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The Calculus For Fed Inaction Is Getting Tougher By The Day

Authored by Bryce Coward via Knowledge Leaders Capital blog,

Over the last few days investors have been given a good amount of information to digest from incoming economic data, Federal Reserve meting minutes, and Fed speakers opining about monetary policy at the annual Jackson Hole conference. Even still, everyone is waiting on THE speech from Fed Chairman Powell tomorrow to set to the expectations for the Fed’s upcoming meeting in mid-September.  It’s clear from both the Fed meeting minutes as well as recent comments by Fed officials that there is no consensus for additional easing in September, let alone a 50 basis point cut in rates. Indeed, below are excerpts from three Fed speakers over the last few days, all suggesting no keen desire for more rate cuts.

Fed Rosengren: “We’re likely to have a second half of the year that’s much closer to 2% growth…I’m not saying there are not circumstances in which I’d be willing to ease. I just want to see evidence we are going into something that is more a slowdown.”

Fed Harker: “We’re roughly where neutral is. It’s hard to know exactly where neutral is, but I think we’re roughly where neutral is right now. And I think we should stay here for a while and see how things play out.”

Fed George: “We’re at a sort of equilibrium right now and I’d be happy to leave rates here absent seeing either some weakness or some strengthening, some kind of upside risk that would cause me to think rates should be somewhere else…I don’t yet see the signal that suggests it is time to get worried about a downturn…[a rate cut] is not required in my view.”

The market, on the other hand, continues to price in a 100% probability of easing in September, a two in three chance of more easing still at the October meeting, and a better than even chance of a third cut by January, 2020. Clearly there is a disconnect – a disconnect that in our view is getting harder and harder for the Fed to justify based on incoming data.

Indeed, over the last week or so we’ve seen:

  • Aggregate US corporate profits revised lower by $200bn

  • Payroll employment revised down by 500K from April 2018-March 2019

  • Industrial production decline MoM and miss expectations

  • Capacity utilization decline MoM and miss expectations

  • Consumer sentiment decline MoM and miss expectations

  • Markit manufacturing and service sector PMIs decline MoM and miss expectations

It’s true that not all the econ data is coming in on the weak side. Importantly, retail sales came in higher than expectations thanks to Prime Day, housing data is mixed and initial unemployment claims have remained low. But we must remember that those data tend to be lagging in nature. More concerning is how the leading components of business surveys like the Markit survey are coming in at the lowest levels on record. On the manufacturing side, new export orders and new orders are in contraction and plunging. Worryingly, the weakness in manufacturing appears to be bleeding into services as service business expectations are also at new historic lows and plunging.

No wonder the market is pricing in three more 25bps rate cuts over the next five months. And regardless of Fed speakers so far this week, logic points to the Fed being more rather than less aggressive. After all, as we see it the Fed basically has two high probability options at this point.

  • Option A is to sit tight, perhaps dribble in another “mid-cycle” cut over the next several months and see how the data evolve. This is the option that George, Harker and Rosengren would most likely support.

  • Option B is to cut rates in September and signal at least two additional 25bps cuts by January, thereby meeting the market’s expectations.

The relative downside of Option A looks increasingly large compared to Option B. If the hawks win out and Option A prevails, the risks to a further slowdown/recession would increase in our view given the message from the leading economic data. This case would all but guarantee the eventuality of a 0% Fed Funds rate and possibly more quantitative easing. If they opt for Option B then perhaps a deeper slowdown/recession is avoided, which would allow the Fed to hold the policy rate at a relatively higher level. The worst case for Option B is that they end up in the same place as the Option A, with a policy rate of 0% and QE on the table, except that the lags from the easing campaign would have been less.

Of course, there are risks to option A including inflating a financial asset bubble, but the opposite is also true as we saw last December when Chair Powell told the world the Fed’s balance sheet was on “auto pilot”. Regardless, no matter how you slice it either policy option would seem to support bonds and gold, while only one option (Option B) would also support equities.

In our view, Option A would tend to result in lower inflation and growth expectations, bringing down the long end of the Treasury curve while pinning down the short end of the curve, thereby exacerbating the 10Y-3M and 10Y-2Y inversions. Falling long-term real rates would likely put a floor on gold prices even if the US dollar broke to new highs. Equities would likely struggle on the back of falling growth and inflation expectations.

Options B would tend to steepen the curve in our view by bringing down the short end faster than the long end. Long-term rates would face relatively limited upside thanks to falling term premiums that result from policy easing, and possibly significantly more downside. Still negative real rates would support gold prices and relative policy easing would tend to weaken the US dollar. Equities would be supported if inflation and/or growth expectations rose.

Given the circumstances outlined above of clear economic slowing with downside risks, the case for aggressive Fed easing has become quite a bit easier to make while the relative risks of the “mid-cycle” status quo have become greater. Either option is  likely to be eventually quite supportive of bonds and gold while only the dovish option is likely to support stock prices.

[ZH: And of course, today’s China trade retaliation further adds to the case above.]

via ZeroHedge News https://ift.tt/33TYqpD Tyler Durden

That ‘Vaping-Linked Lung Disease’ Might Not Really Be Linked to Vaping

There’s a bit of panic brewing in the press over lung problems that could be linked to vape products. The Centers for Disease Control and Prevention (CDC) “reports more than 150 cases of possible vaping-linked lung disease,” says The Hill. Others make even bolder claims.

