators. There’s like no presidential input involved. Somebody somewhere in the deep state said, you know what, let’s blind Russia right now for nuclear attacks and hope for the best. Or what? I don’t know what their plan is, but we can all feel it—that we have an out-of-control machine that makes decisions that have nothing to do with what’s best for you or me or anybody else.”

The conversation then look a hard turn into discussing the deep state, the U.S. war machine and the events of 9/11. Chris and I both shared our concerns with the details we were given about the events of September 11, 2001, specifically regarding Building 7.

Chris told me: “My PhD from Duke University is in a life science. But to get there, I took physics, I took chemistry, organic chemistry, all kinds of things, right? So I’m a big believer in chemistry. Physics and chemistry, okay? So with that said, there’s some laws out there. There are natural laws, like the law of gravity. You can not believe in it. You can decide that you can cross your legs, float, but nobody does it, right? It just doesn’t happen. It’s this thing. It’s like death. I’m gonna evade death. No, you’re not, right?”

He continued: “Second, there’s this law of the conservation of momentum, right? So if you’re standing on a pond that’s frozen over and I’m standing on a pond and you push on me, we’re both going in opposite directions, right? It’s just how it is. So when we look at Building Seven, if you were standing on the corner, any one of the four corners, it fell symmetrically like an imploding building, but leave that aside, that observation. If you were standing on the corner at the moment it let go, NIST itself had to finally admit that for two and a quarter seconds, that building fell at free fall.”

Chris explained why this is so concerning: “Meaning if you dropped a bowling ball into the air off the corner of the building at the same time that let go, it would track at the same pace. Like if you jumped off a bridge that was 88 feet high. Yes. If you jumped off that building, you and the corner of that building would be eye to eye staring at each other as it went down.”

“That building had 80,000 tons of structural steel in it. It doesn’t just go away. It can’t, but it did. For two and a quarter seconds, there was no resistance to downward momentum. That’s not… you can’t crumple that. There’s no possible way to begin progressively collapsing this thing. You can’t do that. So we have to then come up with an explanation for how 80,000 tons of structural steel stepped aside and provided no resistance for two and a quarter seconds.”

After hashing out our thoughts on 9/11, our conversation turned to the forthcoming election. Martenson expressed to me that the election either could “already be in the bag” or “not be happening”, two ideas I couldn’t help but be skeptical of.

Chris told me: “So what is the media not talking about? What’s not happening that really ought to be happening? And on that front, you know what’s really unnerving to me? Biden and Harris aren’t really campaigning. You know, they just sort of weakly started lately. I was starting to see a few ads here and there, but it’s lame. It’s like they don’t even care. And so how is it that you wouldn’t even campaign? Well, one of two reasons. You’re not worried about the election because it’s already in the bag, right? Or there’s not going to be one.”

Turing our attention to the problems the nation faces, we talked about the U.S. debt crisis and the nation’s immigration crisis.

“We clearly have a runaway monetary fiscal train at this point in time, and it’s just headed towards what I call the nuclear reactor critical mass runaway moment,” Chris told me. “Higher interest payments beget more borrowing, which begets higher interest rates, which begets higher interest payments. And you’re on that spiral. That’s the death spiral, which happens to companies, but it can happen to countries too.”

He continued: “We could have probably kicked the can another cycle or two, but now you have the rest of the world backing away, if not trotting away from the U.S. dollar, and people don’t get it yet. China’s negatively hoarding their treasuries, they’re dis-hoarding right now. So China’s selling. Japan’s in a world of hurt. I don’t know if you see, but the yen’s here banging around at the 160 level again. So they’re selling, and their big bank has to probably sell some treasuries. Russia, obviously not buying any of our crap—they kicked that habit in 2018. But Saudi Arabia now not buying treasuries, dis-hoarding.”

And he raised questions about where, exactly, treasury demand is coming from, telling me: “So who’s buying? Well, you go to the Treasury International Capital Report. You find out, oh good, the Cayman Islands stepped in. Dude, we need an audit of the Fed right away. I don’t think it’s always suspicious to see it, no, because every time we need the Cayman Islands and the UK to step up and buy just hand over fist treasuries, somehow they do.”

