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The Price of an Erratic President

Perhaps the strangest thing about the story that President Donald Trump has expressed interest in using nuclear bombs to stop hurricanes was that it didn’t seem all that strange. Almost no one thought to ask “Can you believe it?” because almost everyone automatically did, while simultaneously acknowledging that in reality, no such intervention would be tried.

So instead of sustained incredulity, there were jokes, and a few #WellActuallys, and eventually Trump himself declared that the story was fake news. But for the most part, the story, first reported by Axios, came and went with the daily tides of Twitter conversation. Trump wants to deploy nuclear weapons to stop summer storms? Wild stuff! 2019, right? Moving on.

One way to understand this is as a basically healthy reaction to the brainfarts of a particularly brainfart-prone president, one who thinks out loud—or online—and who indulges a variety of odd obsessions that rarely become actual policy. Both in public and in private, Trump has a habit of floating half-baked bad ideas that are unlikely to ever be implemented. For many people, constantly worrying about the small chance that they one day might happen is simply too exhausting to keep up.

Yet in another way, the nuke-the-hurricanes episode was a reminder of the ways Trump’s erratic personal behavior has led to a widespread acceptance of presidential ideas that are not only kooky but dangerous, or at least rather risky, even if those ideas are nearly certain to remain unimplemented.

Take, for example, Trump’s declaration last week that American companies “are hereby ordered to immediately start looking for an alternative to China.” This was a presidential “order” that also wasn’t obviously an order in any official sense; it came with no proposed timeline, no potential penalties, and no legally enforceable procedure to back it up. And yet both White House aides and Trump himself nonetheless argued that it could become one if the president were so inclined.

In theory, the argument went, Trump could use the International Emergency Economic Powers Act (IEEPA) of 1977 to declare a state of emergency, expanding the powers granted to the executive, potentially giving him the authority to order U.S. businesses to cease operations in China. Experts disagree about whether the IEEPA could plausibly justify such an order. But it’s fair to say that using it in the way Trump has suggested would be clearly unprecedented and arguably abusive, and that it would almost certainly end up in court.

Still, it is at least possible to imagine a scenario in which Trump finds legal cover for such an order. The result, in turn, would be vast and unpredictable economic consequences for both the American economy and the international order, as two economic superpowers turned a series of economic skirmishes into an all-out economic war. It’s hard to say exactly how it would play out, but as one manufacturer told The New York Times last week, a mandatory exit of U.S. businesses from China “could cause a global depression, not recession.”

Yet just as most people reasonably assume that Trump probably won’t try using nuclear weapons to manage bad weather, few, I suspect, worry that he would ever really try to compel American businesses to fully cut economic ties with another country. It’s an idle threat made by a president with a penchant for bluster, and no more—and thus about as easy to ignore as the idea of deploying a nuclear deterrent against a hurricane.

Or at least that’s what we hope, because the problem with Trump is that it’s almost impossible to ever be fully certain that he won’t eventually pursue his wilder ideas, to be confident that he won’t one day pick up his phone and tweet out an order to pull out of China’s economy that is an actual order, backed up by the force and power of the federal government. This is especially true when it comes to trade and immigration, where Trump has proven willing to act in ways that predecessors of both parties probably would have avoided.

The result is generalized political and economic instability, and a pervasive precariousness to American life. This helps feed more exotic, conspiracy-adjacent theories about Trump himself. And over time, it may well take a serious toll on the American economy. Indeed, some economic consequences are already being felt. Trump’s announcement of tariff hikes last week, combined with his threats against both China and the U.S. Federal Reserve, rattled already jittery markets, sending stocks to their fourth weekly loss in a row.

The point isn’t merely that Trump shouldn’t be playing weatherman with the world’s biggest nuclear arsenal (although he shouldn’t), or that tariffs and trade wars are bad news for the economy (although they are). It’s that Trump’s mercurial behavior, and the lingering possibility that he might try to follow through on one of his more eccentric ideas, exacts a regular low-level toll on our fortunes. He is a constant source of economic and political uncertainty. And that uncertainty, even in the absence of actual action, is bad enough. It makes it harder for businesses to plan future operations, harder for ordinary Americans to plan their retirements, and harder for America’s allies on the international stage to work together.

So no, Trump probably won’t nuke a hurricane, and no, he probably won’t force American companies to stop operating in China, just as he didn’t ever completely close the border with Mexico, despite his threat to do so. Which means that no, you probably shouldn’t spend too much time worrying about the possibility that he might do any of these things, or whatever harebrained idea he tweets out tomorrow. But there’s a lot riding on all those “probably”s, and on the slim-but-real chance that one day a he-probably-won’t will somehow become an actually-he-did. And that alone is cause enough for concern. 