“More than 100 vapers have contracted a severe lung disease,” The Verge reports. “Vaping lung disease: CDC reports 153 cases,” says USA Today. Ars Technica warns that “vaping-linked lung disease cases” have jumped “from 94 to 153 in 5 days.”

But read closely, and it becomes apparent that nobody actually knows if vaping is causing this mystery disease or not. Nobody even knows if there is a disease, or how many people actually have it. That’s what the CDC is at the beginning of investigating.

For now, all officials know is that states keep reporting people with cases of mysterious lung and chest problems. “Many states have alerted CDC to possible (not confirmed) cases and investigations into these cases are ongoing,” says the CDC. Symptoms include shortness of breath, chest pain, and coughing—all common issues that can stem from a range of causes and ailments.

“The CDC and impacted states haven’t identified a cause,” notes The Verge. Nor has it actually verified suspected cases.

Those reporting the problems all say they have used vape products—albeit not what sort. Which leaves us with another possibility: that some particular faulty product or line of products is indeed causing trouble, but that this is not an issue with vaping at large.

We know that some patients in potential cases used THC-containing vape products, not nicotine-containing e-cigarettes. The Vapor Technology Association told The Hill that no nicotine e-cigarettes have been linked to the lung issues:

The e-cigarette makers’ trade group called for public health officials to “refrain from assigning unsubstantiated blame until the facts are known,” and said traditional nicotine-containing e-cigarettes are being wrongly conflated with THC-containing products.

In actuality, we don’t know at all what folks with many of the suspected cases were smoking, nor what other habits they may have shared, such as any history of regular cigarette or marijuana smoking. We don’t—and this is pretty damn crucial—even know if all of these patients suffer from the same affliction at all.

The fact that cases have spiked dramatically in the brief time since news of this “vaping lung disease” started spreading suggests we may have a different sort of contagion on our hands. Perhaps people who vape have been starting to freak out upon hearing the “lung disease” news and either suddenly noticed new symptoms (which also sound a lot like symptoms of a panic attack) or began interpreting ongoing symptoms in a new way.

Or maybe vaping is going to kill us! That’s certainly possible. The point is that right now, anything is possible. And until we know more, it’s irresponsible for folks to spread panic about products that have been helping many people leave more dangerous habits behind.

FREE MINDS

Ken “Popehat” White tries to dispel some of the most common delusions about the First Amendment. “If you’ve read op-eds about free speech in America, or listened to talking heads on the news, you’ve almost certainly encountered empty, misleading, or simply false tropes about the First Amendment,” writes White at The Atlantic. “Those tired tropes are barriers to serious discussions about free speech. Any useful discussion of what the law should be must be informed by an accurate view of what the law is.”

White tackles popular tropes like “you can’t shout ‘Fire!’ in a crowded theater” (wrong!), “hate speech is not free speech” (wrong!), and more. “Many free-speech issues that are controversial politically and culturally, by contrast, are utterly banal legally, and the Court has offered no signs of change,” he points out.

FREE MARKETS

“It’s a credit card, not a ‘virtual interface.’ There is nothing novel about a credit card.” At Forbes, writer Frances Coppola throws some water on tech-media hype about the new Apple Card and its purported potential to “disrupt” traditional banking:

A credit card is, as its name suggests, simply a line of credit which is drawn upon when using a card to make purchases. Apple’s card may be fancy (and fragile), but behind it is a bog standard credit facility, just like every other credit card in the world. So the question is, who is issuing that facility?

Credit card facilities are provided by banks. Cards may be branded by a retailer, but the actual issuer is always a bank….

Apple Card’s strapline “Created by Apple, not a bank” implies that the credit line is provided by Apple itself. If that were the case, then Apple Pay would be groundbreaking. It would mark Apple’s transformation into a bank—and a bank of such a size and reach would indeed eat the lunch of existing banks.

Sadly, the strapline is misleading to the point of dishonesty….The card that is “created by Apple, not a bank” is actually issued by—a bank.”

That’s right, Goldman Sachs is behind the “no bank” Apple Card.

ELECTION 2020

  • Radio host, ex-congressman, and former Trump supporter Joe Walsh may run against the president in the Republican primaries.
  • “For Harris, the health care morass is also threatening to become an ominous symbol for why, after her surge following the first debate, she’s fallen back since early July to where she started,” reports Politico. “She now polls closer to Pete Buttigieg and Beto O’Rourke than Sanders and Elizabeth Warren.”

QUICK HITS

  • The Justice Department sent the National Association of Immigration Judges a link to a white nationalist website post that made anti-Semitic attacks on judges
  • DARPA—you know, the group that “defends” our country by archiving and analyzing millions of sex work ads and dreaming up new ways for those in power to surveil citizens—would be the model for a creepy new “Health Advanced Research Projects Agency” that Trump is considering.
  • An embarrassing number of people—including U.S. Secretary of Energy Rick Perry—have fallen for an age-old internet hoax circulating on Instagram this week.
  • The U.S.-China trade war escalates again as China announced new tariffs on American automobiles, oil, and some industrial products.
  • Trump’s tariffs and trade wars are accelerating economic slowdown that could plunge us into a recession, writes CNN Business analyst Matt Egan. The chief investment officer at Morgan Stanley Wealth Management, Lisa Shalett, told him that “it is highly, highly likely that the US economy will continue to slow down” in 2020.
  • More on the Family Tree DNA/FBI link.
  • The European Union is reportedly devoting $100 billion to encourage Euro competitors to companies such as Amazon, Apple, Facebook, Google, and Microsoft.
  • If you’re not watching Derry Girls, you should be.
  • Why are inmate suicides up?
  • Police in Marshall County, Alabama, are proudly testing new frontiers in the War on Drugs. On Tuesday, they arrested residents for possession of THC extraction from marijuana plants.
  • A must-read from Emily Yoffe for Reason:

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David Koch, R.I.P.