Finally, Chris — like most of us watching flawed policy unfold — says we’re definitely going back to QE: “But listen, here’s a prediction. It’s very easy to make for me. The Fed’s going to have to go back to QE. It’s not just lowering interest rates—that’s going to do dick all for us at this point. They’re going to go back to QE because we can’t risk a treasury failure. We have $9 trillion of debt, new and existing, rolling through the auction market this next calendar year. And so the Fed’s going to have to step in and start buying that stuff. Full stop. That’s inflation.”

Last, we discussed some alarming facts about the ongoing immigration crisis in the U.S., namely the idea that there are tons of military aged men coming from countries like China and entering the country.

Chris thinks its part of a larger plan: “Well, they’re letting in the teams that are going to attack us and dismantle us from within when the war starts. I mean, that sounds conspiratorial, but God damn, if I can’t help but think that. You know, military. It’s the data. You can’t exclude it out of hand. You just can’t. Maybe not all of them. Let’s say we had 20 million people come in over the last five, six years or whatever the number is now, right?”

“What if just 10% of them are nefarious? They’re MS-13 gang members who got disordered from a Nicaraguan jail, or they’re actual SEAL team equivalents coming from China, Afghanistan, wherever, right? That’s just 10%. Okay, well, there’s 2 million people inside our country now who are poised to cause damage if called upon, right? And no one knows where they are and they don’t have social security numbers. Nobody can track them. You know, it’s just, you’re a racist if you do.”

You can listen to the full 75 minute long audio discussion at this link. 

QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.

Usage of The Fed’s Reverse Repo facility is down $220 Billion in the last two days as the massive surge in demand across month- and quarter-end pulls back (mirroring December’s stress, and not the prior quarter-ends), but notably this pull back is far less than the $313 billion drop seen at 2023 year-end (suggesting banks are clinging to the liquidity a little more than normal)…

Source: Bloomberg

As we noted on X at the time:

“that banks are in such dire need to window-dress their books is concerning.”

And now we get more to ‘concern’ ourselves with as a key measure of stress in the financial system’s plumbing is showing signs of cloggage…

The Secured Overnight Financing Rate – A key rate tied to the day-to-day borrowing needs of the financial system – surged to its highest level ever (spiking 7bps to 5.40%) on July 1 as chunky Treasury auction settlements and clogged primary dealer balance sheets curbed lending capacity.

Source: Bloomberg

With The Fed still removing liquidity from the system via quantitative tightening (albeit having signaled this will be at a significantly slower rate as they taper QT), volatility underlying the financial system (which just got it clean bill of health from The Fed, remember) is starting to reignite in a replay of last year’s stress. This stress was exaggerated by crucial quarter-end funding periods as seen last week, when, as Bloomberg reports, banks tend to pare repo activity to shore up balance sheets for regulatory purposes and borrowers either find alternatives or pay up.

At the same time, the glut of government debt sales means more collateral needs financing from the repo market.

And so pay up they did…

“This might be the new normal and explains why the Fed reduced the cap on runoffs,” said Subadra Rajappa, head of US rates strategy at Societe Generale SA.

“Record coupon issuance sizes and bond settlements, primary dealer holdings near highs, so ultimately balance-sheet constraints.

This feels more like what we saw year-end and repo might take a few days to normalize.”

Source: Bloomberg

Admittedly this spike in the SOFR spread is far from the extremes we saw in March 2020 (COVID) and Sept 2019 (Repo crisis), but it is heading in the right (well, wrong) direction as Bloomberg highlights, the indicators that warned of strains in 2018-2019 have started to re-appear – dealer holdings of Treasuries are near all-time highs and overnight repo rates continue to creep up.

The Fed’s Standing Repo Facility has helped put a ceiling on repo rates, though questions remain on how it handles moments of stress.

Excluding The Fed’s now halted bank bailout facility, Small Banks appear to be at their reserve constraints and now the Discount Window is their only choice should all hell break loose again (and the de-stigamtization of that facility will, we are sure, pick up soon in Fed Speak)…

Source: Bloomberg

The Fed may have no choice to cut rates and/or reverse course to QE – but with Biden’s poll numbers now puking, that would look even more politicized…

“Stopping QT would help prevent the background from deteriorating further, but I don’t think stopping QT would materially improve the environment,” said Gennadiy Goldberg, head of US interest rate strategy at TD Securities.

