“Stability, Security & Prosperity”: Exit Poll Shows Landslide ‘Yes’ Vote Paving Way For Putin’s Rule To 2036 Tyler Durden
Wed, 07/01/2020 – 12:11
67-year old Russian President Vladimir Putin will have already been in power for over two decades when his current term runs out in 2024, but now as Russia is in the midst of a crucial vote on a significantly revised constitution, his rule theoretically could extend further all the way up to 2036, or a whopping 12 more years.
Bloomberg reports after voting began last week, despite raging coronavirus fears, that the latest exit poll by state-run Vtsiom puts support for the amendments, which includes the term limit exemption, at 76%.
Russian constitution, file image.
Under the old or rather current constitution, Putin is barred from running for president again when his term expires in 2024, given consecutive term limits, but the new law would reset this. A single presidential term is six years. Among other constitutional changes authorized by Putin are a permanent constitutional outlawing of same-sex marriage, as well as inclusion in “a belief in God” named as one of Russia’s traditional values.
Putin emphasized this appeal to “traditional values” in a Tuesday television address, saying “We’re voting for the country that we’re working for and that we want to hand down to our children and grandchildren.”
Bloomberg summarizes further of the exit poll: “The Central Election Commission said Wednesday initial results showed the vote was 74% for the proposals, 25% against, with 1% of ballots counted, RIA Novosti reported.”
In power for life? Critics say the latest constitutional ‘reforms’ are meant to do just that. Putin file image.
And despite Russia now having over 654,405 cases of coronavirus and 9,536 deaths — making it the country with the third highest number of infections after the US and Brazil — turnout was reported at over 60% hours before polls closed.
However, Putin’s approval ratings have lately slumped along with the economy due to the devastating impact of both the COVID-19 epidemic and collapsed oil prices.
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“It’s not the substantive crimes and their definitions that count; it’s the institutions that will investigate, prosecute, and judge them that count. Language matters only if there are institutions that will make it matter. This whole law is about avoiding the involvement of such institutions.”
This is the summary of an analysis of Hong Kong’s new national security law by professor of Chinese law Donald Clarke. China openly states the new legislation is “a Sword of Damocles” hanging over the head of its critics. The law allows life in prison for the crimes of: “terrorism” – including “serious disruption” of transport networks; “collusion” with foreigners – including advocating for action by foreign governments; “secession” – including waving pro-independence flags or banners and or shouting or singing such songs or phrases; and “subversion” – including attacks on state offices and “creating hatred” of the government among the people. It allows Beijing to prosecute complex cases directly – which was what the proposed extradition treaty which sparked Hong Kong’s recent unrest was opposed to; closed trials; trials without jury; the operation of Chinese security agents in Hong Kong – who are immune to the law in the operation of their duties; and “stronger management” of media and foreign NGOs.
The law also applies to everyone everywhere in the world.This means if one were to be seen by Beijing as breaking this new legislation in another country and then enter Hong Kong, or transit through it, or even fly in a vehicle registered in Hong Kong, then one would be at risk. Possibly this could even apply to residing in a country with an extradition treaty with Hong Kong (or one day China?). In short, it is a very large, sharp Sword of Damocles.
As such, the same Sword now hangs over markets too. What will the global response be? There has been condemnation from Western governments and steps to allow the emigration of Hong Kongers to the US (where they will be given priority as refugees) and to the UK (where the government appears serious about its pledge to allow in up to 2.9 million people). Even Japan’s newspapers are leading with suggestions that Hong Kongers should be welcomed.
President Trump has tweeted: “As I watch the Pandemic spread its ugly face all across the world, including the tremendous damage it has done to the USA, I become more and more angry at China. People can see it, and I can feel it.” Secretary of State Pompeo that: “The CCP’s draconian national security law ends free Hong Kong and exposes the Party’s greatest fear: the free will and free thinking of its own people.”
The issue is if righteous (or unrighteous) rhetoric is matched with biting US sanctions.
Yet the view among the establishment in Hong Kong, and in markets, is that the US is a paper tiger and there won’t be any. Indeed, AFP journalist Xinqi Su tweeted that the de facto deputy Chinese ambassador to Hong Kong “Zhang Xiaoming dared US to “give it a try” on sanctioning China: “It’s nothing but a chance for us to show our capability to defend ourselves and hit back.”