David Koch, who along with his brother Charles ran one of America’s most prominent political giving machines, has died at age 79.

Koch was one of four children of the oil industrialist Fred Koch, and along with his older brother Charles he became one of America’s richest men through the growth of the family business. Due to the brothers’ funding of political causes and candidates, the Kochs became betes noir of the American left. (Koch was for 36 years a trustee of the Reason Foundation, which publishes Reason magazine.) Often incorrectly described as a conservative or a Republican, David Koch was a lifelong libertarian whose work and giving reflected the values of free enterprise and limited government.

Born in Wichita in 1940, Koch earned undergraduate and graduate degrees in chemical engineering from MIT, where he also excelled in basketball. After working for outside companies from 1963 to 1970, including a stint at the management consulting firm Arthur D. Little, Koch began working in the family business in 1970 as a technical service manager at the subsidiary Koch Engineering for a salary of $16,000. He rose to be president of the division, and he went on to serve in various capacities in the set of privately owned family businesses, including president of Koch Engineering and Executive Vice President of Koch Industries. He retired officially last year because of his fading health.

In a 2005 interview for my book Radicals for Capitalism, Koch told me his father taught him that “big government was bad, and impositions of government controls on our lives and our economic fortunes was not good.” In the mid-1960s, with encouragement from Charles, he attended the Freedom School, an early libertarian educational institution run by Robert LeFevre, whose variety of libertarianism rejected both political activism and violence, even in self-defense. While LeFevre was one of their earliest exposures to the organized libertarian movement, both brothers denied that they ever embraced his entire package of ideas. As they began financing, working with, and guiding libertarian institutions in the 1970s, their activism involved support and promotion for the pro-market Austrian school of economics exemplified by Ludwig von Mises and F.A. Hayek. Libertarian educational institutions, think tanks, legal action groups, grassroots activism, magazines, criminal justice reform efforts, and student groups all received largess and guidance from the Koch brothers from the 1970s through the present.

In the 1980 presidential campaign, when recently imposed campaign finance restrictions hobbled third parties’ abilities to fundraise by severely limiting how much any single donor could give, David Koch took advantage of the fact that the rules allowed candidates themselves to self-finance as they wished: He became the Libertarian Party’s vice presidential nominee. He and running mate Ed Clark got more than 1 percent of the vote, a party record that would go unbroken until 2016.

Koch told New York magazine during that campaign that he’d been excited by the previous Libertarian presidential run by Roger MacBride, saying the party was “advocating all the things I believed in. [MacBride] wanted less government and taxes and was talking about repealing all these victimless-crime laws that had accumulated on the books. I have friends who smoke pot. I know many homosexuals. It’s ridiculous to treat them as criminals—and here was someone running for president, saying just that.”

After winning the vice presidential nomination, Koch told the assembled Libertarian delegates that the party’s members “represent the best hope for human freedom since the American revolution” and that “as a businessman, who’s run a successful company, who’s had to deal with the harassment and ridiculous interference of government in the affairs of my business….I can be particularly effective at communicating the libertarian ideas and concepts to the businessman.” Koch listed the run as his “proudest achievement” in a 1987 MIT alumni newsletter.

In 1984 Koch co-founded Citizens for a Sound Economy, a free market advocacy and research organization that later split into FreedomWorks and Americans for Prosperity, both prominent players in 21st century Republican and libertarian circles in the pre-Trump age (though Koch was only directly involved with the latter). Koch continued to donate and to often serve on the boards of market-oriented advocacy groups, and the political operation funded and managed by him and Charles became notorious in the Obama age as the supposedly sinister face of money in politics.

As was his way, Koch mostly declined to participate in public controversies over his political beliefs or funding. But as he told me in that 2005 interview, he had come to see political philanthropy as finding “aggressive salesmen” who understand that you can have the best product in the world but if you aren’t finding consumers to buy it, you need to do whatever it takes to sell it, including spending “staggering sums on advertising and promotion” in the mold of Proctor & Gamble. You have to find talented people with good ideas, and try different approaches, to help generate political and philosophical change.

Koch was an inveterate experimenter in that process, to the great benefit of many libertarian institutions—he told me he’d been on as many as 20 boards at a time.

The vast bulk of Koch’s philanthropy was not political. It included hundreds of millions of dollars for cancer research (he was diagnosed with prostate cancer in 1992) and major arts and sciences institutions, museums, schools, and public television, with much of his institutional philanthropy centered in New York City, his home for decades.

He is survived by his wife Julia and their three children.

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Grand Jury Subpoenas Issued For Up To 20 Officers At NYC Prison Where Epstein Died

Up to twenty employees at the Manhattan Metropolitan Correctional Facility (MMC) where Jeffrey Epstein died have been subpoenaed in connection with the wealthy pedophile’s unbelievable suicide.

Federal investigators obtained the grand jury subpoenaes while trying to understand what exactly happened leading up to Epstein’s suicide in what CNN reports to be “a new and significant phase in what appears to be a criminal investigation into the workers responsible for Epstein’s detention.”