“It’s really a function of the cost of cash starting to rise somewhat as we go from extreme abundance of liquidity to a more ‘normal’ environment.”

Finally, not everyone is fearful:

“This might be the new normal and explains why the Fed reduced the cap on runoffs,” said Subadra Rajappa, head of US rates strategy at Societe Generale SA.

“Record coupon issuance sizes and bond settlements, primary dealer holdings near highs, so ultimately balance-sheet constraints. This feels more like what we saw year-end and repo might take a few days to normalize.”

But, for now, we will be keeping an eye on reverse repo usage (and the SOFR spread) for any further signs of deterioration.

Authored by Jonathan Turley,

President Joe Biden delivered an address from the White House last night on the presidential immunity decision by the Supreme Court. While pledging that he will defend the rule of law, President Biden misrepresented what that law is in the aftermath of Trump v. United States.

While we have often discussed false constitutional claims by the President as well as other false statements, an address of this kind is particularly concerning in misleading citizens on the meaning of one of the most important decisions in history.

As I have previously written, I am not someone who has favored expansive presidential powers. As a Madisonian scholar, I favor Congress in most disputes with presidents. However, I saw good-faith arguments on both sides of this case and the Court adopted a middle road on immunity — rejecting the extreme positions of both the Trump team and the lower court.

One of the most glaring moments in the address came when President Biden declared that “for all…for all practical purposes, today’s decision almost certainly means that there are virtually no limits on what a president can do.”

That is not true.

The Court found that there was absolute immunity for actions that fall within their “exclusive sphere of constitutional authority” while they enjoy presumptive immunity for other official acts. They do not enjoy immunity for unofficial, or private, actions.

The Court has often adopted tiered approaches in balancing the powers of the branches. For example, in his famous concurrence to Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), Justice Robert Jackson broke down the line of authority between Congress and the White House into three groups where the President is acting with express or implied authority from Congress; where Congress is silent (“the zone of twilight” area); and where the President is acting in defiance of Congress.

Here the Court separated cases into actions taken in core areas of executive authority, official actions taken outside those core areas, and unofficial actions.  Actions deemed personal or unofficial are not protected under this ruling.

It is certainly true that the case affords considerable immunity, including for conversations with subordinates. However, this did not spring suddenly from the head Zeus. As Chief Justice John Roberts lays out in the majority opinion, there has long been robust protections afforded to presidents.

There are also a host of checks and balances on executive authority in our constitutional system. This includes judicial intervention to prevent violations of the law as well as impeachment for high crimes and misdemeanors.

President Biden’s hyper-ventilated response is crushingly ironic. He was vice president when President Barack Obama killed an American citizen without a trial or a charge. When former Attorney General Eric Holder announced the “kill list” policy (that included the right to kill any American citizen), he was met with applause, not condemnation.

The Obama-Biden administration then fought every effort by the family to sue the government. President Biden would have been outraged by any attempt of a Republican district attorney to charge him or President Obama with murder.

He would also be outraged by prosecutors pursuing criminal charges for the deaths associated with the deluge of undocumented persons over the Southern border.

In his address, President Biden also claimed that “the law would no longer” define “the limits of the presidency.”

That is also untrue. This case was remanded for the purpose of defining what of these functions would be deemed private as opposed to official. Even on official actions, former president Donald Trump could be prosecuted if the presumptive immunity is rebutted by prosecutors.

What was most glaring for many civil libertarians was President Biden’s portrayal of himself as a paragon of constitutional fealty.  He declared that “I know I will respect the limits of the presidential powers as I have for the last three-and-a-half years.”

That was also untrue. President Biden has racked up an impressive array of losses in federal courts where he was found to have violated the constitution.

This includes rulings that his administration has exceeded his authority and engaged in racial discrimination in federal programs. Indeed, Biden has often displayed a cavalier attitude toward such violations.