If China and markets are right and the US does not have the stomach for real action on Hong Kong, risk remains ’on’. As with Brexit, actions we were repeatedly told could never, would never happen are absolutely fine and life just carries on (i.e., stocks go up.) Yet as geostrategists point out, so does the real-world risk that the next US-China clash will be over Taiwan. Meanwhile at the India-China border both sides are still building up their forces, with tanks now arriving. Also note Australia has not-at-all-coincidentally just announced a huge increase in its defence budget to AUD270bn over the next decade (which if funded at the short end of the curve means the RBA is ensuring remains affordable.) Indeed, PM Morrison stated today that the “largely benign security environment” seen since the fall of the Berlin Wall “is gone”. Let’s also consider the looming need for an extension of the UN Iranian arms embargo (which Russia and China oppose): imagine if it lapses and weapons start flowing to Tehran.
If China and markets are wrong and the US does have the stomach for real action on Hong Kong, risk will be ‘off’: and all the central bank action in the world is not going to suppress that particular bout of volatility. In short, risks remain either way – but with different time horizons.
Naturally, there are still many for whom all this represents events in a far-away country of which they know nothing. They can focus on what emerged from yesterday’s Mnuchin-Powell testimony in Congress instead – which was not a lot. There were no concrete details of what kind of Fed-supported fiscal stimulus might be coming next despite there being just a few weeks until some schemes run out.
Forget about free speech and free movement: take away the free money and markets will have to pay attention.
Underlining that fact, today’s Japanese Tankan survey was worse than expected at -34 for large manufacturers, down from -8, and better than expected for large services firms yet still -17, down from 8. Small firms fared worse, of course, with manufacturing down from -15 to -45 and services from -1 to -26. The Japanese manufacturing PMI was 40.1, up only slightly from 37.8 last month.
Even more shocking, Aussie Corelogic house prices were -0.8% m/m. That will be the front page today, not Hong Kong or the defence budget. Building approvals were also -16.4% m/m vs. -7.8% expected. Time to build tanks indeed.
China’s Caixin manufacturing PMI was up from 50.7 to 51.2, better than the expected dip to 50.5. It’s not clear where the real momentum is coming from, but presumably the state sector is helping a lot in the background….which means more debt and/or more excess Chinese supply, and so more global tensions ahead too.
via ZeroHedge News https://ift.tt/2BXCZKC Tyler Durden
Stocks Slump On Arizona COVID Case Record Tyler Durden
Wed, 07/01/2020 – 11:33
…vaccine, what vaccine?
Headlines from Arizona showing the state just saw its biggest daily increase in COVID-19 cases (with no one paying attention to death counts or mortality rates), sparked an acceleration to the downside for the markets in general.
Big Caps (Dow) and Small Caps (Russell 2000) are back in the red…
Nasdaq had been soaring from the cash open (but reversed on AZ headlines) whereas the rest of the markets were being sold from the open, with Small Caps worst.
via ZeroHedge News https://ift.tt/2YQwv9z Tyler Durden
Lucio Delgado was proud to have the chance to become an American citizen after moving to the U.S. from Mexico six years ago. But his dreams were dashed when he flunked the reading portion of the naturalization test. Delgado is blind, but examiners refused to provide that portion of the exam in Braille. Delgado says he was told he needed a doctor’s note.
An arbitrator has ordered the Las Vegas Metropolitan Police Department to reinstate an officer who was fired for hesitating to respond to the mass shooting at the Mandalay Bay casino in 2017. Bodycam video showed Cordell Hendrex leading a rookie officer and three casino security officers one floor below where the gunman was. They stopped when they heard gunfire and remained in the hallway for five minutes. Hendrex then led the team to a stairwell, where they remained for at least 15 more minutes.
San Francisco officials have agreed to pay $369,000 to settle a lawsuit brought by a reporter whose home and office were illegally searched. The police were trying to find the confidential source who leaked results of an investigation into the death of the city’s former public defender, but California’s shield law protects journalists from such searches.
