Facebook’s Zuckerberg Was Right To Skip Canadian Show Trial

Facebook is facing a new round of criticism this week for its refusal to send CEO Mark Zuckerberg and COO Sheryl Sandberg to testify at a hearing in Canada’s House of Commons. That criticism is unfair—their refusal to testify in front of the Canadian legislature, like their refusal to testify in the U.K.. last November—is at the very least a prudent decision. But it’s arguably a principled one.

Don’t get me wrong: I don’t embrace the idea, currently fashionable in some chambers of government and sectors of the punditocracy, that complying with a subpoena should be fundamentally voluntary. When Zuckerberg was summoned directly by congressional lawmakers last year to answer a full range of political questions, he was right to attend. And if for some reason he had resisted, Congress would have been within its authority to subpoena him and compel him to attend.

But neither Canada, which Zuckerberg and Sandberg officially disappointed this week by sending two senior Facebook executives in their stead, nor the United Kingdom, where Zuckerberg similarly refused to appear last fall, has the same power that the U.S. government has over an American citizen and a company that’s incorporated in the United States. What’s more, the jurisdictional question is the least relevant aspect of those two no-shows. Far more important is the fact that the Canadian hearing, like the U.K. hearing before it, was intended to function as a kind of show trial.

How do we know it would have been a show trial? Here’s the tell: “Lawmakers from nearly a dozen countries used Tuesday’s forum in Ottawa to press tech companies about privacy violations, hate speech, and the spread of misinformation,” Politico reported Tuesday. The U.K. hearing was similarly international—representatives from at least nine other countries attended the event last fall at the British Parliament, hoping to grill Zuckerberg about Facebook’s sins against democracy and the international order. In a move perhaps inspired by Clint Eastwood, Zuckerberg was represented at both the U.K. and Canadian events by an empty chair. The parliamentarians refined Eastwood’s dramaturgy by putting Zuckerberg’s name on the chair.

The takeaway from both events: If a parliament is inviting lawmakers from other countries into its chambers in order to allow them to cross-examine a witness—also from another country—then whatever that process is, it isn’t lawmaking or evidence-gathering. It isn’t even an effort to communicate information or political positioning to one’s home constituencies. Its purpose is retributive theater aimed at humiliating the presumptively guilty witness.

To be clear, most legislative hearings are political theater. Everyone familiar with the workings of representative government knows that the gathering of information is a secondary function of a legislative hearing. Its primary function is communicating to the public that legislators are on the case. But to show that, you don’t need to invite parliamentarians from elsewhere in the world to quiz the witness; domestic lawmakers, assisted by staff, can do that themselves. That is, after all, part of what they’re elected and paid to do. No need to import legislative guest workers.

Sometimes that political theater even works to public benefit. When Zuckerberg testified before Congress last summer, he faced a range of questions that spanned the political spectrum. Democrats quizzed the CEO about his company’s handling of private information, and about political actors (domestic and foreign, legitimate and otherwise) who use the platform to sway elections and other political outcomes. Republicans in Congress, many of whom have embraced the myth that tech companies have an agenda to suppress conservative content, sought to pin Zuckerberg down on charges of political bias or the question of whether Section 230 obligates Facebook and other tech platforms to be neutral. (News Flash: Section 230 was designed to do just the opposite, for good public policy reasons.)

Zuckerberg’s answers to House and Senate members weren’t always perfect and they didn’t make everyone happy, but quite often they were genuinely informative, both in sharing how Facebook actually operates and in communicating to the public how Facebook regards its services and its role. Disturbingly, Zuckerberg began to signal his willingness to accept more regulation, including stronger obligations to police content, in compliance with U.S. regulation as well as that of (appropriately harmonized) international regulation governing illegal content, election meddling, and privacy protection. That fullest flower from that seed of willingness was Zuckerberg’s Washington Post op-ed in March.

The tone of that op-ed suggests that Zuckerberg and Facebook may be willing to bail themselves out of their current P.R. nightmare by embracing some kind of regulated-industry status. That’s a bad idea not only because Facebook isn’t particularly adept at content-moderation now (and likely won’t be much better in the future), but also because their content-curation and privacy policies will function as a kind of private law that affects what we see and what can be known about us but without the transparency of public law and regulation.