For example, the Biden administration was found to have violated the Constitution in its imposition of a nationwide eviction moratorium through the Centers for Disease Control and Prevention (CDC).  Biden admitted that his White House counsel and most legal experts told him the move was unconstitutional. But he ignored their advice and went with that of Harvard University Professor Laurence Tribe, the one person who would tell him what he wanted to hear. It was, of course, then quickly found to be unconstitutional.

Biden showed the same disregard over the unconstitutionality of his effort to unilaterally forgive roughly half a trillion dollars in student debt. Courts have already enjoined that effort as presumptively unconstitutional (though an appellate court in one of those cases relaxed aspects of the injunction).

The address was used to reinforce his “democracy is on the ballot” campaign theme. Pundits have repeated the mantra, claiming that if Biden is not elected, American democracy will perish.

While some of us have challenged these predictions, the other presidential candidates are missing a far more compelling argument going into this election. While democracy is not on the ballot this election, free speech is.

For many of us in the free speech community, President Biden has become the most anti-free speech president since John Adams.

As discussed in my new book,  “The Indispensable Right: Free Speech in an Age of Rage,” the Biden Administration has helped fund and maintain an unprecedented censorship system in the United States.

That record is hardly supportive for a president claiming to be the defender, if not the savior, of the Constitution.

Authored by Andrew Moran via The Epoch Times,

The federal government completed the sale of 1 million barrels of gasoline from the Northeast Gasoline Supply Reserve (NGSR), the White House said in a statement shared with The Epoch Times on Tuesday.

Last month, the government announced it would release 42 million gallons of gas from storage facilities in Maine and New Jersey to help lower pump prices heading into the typically busy summer driving season.

After receiving 19 proposals from five companies since May 21, the federal government awarded contracts to all the firms: BP (500,000 barrels), Vitol (200,000 barrels), Freepoint Commodities (100,000 barrels), George E. Warren (100,000 barrels), and Irving Oil (98,824 barrels).

Gas reserves were sold at an average $2.34 per gallon.

Senior administration officials touted the news as another victory for the federal government’s inflation-fighting efforts.

“The Biden-Harris Administration continues to take strategic action to lower prices for American consumers in every aspect of their lives—especially as summer driving season ramps up,” said Energy Secretary Jennifer Granholm.

“By releasing this reserve ahead of July 4th, we are ensuring sufficient supply flows to the northeast at a time hardworking Americans need it the most.”

But while gasoline prices have not rocketed this summer, the White House is trying to build on the plethora of measures to reduce energy costs, says National Economic Advisor Lael Brainard.

“Gas prices have come down nearly 20 cents in the last two months, but we know there is more to do,” said Ms. Brainard.

“This release will help lower prices at the pump, building on other actions by President Biden, including historic releases from the Strategic Petroleum Reserve, record energy production, and the largest-ever investment in clean energy.”

[ZH: Yeah Ms. Brainard, but prices are surging again now.]

According to the American Automobile Association (AAA), gas prices are around $3.49 per gallon, down 5 cents from a year ago.

The cost of gas could start ticking higher because of the jump in crude oil prices.

U.S. crude topped $83 a barrel on the New York Mercantile Exchange during the July 1 trading session. Year-to-date, the West Texas Intermediate crude oil benchmark is up about 17 percent.

Oil prices had cooled since the end of April, but the revival of geopolitical tensions, investors bracing for the Federal Reserve to cut interest rates, an active hurricane season, and tight international energy markets have bolstered oil prices in recent sessions.

“Summer got off to a slow start last week with low gas demand,” said AAA spokesperson Andrew Gross.

“But with a record 60 million travelers forecast to hit the road for the July 4th holiday, that number could pop over the next 10 days. But will oil stay above $80 a barrel, or will it sag again? Stay tuned.”

The latest Energy Information Administration (EIA) data show that gasoline demand was 8.96 million barrels last week, down 240,000 barrels from the same period a year ago.

Since January 2021, gas prices have soared cumulatively 55 percent, and oil has surged 66 percent.

Tapping Into Reserves

In 2012, President Barack Obama created the Northeast Gasoline Supply Reserve following Hurricane Sandy, which destroyed refineries in the region.