Epstein was found hanged in his cell in the early morning hours nearly two weeks ago. The multimillionaire financier was awaiting trial on charges that he’d run a sex trafficking ring involving underage girls.

The suicide of one of highest-profile federal inmates was said to have deeply angered top officials at the Justice Department, and investigators with the FBI and the Justice Department’s Inspector General’s Office have been probing the circumstances that led up to it. –CNN

On Wednesday, Attorney General William Barr said that several witnesses “were not cooperative,” and had “required having union representatives and lawyers before we could schedule interviews.” Barr has ordered the FBI and the Justice Department’s inspector general to probe Epstein’s August 10 suicide. Also under review is a prior attempt from July 23 in which Epstein reportedly told his lawyers that then-cellmate Nicholas Tartaglione “roughed him up.” 

Tartaglione has denied hurting Epstein, and recently asked a judge to transfer him out of MCC and into another prison after reportedly receiving death threats from guards – including that there would be a “price to pay” if he talks about Epstein’s death. 

Investigators are reportedly focusing on two guards tasked with watching Epstein, who have both been placed on leave in the wake of Epstein’s death. The official story is that they fell asleep on the job. There are also reports that the guards falsified records to show they had checked on Epstein every 30 minutes as required – which, if true could expose them to criminal charges. 

In the days since Epstein’s death, reports of mistakes and mismanagement behind the walls of the hulking Manhattan facility have emerged.

Barr has cited “serious irregularities” and a “failure to adequately secure” Epstein by the jail, and has in recent days overhauled the leadership there and at the Bureau of Prisons in Washington. –CNN

Prosecutors hope to learn from the lieutenants in charge of Epstein’s cell block what exactly happened the night he died; whether guards properly conducted their rounds to check on prisoners, and how work was handed off between shifts. 

“The fact that this is a grand jury investigation means that they are investigating a specific crime. It tells me that it’s something more than just ‘Let’s pick up the pieces and do a report’ like an inspector general would normally do,” said former federal prosecutor Elie Honig. 

The 66-year-old Epstein, who had not been checked for hours before his death, was found unresponsive in his cell after being taken off suicide watch days earlier. He reportedly tied a bedsheet to the top of a bunk bed and swan dove with enough force to break a bone in his neck. 

via ZeroHedge News https://ift.tt/2PkRNt0 Tyler Durden

David Koch, R.I.P.

David Koch, who along with his brother Charles ran one of America’s most prominent political giving machines, has died at age 79.

Koch was one of four children of the oil industrialist Fred Koch, and along with his older brother Charles he became one of America’s richest men through the growth of the family business. Due to the brothers’ funding of political causes and candidates, the Kochs became betes noir of the American left. (Koch was for 36 years a trustee of the Reason Foundation, which publishes Reason magazine.) Often incorrectly described as a conservative or a Republican, David Koch was a lifelong libertarian whose work and giving reflected the values of free enterprise and limited government.

Born in Wichita in 1940, Koch earned undergraduate and graduate degrees in chemical engineering from MIT, where he also excelled in basketball. After working for outside companies from 1963 to 1970, including a stint at the management consulting firm Arthur D. Little, Koch began working in the family business in 1970 as a technical service manager at the subsidiary Koch Engineering for a salary of $16,000. He rose to be president of the division, and he went on to serve in various capacities in the set of privately owned family businesses, including president of Koch Engineering and Executive Vice President of Koch Industries. He retired officially last year because of his fading health.

In a 2005 interview for my book Radicals for Capitalism, Koch told me his father taught him that “big government was bad, and impositions of government controls on our lives and our economic fortunes was not good.” In the mid-1960s, with encouragement from Charles, he attended the Freedom School, an early libertarian educational institution run by Robert LeFevre, whose variety of libertarianism rejected both political activism and violence, even in self-defense. While LeFevre was one of their earliest exposures to the organized libertarian movement, both brothers denied that they ever embraced his entire package of ideas. As they began financing, working with, and guiding libertarian institutions in the 1970s, their activism involved support and promotion for the pro-market Austrian school of economics exemplified by Ludwig von Mises and F.A. Hayek. Libertarian educational institutions, think tanks, legal action groups, grassroots activism, magazines, criminal justice reform efforts, and student groups all received largess and guidance from the Koch brothers from the 1970s through the present.

In the 1980 presidential campaign, when recently imposed campaign finance restrictions hobbled third parties’ abilities to fundraise by severely limiting how much any single donor could give, David Koch took advantage of the fact that the rules allowed candidates themselves to self-finance as they wished: He became the Libertarian Party’s vice presidential nominee. He and running mate Ed Clark got more than 1 percent of the vote, a party record that would go unbroken until 2016.

Koch told New York magazine during that campaign that he’d been excited by the previous Libertarian presidential run by Roger MacBride, saying the party was “advocating all the things I believed in. [MacBride] wanted less government and taxes and was talking about repealing all these victimless-crime laws that had accumulated on the books. I have friends who smoke pot. I know many homosexuals. It’s ridiculous to treat them as criminals—and here was someone running for president, saying just that.”

After winning the vice presidential nomination, Koch told the assembled Libertarian delegates that the party’s members “represent the best hope for human freedom since the American revolution” and that “as a businessman, who’s run a successful company, who’s had to deal with the harassment and ridiculous interference of government in the affairs of my business….I can be particularly effective at communicating the libertarian ideas and concepts to the businessman.” Koch listed the run as his “proudest achievement” in a 1987 MIT alumni newsletter.