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Keep It Simple, Sucker: Here’s What Matters Most

Authored by Sven Henrich via NorthmanTrader.com,

Markets blow up on Friday on a series of tweets, markets jam higher on the pronouncement of dubious phone calls on Monday. The rapid back and forth has many heads spinning and makes for dramatic headlines as people are searching for explanations. To which I say: Keep it simple, especially in the age of the great confusion.

Background: In 2019 market gains have been driven by pure multiple expansion resting on 2 pillars of support in the face of deteriorating fundamentals: 1. Hope for rate cuts and Fed efficacy 2. Trade optimism. But in process little to no gains are notable since the January 2018 highs, in fact most indexes are down sizably since then.

And when markets are purely reliant on multiple expansion the risk for accidents increases when confidence gets shaken. Friday’s escalation on the trade war front again highlights this point.

And in context of global growth slowing an escalation in the trade war is akin to playing with fire as it risks being a trigger to nudge the world economy into a global recession. After all 9 economies are either in recession or on the verge of going into recession.

This morning I was speaking with Brian Sullivan and he asked me what matters most here, the China trade war, the Fed, or technicals. The short answer is they all matter as it is a battle for control, but how to delineate a complex interplay of conflicting forces into some clarity?

Let me give you my take on all 3 fronts. Before I do, for background here’s the clip from this morning:

China:

Occam’s Razor: The simplest explanation is often the best one and that’s really what’s happening on the China trade war front as far as I’m concerned. The Chinese sensed weakness when Trump delayed the very tariffs he announced in early August and the ‘tariffs delayed’ newsflash came on the heels of markets selling off and it produced a relief rally of size. The Chinese realized Trump’s vulnerability (the US consumer) and wanted to test him. And they did on Friday by retaliating with tariffs on their own. And if you believe the Chinese propaganda their counter punch announcement was specifically aimed at hurting the US stock market. And Trump predictably reacted with rage and emotion and ended up doing more damage than the Chinese by counter punching immediately on twitter. The impression: A decision made out of anger not prudent strategy.

So what happened? Markets tanked hard again and when the damage became apparent in Sunday overnight futures trading a narrative, true or not, was created to bring markets back up. The signal was clear and hence the rally today:

If the world was wondering how far Trump is willing to go on the trade war front the Chinese got their answer twice in August: $SPX 2800.

After all it’s his stock market alone:

Stock market levels are the key measuring stick of the administration’s economic success according the Treasury Secretary Mnuchin. No wonder liquidity calls were needed in December as markets dropped 20%.

The bottomline on China: It’s a double edged sword that breeds both risk and opportunity:

Risk: Failure to curb the rhetoric and show lack of real progress risks triggering a global recession that is already a clear and present danger. Risk that markets are becoming a weaponized tool as part of the trade war. The Chinese already know it, and I suspect so does Trump and his team. They are playing with fire, the appear fine to let the fire smolder, but not let it burn out of control beyond, say 5% of market downside. Then they get itchy. But fires can spread so careful there, especially as there remains zero resolution or specifics other than vague hints at phone calls that neither side can agree to on whether they even took place.

Opportunity: Sentiment is getting so bad on this front that any sign of relief on tariffs and/or progress (i.e. what we saw again today in form of “phone calls” can trigger a massive relief rally. And frankly it only takes a tweet. We saw some of this in the middle of August when some tariffs were delayed. And Trump pretty much hinted at that being a replay possibility today, another rabbit to pull out of his hat again.

So none of this is a mystery, it’s a giant face saving dance with no specifics or path to resolution. Fact is prices can easily be subject to sell-offs and/or rallies based on vague information on tweets. This broad range risk profile remains on the plate into September.

The Fed:

The Fed’s in a very tough position. For one they, like anybody else, are trying to quantify the real risk to the economy coming from trade wars and the slowdown in data. But realistically they are also playing with fire. Reality is they have limited ammunition and need to be judicious how they proceed, for if a global recession is to ensue they only have 8 rate cuts to work with. In 2001 and 2007 it took 500bp in rate cuts to stop the bleeding, they don’t have that now.Hence they are desperately trying to cling to the “mid cycle adjustment” narrative.

Problem is markets are pricing in 100bp in rate cuts over the next year. Coming from 225bp that’s not a mid cycle adjustment. So markets and the Fed are at odds with each other and it comes down to confidence, efficacy and credibility.

To boot: Central banks are signaling that they alone can’t deal with a coming recession, they are asking for a coordinated global policy response. But as we just saw this weekend, the G7 couldn’t even agree on a joint memo for the first time in 44 years, so dysfunctional is the global political stage at the moment. Hence the issue of efficacy is paramount and markets may be placing too much trust in central banks.

Technicals:

Three important technical developments to keep an eye on:

  1. The megaphone structure remains intact and leaves room for lots of downside risk if a global recession is to unfold. The sell zone from 3000-3050 has confirmed and the larger pattern has risk into 2100-2200 $SPX.