Recent EIA figures revealed domestic gas inventories totaled 233.886 million barrels for the week ending June 21, down more than 3 percent from the same period three years ago.

Additionally, following Russian President Vladimir Putin’s invasion of Ukraine, President Biden tapped into the nation’s emergency oil stockpiles to curb prices, drawing down 180 million barrels of oil. The White House estimates this trimmed gas prices by about 80 cents.

The SPR is approximately 40 percent lower than in January 2021. Since hitting a bottom of 346.758 million barrels in July 2023, the U.S. government has been gradually refilling reserves. As of June 21, the SPR was 372.197 million barrels, the highest since December 2022.

The White House has repeatedly shifted its position to replenish the SPR.

In April, the Department of Energy abruptly canceled a 2.8-million-barrel offer to refill a significant storage facility in Louisiana. This decision occurred one month after issuing a solicitation for August and September deliveries.

However, Ms. Granholm told Reuters in a June 28 interview that the administration could rush offers to replenish U.S. reserves beyond a 3-million-barrel-a-month pace.

“It could pick up more than that,” she said, adding that two SPR locations in Louisiana and Texas have been in maintenance.

“All four sites will be back up by the end of the year, so one could imagine that pace would pick up, depending on the market.”

The federal government established the Strategic Petroleum Reserve in 1975 in response to the 1973–1974 oil embargo. The purpose was to limit the impact of disruptions in global petroleum markets. Officials could withdraw from the SPR during emergencies, energy interruptions, or supply troubles.

The world’s largest economy consumes about 20 million barrels of oil per day, meaning current reserves would be exhausted in 18 days if production ceased.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Wall Street analysts continue significantly lowering the earnings bar as we enter the Q2 reporting period. Even as analysts lower that earnings bar, stocks have rallied sharply over the last few months.

As we have discussed previously, it will be unsurprising that we will see a high percentage of companies “beat” Wall Street estimates. Of course, the high beat rate is always the case due to the sharp downward revisions in analysts’ estimates as the reporting period begins. The chart below shows the changes for the Q2 earnings period from when analysts provided their first estimates in March 2023. Analysts have slashed estimates over the last 30 days, dropping estimates by roughly $5/share.

That is why we call it “Millennial Earnings Season.” Wall Street continuously lowers estimates as the reporting period approaches so “everyone gets a trophy.” An easy way to see this is the number of companies beating estimates each quarter, regardless of economic and financial conditions. Since 2000, roughly 70% of companies regularly beat estimates by 5%, but since 2017, that average has risen to approximately 75%. Again, that “beat rate” would be substantially lower if investors held analysts to their original estimates.

Analysts remain optimistic about earnings even with economic growth weakening, inflation remaining elevated, and liquidity declining. However, despite the decline in Q2 earnings estimates, analysts still believe that the first quarter of 2023 marked the bottom for the earnings decline. Again, this is despite the Fed rate hikes and tighter bank lending standards that will act to slow economic growth.

However, between March and June of this year, analysts cut forward expectations for 2025 by roughly $9/share.

However, even with the earnings bar lowered going forward, earnings estimates remain detached from the long-term growth trend.

As discussed previously, economic growth, from which companies derive revenue and earnings, must also strongly grow for earnings to grow at such an expected pace.

Since 1947, earnings per share have grown at 7.72%, while the economy has expanded by 6.35% annually. That close relationship in growth rates is logical, given the significant role that consumer spending has in the GDP equation. However, while nominal stock prices have averaged 9.35% (including dividends), reversions to underlying economic growth will eventually occur. Such is because corporate earnings are a function of consumptive spending, corporate investments, imports, and exports. The same goes for corporate profits, where stock prices have significantly deviated.

Such is essential to investors due to the coming impact on “valuations.”

Given current economic assessments from Wall Street to the Federal Reserve, strong growth rates are unlikely. The data also suggest a reversion to the mean is entirely possible.

The Reversion To The Mean

Following the pandemic-driven surge in monetary policy and a shuttering of the economy, the economy is slowly returning to normal. Of course, normal may seem very different compared to the economic activity we have witnessed over the last several years. Numerous factors at play support the idea of weaker economic growth rates and, subsequently, weaker earnings over the next few years.