In 1984 Koch co-founded Citizens for a Sound Economy, a free market advocacy and research organization that later split into FreedomWorks and Americans for Prosperity, both prominent players in 21st century Republican and libertarian circles in the pre-Trump age (though Koch was only directly involved with the latter). Koch continued to donate and to often serve on the boards of market-oriented advocacy groups, and the political operation funded and managed by him and Charles became notorious in the Obama age as the supposedly sinister face of money in politics.

As was his way, Koch mostly declined to participate in public controversies over his political beliefs or funding. But as he told me in that 2005 interview, he had come to see political philanthropy as finding “aggressive salesmen” who understand that you can have the best product in the world but if you aren’t finding consumers to buy it, you need to do whatever it takes to sell it, including spending “staggering sums on advertising and promotion” in the mold of Proctor & Gamble. You have to find talented people with good ideas, and try different approaches, to help generate political and philosophical change.

Koch was an inveterate experimenter in that process, to the great benefit of many libertarian institutions—he told me he’d been on as many as 20 boards at a time.

The vast bulk of Koch’s philanthropy was not political. It included hundreds of millions of dollars for cancer research (he was diagnosed with prostate cancer in 1992) and major arts and sciences institutions, museums, schools, and public television, with much of his institutional philanthropy centered in New York City, his home for decades.

He is survived by his wife Julia and their three children.

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Your Last Minute Jackson Hole Preview: Powell In Turmoil

While we shared an extended preview of Jerome Powell’s Jackson Hole speech overnight, which in light of the latest trade war development which saw China impose tariffs on another $75BN in US goods, may have to be rewritten as an even more forceful response from Trump is now virtually assured, here is a summary snapshot of what Wall Street expects from today’s main financial event.

As we noted yesterday, following surprisingly hawkish comments from Philly Fed president Harker, Kansas City President Esther George and Boston Fed president Eric Rosengren, all of whom voiced their opposition to additional cuts, the market-implied odds of a 50bps rate cut in September has tumbled to just 2% as of this afternoon, down from 41% a week ago, resulting in yet another inversion in the 2s10s curve as 2Y Treasury yields spiked.

If anything, Thursday’s hawkish tone was a reminder that it is premature to expect a signal on the size of the Fed’s September move something which the market desperately wants; In fact, as Morgan Stanley writes, Powell will certainly choose to maintain flexibility on size by reminding us the Fed “will act as appropriate to sustain the expansion.”

Furthermore, there’s been no gathering since the July FOMC, the few policymakers who have since spoken publicly have either been surprisingly hawkish, or have underscored that there is no pressing need to take additional action… and there’s still more data to get through ahead of the next meeting.

Key risks: As Morgan Stanley’s Ellen Zentner writes, watch for the use of “somewhat” when Powell is describing further adjustments. Investors may associate the word “somewhat” with 25bp. Acknowledgment that downside risks have increased with no characterization of “somewhat” could be taken as confirmation that it is likely the Fed makes a larger cut in September, although that now appears unlikely.

Some additional details courtesy of RanSquawk.

The theme of the economic symposium at Jackson Hole this year is “Challenges to monetary policy”, the same as in 1999. The theme is broad enough to cover the task of bringing inflation to target (policy framework related themes), the challenge of central bank independence, and of course of administering monetary policy at a time of heightened global trade risks and softening global growth.

The Jackson Hole presentation schedule, released late on Thursday, reveals that neither Kuroda nor Draghi would be present, and instead Mark Carney is the only other prominent fixture on today’s calendar, delivering the Luncheon Address at 2pm ET. Another notable, if very confused, central banker present will be RBA governor Philip Lowe, who will headline a Saturday morning panel.

There are also geopolitical themes that the Fed will need to navigate (US/China is the obvious one, but also Japan and South Korea, while the Fed has noted Brexit risks in the past, which seem to be resurfacing again now). Concerns around
these themes are now manifesting themselves in the yield curve, where recent inversions portend recessions ahead, leaving the Fed facing arguments that it is either is behind the curve, or does not have the tool set to tackle the issues it faces. Given that a cocktail of these issues have been keeping a lid on inflationary pressures, the messaging from Fed officials will set the stage for the 18th September FOMC, where the market is pricing 30bps of easing (implying a cut is fully priced, and there is some probability of a 50bps move).

Amid the market turmoil, and dovish actions by many global central banks, the Fed may emphasize that QT is over, and Fed policy is now accommodative; the market may be especially attuned for any insight on the magnitude of a rate cut, while 50bps is still a scenario on some bank desks; some of the dovish elements have dismissed the notion of a single 50bps rate cut in the past (see Bullard, who has not signalled any panic about the risk sell-off/yield curve inversion, preferring to judge the data, while noting it has been coming in decent recently). More generally, it may be an opportunity  for central bank officials to calm the market after its recent rout (the full agenda is not released until the day before the event gets underway, however, the event is usually attended by bigwigs from other major central banks too). One criticism the Fed and ECB faced after their respective July policy meetings was the lack of clarity – with the two dissents on the FOMC, and Draghi clearly unable to have the GC unanimously back his views on looser policy made in the run up to the meeting.

Some desks have said they would prefer Fed Vice Chair Clarida and FOMC Vice Chair Williams to attend and make remarks, both of whose messaging may be more distinct than that of Chair Powell’s was after the July FOMC, and despite the criticisms levelled at Williams recently, both of those are also able to provide more academic insight than Powell might be capable.

via ZeroHedge News https://ift.tt/33Y83Ur Tyler Durden

Tesla’s Secret Spontaneously Combusting Solar Panel Cover Up

The cover-up is on.