Berlin has agreed to pay compensation to two men who, at ages 6 and age 14, respectively, were deliberately placed in the care of pedophiles. Between 1969 and 2004, the West German government in Berlin placed at least nine runaway boys with convicted sex offenders. The program was the idea of sexologist Helmut Kentler, who argued that unruly children could benefit from adult sexual attention. Kentler claimed the boys would fall “head over heels” in love with their new guardians. The two men say that, in fact, they were repeatedly raped.
Jezenia Gambino says her daughter is too embarrassed to return to the elementary school she attends in Port St. Lucie, Florida, after the girl’s fifth-grade teacher asked in front of classmates if she and another girl were dating. Gambino says her daughter later got a text from the other girl, who “wasn’t sure if they should hang out together anymore because of what happened in school.”
Seth Reynolds has so far spent 300 nights in jail for defying a Boone County, Missouri, judge’s order to remove a shed and fence the judge found to be in violation of local zoning laws.
The Guardian reports that Saudi Arabia’s three largest mobile phone companies have made millions of tracking requests since November 2019 that would allow them to locate Saudi phone users in the United States. Such requests can be routine and can, for instance, help foreign phone companies register roaming charges. But security experts say the volume of requests indicates the Saudi government is likely spying on its citizens within the United States.
The School District of Philadelphia has barred teachers from providing remote instruction to students while schools are closed because of the coronavirus pandemic. Officials say teachers may not grade any work that is submitted because some students may not have access to the necessary technology.
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The prevalence of immunity to the coronavirus that causes COVID-19 may be much higher than previous research suggests according to an intriguing new study by researchers associated with Karolinska Institute in Sweden. In addition, a new German study by researchers associated with the University Hospital Tübingen in Germany reports that people who have been previously infected with versions of the coronavirus that cause the common cold also have some immunity to the COVID-19 virus. If these reports stand up to further scrutiny, it would be very good news because they suggest that the pandemic could be over sooner and ultimately be less lethal than feared.
First, a few caveats: Both studies are based on small sample sizes and neither have yet been vetted by peer review.
In the Swedish study, researchers not only checked 200 participants for the presence of immunological proteins called antibodies produced in response to COVID-19 infections, but also for T-cells which are another virus-fighting component of the immune system. Detecting and evaluating T-cells is a bit trickier than measuring antibodies.
The Karolinska researchers, according to the accompanying press release, “performed immunological analyses of samples from over 200 people, many of whom had mild or no symptoms of COVID-19.” The study tested COVID-19 patients, exposed asymptomatic family members, healthy blood donors who gave blood during 2020, and a 2019 donor control group.
“One interesting observation was that it wasn’t just individuals with verified COVID-19 who showed T-cell immunity but also many of their exposed asymptomatic family members,” said Karolinska researcher Soo Aleman. “Moreover, roughly 30 per cent of the blood donors who’d given blood in May 2020 had COVID-19-specific T cells, a figure that’s much higher than previous antibody tests have shown.”
“Our results indicate that roughly twice as many people have developed T-cell immunity compared with those who we can detect antibodies in,” noted Karolinska Center for Infectious Medicine researcher Marcus Buggert.
Study co-author Hans-Gustaf Ljunggren toldThe Telegraph that if the study’s findings are replicated, they would apply to any country. London, for instance, might have about 30 percent immunity and New York above 40 percent. If so, some parts of the U.S. are much closer to herd immunity than population-wide antibody testing currently suggests.
Herd immunity is the resistance to the spread of a contagious disease that results if a sufficiently high proportion of a population is immune to the illness. Some people are still susceptible, but they are surrounded by immune individuals who serve as a barrier, preventing the microbes from reaching them. Epidemiologists typically estimate that the COVID-19 threshold for herd immunity is around 60 to 70 percent.
Still the Swedish researchers caution, “It remains to be determined if a robust memory T cell response in the absence of detectable circulating antibodies can protect against [the virus].”
In a second study, German researchers analyzed blood samples of 365 people, of which 180 had had COVID-19 and 185 had not. When they exposed the blood samples to the COVID-19 coronavirus, they found, as expected, that blood from those who had had the illness produced a substantial immune response. More significantly, they also found that 81 percent of the subjects who had never had COVID-19 also produced a T-cell immune reaction, reportsTheScience Times. If the German study’s results prove out, that would suggest that earlier common cold coronavirus infections may provide about eight in 10 people some degree of immune protection from the COVID-19 virus.