1. The economy is returning to a slow growth environment with a risk of recession.

2. Inflation is falling, meaning less pricing power for corporations.

3. No artificial stimulus to support demand.

4. Over the last three years, the pull forward of consumption will now drag on future demand.

5. Interest rates remain substantially higher, impacting consumption.

6. Consumers have sharply reduced savings and higher debt loads.

7. Previous inventory droughts are now surpluses.

Notably, this reversion of activity will become exacerbated by the “void” created by pulling forward consumption from future years.

“We have previously noted an inherent problem with ongoing monetary interventions. Notably, the fiscal policies implemented post the pandemic-driven economic shutdown created a surge in demand and unprecedented corporate earnings.”

As shown below, the surge in the M2 money supply is over. Without further stimulus, economic growth will revert to more sustainable and lower levels.

While the media often states that “stocks are not the economy,” as noted, economic activity creates corporate revenues and earnings. As such, stocks can not grow faster than the economy over long periods. A decent correlation exists between the expansion and contraction of M2 less GDP growth (a measure of liquidity excess) and the annual rate of change in the S&P 500 index. Currently, the deviation seems unsustainable. More notably, the current percentage annual change in the S&P 500 is approaching levels that have preceded a reversal of that growth rate.

So, either the annualized rate of return from the S&P 500 will decline due to repricing the market for lower-than-expected earnings growth rates, or the liquidity measure is about to turn sharply higher.

Valuations Remain A Risk

The problem with Wall Street consistently lowering the earnings bar by reducing forward estimates should be obvious. Given that Wall Street touts forward earnings estimates, investors overpay for investments. As should be obvious, overpaying for an investment today leads to lower future returns.

Even with the decline in earnings from the peak, valuations remain historically expensive on both a trailing and forward basis. (Notice the significant divergences in valuations during recessionary periods as adjusted earnings do NOT reflect what is occurring with actual earnings.)

Most companies report “operating” earnings, which obfuscate profitability by excluding all the “bad stuff.” A significant divergence exists between operating (or adjusted) and GAAP earnings. When such a wide gap exists, you must question the “quality” of those earnings.

The chart below uses GAAP earnings. If we assume current earnings are correct, then such leaves the market trading above 27x earnings. (That valuation level remains near previous bull market peak valuations.)

Since markets are already trading well above historical valuation ranges, this suggests that outcomes will likely not be as “bullish” as many currently expect. Such is particularly the case if more monetary accommodations from the Federal Reserve and the Government are absent.

Trojan Horses

As always, the hope is that Q2 earnings and the entire coming year’s reports will rise to justify the market’s overvaluation. However, when earnings are rising, so are the markets.

Most importantly, analysts have a long and sordid history of being overly bullish on growth expectations, which fall short. Such is particularly the case today. Much of the economic and earnings growth was not organic. Instead, it was from the flood of stimulus into the economy, which is now evaporating.

Overpaying for assets has never worked out well for investors.

With the Federal Reserve intent on slowing economic growth to quell inflation, it is only logical that earnings will decline. If this is the case, prices must accommodate lower earnings by reducing current valuation multiples.

When it comes to analysts’ estimates, always remain wary of “Greeks bearing gifts.”

Hours after the US Supreme Court granted Donald Trump immunity for official acts committed in office, the former president began an effort to toss his recent conviction in Manhattan and postpone his upcoming sentencing over 34 felony counts related to his cover-up of a sex scandal leading up to the 2016 US election.

In a letter to judge Juan Merchan just hours after the Supreme Court ruling – and 10 days before he’s set for sentencing, Trump’s lawyers sought permission to file a motion to set aside the verdict while Merchan considers whether the Supreme Court ruling affects the conviction.

That said, Trump’s attempt might be a long shot given the fact that the Manhattan case revolves around acts Trump took as a candidate, not as president.

As the NY Times notes, however, Trump’s lawyers are likely to argue that prosecutors partially built their case using evidence from his time in office. Under the Supreme Court’s new ruling, prosecutors may not charge a president for official acts, but also cannot cite evidence involving official acts that affect other accusations.