And at this week’s hearing in Canada, the executives Facebook actually stuck to their jump-and-we’ll-ask-how-high message. As Politico reports, “The two Facebook executives who did show up—one based in Canada, the other in the U.S.—defended the company and promised to comply with new ethics standards and to collaborate in the development of future ones around the world.”

Lost in the complaints about whether Facebook’s top brass show up for show trials is the fact that Facebook is already working toward a coherent, consistent message that, depending on how it plays out, should either hearten us or concern us. Facebook’s overt commitment to develop an ethical code and stick to it is a good sign—I’ve argued for that myself. But the risks are also serious: if the resulting code of ethics is burdensome enough to impose a high barrier to entry for future social-media competitors, Facebook’s commitment will have the extra added benefit (to Facebook) of locking in its market dominance.

That doesn’t have to be the result. It’s possible, after all,  to create ethical frameworks that function up and down the scale—doctors and lawyers who are solo practitioners have the same capacity to obey professional-ethics imperatives that hospitals and big firms do. But that’s because they were designed to scale—whatever new rules tech companies offer, or that we suggest to them, need to scale up and down as well. The tech industry, working in consultation with civil society and multistakeholder forums, shouldn’t wait for governments to hand down what bureaucrats—ungrounded in direct experience of the industry—think the rules should be. A better approach is to work out the ethical rules much the way that doctors, lawyers, and other professions have done, and evolve them, in consultation as situations and problems change.

Mark Zuckerberg is the whipping boy of the moment. But it may be Jack Dorsey of Twitter tomorrow, or Sundar Pichai of Google or Apple’s Tim Cook the day after that. And when (it’s probably not “if”) one of the other CEOs angers lawmakers, it will be heard as the other shoe dropping for Big Tech. That’s why, if Facebook and other tech companies who want to get themselves out of the legislative crosshairs, both here and abroad, need to be proactive, not reactive, and to position themselves as vigorous tribunes and advocates for user interests, not just targets for complaints. We’ve already seen examples of this, such as Apple’s resistance to government demands to hack iPhone security and Google’s game-changing adoption of the transparency-report paradigm. If the companies apply the same kind of creativity to becoming users’ advocates that they already have applied to feeding users what (they imagine) we want, Zuckerberg and other CEOs will start actively seeking opportunities to show up at more hearings. They’ll seize the chance to brag.

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UN Torture Expert: Assange Showing Symptoms Of “Intense Psychological Trauma”

WikiLeaks founder Julian Assange is suffering from “intense psychological trauma” in a British prison and should not be extradited to the United Sates to face a “politicized show trial,” according to a UN human rights investigator. 

UN torture expert Nils Melzer visited Assange in a high-security London prison on May 9 along with two medical experts, only to find the journalist under severe stress, agitated, and unable to cope with his complex legal case amid chronic anxiety, according to Reuters

“Our finding was that Mr. Assange shows all the symptoms of a person who has been exposed to psychological torture for a prolonged period of time. The psychiatrist who accompanied my mission said that his state of health was critical,” he told Reuters in an interview in Geneva, adding “But my understanding is that he has now been hospitalized and that he is not able to stand trial.” 

Melzer’s comments come after Assange’s attorney said he was unwell when he failed to show up for a London court hearing Thursday regarding his extradition battle. The 47-year-old is currently serving a 50-week sentence in the UK’s Belmarsh jail for skipping bail. According to WikiLeaks he has been moved to the prison’s health ward. 

Mr. Assange has been deliberately exposed, for a period of several years, to progressively severe forms of cruel, inhuman or degrading treatment or punishment, the cumulative effects of which can only be described as psychological torture,” said Melzer. 

Melzer, a Swiss law professor, did not say which judges or senior politicians had been defaming Assange, but that “dozens if not hundreds of individuals” had expressed themselves inappropriately.”

“Here we are not speaking of prosecution but of persecution. That means that judicial power, institutions and proceedings are being deliberately abused for ulterior motives,” he added. 

British Foreign Minister Jeremy Hunt, in a tweet posted within minutes of Melzer’s statement, said: “This is wrong. Assange chose to hide in the embassy and was always free to leave and face justice.

“The UN Special Rapporteur should allow British courts to make their judgments without his interference or inflammatory accusations,” he said. –Reuters

Assange was charged by the United States last week with 18 new counts related to conspiring to obtain and disclose classified information, endangering national security. He has been accused of unlawfully publishing the names of classified sources, and conspiring and with ex-Army intelligence analyst Chelsea Manning to obtain the classified information. He faces decades in prison if convicted. 