  2. A rising wedge has formed in 2019, and that wedge has broken to the downside, another bearish development:

Indeed the last several weeks have shown a consolidation phase similar to the one from last fall, albeit it smaller:

Last year’s consolidation also came on the heels of a pattern break which then resolved lower. A confirmed break of that price consolidation zone to the downside risks lower prices still to come, i.e. a retest of the June lows or lower, and volatility $VIX could break higher into the 28/30 range as it appears to be forming a bull flag.

That said markets have been down 3 weeks in a row and oversold conditions are building which is likely to set up for another rally ahead of critical Fed and ECB meetings in September and certainly markets are attempting to do this today.

But be clear, markets remain structurally at risk and neither bulls or bears can rest easy here in this headline driven environment. It remains a big battle for control. The technicals say lower for markets, but it’s also clear that the forces of intervention are keeping a very close eye on markets and are stepping in to adjust their narratives at any sign of trouble. Looking at the charts they are increasingly at risk of losing control.

Fact is we remain in a precisely defined price consolidation zone and neither bulls or bears have won the final argument yet. That will only come on a confirmed breakout or breakdown. That range is now 2820-2935 on cash $SPX:

It’s easy to overcomplicate things and game theory the hell out of the Chinese, the Fed, seasonality, buybacks, etc. But let’s just keep it simple: Rallies keep being driven by rate cut hopes and trade optimism. Not by growth, earnings or fundamentals. Technicals continue to reflect patterns  and structures that show risk to the downside building. But bears need to prove their case and that means break $SPX 2800 to the downside with conviction. But apparently a tweet or mere mention of a phone call are enough to scare them away 😉 For now anyways. Without a trade deal going beyond vague phone calls the global macro pictures keeps deteriorating. Every single day. Don’t believe me? Check yields. They seem hardly impressed by phone calls.

So what matters more, the trade war, the Fed or technicals? I can only answer for myself and that is technicals, the part of the equation I can see, analyze and react to with reason and a clear view of shifting risk/reward in either direction. I’ll leave the chasing of tweets to others.

*  *  *

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The Price of an Erratic President

Perhaps the strangest thing about the story that President Donald Trump has expressed interest in using nuclear bombs to stop hurricanes was that it didn’t seem all that strange. Almost no one thought to ask “Can you believe it?” because almost everyone automatically did, while simultaneously acknowledging that in reality, no such intervention would be tried.

So instead of sustained incredulity, there were jokes, and a few #WellActuallys, and eventually Trump himself declared that the story was fake news. But for the most part, the story, first reported by Axios, came and went with the daily tides of Twitter conversation. Trump wants to deploy nuclear weapons to stop summer storms? Wild stuff! 2019, right? Moving on.

One way to understand this is as a basically healthy reaction to the brainfarts of a particularly brainfart-prone president, one who thinks out loud—or online—and who indulges a variety of odd obsessions that rarely become actual policy. Both in public and in private, Trump has a habit of floating half-baked bad ideas that are unlikely to ever be implemented. For many people, constantly worrying about the small chance that they one day might happen is simply too exhausting to keep up.

Yet in another way, the nuke-the-hurricanes episode was a reminder of the ways Trump’s erratic personal behavior has led to a widespread acceptance of presidential ideas that are not only kooky but dangerous, or at least rather risky, even if those ideas are nearly certain to remain unimplemented.

Take, for example, Trump’s declaration last week that American companies “are hereby ordered to immediately start looking for an alternative to China.” This was a presidential “order” that also wasn’t obviously an order in any official sense; it came with no proposed timeline, no potential penalties, and no legally enforceable procedure to back it up. And yet both White House aides and Trump himself nonetheless argued that it could become one if the president were so inclined.

In theory, the argument went, Trump could use the International Emergency Economic Powers Act (IEEPA) of 1977 to declare a state of emergency, expanding the powers granted to the executive, potentially giving him the authority to order U.S. businesses to cease operations in China. Experts disagree about whether the IEEPA could plausibly justify such an order. But it’s fair to say that using it in the way Trump has suggested would be clearly unprecedented and arguably abusive, and that it would almost certainly end up in court.

Still, it is at least possible to imagine a scenario in which Trump finds legal cover for such an order. The result, in turn, would be vast and unpredictable economic consequences for both the American economy and the international order, as two economic superpowers turned a series of economic skirmishes into an all-out economic war. It’s hard to say exactly how it would play out, but as one manufacturer told The New York Times last week, a mandatory exit of U.S. businesses from China “could cause a global depression, not recession.”

Yet just as most people reasonably assume that Trump probably won’t try using nuclear weapons to manage bad weather, few, I suspect, worry that he would ever really try to compel American businesses to fully cut economic ties with another country. It’s an idle threat made by a president with a penchant for bluster, and no more—and thus about as easy to ignore as the idea of deploying a nuclear deterrent against a hurricane.