It is unclear how the Manhattan district attorney’s office, which brought the case, will respond, or whether the judge will delay the first sentencing of an American president. But Mr. Trump’s effort appeared to cause at least a brief interruption: The district attorney’s office did not on Monday make a sentencing recommendation to the judge about whether to imprison Mr. Trump, as was expected.

Merchan may also punt on the request, as the deadline for filing post-trial motions ended last month. Instead, Merchan may instruct Trump’s attorneys to raise the issue when they appeal the conviction post-sentencing.

As the Times further notes, Merchan faces an ‘unprecedented conundrum’ with massive legal and political ramifications. Imprisoning Trump would drop-kick a hornet’s nest, while sparing Trump from prison would immediately draw the wrath of vengeful Democrats who say he gave Trump special treatment.

While there’s no requirement that Trump be sentenced to time behind bars, Merchan could sentence him to months or several years in prison – or he could be sentenced to home confinement or probation. He could also postpone any sentence until after the election, or after Trump serves another term in office, should be he reelected.

Meanwhile, Trump’s other criminal cases have been largely derailed or otherwise postponed – including his trial in Washington DC, where he stands accused of mishandling classified information while still in office.

Authored by Charles Hugh Smith via OfTwoMinds blog,

That monkey on your back comes in many forms.

We’ve all heard of Disaster Capitalism: the Powers That Be either initiate or amplify a crisis as a means of granting themselves “emergency powers” which just so happen to further concentrate the nation’s wealth and power in the hands of the few at the expense of the many.

Naomi Klein described the concept and cited examples in her 2008 book The Shock Doctrine: The Rise of Disaster Capitalism, and summarized the core dynamic: “Disaster capitalism perpetuates cycles of poverty and exploitation.”

Move over, Disaster Capitalism–make room for Addiction Capitalism.

Addiction Capitalism is my term for the last-ditch / desperation method of guaranteeing sales and profits when everybody already has everything: reduce the quality so everything fails and must be replaced, and addict your customers to your product or service which–what a surprise–only you or your cartel provide.

And since you’ve bought up all the competition and moated your monopoly via regulatory thickets / regulatory capture, consumers must continue paying–or suffer the consequences. Addiction Capitalism is capital’s last best hope when the essentials of life and novelties are both over-supplied. So the only ways to juice demand and maintain profits are 1) lower the quality of goods so they must be constantly replaced (Cory Doctorow’s “ensh**tification”) and 2) addict consumers to services such as social media and products such as smartphones, or create dependencies which are equivalent to addiction, such as dependency on weight-loss medications.

Just as the addict is dependent on a drug, patients are dependent on medications that must be taken until the end of their lives.

Jonathan Haidt’s new book offers a scathing indictment of the intentionally addictive–and destructive–nature of social media and smartphones The Anxious Generation: How the Great Rewiring of Childhood Is Causing an Epidemic of Mental Illness.

For another example of how Addiction Capitalism works, consider how tech companies sell a basic accounting software system for a small sum until it becomes a standard for households and small businesses. Then they eliminate outright purchase of the software and switch to a high-cost subscription model. Nice little history of all your financial records you got there; it would be a shame to lose all that by refusing to pay our monthly fee.

Put another way: going cold turkey and refusing to pay the subscription / prescription is going to be painful. That monkey on your back comes in many forms: checking your phone 300 times a day, obsessively counting “likes,” binging on streaming TV and snacks, junk food, fast food, and other addictive glop–the list is long indeed.

Addiction Capitalism is neatly summarized in this scene from Bruce Lee’s 1973 martial arts film Enter the Dragon, where the villain Han reveals his opium empire to martial artist Roper, played by John Saxon:

Han: “We are investing in corruption, Mr Roper. The business of corruption is like any other.”

Roper: “Oh yeah! Provide your customers with products they need and, uh, charge a little bit to stimulate your market and before you know it customers come to depend on you, I mean really need you. It’s the law of economics.”

That’s Addiction Capitalism in a nutshell: “customers come to depend on you, I mean really need you.” 

That presents us with a choice: “and you want me to join this?”

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