Just days ago, we highlighted Walmart filing a lawsuit against Tesla due to the company’s solar panels spontaneously combusting on top of Walmart stores nationwide. Now, details of the cover-up that Tesla tried to put into place back in 2018 have leaked out and made an ugly story for Tesla – being sued by Walmart – into an even uglier one.

In the summer of 2018, Tesla initiated a massive undertaking called “Project Titan”, which had the purpose of replacing faulty solar panel parts across the United States, according to Business Insider. The parts in question are connectors — Amphenol H4 connectors — and SolarEdge optimizers, two pieces of the panel that are responsible for regulating the flow of energy and heat.

The main job of these parts? Making sure that as much power goes through the panel as possible without overheating, which can then lead to – you guessed it – fire.

Tesla even confirmed that the cover up was taking place. A company spokesperson said: “A portion of SolarCity-installed modules and optimizers from various manufacturers were made with H4 connectors from Amphenol, a part that was commonly used across the industry at the time.”

The same spokesperson went on to say that Tesla only found that a “small number” of the connectors had failures: “Over the past year, less than 1% of sites with this connector have exhibited any abnormal behavior. Tesla honors our commitments to our customers, who expect their solar installations to reliably generate clean, low-cost energy for their contract term of 10-20 years. This campaign to replace any faulty connectors at these sites is Tesla fulfilling that commitment.”

…talk about a line that might make it into an amended complaint, should Walmart file one. 

These parts were then “quarantined” as a part of the project, only to be either reworked and put back on roofs or scrapped. Business Insider claims that a document showed 120,000 parts that needed to be quarantined across the US, but Tesla disputes this number. Instead, Tesla called Project Titan “a remediation effort to limit any impact the connector may have had, even though we are not aware of any equipment manufacturer or regulator that has determined any substantial hazard exists.”

Walmart had been a customer of Solar City’s since 2010. Walmart’s complaint alleges that Tesla failed to manage and maintain solar panels on hundreds of roofs across the United States, in breach of the company’s agreement.

Walmart claims that this negligence resulted in fires on seven roofs in states from Ohio to California. Walmart also claimed that de-energizing the solar panels didn’t stop them from catching fire:

“In November 2018, Walmart discovered that yet another fire had occurred at a Walmart store in Yuba City, California-even though the solar panels at this store had been de-energized since June 2018. Wires on the store’s rooftop were still sparking at the time that Walmart discovered the fire and could have ignited more extensive flames, with potentially devastating consequences.”

In March 2018, there was a fire on the roof of a Walmart with solar panels installed in Beavercreek, Ohio. The fire caused the store to close for eight days and, a month after it happened, Tesla still couldn’t figure out what to do about it. The solar panel model that needed to be replaced wasn’t in stock and the company didn’t know how to replace the damaged unit on the roof.

Ordering of all the parts necessary to execute “Project Titan” – including ladders, tool belts and replacement parts – all happened in staggered fashion. In December 2018, 188 trucks were sent out in almost 50 cities to change faulty connectors and optimizers. In April 2019, Tesla was still trying to “fine tune” its procedures. The company even made an announcement in early April directing repair teams to use refurbished parts to replace damaged optimizers and connectors.

One former employer stated:

“That’s how all this goes — we fix stuff as it comes out. There is no planning ahead — there are too many fires to put out. Pun intended.”

Walmart claims that Tesla only inspected 29 of more than 240 sites with Tesla solar roofs on them up until the day of the lawsuit. However, on Thursday night , it looks as though Musk may have been doing even more damage control, as the two companies released a joint statement regarding the lawsuit:

“Walmart and Tesla look forward to addressing all issues and re-energizing Tesla solar installations at Walmart stores, once all parties are certain that all concerns have been addressed.”

“Together, we look forward to perusing our mutual goal of a sustainable energy future,” the statement continued. “Above all else, both companies want each and every system to operate reliably, efficiently, and safely.”

Did Tesla just realize how horrifying the optics of the situation were? If so, the question becomes: what did Tesla offer one of the world’s largest retailers as a concession in order to get them to play ball and release a statement like this?

We’d love to say that we “can’t wait to find out”, but given the fact that the massive solar panel disaster with one of Solar City’s most well known customers was never disclosed or filed in an 8-K, we’re not holding out hope.

via ZeroHedge News https://ift.tt/2L3AuYf Tyler Durden

Billionaire David Koch Dies At 79

David Koch, the conservative billionaire, activist and philanthropist, who gave more than $1 billion to charitable causes but was best known for using his money to reshape U.S. politics has died at the age of 79.

David, together with his brother, Charles, co-owned Koch Industries, a Nebraska-based energy and chemical company, since 1983. David stepped down from running the Koch organization last year due to declining health. A longtime New York resident, Koch was until retirement in June 2018 an executive vice president of the family company.

The Koch brothers are perhaps best known for building a massive conservative network of donors for organizations that work to mobilize voters and sway elected officials in support of libertarian-leaning economic policies.

In a prepared obit, the WSJ notes that “Koch, whose net worth of about $50.5 billion tied him with his brother as the world’s 11th-richest person in Forbes magazine rankings, gained most of his wealth from a 42% stake in Wichita, Kan.-based Koch Industries Inc., which has interests ranging from oil to beef to paper and is the second-largest closely held U.S. company.”