I am seriously, gravely concerned that if this man were to be extradited to the United States, he would be exposed to a politicized show trial and grave violations of his human rights,” said Melzer, adding “The main narrative in this affair really is the United States wanting to make an example of Mr. Assange in order to deter other people from following his example.” 

Melzer also said that he didn’t expect Assange to be tortured using traditional methods

“I would much more expect him to be subjected to prolonged solitary confinement, to very harsh detention conditions and to a psychological environment which would break him eventually.

via ZeroHedge News http://bit.ly/2KiLEtw Tyler Durden

This Cycle’s Most Dangerous Bubble, In Three Charts

Authored by John Rubino via DollarCollapse.com,

One of the lessons of the past few decades’ boom/bust cycles is that each financial bubble emerges in a different asset class. In the 1970s it was precious metals, in the 1980s junk bonds, in the 1990s tech stocks and in the 2000s mortgage-backed bonds.

Today the only one of these with a reasonable chance of blowing up the economy is Big Tech, which is wildly overvalued by any historical measure.

But a better candidate for the title of most dangerous bubble is emerging: Corporate debt, specifically the “almost junk” portion of that market.

Let’s start with the ongoing surge in overall corporate borrowing, which as a percentage of GDP is now back to the high achieved during the Great Recession, and higher than before the previous two recessions:

But not all corporations are misbehaving. The clear and present danger is coming from BBB rated debt, which means low-rated borrowers that aren’t quite as dicey as actual junk borrowers. This category was less than $1 trillion in the 2000s housing bubble and has since about tripled.

Meanwhile, the terms of these loans are increasingly of the “covenant-lite” variety that don’t require companies to keep their finances within reasonable boundaries. This kind of bond is now 80% of the speculative-grade, or leveraged, loan market, up from just 6% in 2006.

Here’s how this probably plays out. As low-quality borrowers’ interest costs soak up an ever-larger share of their earnings, they’ll start dropping into junk status. This will lead investors to demand higher yields for the remaining BBB bond issuers. Higher borrowing costs will then push more iffy companies into junk, and so on, until lenders stampede for the exits, shutting off access to capital for all but the top corporate borrowers.

Credit-starved companies will start dying, spooking the stock market, and that will be that for this expansion.

The new problem this time around is that potentially bad debts are everywhere, from emerging market dollar-denominated bonds to Italian sovereign debt, Chinese shadow banks, US subprime auto loans, and US student loans. All are teetering on the edge, just waiting to be nudged into the abyss by some external crisis.

So trouble in one sector can metastasize in ways that the global financial system hasn’t seen since the 1930s, forcing central banks to do some truly extraordinary things. Which is the real story here: Not the coming crisis but the monetary authorities’ reaction to the crisis.

via ZeroHedge News http://bit.ly/2QA8Ft3 Tyler Durden

Final May UMich Sentiment Survey Sinks From Flash Highs

UMich Sentiment survey ‘expectations’ soared in the preliminary data sending the headline to its highest since Jan 2004, but the final prints were marked down notably.

Against expectations of 101.5, and flash print of 102.4 (highest since Jan 2004), the final data for UMich sentiment printed 100.0 (the highest since Aug 2018 only)

This is still the highest “expectation” print since Dec 2003 (albeit notably lower from 96.0 flash to 93.5 final) and current conditions slipped from 112.3 in April (112.4 flash) to 110.0 final for May.

 

Middle-income Americans saw sentiment weaken as the top and bottom income cohorts rose…

 

Buying attitudes towards homes and household durables tumbled…

As UMich notes, the combination of higher inflation and lower spending provide conflicting signals for monetary policy, with the divergence further heightening if, as is likely, the trade war escalates. Will the Fed risk higher inflation with lower interest rates, or risk higher unemployment with higher interest rates? Either choice would threaten the highest level since 2002 in consumer confidence in the government’s policies to keep both unemployment and inflation at reasonably low levels (see the chart below).

The economic optimism now expressed by consumers is characteristically different than when the Index first reached the May level in the mid 1960s.

In the earlier era, optimism was primarily based on expected growth in incomes, in the current era, optimism is based more on expected income and job security. The shift is partly the legacy of the Great Recession and partly due to an aging population. This shift has been reflected in personal economic evaluations as well as in political choices.