The findings in both of these studies are potentially very good news with respect to public health and the course of the COVID-19 pandemic. Here’s hoping that future replications will validate them.
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The prevalence of immunity to the coronavirus that causes COVID-19 may be much higher than previous research suggests according to an intriguing new study by researchers associated with Karolinska Institute in Sweden. In addition, a new German study by researchers associated with the University Hospital Tübingen in Germany reports that people who have been previously infected with versions of the coronavirus that cause the common cold also have some immunity to the COVID-19 virus. If these reports stand up to further scrutiny, it would be very good news because they suggest that the pandemic could be over sooner and ultimately be less lethal than feared.
First, a few caveats: Both studies are based on small sample sizes and neither have yet been vetted by peer review.
In the Swedish study, researchers not only checked 200 participants for the presence of immunological proteins called antibodies produced in response to COVID-19 infections, but also for T-cells which are another virus-fighting component of the immune system. Detecting and evaluating T-cells is a bit trickier than measuring antibodies.
The Karolinska researchers, according to the accompanying press release, “performed immunological analyses of samples from over 200 people, many of whom had mild or no symptoms of COVID-19.” The study tested COVID-19 patients, exposed asymptomatic family members, healthy blood donors who gave blood during 2020, and a 2019 donor control group.
“One interesting observation was that it wasn’t just individuals with verified COVID-19 who showed T-cell immunity but also many of their exposed asymptomatic family members,” said Karolinska researcher Soo Aleman. “Moreover, roughly 30 per cent of the blood donors who’d given blood in May 2020 had COVID-19-specific T cells, a figure that’s much higher than previous antibody tests have shown.”
“Our results indicate that roughly twice as many people have developed T-cell immunity compared with those who we can detect antibodies in,” noted Karolinska Center for Infectious Medicine researcher Marcus Buggert.
Study co-author Hans-Gustaf Ljunggren toldThe Telegraph that if the study’s findings are replicated, they would apply to any country. London, for instance, might have about 30 percent immunity and New York above 40 percent. If so, some parts of the U.S. are much closer to herd immunity than population-wide antibody testing currently suggests.
Herd immunity is the resistance to the spread of a contagious disease that results if a sufficiently high proportion of a population is immune to the illness. Some people are still susceptible, but they are surrounded by immune individuals who serve as a barrier, preventing the microbes from reaching them. Epidemiologists typically estimate that the COVID-19 threshold for herd immunity is around 60 to 70 percent.
Still the Swedish researchers caution, “It remains to be determined if a robust memory T cell response in the absence of detectable circulating antibodies can protect against [the virus].”
In a second study, German researchers analyzed blood samples of 365 people, of which 180 had had COVID-19 and 185 had not. When they exposed the blood samples to the COVID-19 coronavirus, they found, as expected, that blood from those who had had the illness produced a substantial immune response. More significantly, they also found that 81 percent of the subjects who had never had COVID-19 also produced a T-cell immune reaction, reportsTheScience Times. If the German study’s results prove out, that would suggest that earlier common cold coronavirus infections may provide about eight in 10 people some degree of immune protection from the COVID-19 virus.
The findings in both of these studies are potentially very good news with respect to public health and the course of the COVID-19 pandemic. Here’s hoping that future replications will validate them.
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Not after six shootings and two teenage deaths, as hedge fund manager and author James Altucher notes – rather, after protesters threatened to take over Mayor Jenny Durkan’s 5,000 sqft., $7.6 millionhouse.
Let’s see: six shootings, two teenage deaths, and @MayorJenny still says “it’s an arts festival”. THEN, the CHAZ threatens to take over her 5,000 sq ft house worth $7.6 million after her new addition. A DAY LATER, she brings in the police, “end the chaos!” #Leadership#Comedy
Last weekend, City Councilmember Kshama Sawant led a march to Durkan’s home, where she railed against the Mayor and police brutality to a whipped-up crowd of BLM protesters.
