Federal Judge Tells D.C. to Stop Demanding a ‘Good Reason’ for Carrying a Gun

Yesterday a federal judge ordered the District of Columbia to stop enforcing its requirement that a resident seeking a license to carry a gun outside his home provide a “good reason.” In issuing the preliminary injunction, U.S. District Judge Richard Leon said the plaintiffs challenging the requirement were “highly likely” to succeed in showing that it violates the Second Amendment right to keep and bear arms.

“Given the textual and historical evidence, I have little trouble concluding that under its original meaning the Second Amendment protects a right to carry arms for self-defense in public,” Leon writes. “Given that the Second Amendment’s central purpose is self-defense and that this need arises more frequently in public, it logically follows that the right to carry arms for self-defense in public lies at the very heart of the Second Amendment.”

The District’s policy regarding public possession of guns strips most residents of that right, making them guilty of a felony punishable by up to five years in prison if they try to exercise it. A law that took effect last year restricts carry permits to people who can show “a special need for self-protection distinguishable from the general community as supported by evidence of specific threats or previous attacks that demonstrate a special danger to the applicant’s life” or by an occupation that involves “the handling of cash or other valuable objects that may be transported upon the applicant’s person.” Matthew Grace, the D.C. resident who brought this case along with the gun rights group Pink Pistols, did not qualify because his need for self-protection was not special enough:

Grace concedes he does not face any specific threat that differentiates him from a typical resident of the District; however, several events have contributed to his desire to carry a concealed handgun including his wife being robbed on a public street, the discovery of shell casings in front of his home on the sidewalk, and robberies at gunpoint that occurred in his neighborhood and for which there has been no arrest.

Since Grace knew his concerns about crime would not be deemed a “good reason” to carry a handgun, he “cited the Second Amendment instead.” The Metropolitan Police Department’s Firearms Registration Section, which is charged with deciding who should have a carry permit, was not impressed.

In defense of its law, the District argued that a general ban on carrying guns in an urban area does not impinge on Second Amendment rights. Leon had little patience with that claim. “Defendants maintain that the longstanding tradition of banning public carrying in urban areas is so broad that the District’s comparatively less restrictive ‘good reason’ requirement does not even infringe upon a Second Amendment right,” he writes. “Please. Put simply, this argument strains credulity and flies in the face of prior litigation.”

Even if the Second Amendment is implicated, the District said, the right to carry a gun for self-defense in a city is so peripheral to the amendment’s purpose that “strict scrutiny”—a standard that puts the burden of justifying a law on the government—is not appropriate. Leon did not buy that either: “Defendants point to no textual or historical evidence as support for their through-the-looking-glass view that a citizen’s right to carry a firearm for self-defense falls outside the ‘core’ of the Second Amendment because the citizen lives in a densely populated and dangerous city where the need for self-protection is elevated.”

Even if the “good reason” requirement is inconsistent with the Second Amendment, the District said, a preliminary injunction is not justified because the plaintiffs are not suffering any real harm. “In defendants’ view,” Leon writes, “‘[i]f no occasion arises where a handgun is needed for self-defense,’ the denial of the Second Amendment right to bear arms ‘cannot cause harm.’ What poppycock! Just because present plaintiffs ‘have not identified a single instance when their inability to carry a handgun caused them injury,’ does not mean they have failed to demonstrate a likelihood of irreparable harm. Once again, defendants, sadly, miss the point. The Second Amendment protects plaintiffs’ right to bear firearms for self-defense—a right that can be infringed upon whether or not plaintiffs are ever actually called upon to use their weapons to defend themselves.”

Leon declined to make his injunction permanent, which leaves the door open to further evidence that theoretically might persuade him to uphold the District’s policy. But that seems very unlikely. “It is tempting,” he writes, “to agree with plaintiffs that the ‘good reason’ requirement is per se unconstitutional.” Even assuming that it could be justified by showing that it is narrowly tailored to serve a compelling government interest (as strict scrutiny requires), Leon says, “defendants have failed to meet these criteria, and I am skeptical that they can….Defendants do not even attempt to explain why the District’s licensing scheme could not be broader and allow for more responsible, law-abiding citizens to obtain concealed carry permits for their legitimate self-defense needs, while simultaneously protecting public safety.” Discussing the merits of a preliminary injunction, Leon flatly states that the plaintiffs’ Second Amendment rights “are indeed being violated.”

Leon’s reasoning mirrors that of the U.S. Court of Appeals for the 7th Circuit, which in 2012  overturned an Illinois law that prohibited most people (aside from police officers, security guards, and a few other exceptions) from carrying ready-to-use guns. That same year, by contrast, the U.S. Court of Appeals for the 2nd Circuit upheld New York’s requirement that people seeking permission to carry handguns in public show “proper cause.” In 2013 the U.S. Court of Appeals for the 3rd Circuit upheld a similar New Jersey law, requiring a “justifiable need” for a carry permit, and the U.S. Court of Appeals for the 4th Circuit upheld a Maryland law demanding  a “good and substantial reason.”

In addition to New York, New Jersey, and Maryland five or six or other states (depending on how you classify Rhode Island) give state or local law enforcement agencies discretion to grant or deny carry permits. The rest either do not require permits or grant them to anyone who meets a short list of objective criteria.

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How Obama Could Still Fix the Campus Free Speech Problem

ObamaDuring his commencement address at Rutgers University on Sunday, President Obama once again complained that “fragile” students shouldn’t silence speakers with whom they disagree. 

“I believe that is misguided,” he said. 

This isn’t the first time Obama has levelled such a criticism. But it’s difficult to take him at his word—to believe that he cares so much about free speech on college campuses—when his own Department of Education has played a pivotal role in empowering easily-offended students to censor their opponents and beseech university administrators to help them. 