Or at least that’s what we hope, because the problem with Trump is that it’s almost impossible to ever be fully certain that he won’t eventually pursue his wilder ideas, to be confident that he won’t one day pick up his phone and tweet out an order to pull out of China’s economy that is an actual order, backed up by the force and power of the federal government. This is especially true when it comes to trade and immigration, where Trump has proven willing to act in ways that predecessors of both parties probably would have avoided.

The result is generalized political and economic instability, and a pervasive precariousness to American life. This helps feed more exotic, conspiracy-adjacent theories about Trump himself. And over time, it may well take a serious toll on the American economy. Indeed, some economic consequences are already being felt. Trump’s announcement of tariff hikes last week, combined with his threats against both China and the U.S. Federal Reserve, rattled already jittery markets, sending stocks to their fourth weekly loss in a row.

The point isn’t merely that Trump shouldn’t be playing weatherman with the world’s biggest nuclear arsenal (although he shouldn’t), or that tariffs and trade wars are bad news for the economy (although they are). It’s that Trump’s mercurial behavior, and the lingering possibility that he might try to follow through on one of his more eccentric ideas, exacts a regular low-level toll on our fortunes. He is a constant source of economic and political uncertainty. And that uncertainty, even in the absence of actual action, is bad enough. It makes it harder for businesses to plan future operations, harder for ordinary Americans to plan their retirements, and harder for America’s allies on the international stage to work together.

So no, Trump probably won’t nuke a hurricane, and no, he probably won’t force American companies to stop operating in China, just as he didn’t ever completely close the border with Mexico, despite his threat to do so. Which means that no, you probably shouldn’t spend too much time worrying about the possibility that he might do any of these things, or whatever harebrained idea he tweets out tomorrow. But there’s a lot riding on all those “probably”s, and on the slim-but-real chance that one day a he-probably-won’t will somehow become an actually-he-did. And that alone is cause enough for concern. 

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Elizabeth Warren’s Pitch for ‘Economic Patriotism’ Is Full of Intellectual Dishonesty and Economic Fallacies

Sen. Elizabeth Warren (D–Mass.) is promising to protect Americans from the scourge of…pencils?

In a new video posted to Twitter over the weekend, the presidential candidate promises to create a new federal agency that would expand on the protectionist measures undertaken by Donald Trump. She’s even borrowing Trumpian rhetoric for the project, which she calls “economic patriotism,” as she promises that a Warren administration would put the interests of American workers first.

Warren’s attack on corporations that supposedly harm Americans by shifting jobs overseas is full of intellectual dishonesty and economic fallacies. Rather than making a case for greater government involvement in the corporate boardrooms of America, the video succeeds only at highlighting how misinformed and misguided such interventions are, regardless of whether they are executed by Trump or Warren.

“There are a lot of giant companies who like to call themselves ‘American,’ but face it: they have no loyalty or allegiance to America,” she says in the video.

As proof, Warren points to the “famous no. 2 pencil,” which is mostly manufactured in Mexico and China. Her video doesn’t make clear why pencils should have to be made in America—or why that lack of good, pencil-making jobs in America is a problem.

That Warren chose to use pencils to illustrate the supposed need for “economic patriotism” is darkly hilarious to anyone familiar with “I, Pencil,” the Lawrence Reed’s 1958 parable about the merits of free markets and comparative advantage. Reed’s lesson is that no one on the planet has the means or knowledge to make an item as mundane and ubiquitous as a simple pencil. A pencil requires wood, graphite, brass, and rubber, but each component part is the result of supply chains that might stretch around the world—from the forests of the Pacific Northwest to the mines of Mexico to the factories of Indonesia.

“Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me,” Reed wrote in the role of the eponymous pencil. “Each one wants me less, perhaps, than does a child in the first grade.”

And yet we have pencils. Tons of them. Not only that, but the process for obtaining and combining those various component parts is so efficient—despite “the absence of a master mind” directing all those activities, Reed notes—that you can buy dozens of pencils for no more than a few dollars. The simple pencil is a miracle of the modern world, and of trade that crisscrosses national borders.

What is true about pencils is true about almost everything else you buy too. There’s not really any such thing as an “American” or “foreign” automobile anymore. Not when the world’s biggest BMW plant is in South Carolina, and when the assembly line for a single car seat might zig-zag across the U.S.-Mexico border five or six times. The iPhone is engineered in the United States, is manufactured in China, and contains components sourced all over the world.

That Warren fails to grasp this—or that she cynically believes voters don’t grasp it—makes her no better than Trump when it comes to trade policy. Indeed, Trump’s use (and abuse) of executive power to implement his own myopic and self-defeating trade policies may have only paved the way for a more competent protectionist like Warren, if she ends up in the White House.