Days later, police issued an order to disperse the ‘Capitol Hill Autonomous Zone’ (CHOP) also known as the Capitol Hill Organized Protest (CHOP) at 5 a.m. PST on Wednesday.
At least 13 protesters were arrested after failing to adhere to multiple warnings, according to Fox News.
The East Precinct, which police abandoned last month following standoffs and clashes with demonstrators, was cleared of protesters, Police Chief Carmen Best told reporters from inside CHOP. Best said police were not moving into the building yet, but would clear the area of barricades before beginning operations as soon as reasonably possible.
As officers in riot gear performed the predawn sweep to clear holdouts from the streets, police said a woman apparently went into labor on the east side of Cal Anderson Park inside the CHOP. Seattle Fire said it was responding to the scene. –Fox News
“Officers enforcing today’s order are wearing a higher-level of protective gear,” said Seattle PD in a statement. “Police are utilizing this equipment because individuals associated w/the CHOP are known to be armed and dangerous/may be associated with shootings, homicides, robberies, assaults & other violent crimes.”
The USA has gone so crazy in these months of the coronavirus freak-out that an orgy of looting, arson, and murder, on top of epic job loss and business failure, propelled the stock markets up-up-and-away back to near-record highs.
Makes sense, right?
The market came down a bit towards the end of the week, but don’t worry. The Fed will make another announcement that it’s going to do something or other and presto, the market will be off to the races again.
In the background of these weeks of protests, riots, looting, and arson is the disintegrating economy, which signifies that pretty much everybody in this land will not be able to keep on keeping on in the ways we’re used to.
Reduced Living Standards
Everybody will have a harder time making a living. Everybody will endure shocking losses in wealth, status, and comfort. And, sadly, everybody will be too perplexed and bamboozled by the rush of events to understand why.
The short version of that story is we’ve overshot our resources, especially the basic energy resources that all other activities require.
This mystifies the public, too, but you can boil it down to the cost of getting oil out of the ground being too high for customers and not high enough for the oil producers to cover their costs — a quandary.
One result has been the rapid bankruptcy of the shale oil industry. Another is the incremental impoverishment of what used to be America’s broad middle-class — a malady that has, just for now, fenced off the denizens of Wall Street, the notorious One Percent (of the population), who still luxuriate in zooming share prices and dividends while everybody else sucks wind in a ditch with-or-without the added affliction of Covid-19.
The perplexed and bamboozled include the entire leadership nucleus of the land, who seem starkly unable to act coherently in the tightening vortex of crisis.
Piling on More Debt
While Mr. Trump seems to dimly apprehend the urgent need for economic restructuring, he’s able to express it only in messages that sound like a 1961 Frigidaire commercial, with overtones of Marvel Comics superhero grandiosity.
The president may understand that a country can’t consume stuff without producing stuff, but he doesn’t get that it’s too late to bring back all that activity at the scale we used to run it when he was a young man in the 1960s.
His answer to the call of restructuring — what the Soviets called perestroika before they fell apart — is to pile on more debt, that is, borrow more from the future to pay for hamburgers today.
That dovetails neatly with the needs of the financial community, led by the hapless “Jay” Powell at the Federal Reserve, who is on a mission to destroy the U.S. dollar in order to save the banking system and its auxiliaries in the stock markets.
He literally doesn’t know what to do — except “print” more dollars to support share prices, a symbolic talisman of theoretical economics that has less and less to do with what people actually do on-the-ground in the hours when they’re not sleeping.
It looks unlikely that the Fed will rescue either Wall Street or Main Street. The longer he props up the former at the expense of the latter, the more certain it is that it will provoke insurrection that goes well beyond the current hostilities.
Vanishing Commerce From Cities
The looting and arson of recent days hugely aggravated a central feature of it: the destruction of small business.
In Minneapolis alone, the damage stands at $100-million. Things were difficult enough under the strictures of Covid-19, but this guarantees that many cities will not see the return of commerce — and there are only a few other reasons for cities to even exist.
Not only did the Democratic Party fail to object to the mayhem, but the city governments they controlled abetted, incited, and applauded the anarchy.
Meanwhile, last Saturday in Tulsa, Mr. Trump made the signal error of bragging on the latest highs in the stock markets. Hasn’t he learned by now what a flimsy representation of reality that is?