Some more details from the WSJ:

Though he was a liberal on social issues like abortion and same-sex marriage, Mr. Koch used his fortune to support conservative causes that favor lowering taxes, free trade and fewer regulations. He was the Libertarian Party’s 1980 vice-presidential candidate.

With his surviving older brother Charles Koch, the chairman and chief executive of Koch Industries, Mr. Koch created a network composed of like-minded wealthy donors brought together to back conservative causes.

They were credited with helping finance the limited-government Tea Party movement that helped Republicans win control of the House in 2010 during President Obama’s first term.

Their support of conservative causes became a lightning rod for Democrats, raising the ire of then-Sen. Harry Reid of Nevada, who in 2014 called Mr. Koch and his brother “un-American” and accused them of “trying to buy America” through campaign cash.

As the WSJ further notes, Megadonors such as the Kochs were able to grow their influence after the Supreme Court’s 2010 Citizens United decision, which allowed unlimited spending, both directly and indirectly, by outside groups

Diagnosed with prostate cancer in 1992, Koch had in recent years suffered from deteriorating health, according to the letter announcing his retirement from business and political activities. Over decades, Mr. Koch funneled some of his largest donations to cancer research, most notably to Memorial Sloan Kettering Cancer Center in Manhattan and to his alma mater, the Massachusetts Institute of Technology in Cambridge, Mass., for the founding of the Koch Institute for Integrative Cancer Research.

Koch attributed his philanthropy to a near-death experience in 1991, when an airplane he was in collided with another at Los Angeles International Airport. Mr. Koch was able to escape the smoke-filled plane, while more than 30 others were killed in the collision. Speaking about the crash in a 2014 television interview, Mr. Koch said, “I felt that the good Lord was sitting on my shoulder and that he helped save my life because he wanted me to do good works and become a good citizen.”

Born in Wichita on May 3, 1940, Koch attended public schools in his hometown before attending the prestigious Deerfield Academy in Deerfield, Mass. Mr. Koch earned his bachelor’s and master’s degrees in chemical engineering from MIT.

In addition to his brother Charles, Mr. Koch is survived by his three children; wife, Julia; twin brother, William Koch, and brother, Frederick Koch.

via ZeroHedge News https://ift.tt/2MADC16 Tyler Durden

Dead Meat In Jackson Hole

Authored by MN Gordon via EconomicPrism.com,

If there are any virtues of debt instruments with negative yields we’ve yet to realize them.  Certainly, we understand that as bond yields fall, bond prices rise, and bond investors are rewarded with capital appreciation.  But when capital’s appreciating as a consequence of negative yields, we suspect there’s something fundamentally wrong with the capital itself.

Capital markets, as we’ve always understood them, are centered around lenders buying debt – such as a bond – at a yield that compensates for the risk of default over a contracted duration.  The acceptance of negative yield is an abstraction that violates the form and function that capital markets are built on.  In fact, negative interest rates undermine the foundational business model of banking in general.

How can banks loan money if they’re not compensated for the risk that some loans will go bad?  And if banks can only loan money at a loss, why loan money at all?  If there’s no profit motive, what’s the point?

There’s currently about $17 trillion in combined government and corporate negative yielding debt in existence.  The European Central Bank and the Bank of Japan, with policies of mass money debasement that far exceed those of the Federal Reserve, are the primary culprits.  Their fake money and fake interest rates have produced fake capital markets.

In effect, Negative Interest Rate Policy (NIRP) destroys a commercial banks ability to build capital and offset losses.  In other words, NIRP destroys commercial banks.  By extension, NIRP via central banks leads to the implied nationalization of commercial banks.

Japan and Europe are already past the point of no return.  President Trump beats on Fed Chair Jay Powell practically every day to go negative.  Will he acquiesce?  In truth, he doesn’t have a choice…

Roadkill

In western Wyoming, between the Teton Mountain Range and the Gros Ventre Range, sits a high altitude mountain valley.  The near vertical slopes used by Davy Jackson and other 19th century fur trappers to enter the valley from the north and east gave the sensation of entering a hole.  The name stuck.

The conditions are harsh along the Jackson Hole valley floor.  Radiational cooling, where low lying cold air from the snow covered ground plunges the temperature as the air migrates down the valley.  This cooling effect, an effect similar to negative yielding debt, has produced temperatures of negative 66 degrees Fahrenheit.

However, for a brief period each year, the conditions in Jackson Hole are near perfect.  In late summer, the valley’s paradise.  Still, perfect conditions do not mean all is perfect in Jackson Hole.

On Sunday night, for example, resident Gale Wilson took a photo of a moose and her calf near Highway 390 and the Snake River.  When she stepped outside on Monday morning she was greeted by the dead calf’s body.  “It just ruined my day,” said Roosevelt.

Unfortunately, moose roadkill has become such a common occurrence along this stretch of Highway 390 that Mark Gocke, with the local Game & Fish, has lost track of how many moose have died.  To better square up the runaway roadkill, Mr. Gocke’s hard at work – or, perhaps, hardly working – on an official tally.  He may need to add several new entries to his log before the weekend’s over…

Dead Meat in Jackson Hole

This Thursday through Saturday, for the 37th consecutive year, the Kansas City Federal Reserve is hosting its economic symposium in Jackson Hole.  Central bankers from the Federal Reserve have descended upon the valley like 19th century fur trappers.  Who they bill their expense reports to is a question that’s better not asked.