Since 2011, ED’s Office for Civil Rights has broadly interpreted a federal anti-harassment statute—Title IX—as requiring colleges to investigate the claims of students and faculty who claim to be victims of sexual harassment. OCR has defined sexual harassment in subjective terms, meaning that seemingly harmless—and constitutionally protected—kinds of expression can result in Title IX claims. And OCR has required that adjudication of sexual assault disputes use a preponderance of the evidence standard: a travesty for due process on campus. 

It’s no accident that students have been increasingly successful at shutting down their opponents in the last five years. It’s no surprise that the illiberal left has grown bolder on campus. Federal policy has aided the censors at every turn. 

On Monday, 21 law professors representing several different universities penned a letter to the government accusing OCR of exceeding its authority. 

“Through a series of subsequent directives and enforcement actions, OCR has steadily expanded the definition of sexual harassment and imposed a growing range of responsibilities on colleges to curb such conduct,” wrote the professors. “As a result, free speech and due process on campus are now imperiled.” 

Does Obama understand that his own government is responsible for the safe-space phenomenon he frequently decries? Is he aware that under Assistant Secretary Catherine Lhamon, OCR has violated the free speech and due process rights of countless students? 

We may never know. But if Obama is aware, and he actually does care about free speech on campus, he still has time left in his presidency to do something about it. The president needs to rein in Lhamon and remind OCR that administrative guidance does not supersede the Constitution. Obama should should instruct his Education Department to inform universities that their federal funding is not at risk—or better yet, that their federal funding is only at risk if they violate students’ free speech and due process rights. 

Unless and until Obama brings OCR in line with his stated commitment to free speech, said commitment remains hollow. 

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Goldman Compares Elon Musk To Steve Jobs And Henry Fords, Upgrades Tesla To “Buy” With $250 Price Target

Just hours after Goldman unexpectedly weighed in bearishly on stocks, tactically downgrading global equities to Neutral over the next 12 months “on growth and valuation concerns” adding that “until we see sustained earnings growth, equities do not look attractive, especially on a risk-adjusted basis” in what some see as a potential upward inflection point in the market now that the biggest taxpayer backed hedge fund is buying what its clients have to sell, Goldman decided to unveil another surprise this time upgrading one of the biggest momentum/growth stocks, Tesla, to a buy with a $250 price target.

From Goldman:

Putting in our reservation for the Model 3; upgrading TSLA to Buy


Source of opportunity


We upgrade shares of Tesla to Buy from Neutral with 22% upside to our 6-month price target of $250. While we believe the volume targets are ambitious, Street and investor expectations seem more grounded and following a 23% decline in the share price post the Model 3 unveil, we do not believe Tesla shares are fully capturing the company’s disruptive potential. This combined with a more stable macro backdrop (relative to January/February) and increased confidence in Model 3 demand (from orders and our competitive benchmarking) drives attractive risk/reward. The company has publicly stated it might look to raise capital, and our detailed capex analysis points to capital needs of $1bn.




There are admittedly fewer visible catalysts than before, with the next Model 3 update potentially not until next year. We think the introduction of a mobility service is a possibility, though timing is uncertain as management comments on this have been limited. Ultimately we think the biggest fundamental near-term catalyst will be the ramp of the Model X. While progress appears to have been limited since the 1Q16 update (based on the cadence of April/May deliveries), expectations are low in our view with many on the Sell/Buy sides expecting a cut to Tesla’s 80-90k delivery target. While we acknowledge this risk we view it as discounted and think any positive news on X production would strongly support the shares.




Our unchanged 6-month price target of $250 is derived from five probability weighted automotive scenarios plus stationary storage optionality, all of which embed a 20% cost of capital.

Among its “fundamental” catalysts are calls by Goldman for Elon as Steve Jobs, as Henry Ford, or as the Maytag repairman, even though the company admits its base case without invoking “Iron Man”, is only $125 with a $61 downside case.

As part of its upside justifiction Goldman says the stock has typically seen support below $200.


Curiously, Goldman compares the potential growth rate for Tesla as comparable to that of auto industry monopolist Ford Model T:

It does however, admit that Tesla will see substantial competition from comparable offerings from Audi and other carmakers.

The stock is 3% higher on the upgrade in the premarket. It remains to be seen if Goldman is offloading its existing Tesla exposure.

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Copper Slides To Three Month Low Despite Flat Futures, Oil; Dollar Rise Continues

After two violently volatile days in which the market soared (Monday) then promptly retraced all gains (Tuesday), the overnight session has been relatively calm with futures and oil both unchanged even as the BBG dollar index rose to the highest level since April 4. This took place despite a substantial amount of macro data from both Japan, where the GDP came well above the expected 0.3%, instead printing 1.7% annualized, which pushed stocks lower as it meant the probability of more BOJ interventions or a delay of the sales tax hike both dropped. Meanwhile, in China we got proof of the ongoing housing bubble when new property prices were reproted to have soared 12.4% Y/Y in April, which in turn pushed the local stock market to two month lows amid concerns the rampant sector could divert funds from stocks. Yes, China is trading on “risks” one bubble can burst another bubble.

At the end of the day, however, it was all about two Fed speakers yesterday and, as Bloomberg put it, financial markets reawakening to the risk that the U.S. expedites interest-rate increases, and that’s buoying the dollar while denting emerging markets and commodities. Additionally, the US 2s10s curve hit its flattest level since 2007. As noted above, the USD has risen rapidly in the past few weeks and as of this morning climbed to a seven-week high and Treasuries fell, pushing two-year yields to highest since April, after Atlanta Federal Reserve President Dennis Lockhart and San Francisco’s John Williams said Tuesday two rate hikes may be warranted this year. Chinese stocks tumbled to a two-month low, while the rand led the selloff versus the greenback amid mounting political tension in South Africa. Copper and gold fell for the first time in four days.