The proportion of consumers who anticipated an economic downturn during the next five years fell to 38%, the lowest level since 2004.

via ZeroHedge News http://bit.ly/2YWK4RX Tyler Durden

Trump Announces Escalating Tariff Up to 25 Percent on Mexican Goods

Trump plans to make Americans pay until “illegal migrants coming through Mexico” stop. The president tweeted Thursday night that starting soon, every single item imported from Mexico will be subject to a five percent tariff—a rate that “will gradually increase” until undocumented border crossings end. In August it would rise to 15 percent and then to 25 percent in October. When “the Illegal Immigration problem is remedied,” Trump tweeted, “the Tariffs will be removed.”

By this morning, stocks are tumbling and pretty much everyone is asking, basically, wtf?

Trump’s Mexico Tariffs Are Borderline Crazy,” reads one Washington Post headline. Opening sentence: “How far down the rabbit hole are we on U.S. trade policy right now?”

“Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent,” says Sen. Chuck Grassley (R–Iowa), who chairs the Senate Finance Committee, in a statement.

In a nutso White House press release, Trump whines that “for years, Mexico has not treated us fairly” and declares we are “now asserting our rights as a sovereign Nation.” He continues:

To address the emergency at the Southern Border, I am invoking the authorities granted to me by the International Emergency Economic Powers Act. Accordingly, starting on June 10, 2019, the United States will impose a 5 percent Tariff on all goods imported from Mexico. If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed. If the crisis persists, however, the Tariffs will be raised to 10 percent on July 1, 2019. Similarly, if Mexico still has not taken action to dramatically reduce or eliminate the number of illegal aliens crossing its territory into the United States, Tariffs will be increased to 15 percent on August 1, 2019, to 20 percent on September 1, 2019, and to 25 percent on October 1, 2019. Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory. Workers who come to our country through the legal admissions process, including those working on farms, ranches, and in other businesses, will be allowed easy passage.

Those are the only real details offered in the 15-paragraph statement, which is mostly the same TV tough-guy caricature meets crime-panic fever dream that the president rambles out on the regular.

But the tariffs would be anything but business as usual, of course. They could “throw into chaos corporate and agricultural supply chains that have essentially worked in a system without tariffs since the 1994 North American Free Trade Agreement,” write Washington Post financial reporters David J. Lynch and Kevin Sieff. “Mexico is on track to become the United States’ largest trading partner, ahead of China and Canada, according to census data through March.”


FREE MINDS

Unlicensed diet tips in court. A federal court will soon address another Institute for Justice suit on licensing laws and free speech. This one centers on Florida nutrition coach Heather Del Castillo. From the AP:

After getting a complaint that she was working without a license, Florida officials sent a cease-and-desist order and fined her $750. Del Castillo sued, saying her free speech rights were violated. Now, a federal court is expected to rule on her lawsuit as other states weigh regulations on professional dietary advice.

The case highlights the confusion around dietitians and health coaches, and how their qualifications differ.

“I literally didn’t even know I was doing anything that was wrong,” said Del Castillo, who noted her business was legal when she was living in California.


FREE MARKETS

California lawmakers are once again taking aim at independent contractors. A bill that passed the California State Assembly this week would create new standards for determining whether workers are independent contractors or employees. From Vox:

To hire an independent contractor, businesses must prove that the worker (a) is free from the company’s control, (b) is doing work that isn’t central to the company’s business, and (c) has an independent business in that industry. If they don’t meet all three of those conditions, then they have to be classified as employees.

This could radically upend so many different industries and businesses. Of course lawmakers are handing out exemptions to those they like:

The state’s Chamber of Commerce and dozens of industry groups have been lobbying for exemptions, and a long list of professions were excluded from the bill: doctors, dentists, lawyers, architects, insurance agents, accountants, engineers, financial advisers, real estate agents, and hairstylists who rent booths at salons.

But “Uber and Amazon drivers…manicurists and exotic dancers” and many others that politicians disfavor would be screwed.


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Disinflation: The Elephant In The Room

Via the Economic Cycle Research Institute (ECRI) 

Most analysts –and the Fed – don’t understand that inflation cycles are different from business cycles. Understanding this key reality allowed our clients to be properly positioned for the drop in bond yields.