It’s worth noting that Warren’s proposal for a new federal department to oversee her “economic patriotism” scheme would potentially streamline some government functions. She says the new Department of Economic Development would replace the Commerce Department and “a handful of other government agencies.” Consolidation of the federal bureaucracy can be a good way to root out unnecessary overlap between existing agencies, but this seems like an effort at reorganizing a bunch of things the feds shouldn’t be doing in the first place.

Beyond that, there’s little truth to the claim that American manufacturing has been hollowed out by trade. Foreign investment in American manufacturing reached record highs in 2018, and American manufacturing output has tripled since 1980.

Warren’s proposal smacks of a disingenuous attack on the benefits of free markets, with Warren trying—and failing—to make American corporations seem like a foreign threat.

“The truth is,” she claims in the video,” these American companies have only one real loyalty, and that’s to their shareholders, a third of whom are foreign investors.”

What about other two-thirds of those shareholders Warren is trying to demonize? Well, they would be Americans, of course.

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Elizabeth Warren’s Pitch for ‘Economic Patriotism’ Is Full of Intellectual Dishonesty and Economic Fallacies

Sen. Elizabeth Warren (D–Mass.) is promising to protect Americans from the scourge of…pencils?

In a new video posted to Twitter over the weekend, the presidential candidate promises to create a new federal agency that would expand on the protectionist measures undertaken by Donald Trump. She’s even borrowing Trumpian rhetoric for the project, which she calls “economic patriotism,” as she promises that a Warren administration would put the interests of American workers first.

Warren’s attack on corporations that supposedly harm Americans by shifting jobs overseas is full of intellectual dishonesty and economic fallacies. Rather than making a case for greater government involvement in the corporate boardrooms of America, the video succeeds only at highlighting how misinformed and misguided such interventions are, regardless of whether they are executed by Trump or Warren.

“There are a lot of giant companies who like to call themselves ‘American,’ but face it: they have no loyalty or allegiance to America,” she says in the video.

As proof, Warren points to the “famous no. 2 pencil,” which is mostly manufactured in Mexico and China. Her video doesn’t make clear why pencils should have to be made in America—or why that lack of good, pencil-making jobs in America is a problem.

That Warren chose to use pencils to illustrate the supposed need for “economic patriotism” is darkly hilarious to anyone familiar with “I, Pencil,” the Lawrence Reed’s 1958 parable about the merits of free markets and comparative advantage. Reed’s lesson is that no one on the planet has the means or knowledge to make an item as mundane and ubiquitous as a simple pencil. A pencil requires wood, graphite, brass, and rubber, but each component part is the result of supply chains that might stretch around the world—from the forests of the Pacific Northwest to the mines of Mexico to the factories of Indonesia.

“Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me,” Reed wrote in the role of the eponymous pencil. “Each one wants me less, perhaps, than does a child in the first grade.”

And yet we have pencils. Tons of them. Not only that, but the process for obtaining and combining those various component parts is so efficient—despite “the absence of a master mind” directing all those activities, Reed notes—that you can buy dozens of pencils for no more than a few dollars. The simple pencil is a miracle of the modern world, and of trade that crisscrosses national borders.

What is true about pencils is true about almost everything else you buy too. There’s not really any such thing as an “American” or “foreign” automobile anymore. Not when the world’s biggest BMW plant is in South Carolina, and when the assembly line for a single car seat might zig-zag across the U.S.-Mexico border five or six times. The iPhone is engineered in the United States, is manufactured in China, and contains components sourced all over the world.

That Warren fails to grasp this—or that she cynically believes voters don’t grasp it—makes her no better than Trump when it comes to trade policy. Indeed, Trump’s use (and abuse) of executive power to implement his own myopic and self-defeating trade policies may have only paved the way for a more competent protectionist like Warren, if she ends up in the White House.

It’s worth noting that Warren’s proposal for a new federal department to oversee her “economic patriotism” scheme would potentially streamline some government functions. She says the new Department of Economic Development would replace the Commerce Department and “a handful of other government agencies.” Consolidation of the federal bureaucracy can be a good way to root out unnecessary overlap between existing agencies, but this seems like an effort at reorganizing a bunch of things the feds shouldn’t be doing in the first place.

Beyond that, there’s little truth to the claim that American manufacturing has been hollowed out by trade. Foreign investment in American manufacturing reached record highs in 2018, and American manufacturing output has tripled since 1980.

Warren’s proposal smacks of a disingenuous attack on the benefits of free markets, with Warren trying—and failing—to make American corporations seem like a foreign threat.

“The truth is,” she claims in the video,” these American companies have only one real loyalty, and that’s to their shareholders, a third of whom are foreign investors.”

What about other two-thirds of those shareholders Warren is trying to demonize? Well, they would be Americans, of course.