Looking at markets, DB’s Jim Reid summarized the situation relatively well as follows:

The mood of markets is pretty temperamental at the moment with sudden reversals in sentiment seemingly occurring every few days. The S&P 500 closed -0.94% last night, wiping out Monday’s gains. Fedspeak seemed to be a driver and it was interesting to see the US 2s10s curve hit its flattest level since 2007. Specifically it was the joint comments from Atlanta Fed President Lockhart and also San Francisco Fed President Williams that sparked interest after both suggested that they continue to see two to three rate hikes this year. Lockhart also added that markets are currently more pessimistic than he is, while Williams made mention of June being a live meeting and even went as far as to say that his view of gradual hikes also means 3-4 hikes in 2017. Balancing all this were comments from Dallas Fed President Kaplan shortly after who said that a hike may well be warranted in the ‘not-too-distant future’ but warned of the need to consider uncertainty including Brexit risk.


In any case it was the initial hawkish comments which helped to fuel a decent flattening across the Treasury curve. 2y yields ended 4.5bps higher at 0.833% with 10y yields ‘just’ 1.9bps higher at 1.773%. That means the current 2s10s spread of 94bps has marked a new tight for the year and you have to go back to December 2007 to find the last time the spread was this narrow. All of this has also resulted in a decent repricing in Fed Funds futures. The probability of a hike next month has now risen to 12% from 4% on Monday while a July hike has increased to 28% from 19%. The December meeting odds are now sitting at 65% from 56%.

And while oil is largely unchanged as of this moment with WTI trading in the mid-$48 range, buoyed by renewed fears from the Canadian wildfires which appear set to keep millions of barrels of production offline for several more days, keep a close eye on copper, which this morning is down 1.6% to $2.06/lb, hitting its lowest price in three months.


But going back to the story of the day, especially ahead of today’s only notable news release the FOMC April minutes, all eyes remain on the dollar and the suddenly renewed probability of a rate hike. The dollar has rebounded in May after declining in the previous three months as the Fed pushed back expectations for rate increases this year. A strengthening U.S. economy and the biggest jump in consumer prices in three years have led traders to boost the odds of a move in June threefold to 12 percent. The Fed will release the minutes of its April policy meeting on Wednesday.


“Expectations appear to be that minutes will signal that a summer hike is on the cards,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. The “solidly hawkish” rhetoric from Fed non-voting members of late is proving to be dollar positive, as the possibility of a hike is not priced in by markets, he said.

Futures on the S&P 500 were little changed after equities tumbled on Tuesday. Investors will look Wednesday to earnings from retailers including Target Corp., Staples Inc., Lowe’s Cos. and Urban Outfitters Inc. for further indications on the health of U.S. consumers after a slew of disappointing results cast doubt on their willingness to spend. The Stoxx Europe 600 Index slipped 0.1 percent. Burberry Group Plc dropped 3.7 percent after the luxury-goods retailer added to the industry’s gloom by posting a second straight drop in annual earnings. Sonova Holding AG tumbled 7.1 percent after the Swiss hearing-aid maker’s second-half earnings missed estimates.

Minutes from the Fed’s April meeting will also be in focus for clues on the trajectory of interest rates after hawkish comments from regional presidents. The first month with even odds of higher borrowing costs also moved up to November from December.

Market Snapshot Summary

  • S&P 500 futures up less than 0.1% to 2045
  • Stoxx 600 down 0.1% to 335
  • FTSE 100 down 0.4% to 6141
  • DAX down 0.3% to 9864
  • MSCI Asia Pacific down 0.7% to 127
  • Nikkei 225 down less than 0.1% to 16645
  • Hang Seng down 1.5% to 19826
  • Shanghai Composite down 1.3% to 2808
  • S&P/ASX 200 down 0.7% to 5356
  • US 10-yr yield up 1bp to 1.78%
  • German 10Yr yield up 1bp to 0.14%
  • Italian 10Yr yield down less than 1bp to 1.45%
  • Spanish 10Yr yield up less than 1bp to 1.57%
  • Dollar Index up 0.37% to 94.9
  • WTI Crude futures down 0.3% to $48.16
  • Brent Futures down 0.5% to $49.05
  • Gold spot down 0.5% to $1,272
  • Silver spot down 1.2% to $17.04

Top Global News

  • Mitsubishi Motors President Resign as Mileage Scandal Widens
  • Eletrobras Sees U.S. Delisting on Deadline Miss Amid Graft Probe
  • Nasdaq Bears at 5-Year High Just as Berkshire Sees Apple Bargain
  • Goldman’s Hatzius Says Flattest Yields Since 2007 Misprice Fed
  • Goldman’s India Blue-Chip Bond Picks Gain After 2015 Junk Flop
  • BlackRock Hires Ex-Hedge Fund Founder Ferrier for Private Credit
  • Goldman Sachs Asset Said to Consider Aussie Equities Unit Sale
  • Fed Alarm Has $8.5b Swedish Fund Manager Dumping Risk

Looking at regional markets, Asia stocks traded mostly lower following losses on Wall St. where several Fed speakers suggested prospects for a June hike were still alive. This pressured ASX 200 (-0.7%) & Nikkei 225 (-0.1%) at the open, however Japanese stocks briefly staged a recovery as participants digested better than expected GDP with the annualised figure printing at a 1 year high at 1.7% vs. Exp. 0.3%, although selling later resumed. Shanghai Comp (-1.8%) was negative despite continued gains in Chinese property prices amid concerns the rampant sector could divert funds from stocks, while tech names underperformed after reports overseas users of Alipay may be restricted from the service from Friday. In addition, some analysts also noticed disappointment as NPC Head Zhang was did not mention the HK-Shenzhen stock connect at a speech in Hong Kong. 10yr JGBs were mildly lower with the increased risk appetite for Japanese equities dampening demand for the paper, despite the BoJ also entering the market to purchase over JPY 1.2tri of JGBs.