Evidently not. The air may be coming out of that lifebuoy in the next couple of weeks, and his election prospects will sink with it.
This will happen as the nation approaches the dark moment when the postponement of debt repayments ends. Imagine how many mortgage, car payments, and small business loan defaults will crackle across the land, and how that will thunder through the banking system.
Civil and Social Collapse Before November 3?
Anyone with half a brain knows that only the strenuous manipulations of the Federal Reserve have kept stocks levitating, doing the only trick they know how to do: printing money by digital keystrokes.
There are so many dimensions to that blunder, it could hasten a more complete economic, civil and social collapse before November 3.
If markets somehow magically stayed elevated, would all those Americans dispossessed of houses, cars, and businesses not feel more resentful than ever about the skullduggery of the elites?
And might they form a third faction in a burgeoning civil war against both the Woke Left and the Trump-led government? And what if the Federal Reserve’s stupid trick of money-printing destroys the value of the dollar per se?
That’s hardly a far-out scenario.
Beware the 4th of July
Events are rushing ahead at a pace you can barely follow. Summer is underway and why, now, would you expect any lessening in civil disorders?
The summer heat is always an invitation to raucous behavior on the steamy streets. Have Chuck Schumer and Nancy Pelosi appealed to their followers to end their violence?
Maybe I missed that. They are hinting at a return to Covid-19 lockdown conditions — but you can forget about anyone following that when the temperature tops ninety degrees (and certainly the Dem leadership knows that).
Meanwhile, the devastation of small business, careers, livelihoods, households, and futures continues.
Then, there’s the sinister joker-in-the-deck next week. It’s called the Fourth of July. It’s hard to imagine a fatter target for those who are truly intent on making things as bad as possible than that particular holiday. Hey, they’ve already torn down statues of George Washington.
What else is left to trash?
Take measures to protect your own future, as far as possible. Put your energy into imagining how you can be helpful to other people, and perhaps incidentally earn their trust and their assistance in mutually beneficial ways.
Think about finding a plausible place to live where the rule of law perseveres. Think about how you might fit into an economy run at a smaller scale. Start taking action on that thinking.
There’s potential for a lot of people to get hurt in the disorders-to-come.
There’s plenty you can do to not be one of them.
via ZeroHedge News https://ift.tt/3dRj79g Tyler Durden
Trump Slams De Blasio’s Call To Paint “Symbol Of Hate” BLM Sign On NYC’s 5th Avenue Tyler Durden
Wed, 07/01/2020 – 11:00
We suspect this will turn up the outrage mob to ’11’ on the Spinal Tap amplifier of “see, he is hitler”-ism.
In two tweets this morning, President Trump slammed New York Mayor Bill de Blasio’s plan to paint a Black Lives Matter mural on the street outside Trump Tower, saying the effort will antagonize police and will be “denigrating this luxury Avenue.”
“Maybe our GREAT Police, who have been neutralized and scorned by a mayor who hates & disrespects them, won’t let this symbol of hate be affixed to New York’s greatest street,” Trump tweeted.
“Spend this money fighting crime instead!”
The New York City mayor discussed his plan Tuesday morning during an appearance on MSNBC, saying that he plans to paint the area along 5th Avenue between 56th and 57th streets.
“We’re going to take this moment in history and amplify it by taking the Black Lives Matter symbolism and putting it all over this city, including right in front of Trump Tower,” de Blasio said.
“It’s an important message to the whole nation, and obviously we want the president to hear it, because he’s never shown respect for those three words.”
The same was done on a street leading to The White House…
President Trump tweeted further, reminding his followers that:
“NYC is cutting Police $’s by ONE BILLION DOLLARS, and yet the @NYCMayor is going to paint a big, expensive, yellow Black Lives Matter sign on Fifth Avenue, denigrating this luxury Avenue.”
Adding that:
“New York’s Finest vividly remembers the horrible BLM chant, ‘Pigs In A Blanket, Fry ‘Em Like Bacon’.”
We suspect this is far from over.
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This article is the first of a four-part series on the vectors driving future economic growth. Forthcoming articles will tackle Depression, Demographics, and De-globalization.