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Johnson & Johnson Ordered To Pay $572 Million In Landmark Opioid Trial

In the first of potentially thousands of verdicts against pharmaceutical companies accused of inciting the opioid epidemic, an Oklahoma judge on Monday ruled that Johnson & Johnson must pay a $572 million penalty for allegedly helping to fuel the opioid epidemic with irresponsible marketing practices, Reuters reports.

Judge Thad Balkman, of Cleveland County District Court in Norman, Oklahoma issued the ruling shortly after 4 pm ET on Monday. The penalty was only a fraction of the roughly $17 billion that the plaintiffs had been seeking, helping send J&J shares rocketing higher in the after-hours session.

The case, brought by Oklahoma Attorney General Mike Hunter, is the first out of potentially thousands of lawsuits filed by state and local governments against opioid manufacturers and distributors that could go to trial. Only a few cases have been settled, according to Bloomberg. The case is critical, legal experts say, because it will provide defendants with a clearer benchmark for what they can expect.

If J&J loses, Hunter hopes to use the money to help Oklahoma mitigate the fallout from the opioid epidemic over the next three decades by funding treatment and prevention programs.

The trial was held after Oklahoma resolved claims against OxyContin maker Purdue Pharma in March for $270 million, and against Teva Pharmaceutical Industries in May for $85 million, leaving J&J as the lone major defendant.

The seven-week, non-jury trial has been closely watched by plaintiffs and defendants in some 2,000 opioid lawsuits pending before a federal judge in Ohio. The judge has been pushing for a settlement ahead of an October trial.

Lawyers for the state of Oklahoma argued that J&J conducted a years-long marketing campaign that minimized the drug’s addictive qualities. J&J has denied wrongdoing, and insisted that Oklahoma’s case rest

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Google Cracks Down on Employees’ Political Speech

Google is attempting to curtail its employees’ workplace speech on political subjects. This is a departure from the company’s previous policy of openness to political speech, and it is likely a result of conservatives’ persistent claims that Google is biased against them.

This should serve as a warning for the right: Attacking tech companies for perceived bias toward conservatives—and explicitly threatening government intervention—is likely to make the companies default toward even more censorship.

News of Google’s change of heart with respect to internal speech comes from Recode‘s Shirin Gaffary, who writes:

Google has long been known for allowing and even encouraging employees to debate and organize around controversial topics, including its product launches and national politics. That’s caused problems for the company, particularly as it’s scaled in size in an increasingly polarized political climate.

Shortly after President Trump was elected in 2016, Google co-founder Sergey Brin said in an all-hands company meeting that he found the election “deeply offensive” as “an immigrant and a refugee.” He remarked that “many people apparently don’t share the values that we have.” Almost two years later, Breitbart News leaked video of that meeting, fueling conservative claims (including from President Trump himself) that the company is biased against Republicans.

Under the new policies, Google employees will be prevented from making statements that “insult, demean, or humiliate” the company’s employees, business partners, or “others”—including public figures. A Google spokesperson confirmed to Recode that those public figures would include elected officials such as Trump.

Employees won’t be allowed to engage in heated political debates that, for example, encourage or organize employees to vote for or against a specific candidate.

Many on the right were upset about the firing of James Damore, who penned an internal memo criticizing the company’s diversity measures. I can understand and even sympathize with some of these gripes—yes, many Big Tech companies are disproportionately staffed and run by progressives, who take a less favorable view of conservative speech than liberal speech—but putting the fear of God (or, worse, the federal government) into them may very well backfire.

When Google, Facebook, or Twitter employees discussing how much they dislike President Donald Trump is treated as proof of bias, the companies will have an incentive to crack down on all political speech. They are private entities, and they have the right to set whatever policies regarding employee speech that they think are more conducive to a healthy workplace—but the public freakout over their alleged biases might well tip the scales in the direction of less speech, period.

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Stocks Jump On Trump-Pump But Yield Curve Inverts Most In Over 12 Years

“Talk, Talk” is what sparked a furious 700-Dow-point pumpathon off overnight lows. The question is – did they?

Chinese stocks closed before Trump jawboned markets higher, catching down to Friday’s US collapse…

Source: Bloomberg

European stocks opened lower but ramped like every other risk asset on Trump hype about a “call” with China (UK was closed)…

Source: Bloomberg

 

US equities managed gains thanks to Trump’s trade talk tales overnight but went nowhere intraday…

NOTE – look at the close!!!