Top Asian News

  • Japan Dodges Recession on Modest Increase in Consumer Spending: Expansion of GDP exceeds forecasts by all surveyed economists
  • Suzuki Plunges After Finding Flaw in Mileage Testing Method: co. used improper method to test fuel efficiency of its vehicles
  • Goldman Sachs Asset Said to Consider Aussie Equities Unit Sale: Sale or management buyout of unit said to be among options
  • China Leader Asks Hong Kong for ‘Broader Mind’ Amid Protests: Communists’ No. 3 urges integration with Beijing’s development
  • Malaysia May Bar Overseas Travel for Those Who Insult Government: Human rights activist prevented from going to South Korea
  • Midea Makes Offer to Become Biggest Shareholder in Kuka: German robot maker already helping Midea to automate factories
  • Forget About Shenzhen Link Date, Just Buy In, Legg Mason Says: Investors should seize opportunity to position for it instead of guessing a start date

European equities have followed on from yesterday’s trend to trade lower this morning (Euro Stoxx: -0.4%), with energy and material sectors weighing on the index. As such, the FTSE 100 is the worst performing of the major indices, with the likes of Glencore, Anglo America and Rio Tinto among the worst performers in Europe. Bunds have continued to trade within a relatively tight range around the 164.00 level , with the German benchmark initially seeing downside given the supply due out today, combined with the recent downside in T-notes given the rise in expectations of a potential rate hike from the Fed in June. However, heading back into mid-morning , Bunds have pared some of their losses and are moving back towards the aforementioned 164.00 level.

Top European News

  • Stoxx 600 down 0.2% to 334
  • FTSE 100 down 0.4% to 6141
  • DAX down 0.3% to 9864
  • German 10Yr yield up 1bp to 0.14%
  • Italian 10Yr yield down less than 1bp to 1.45%
  • Spanish 10Yr yield up less than 1bp to 1.57%
  • S&P GSCI Index down 0.6% to 368.7

In FX, the Bloomberg Dollar Spot Index advanced 0.4 percent at 6:04 a.m in New York, hitting the highest since April 6 in early trade. Australia’s dollar lost 0.8%. The yen slipped 0.3 percent to 109.43 per dollar, after earlier strengthening as much as 0.4 percent. The euro weakened 0.4 percent to $1.1268. The MSCI Emerging Markets Currency Index fell 0.5 percent, the most in two weeks. South Korea’s won, Russia’s ruble, the Mexican peso and Malaysian ringgit dropped at least 0.8 percent.

The UK jobs report was a risk for GBP this morning, and duly continued the healthy data series to show the employment change rising a more than expected +44k, while jobless claims also fell. Earnings were healthy, but a little more mixed when looking at ex-bonus. Nevertheless, the initial Cable response was positive, but extremely short lived, with the look above 1.4450 brief and sellers keen to get long USD’s against the Pound. Elsewhere, EUR/USD made fresh cycle lows just ahead of 1.1255, but USD/JPY gains — so far – have stopped just short of the 109.65 highs seen yesterday . AUD, NZD and CAD have all pushed lower again, but held off their respective (recent) lows. AUD/USD is finding buyers ahead of .7250, as is NZD/USD ahead of .6750. USD/CAD continues to eye 1.3000+ again but Oil prices keep ratcheting higher to deter a full on attack. FOMC minutes ahead are also adding to hesitation, and we expect ranges to tighten up after midday.

In commodities, WTI and Brent had been advancing overnight after draw in API’s last night, but in the EU session prices have fallen from overbought levels with Brent at USD 49.00/bbl and WTI at USD 48.79/bbl respectively. Gold and Silver have also been falling in the European session alongside a broad based sell off in commodities, with Silver testing the USD 17.00/oz level and starting to consolidate at around USD 17.050/oz. Copper fell along with other metals amid rising supplies and an uncertain demand outlook in China, the world’s top consumer. Antofagasta Plc, a Chilean copper producer, said it isn’t counting on an improving global economy and expects low copper prices for another year or two, according to a statement from Chairman Jean-Paul Luksic.

There’s no data due out in the US this afternoon so the focus will be on the FOMC minutes at 7.00pm (BST) a nice warm up for the kick off in Basel 45 minutes later. Away from the data we’ll also hear from the BoE’s Haldane this evening.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities have followed suit from US and Asian equity performance with material and energy names also lagging in the region
  • GBP failed to benefit from a largely upbeat employment report with the USD remaining firmer against its major counterparts following relatively hawkish Fed speak
  • Looking ahead, highlight include US Fed Releases Minutes, DOE Inventories & BoE’s Haldan
  • Treasuries fall during overnight trading with global equities, while USD strengthened after Fed’s Williams and Lockhart said Tuesday two rate hikes may be warranted this year; April 26-27 FOMC minutes will be released at 2pm ET.
  • Fed fund futures fully pricing next rate hike around Jan. 2017, implied rate 63bps, near midpoint of 50-75bp target range
  • A decision by the British electorate to withdraw from the European Union in a June 23 referendum could delay the next tightening move from U.S. policy makers by about three months, according to an economic model designed by analysts Jamie Murray, Carl Riccadonna and Dan Hanson
  • Jan Hatzius, the chief economist at Goldman Sachs Group Inc., warned bond investors aren’t prepared for the Federal Reserve to raise interest rates
  • The U.K. jobs market showed signs of cooling in the first quarter as Britain prepares for an increasingly bitter referendum on its European Union membership
  • A thicket of risks from the U.K.’s Brexit vote next month to the U.S. presidential election may lift gold prices even further by year-end, according to Denmark’s Saxo Bank A/S
  • With $2.7 trillion of European bonds yielding less than zero, some of the biggest fixed-income investors are looking 50 years ahead to buy government debt they consider decent value
  • Haruhiko Kuroda’s pain is China’s gain. The BOJ’s efforts to bolster economic growth have been undermined by the yen’s surge, which is a tailwind for China after the yuan dropped this month to the lowest level versus the yen since 2014
  • $28.2b IG Credit priced yesterday, brings weekly volume to $35.475b as May tops $100b mark at $120.26b; YTD $713.715b