The discussions about economic recovery and the path ahead are ongoing. The shape it will take will defy the simplistic “V”, “W”, and “L” expressions being used by forecasters. One thing, however, is certain. Every bazooka, tank, and A-bomb of stimulus is being used to combat the downturn.
The question, so few seem to ask, is at what cost?
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,”
– 5/29/2020 Jerome Powell Peterson Institute of International Economics.
As we will explain, what is best for economic growth and prosperity is not what Powell’s Fed is doing. Power, influence, and intellectual elitism may be winning today’s battle, but they are losing the war. The evidence is compelling.
Yardeni et al.
In a recent Grant’s Current Yield podcast, guest Ed Yardeni, said: “I find too many investors…act like preachers. They judge the Fed, good or bad, a moralistic approach. My approach, as an investment strategist is bullish or bearish.”
Yardeni’s only concern appears to be whether Fed actions are good or bad for his portfolio. Specifically, good or bad for his career.
Like all investors, we also need to understand whether Fed actions are bullish or bearish. However, we have a conscience and care about what is best and right. Yardeni’s comments remind us of the Niemoller prose, “First they came…”.
Yardeni’s view represents the epitome of expedience over principle. His perspective is not a one-off, in fact, far from it. It is a consensus among financial and political insiders. It runs through the veins of Wall Street, Congress, and the White House.
Planning Ahead
The United States is in the midst of an unprecedented third asset bubble in twenty years. The recent crisis is being blamed on COVID. We disagree, COVID is the pin that pricked the bubble.
“There is a popular game called Jenga in which a tower of rectangular blocks is arranged to form a sturdy tower. The objective of the game is to take turns removing blocks without causing the tower to fall. At first, the task is as easy as the structure is stable. However, as more blocks are removed, the structure weakens. At some point, a key block is pulled, and the tower collapses. Yes, the collapse is a direct cause of the last block being removed, but piece by piece the structure became increasingly unstable. The last block was the catalyst, but the turns played leading up to that point had just as much to do with the collapse. It was bound to happen; the only question was, which block would cause the tower to give way?”
The real catalysts include the following:
Accumulated leverage
Poor use of cash for stock buybacks
Fragile financial infrastructure
Lack of productive investment
Overzealous speculation
Unfettered government spending
Preference for consumption over savings
In sum, capital has been grossly misallocated towards speculation and away from productive investment. These outcomes are, in large part, a result of prior and current Fed policy.
Like households and corporations, the government also reacts to the “signals” being sent through the market. When interest rates are manipulated, strange things happen and ripple throughout an economy. When that currency is the global reserve currency, the word “strange” takes on a new definition.
Past Experience
In the current set of circumstances, the economy and markets are experiencing a confluence of shocks that are both extreme and unique. Regardless, we can still reflect on past episodes that caused great turmoil and anxiety. Although the analysis does not provide explicit answers, the rigor offers insight and direction.
As James Grant once said, “My goal is to have everyone agree with me, later.”
Foresight with confidence offers early, cheap entry into opportunities that everyone else sees “tomorrow”.
A New Trajectory for U.S. Growth
The chart below offers a substantive context for what has transpired over the past 40 years. The colored lines show what economic activity would have been had the growth rate of the prior expansion held true in the following expansion.
As shown, after each successive bubble, the trajectory of growth, GDP shifts lower. Slow economic growth implies that the time to full recovery is elongated.
To predict a post-COVID growth trajectory we need only look at the ratio of Federal debt to GDP. As shown below, the trend lines of that ratio to trend economic growth are negatively correlated. Since 1990 the relationship has a very high r-square of .928. Simply, as the ratio of Federal debt to GDP rises, economic growth declines.
The next graph projects GDP based on the expected ratio of Federal Debt to GDP. For this exercise, we conservatively assume the ratio will be 115% when the economic recovery begins. That compares to 82% in 2009 and 55% in 2002. We also assume economic growth falls by 10% in the second quarter and 1% in the third quarter. GDP then grows at our projected growth rate of 1.07%.
Based on this analysis, the economy will not regain pre-COVID economic levels this decade.
The Culprit
The new paradigm of weak recoveries is due to the Fed’s policy prescription for recessions; debt-fueled consumption. Through lower interest rates they incentivize people, corporations, and the government to borrow. The benefits are here and now as economic recovery ensues. The cost is paid tomorrow.