 

But remain well down from Thursday’s close…

 

Volume was over 20% below average (not helped with UK’s holiday)

Source: Bloomberg

Futures show the real action as algos lifted markets overnight then snapped higher when Trump talked of “talks”… BUT The Dow could not break above its 61.8% retracement of the Friday plunge…

 

The Dow bounced off its 200DMA…again

 

Notably, the odds of a trade deal spiked at the open but rapidly fell back as the day wore on…

Source: Bloomberg

 

Treasury bonds ended marginally higher on the day as the initial yield collapse was ramped higher across Europe’s open (UK closed)…

Source: Bloomberg

Crazy shifts in yields (UK was closed) left 10Y and 30Y (back below 2.00%) marginally unchanged after plunging in Asia…

Source: Bloomberg

But the yield curve collapsed (2s10s closed at its most inverted since May 2007)… 3rd day of closing inversion in a row…

Source: Bloomberg

But it’s the 3m10Y spread that matters most and that has also collapsed to new cycle lows…

Source: Bloomberg

Treasury vol exploded higher…

Source: Bloomberg

The Dollar surged back today, erasing Fib 61.8% of the Friday plunge…

Source: Bloomberg

Turkish Lira flash-crashed an unreal 15% at the open (not seen in chart) but bounced back to still end significantly weaker on the day…

Source: Bloomberg

A stunning plunge in the yuan at the open saw some bounce (very modestly stronger fix) but that faded as the day went on…

Source: Bloomberg

Asian FX plummeted to its lowest since 2009…

Source: Bloomberg

Cryptos spiked overnight but faded all day to end lower from Friday…

Source: Bloomberg

But Bitcoin held above $10k…

Source: Bloomberg

Commodities were crazy today with copper and gold mirroring each other, silver shrugging it all off as crude crumbled…

Source: Bloomberg

 

WTI tumbled to a $52 handle briefly overnight, before algos ripped it up to erase Friday’s loss, before it dumped all the way back down (reportedly in possible US-Iran tension easing)…

 

Gold managed to hold on to very modest gains after being dumped at the EU open (as Trump spoke) – after spiking above $1560 in Futs and $1550 spot…

Silver, on the other hand, was up well over 1%, refusing to listen to Trump…

Pushing Silver to dramatically outperform gold on the day…

Source: Bloomberg

As Yuan continues to weaken against the barbarous relic…

Source: Bloomberg

Finally, as Bloomberg’s Vincent Cignarella notes, the “McCulley Indicator” is rolling over. In markets speak, that means that the Capital Goods New Orders Non-defense Ex Aircraft & Parts series has been falling since November 2017 and is currently at 0.3%. (The measure is named for former PIMCO managing director Paul McCulley, who viewed it as a recession indicator.)

Source: Bloomberg

Over the last 20 years, when the data print has crossed below zero on a three-month Y/Y basis, a recession has followed.

via ZeroHedge News https://ift.tt/2LcPV06 Tyler Durden

Google Cracks Down on Employees’ Political Speech

Google is attempting to curtail its employees’ workplace speech on political subjects. This is a departure from the company’s previous policy of openness to political speech, and it is likely a result of conservatives’ persistent claims that Google is biased against them.

This should serve as a warning for the right: Attacking tech companies for perceived bias toward conservatives—and explicitly threatening government intervention—is likely to make the companies default toward even more censorship.

News of Google’s change of heart with respect to internal speech comes from Recode‘s Shirin Gaffary, who writes:

Google has long been known for allowing and even encouraging employees to debate and organize around controversial topics, including its product launches and national politics. That’s caused problems for the company, particularly as it’s scaled in size in an increasingly polarized political climate.

Shortly after President Trump was elected in 2016, Google co-founder Sergey Brin said in an all-hands company meeting that he found the election “deeply offensive” as “an immigrant and a refugee.” He remarked that “many people apparently don’t share the values that we have.” Almost two years later, Breitbart News leaked video of that meeting, fueling conservative claims (including from President Trump himself) that the company is biased against Republicans.

Under the new policies, Google employees will be prevented from making statements that “insult, demean, or humiliate” the company’s employees, business partners, or “others”—including public figures. A Google spokesperson confirmed to Recode that those public figures would include elected officials such as Trump.

Employees won’t be allowed to engage in heated political debates that, for example, encourage or organize employees to vote for or against a specific candidate.

Many on the right were upset about the firing of James Damore, who penned an internal memo criticizing the company’s diversity measures. I can understand and even sympathize with some of these gripes—yes, many Big Tech companies are disproportionately staffed and run by progressives, who take a less favorable view of conservative speech than liberal speech—but putting the fear of God (or, worse, the federal government) into them may very well backfire.

When Google, Facebook, or Twitter employees discussing how much they dislike President Donald Trump is treated as proof of bias, the companies will have an incentive to crack down on all political speech. They are private entities, and they have the right to set whatever policies regarding employee speech that they think are more conducive to a healthy workplace—but the public freakout over their alleged biases might well tip the scales in the direction of less speech, period.