US Event Calendar

  • 7am: MBA Mortgage Applications, May 13 (prior 0.4%)
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC Minutes, April 26-27

DB’s Jim Reid concludes the overnight wrap

The mood of markets is pretty temperamental at the moment with sudden reversals in sentiment seemingly occurring every few days. The S&P 500 closed -0.94% last night, wiping out Monday’s gains. Fedspeak seemed to be a driver and it was interesting to see the US 2s10s curve hit its flattest level since 2007. Specifically it was the joint comments from Atlanta Fed President Lockhart and also San Francisco Fed President Williams that sparked interest after both suggested that they continue to see two to three rate hikes this year. Lockhart also added that markets are currently more pessimistic than he is, while Williams made mention of June being a live meeting and even went as far as to say that his view of gradual hikes also means 3-4 hikes in 2017. Balancing all this were comments from Dallas Fed President Kaplan shortly after who said that a hike may well be warranted in the ‘not-too-distant future’ but warned of the need to consider uncertainty including Brexit risk.

In any case it was the initial hawkish comments which helped to fuel a decent flattening across the Treasury curve. 2y yields ended 4.5bps higher at 0.833% with 10y yields ‘just’ 1.9bps higher at 1.773%. That means the current 2s10s spread of 94bps has marked a new tight for the year and you have to go back to December 2007 to find the last time the spread was this narrow. All of this has also resulted in a decent repricing in Fed Funds futures. The probability of a hike next month has now risen to 12% from 4% on Monday while a July hike has increased to 28% from 19%. The December meeting odds are now sitting at 65% from 56%.

Notwithstanding those moves, there’s still a clearly large gap between where the market is and the recent rhetoric from the Fed. In our view though this is just in keeping with the Fed holding on to full optionality. Importantly we’re still yet to hear from either the Fed President Yellen or Vice-Chair Fischer recently. That will change tomorrow though when the latter is scheduled to speak, while Yellen is pencilled in for a talk at Harvard University on the 27th of this month and then again on June 6th. As we’ve highlighted previously there are a number of big events in June so it looks set to be an interesting six weeks or so ahead.

Meanwhile all this chatter also comes before this evening’s FOMC minutes from the April meeting. They are likely to be a bit outdated now given what we’ve heard from Fed officials and it wouldn’t be a great surprise to see the text as relatively balanced versus the more dovish tone in prior statements.

Changing tact now and switching over to Asia this morning where the bulk of bourses are following the weak lead from the US last night. Indeed the Hang Seng (-1.27%), Shanghai Comp (-1.45%), Kospi (-0.59%) and ASX (-0.19%) are in the red, while Japanese equities initially advanced with the better than expected GDP print, but have now followed the moves elsewhere and are down as we type with the Nikkei and Topix currently -0.46% and -0.14% respectively. Japan’s Q1 GDP printed at +0.4% qoq after expectations were for just +0.1% growth and it means the annualized pace has been lifted to +1.7% qoq from -1.7% previously. That data should provide some relief to an under pressure BoJ although the Yen is starting to strengthen as we type and is perhaps contributing to some of the volatile moves.

There’s also been data out of China this morning too in the form of the latest house price data. April new house prices were reported as climbing in 65 of the 70 cities tracked, compared with 62 in March. It’s the most since December 2013.

Moving on. The latest “Credit Bites” was just out around an hour ago. In it we take a brief look at the basis between CDS and cash in HY by looking at the spread level of the iTraxx Crossover index vs. the asset swap spread of the iBoxx EUR HY Non-Fin index. We specifically highlight that while the two series have followed very similar paths, the CDS-cash basis has turned consistently negative since September 2013 and has generally been lower than -100bps over the past 8-9 months. Given slightly higher ratings for the cash index the stretched relationship poses the question as to whether this highlights relative value for the cash market over CDS or simply a reflection of deteriorating liquidity. All thoughts welcome.

Staying with credit, while price action yesterday in the market largely reflected what was a weaker session for risk assets in the US (CDX IG ending 1bp wider) and a benign session in Europe (Main unchanged), the big news was the pricing of the hotly anticipated bumper deal from Dell. With a reported $85bn of orders according to the FT, the all senior secured deal was eventually upsized to $20bn from $16bn and priced across 6 tranches. Bonds eventually priced at the tight end of guidance with secondary trading said to be supportive. The same FT article suggests that this was the fourth biggest corporate bond sale on record.

Meanwhile, it wasn’t just the Fedspeak that markets had to contend with yesterday, with it also being a relatively busy day for data. Specifically it was the inflation data in the US which the market was most focused on. Headline CPI printed at +0.4% mom in April and slightly ahead of expectations (+0.3% expected) after being boosted by rising fuel prices. That had the effect of lifting the YoY rate by two-tenths to +1.1%. Meanwhile the core print of +0.2% was bang on estimates, although it did cause the YoY rate to edge down one-tenth to +2.1%. Our US economists noted that the details of the latest CPI report provide preliminary evidence that core inflation may level out as rents and medical prices, which together make up 50% of the core CPI, are possibly in the midst of stabilising.

As well as the inflation data, industrial production was reported as increasing more than expected in April (+0.7% mom vs. +0.3% expected) with capacity utilization also edging up five-tenths to 75.4% (vs. 75.0% expected). The April housing starts data showed a +6.6% mom rebound in sales (vs. +3.3% expected) to an annualized rate of 1172k. Building permits rebounded a slightly less than expected +3.6% mom (vs. +5.5% expected).