The debt is increasingly put to unproductive uses, and the obligations grow exponentially larger than income. As we discussed in Why the Recovery Will Fall Short of Forecasts, given the issues facing productivity and demography, this is a troubling outlook.
Recessions are a normal part of the economic cycle. They are a healthy reset that purges weak businesses and encourages productive capital investment for the future, not speculation. The resumption of growth takes time in a recession left to its course. However, improved productivity and prudent use of resources sets the economy on a sustainable path to healthy growth.
The New Order
Modern-day Fed policy encourages speculation over productivity growth. The result is sustained unemployment and low wage growth. The longer people are out of work, the less likely they are to re-assimilate into the productive workforce. This means they require and expect more government assistance, which further raises the debt obligation on the dwindling taxpayer.
Revisiting one of our cornerstone concepts, economic growth hinges upon two key elements:
Growth in the labor force
Productivity gains
The regressive trajectory of GDP growth reflects that those factors of growth are diminishing.
A Fine Mess
Even after the surprisingly positive payroll report for May 2020, the chart below illustrates the magnitude of our predicament. It also reflects the mischaracterizations being used to discuss the post-COVID19 economic circumstance.
Note that the last four recessions required longer periods consecutively for jobs to recover fully.
The amount of non-productive debt used to combat downturns compounds the pre-existing debt problem. It ensures that the economy will continue to struggle for years to get back to pre-COVID levels of economic activity.
“Much higher public debt levels will become a permanent feature of our economies and will be accompanied by private debt cancellation.”
– Mario Draghi, March 2020, FT
At $6 trillion in December 2001, then $11.5 trillion in June 2009, U.S. government debt has now ballooned to $26 trillion. Tragically, debt continued to pile up over the last decade despite economic recovery. It, in fact, was the economic recovery. Without that expansion of debt, there would have been little to no economic growth.
To characterize it otherwise as Fed and government officials have done is intellectually dishonest. When the debt-to-GDP graph below updates next, the ratio will be close to 120%. The pattern since 1980 is clear.
The Fed is extraordinarily accommodative in both their interest rate posture and their willingness to fund massive federal deficits.
They deliberately encourage everyone to borrow. That occurs with lower rates and expansion of the Fed balance sheet (QE) as shown in the chart below. They have also promised near-zero rates and QE for the foreseeable future. This is, indeed, a fine mess.
Evidence
Despite the information we present, the same talking points justify the same actions. The actions do not serve the best long-term interests of the public. The tools the Fed is employing destroys wealth for all but the top 1%.
The policies incite inflation, much of which is hidden by faulty government reporting. As detailed in a previous article, Two Percent for the One Percent, inflation erodes living standards for the broad population.
Even after years of botched policies that damage the organic economy, no one in Congress challenges the Fed’s counter-factual. Given the evidence from their inability to forecast even one or two quarters ahead, how do they know what they are doing works? How do they know the long-term implications of their policies will not be disastrous? The answer, of course, is they do not know.
Summary
As mentioned, based on this analysis using the trends of the past 40 years, the economy will not regain pre-COVID output levels until sometime in the 2030s. The implications of that scenario are weak GDP growth, poor labor market growth, and high market volatility, among many other unknowns. It might also imply continuing civil unrest and potentially war.
All of those in power appear to be complicit in advancing this agenda. Why not? They are rewarded handsomely for their compliance. That is how politicians and the corporate elite get wealthy from their positions of power.
Meanwhile, the rest of us watch and wait, hoping that someone will show up to represent the community in this injustice.
What the Fed is doing to save today will cause problems tomorrow. We have two choices; we can recognize the problem and force change by electing like-minded legislators. Or, we can stand aside. The latter, of course, only furthers behavior detrimental to our country.
Instead of cheering Fed actions today, consider what they are doing to the future.
If nothing changes, then the problem will eventually take care of itself. It will not be peaceful or pleasant, but it will come to a resolution. The outcome will not be favorable for investors or what was once the greatest economy in history.
via ZeroHedge News https://ift.tt/2ZqCf98 Tyler Durden