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“Pet Rock” Indeed: Bank of America Says Buy Gold As Central Banks Lose Control

What a difference a few years makes. Back in the summer of 2015, a WSJ op-ed writer,  who somehow was unaware of the past 6,000 years of human history, infamously and embarrassingly said “Let’s Be Honest About Gold: It’s a Pet Rock.” Fast forward to today, when with every central bank once again rushing to debase its currency in what increasingly appears to be the final race to the debasement bottom, when even BOE head Mark Carney recommends that it is time to retire the dollar as the world’s reserve currency, pet rock gold has emerged as the second best performing asset of the year… and at the rate it is going –4th in 2017, 3rd in 2018, 2nd in 2019 – gold will be the standout asset class of 2020.

Which naturally has sparked comparisons for gold’s performance in 2019 with 2008+, when gold exploded higher as the financial system nearly collapsed and central banks started injecting trillions in liquidity into the system to keep it afloat.

Are such comparisons appropriate?

As Bank of America writes in “anatomy of two gold bull markets”, in comparing the gold bull markets in 2008 and 2018, real rates remain key price drivers, while a critical difference in market dynamics – this time around  – is that central banks have been unable to reflate global economies and even as metrics like the value and proportion of negative yielding assets has been increasing, further easing is on the cards. Linked to that, Bank of America makes a stunning admissions: “the risk of quantitative failure, which was not a concern in 2008, makes gold an attractive asset.”

BofA summarizes the key gold drivers in 2008+ and 2018+ across three key metrics: real interest rates, USD and volatility.

Taking a step back, for those who have not been following the performance of gold in the past year, the yellow metal has been one of the best performing commodities over the past year, rallying by 31% since bottoming in August 2018, as whon in the first chart which highlights that recent price dynamics have to some extent mirrored those seen in 2008+; the data also shows that the current bull market is still young. Partially because of that, Bank of America notes that it has been frequently been asked how the current macro backdrop compares to dynamics 10 years ago.

So what sparked the tremendous 2008 rally which lasted for the next three years?

Looking back at the Great Financial Crisis, central banks reacted to the turmoil on financial markets by easing monetary policy through both traditional, but increasingly also non-traditional policy tools

Since gold is a non-yielding asset, the reduction in opportunity costs and uncertainty over where the global economy and markets were headed made the commodity an interesting investment.

This is shown in Chart 4, which suggests that sharp declines in US real rates post GFC were accompanied by steady increases in gold quotations. Yet, US rates then started to change direction in 2013, the year Fed chairman Ben Bernanke caused the taper tantrum announcing that the Fed would gradually reduce its bond purchases (Chart 5). This effectively put an end to gold increases.

After the gold price rally ended, and fell sharply in the wake of the taper tantrum, gold prices then remained subdued also because ongoing monetary policy support kept markets buoyant. This is shown in chart 6, which highlights that falling volatility was ultimately accompanied by lower gold quotations. Of course, this was also influenced by an acceleration of the US economy, which picked up post GFC and in 2015 printed some of the highest growth rates in a decade

Unfortunately, the central banks’ fairy tale did not last, and the “strong economic growth” came with a significant wrinkle: inflation remained well below the 2% target. The chart shows data for the US, but the lack of upward pressure on general price levels has been equally pronounced in other countries/ regions including Japan/ Europe.

Yet notwithstanding the ongoing lack of reflation, central banks around the world seem adamant that monetary easing will ultimately do the job – as in it didn’t work last time, but it will work this time, we promise – and hence expectations are for more stimulus. The side-effects of that are mirrored by Chart 8 and Chart 9: value and proportion of debt with negative yields has risen almost exponentially of late and this has been a powerful driver of the gold.

This, according to BofA commodity strategists, has various implications. Most notably, “ultra-easy monetary policies have led to distortions across various asset classes”; worse – and these are not our words, but of Bank of America – “it also stopped normal economic adjustment/ renewal mechanisms by for instance sustaining economic participants that would normally have gone out of business”, i.e. a record number of zombie corporations.

In addition, as everyone knows, debt levels have continued to increase, making it more difficult for central banks to normalize monetary policy as 2018 showed so vividly (and for Powell, painfully).

Which brings us to BofA’s conclusion: “We fear that this dynamic could ultimately lead to “quantitative failure”, under which markets refocus on those elevated liabilities and the lack of global growth, which would in all likelihood lead to a material increase in volatility.”

How does gold fall into this: “At the same time, and perhaps perversely, such a sell-off may prompt central banks to ease more aggressively, making gold an even more attractive asset to hold.”

In other words, as the world approaches the financial endgame and central banks are out of ammo beside just doing more of the same – that led the world to the current catastrophic state – gold will be the biggest beneficiary of the upcoming financial cataclysm. And, no, this is not some fringe blog predicting the apocalypse, this is the prediction of one the 4 largest US banks.

And with that we hand it over to the WSJ’s Jason Zweig for his “Per Rock” sequel…

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