Elsewhere in Europe it was another fairly uninspiring day of price action with the Stoxx 600 (0.00%) unchanged again (it was +0.01% on Monday) after giving up gains of as much as +1.2% early in the session. While there’s been some reasonable intraday volatility the index is still effectively unchanged since May 3rd now. In the commodity space the day was characterised by yet another advance for Oil. WTI rose another +1.24% to take it past $48/bbl, while Brent closed +0.63% and is creeping closer to testing that $50/bbl level (currently $49.39/bbl). The data in Europe yesterday was focused in the UK and specifically the April inflation data docket. CPI rose less than expected last month (+0.1% mom vs. +0.3% expected) meaning the YoY rate has edged down two-tenths to +0.3%. Meanwhile the core print of +1.2% yoy also missed (+1.4% expected) and is a decline of three-tenths from March.

Looking at the day ahead, this morning in Europe the primary focus is likely to be on the CPI print for the Euro area where expectations are for a flat MoM headline reading in April. Away from that we’ll also get more data out of the UK with the latest monthly employment indicators. There’s no data due out in the US this afternoon so the focus will be on the FOMC minutes at 7.00pm (BST) a nice warm up for the kick off in Basel 45 minutes later. Away from the data we’ll also hear from the BoE’s Haldane this evening.

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Brickbat: Tweets from Twits

TwitterAn official Twitter account for the Brighton, Colorado, police department posted a series of ominous tweets: A train crash, a chemical leak, residents of the neighborhood advised to shelter in place, an elementary school evacuated. It turns out it was all just a training exercise and the people running the Twitter account did not realize their posts could be seen by the public.

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Ex-Google Engineers Launch “Otto”: Completely Driverless Truck Testing Underway

Submitted by Michael Shedlock via MishTalk.com,

Movement in the autonomous vehicle space accelerated once again.

Four ex-Google engineers, including the man who built Google’s first self-driving car,  announced “Otto”, an autonomous truck retrofitting business.

The service isn’t vaporware. “Otto” is currently operating on Nevada highways.

BackChannel reports The Man Who Built Google’s First Self-Driving Car Is Now a Trucker.

Founded by four ex-Google engineers?—?including Anthony Levandowski, the man who built Google’s very first self-driving car?—?Otto is applying Google’s all-or-nothing approach to commercial big rigs: ditch human drivers, avoid thousands of road deaths, help the environment, and if all goes well, make a ton of money along the way.


Otto, which is based in San Francisco, currently has around 40 employees, some of whom previously worked at Apple, Tesla, Cruise Automation and Here Maps. Although the company was formed in January, the LinkedIn profiles of three of Otto’s four founders still show them working at Google.


Otto, which came out of stealth today, is less interested in brand new trucks than in the estimated 4.3m big rigs already on American roads. Otto has already bought and retro-fitted three Volvo cabs with lidar, radar and cameras, and driven a handful of fully autonomous miles?—?without even a safety driver?—?on the highways of Nevada.


It says its aftermarket self-driving kit will sell for a “small fraction” of the $100,000-$300,000 price of a new tractor cab.

Q&A With “Otto” Co-Founder

Backchannel discussed “Otto” with co-founder Lior Ron, an ex-product lead for Google Maps and Google’s Motorola smartphones. A partial transcript follows.

BackChannel: Why commercial transport? Is there anything more old school than a tractor-trailer rig?

Lior Ron: Because of federal regulations, a truck can only drive 11 hours a day today with a single driver. After 10 hours, the accident rate goes exponentially higher. If we can make it drive safely 24/7, more than doubling its capacity and utilization, that’s a very strong financial argument.

BackChannel: I’m guessing that navigating state and government regulations will be a big part of Otto’s future.

Lior Ron: The Department of Transportation and a lot of other great folks are getting involved in bringing the right regulations. And in many states outside of California, there are no specific regulations either way, which means that it’s actually legal to drive and test autonomous vehicles on many roads. We’re going to continue our testing with urgency but also work with regulators and other bodies to show we can have a truck drive itself more safely than a truck driver, all of the time.

BackChannel: But your technology will only work on highways?

Lior Ron: That’s right. There are only 222,000 miles of highway in the US, just 5% of the roads in the country. They’re easier to map and it’s a much more constrained problem to solve than all those city and rural streets. There are no pedestrians or traffic lights but you do drive at high speeds and you do need to see far ahead.

We’re optimizing for this kind of driving, with sensors mounted up on the cabin for a much higher vantage point. For now, all the technology is on the tractor but we might add some components to the trailer in the future.

BackChannel: When will we see the first driverless truck carrying a commercial cargo?

Lior Ron: We have the basic technology in place and are already testing it on public roads. We want to demonstrate a cargo route in the foreseeable future, to show that our technology is commercially viable. We are fully funded by employees, who came together to enjoy this and get there as soon as possible. The approach and the team we put together have the ability to do that very fast.

Otto Video


Driverless Trucks On the Road

On February 16, I reported that a reader saw a Nevada truck that was completely driverless. I believed the reader.

Flashback February 16, 2016: Driverless Truck Update: Next Phase “No Backup Driver” Hits Nevada Highways.

Comments from skeptical readers were amusing:

TZ said: “Snap a picture next time. Bat boy and the area 51 aliens aren’t very tall, so maybe one of them was driving – apparently aliens can get CDLs.”

Mesomorph said: “Boy I can’t wait for driverless trucks. I’ll just cruise the open highways until I spot a promising one. Me and the crew will slow to a stop in front of the truck and it will have to stop. The target truck won’t be able to reverse because we will back a truck up against it while we throw the goods into our truck. We will be gone in less than a minute. Consider yourselves lucky if we don’t set it on fire to cover our tracks.”

Mark said: “You can stop a driverless truck by putting a traffic cone on the road. Do that on both sides of the highway and the police will be blocked by the traffic jams created. A few miles of stopped traffic can disrupt the economy of an entire city. Yeah, driverless vehicles are a great idea. No problems there at all.”

Rich said: “Hyperventilating a wee bit here, possibly? I know you’re big on anticipating the job losses likely associated with the adoption of driverless trucks, but it does not help your case to make far-out conspiratorial claims of secret driverless truck tests.”