At the time of this writing, Fed Chair Powell has yet to give his speech.  There are many things he could say.  There is little that he will say.  There are things he definitely won’t say.

For example, Powell won’t say that the world’s central banks are tripping and stumbling as they race to out-stoopid one another.  Nor will he say that locking in a guaranteed loss on bonds that are held to maturity is a terrible way for investors and pension funds to meet their long-term liabilities.  Or that sometime over the next decade retirees will be eviscerated.  He won’t say any of that…

Powell also won’t say that the Federal Reserve’s days are numbered.  That the central bank’s obsolete and one crisis away from its own destruction.  That it has cannibalized the nation’s time and treasure, transferring individual wealth to Washington for Washington’s ends.

Powell certainly won’t say that he may very well be the last Chair of the Federal Reserve.  That the economic model of the 20th century is over.  That increased issuances of debt no longer translates into increased economic growth.  That the Fed merely provokes wild asset price swings, negative yielding bonds, casino style speculation, and epic bubbles and busts.  And that with full knowledge of this, he’ll still take the nation into the hole of negative yields.

Indeed, the rash of moose kills in Jackson Hole is acutely instructive.  The central bankers are dead meat.  And they know it.

via ZeroHedge News https://ift.tt/33Se6cV Tyler Durden

When Governments Act on Fear and Panic, Injustice Is Often the Result

There was a saying, which sprung from the French Revolution and was used during the Russian Revolution: “No enemies on the Left.” It was the idea that left-wing revolutionaries should moderate their criticism of anyone on their side of the aisle, no matter what type of extremism they embraced. During the Cold War, conservatives rightly mocked liberals who hedged about the evils of communism. They struggled to condemn anyone to their Left.

Last week, I wrote about the apparent re-emergence of white nationalist thinking. Some mass shooters (El Paso, Pittsburgh, Charleston) seem to subscribe to a white-supremacist ideology, based on their alleged manifestos and police statements. Judging by the reactions to some of the latest shootings, there’s a similar philosophy at work: “No enemies on the Right.” Everyone condemns the killers, of course, but people hem and haw about the far-right danger.

My column simply called for a recognition of the problem—and the use of existing laws to deal with self-radicalizing white supremacists who break the law. It’s the same solution I embraced after the 9-11 terrorist attacks, and after home-grown killers with an alleged Islamic radical viewpoint murdered Americans in a couple of shooting sprees. Facing the issue and using the vast law-enforcement tools already at our government’s disposal beats emotion-driven approaches that curtail our civil liberties.

Unfortunately, there are many pitfalls even with using those existing tools. As analysis of the latest shootings subsided, another news story has grabbed attention here in northern California. It offers warnings about what happens when fear and emotion rule the day—and when our government seems driven more by panic than justice. It’s from the small Central Valley city of Lodi, but has nationwide implications.

In late July, U.S. District Judge Garland E. Burrell Jr. vacated the conviction and 24-year sentence for a suspect in a 2006 terrorism case. Burrell was the judge who oversaw the trial of Lodi cherry picker Hamid Hayat, who was accused of training in a Pakistani terrorism camp. The feds argued that he allegedly gained weapons and explosives training that used President George W. Bush as a target, according to newspaper reports. This had the makings of a sensational case.

In January, a different federal judge, Deborah Barnes, called for the sentence to be overturned based in part on the inexperience of Hayat’s attorney and the government’s failure to consider exonerating evidence. She heard “new testimony from witnesses who said, Hayat, a California native, never had time to receive terror training while visiting relatives and getting married in his ancestral village in Pakistan,” according to a Sacramento Bee report.

In a 2018 hearing that re-examined aspects of that controversial case, Hayat’s attorney alleged that the FBI coerced a confession, “that the training camp he supposedly visited was not even open at the time … and that alibi witnesses who could prove his innocence were not produced at the original trial,” according to the newspaper. Here’s the best spin to put on this injustice: Our system still is willing to examine evidence years after a case is closed.

In hindsight, the whole matter is so unseemly. The New York Times chaptered-and-versed some of the problems. One former FBI agent watched the testimony and said “it’s the sorriest interrogation, the sorriest confession, I’ve ever seen.” (False or coerced confessions are not unusual, but comprise more than a third of the nation’s murder exonerations, according to recent studies.)

Meanwhile, newspaper headlines announced the government’s dismantling of an apparent terror cell is a tranquil city in wine country. The director of national intelligence, it noted, told Congress that, “A network of Islamic extremists in Lodi, California, for example, maintained connections with Pakistani militant groups, recruited United States citizens.”

Except that there was no network. Hayat was the only scalp the FBI could secure, although the agency investigated (but never filed charges) possible immigration violations against local imams. If the Hayat case seemed dubious, it wasn’t an outlier.

As LA Weekly reported at the time of the trial in 2006, “The Bush administration claims that more than 400 people have been charged with terrorism-related crimes in the post-September 11 era, and that 228 have been convicted. But the vast majority of these cases have involved minor crimes not directly related to terrorism, such as immigration violations.” The feds can appeal Burrell’s decision, but after 14 years in prison, Hayat has a good chance of finally being freed. It’s unclear how many of those other cases were re-examined.

None of us should minimize potential terror threats, from whatever swamp they might emerge. But our government has plenty of power to investigate and prosecute potential miscreants. Yes, we should all recognize that there are enemies on our Left and Right. But before calling for new governmental powers, we should remember the Lodi case and what happens when emotion rules and the government overplays its hand.

This column was first published in the Orange County Register.

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