Les Francais said: “Last week in my country, the main Telco lost all GSM voice and data virtually country wide for two hours. Millions of services were affected including control systems which have gone over to GSM technology. Technology relying on GSM, GPS and radio has gone too far.”

Justaned said: “I-80 does NOT cross Nevada. I do believe the internet has bamboozled you on this one.”

Mesomorph commented again: “So you are talking about adding hardware, software, bandwidth and a control center staffed by humans. Sounds awfully expensive for something that a couple bursts from my paintball gun will render completely useless. If police respond every time a truck comes to an unexpected stop they will be overwhelmed. If they are not I will make sure they are. Mish, I know you are a busy guy but I expected more from you than to say I have no faith or vision. I have faith that most humans are just greedy, opportunistic primates. Saying that some smart people will have enough of my tax dollars to create driverless trucks is no vision. I have put forward my vision. Now how are you going to stop me?”

Mish Reply


  1. I-80 does go through Nevada.
  2. Totally driverless tests have been conducted.
  3. No one is going to erect a fleet of cones across the internet to stop trucks. That idea is totally laughable. And even if one did manage to do that, there is no way to hijack the truck and get away with it.
  4. Driverless technology is here already.
  5. Technology is advancing faster than I expected.

Hub Solution


I have been sharing emails with reader “Vooch” for a few weeks. He thinks autonomous trucking will happen by 2018. I thought he was a little early, citing a need for enough trucking hubs.

Vooch pointed out eleven national Truck Stop Chains noting “Flying J has 550 locations.”

Otto precisely fits in with the hub solution I proposed several years ago.

Drivers take trucks from the warehouse to the hub. The truck drives itself to the next hub. Then a short-haul driver takes the truck the last mile.

With today’s report, I bump up my timeline for this to happen by a year, from 2020 to 2019. I also  bump up my forecast from 2024 to 2022 as to when millions of long-haul trucking jobs vanish.

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British Spymaster Fears The EU Has “Run Its Historical Course”; Warns Of “Populist Uprising”

None other than the former head of MI6 (the British Secret Intelligence Service) Richard Dearlove expressed his quite candid thoughts on the immigration crisis, as well as the possibility of a British exit from the EU during a speech recently at the BBC. The speech is well worth the listen.

Here are some notable quotes from the speech as it relates to the immigration crisis. The former head of intelligence is quick to point out that despite what the public perception may be, the reality is that there are terrorists already among us.

"When massive social forces are at work, and mass migration is such a force, a whole government response is required, and a high degree of international cooperation."


"In the real world, there are no miraculous James Bond style solutions. Simply shutting the door on migration is not an option. History tells us that human tides are irresistible, unless the gravitational pull that causes them is removed. Edward Gibbon elegantly charted how Rome, with all it's civic and administrative sophistication and military prowess, could not stop its empire from being overrun by the mass movement of Europe's tribes."


"We should not conflate the problem of migration with the threat of terrorism. High levels of immigration, particularly from the Middle East, coupled with freedom of movement inside the EU, make effective border conrol more difficult. Terrorists can, and do exploit these circumstances as we saw recently in their movement between Brussels and Paris, and to and from Syria. With large numbers of people on the move, a few of them will inevitably carry the terrorist virus."


"A number of the most lethal terrorists are from inside Europe, including the UK. They are already among us."


"The EU, as opposed to its member states, has no operational counter-terrorist capability to speak of. Many of the European states look to the UK for training."

Dearlove also touched on the topic of a British exit from the EU, delivering some very interesting comments around just how much can the EU be trusted to guide everyone's collective future.

"The argument that we would be less secure if we left the EU, is in reality rather difficult to make. There would in fact be some gains if we left, because the UK would be fully master of its own house. Counter-terrorist coordination across Europe would certainly continue, and the UK would remain a leader in the field. The idea that the quality of that cooperation depends in any significant way on our EU membership is misleading."


"Is the EU, faced with the problem of mass migration, able to coordinate an effective response from its member countries. Should the UK stay in and continue struggle for fundamental change, or do we conclude that the effort would be wasted, and that the EU in its extended for has run its historical course. For each of us, this is possibly the most important choice we may ever have to make."


"Whether we will each be worse off, whether our national security might be damaged, even whether the economy might falter, and sterling be devalued, are subsidiary to the key question, which is whether we have confidence in the EU to manage Europe's future. If Europe cannot act together to persuade a majority of its citizens that it can gain control of its migrant crisis, then the EU will find itself at the mercy of a populist uprising which is already stirring. The stakes are very high, and the UK referendum is the first roll of the dice in a bigger geopolitical game."

It was refreshing to hear Dearlove, a quite credible source, deliver a little truthiness regarding just how "necessary" the EU is to its members. What's curious however, the comment "first roll of the dice in a bigger geopolitical game." What exactly does that mean, and what else is afoot that has not yet been shared with the public?

* * *

Additionally, here is the migrant paths and number of migrants detected in 2014 and 2015.

And here is where the asylum seekers have clustered…

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The Fed Needs to Raise Rates at the June and December Meetings (Video)

By EconMatters


It is obvious that the unintended consequences of ZIRP have destroyed financial market structure which ultimately flows through to the broader economy.

All the financials, the layoffs on Wall Street, and the way assets are trading in the financial markets in general illustrate that financial markets are not healthy right now, and slowly deteriorating every year since the initial benefits of the sugar induced euphoric high of Quantitative Easing Policies by Central Banks around the world has burned off.

An orderly exit by central banks is the best possible solution for trying to resuscitate some semblance of normal functioning financial market pricing mechanisms for assets around the globe.

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Undeniable Evidence That The Real Economy Is Already In Recession

Submitted by Michael Snyder via The Economic Collapse blog,

You are about to see a chart that is undeniable evidence that we have already entered a major economic slowdown. 

In the “real economy”, stuff is bought and sold and shipped around the country by trucks, railroads and planes.  When more stuff is being bought and sold and shipped around the country, the “real economy” is growing, and when less stuff is being bought and sold and shipped around the country, the “real economy” is shrinking.

I know that might sound really basic, but I want everyone to be on the same page as we proceed in this article. 

Just because stock prices are artificially high right now does not mean that the U.S. economy is in good shape.  In fact, there was a stock rally at this exact time of the year in 2008 even though the underlying economic fundamentals were rapidly deteriorating.  We all remember what happened later that year, so we should not exactly be rejoicing that precisely the same pattern that we witnessed in 2008 is happening again right in front of our eyes.

During the month of April, the Cass Transportation Index was down 4.9 percent on a year over year basis.  What this means is that a lot less stuff was bought and sold and shipped around the country in April 2016 when compared to April 2015.  The following comes from Wolf Richter

Freight shipments by truck and rail in the US fell 4.9% in April from the beaten-down levels of April 2015, according to the Cass Transportation Index, released on Friday. It was the worst April since 2010, which followed the worst March since 2010. In fact, shipment volume over the four months this year was the worst since 2010.


This is no longer statistical “noise” that can easily be brushed off.

Of course this was not just a one month fluke.  The reality is that we have now seen the Cass Shipping Index decline on a year over year basis for 14 consecutive months.  Here is more commentary and a chart from Wolf Richter

The Cass Freight Index is not seasonally adjusted. Hence the strong seasonal patterns in the chart. Note the beaten-down first four months of 2016 (red line):


Cass Freight Index - Wolfstreet

This is undeniable evidence that the “real economy” has been slowing down for more than a year.  In 2007-2008 we saw a similar thing happen, but the Federal Reserve and most of the “experts” boldly assured us that there was not going to be a recession.

Of course then we immediately proceeded to plunge into the worst economic downturn since the Great Depression of the 1930s.

Traditionally, railroad activity has been a key indicator of where the U.S. economy is heading next.  Just a few days ago, I wrote about how U.S. rail traffic was down more than 11 percent from a year ago during the month of April, and I included a photo that showed 292 Union Pacific engines sitting in the middle of the Arizona desert doing absolutely nothing.

Well, just yesterday one of my readers sent me a photograph of a news article from North Dakota about how a similar thing is happening up there.  Hundreds of rail workers are being laid off, and engines are just sitting idle on the tracks because there is literally nothing for them to do…

North Dakota Railroad Engines Idle

Intuitively, does it seem like this should be happening in a “healthy” economy?

Of course not.

The reason why this is happening is because businesses have been selling less stuff.  Total business sales have now been declining for almost two years, and they are now close to 15 percent lower than they were in late 2014.

Because sales are way down, unsold inventories are really starting to pile up.  The inventory to sales ratio is now close to the level it was at during the worst moments of the last recession, and many analysts expect it to continue to keep going up.

Why can’t people understand what is happening?  So far this year, job cut announcements are up 24 percent and the number of commercial bankruptcies is shooting through the roof.  Signs that we are in the early chapters of a new economic downturn are all around us, and yet denial is everywhere.

For instance, just consider this excerpt from a CNBC article entitled “This key recession signal is broken“…

Treasury yields are behaving as if they are signaling a recession, but strategists say this time it’s more likely a sign of something else.


The market has been buzzing about the flattening yield curve, or the fact that yields on longer duration Treasurys are getting closer to yields on shorter duration securities.


In the case of 10-year notes and two-year notes, that spread was the flattest Friday than it has been on a closing basis since late 2007. The yield curve had turned negative in 2006 and stayed there for months in 2007 before turning higher ahead of the Great Recession. The spread was at 95 at Friday’s curve but widened Monday to more than 96.

Treasury yields are very, very clearly telling us that a new recession is here, but because the “experts” don’t want to believe it they are telling us that the signal is “broken”.



For many Americans, all that seems to matter is that the stock market has recovered from the horrible crashes last August and earlier this year.  But in the end, I am convinced that those crashes will simply be regarded as “foreshocks” of a much greater crash in our not too distant future.

But if you don’t want to believe me, perhaps you will listen to Goldman Sachs.  They just came out with six reasons why stocks are about to tumble.

Or perhaps you will believe Bank of America.  They just came out with nine reasons why a big stock market decline is on the horizon.

To me, one of the big developments has been the fact that stock buybacks are really starting to dry up.  In fact, announced stock buybacks have declined 38 percent so far this year

After snapping up trillions of dollars of their own stock in a five-year shopping binge that dwarfed every other buyer, U.S. companies from Apple Inc. to IBM Corp. just put on the brakes. Announced repurchases dropped 38 percent to $244 billion in the last four months, the biggest decline since 2009, data compiled by Birinyi Associates and Bloomberg show. “If the only meaningful source of demand in the market is companies buying their own shares back, then what happens if that goes away?” asked Brad McMillan, CIO of Commonwealth “We should be concerned.”

Stock buybacks have been one of the key factors keeping stock prices at artificially inflated levels even though underlying economic conditions have been deteriorating.  Now that stock buybacks are drying up, it is going to be difficult for stocks to stay disconnected from economic reality.

A lot of people have been asking me recently when the next crisis is going to arrive.

I always tell them that it is already here.

Just like in early 2008, economic conditions are rapidly deteriorating, but the stock market has not gotten the memo quite yet.

And just like in 2008, when the financial markets do finally start catching up with reality it will likely happen very quickly.

So don’t take your eyes off of the deteriorating economic fundamentals, because it is inevitable that the financial markets will follow eventually.

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Obama Has Been At War Longer Than Any Other President In History

Obama has a lot of firsts …

For example, Obama:

  • Sentenced whistleblowers to 31 times the jail time of all prior u.s. presidents combined
  • Has granted less pardons than any president since Garfield, who served only 200 days as president before being assassinated in 1881

In addition, Obama has presided over:

And as the New York Times notes this week, Obama has been at war longer than any president in history.


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