ECRI’s co-founder, Geoffrey H. Moore, who created the original leading index of the business cycle over half a century ago, developed the U.S. Future Inflation Gauge (USFIG) to predict those separate inflation cycle turning points. The USFIG also leads inflation expectations (see chart). 

The USFIG turned down early last year, and by summertime, it was clear that a fresh inflation cycle downturn was taking hold. That inflation cycle downturn wasn’t obvious to the Fed, which hiked rates in September and December. Despite being forced to pivot hard early this year, Fed Chairman Powell just this month called low inflation “transitory.” Bond markets were also caught flat-footed, with the 10-year treasury yield around 3¼% in October, and again in November, as inflation expectations remained high through last fall.

This is the elephant in the room crushing bond yields. It’s really about the inflation cycle.

* * *

Mobile users can view the interview here. Click here to review ECRI’s recent real-time track record. For information on ECRI professional services please contact us. Follow @businesscycle on Twitter and on LinkedIn.

via ZeroHedge News http://bit.ly/2XiCsc0 Tyler Durden

Chicago PMI Rebounds, Hovers Near 28-Month Lows

After unexpectedly collapsing in April (to Jan 2017 lows), MNI’s Chicago PMI rebounded modestly in May, from 52.6 to 54.2 (slightly above expectations of 54.0).

Under the hood, only 4 components rose from last month.

  • Business barometer rose at a faster pace, signaling expansion

  • Prices paid rose at a faster pace, signaling expansion

  • New orders rose at a faster pace, signaling expansion

  • Inventories rose and the direction reversed, signaling expansion

  • Supplier deliveries rose at a slower pace, signaling expansion

  • Production rose at a faster pace, signaling expansion

  • Order backlogs fell and the direction reversed, signaling contraction

‘Soft’ Survey data continues to be unsupportive of the hope priced into stocks…

But then again, so is everything except global money supply.

This data comes after dismal China PMI data and weak German retail sales and CPI.

via ZeroHedge News http://bit.ly/2wEQMQJ Tyler Durden

Beijing Has Reportedly Developed Plan For Rare-Earth Export Ban

Despite last night’s disappointing PMI print, the latest sign that the trade-war backlash is hurting the mainland economy (especially since the credit injections from earlier this year are fading into the distance), Beijing is apparently undeterred, and on Friday, it continued to ratchet up threats about invoking the “nuclear option” of curbing exports of rare earth metals to the US, a move that would cause significant disruptions to supply chains for everything from microchips to to fighter jets.

Beijing has reportedly prepared a plan to cut off exports of rare earths to the US, Bloomberg reports, though it didn’t offer any details about what this plan might entail.

Beijing has readied a plan to restrict exports of rare earths to the U.S. if needed, as both sides in the trade war dig in for a protracted dispute, according to people familiar with the matter.

The government has prepared the steps it will take to use its stranglehold on the critical minerals in a targeted way to hurt the U.S. economy, the people said. The measures would likely focus on heavy rare earths, a sub-group of the materials where the U.S. is particularly reliant on China. The plan can be implemented as soon as the government decides to go ahead, they said, without giving further details.

China produces 80% of the world’s rare earth metals – which, contrary to what their name might suggest, are actually more plentiful than precious metals like gold.

China

However, most rare earths imported by the US travel through intermediaries before arriving at US ports. Washington exempted the critical metals, which are used in a broad range of high-tech products, from tariffs.

One analyst cautioned that nothing is yet set in stone.

“Currently, it’s still just a possibility that China may ban or do some kind of restrictions,” Racket Hu, a researcher at Shanghai Metals Market, said in a Bloomberg TV interview. “But if it does happen, then we believe prices of rare earths will surge,” he said, citing what happened in 2010 when China curbed shipments to Japan.

Indeed, it appears traders are already starting to price in the export curbs, as the VanEck Vectors Rare Earth ETF has risen off its 2019 lows since Trump’s Huawei blacklisting elicited threats of retaliation from Beijing.

REMX

Though miners, including Australia’s Lynas, are scrambling to open new mines…

BBG

…the new capacity likely won’t be ready in time to prevent significant supply disruptions should Beijing make good on its threats.

via ZeroHedge News http://bit.ly/2WuUZ83 Tyler Durden

Trump Announces Escalating Tariff Up to 25 Percent on Mexican Goods

Trump plans to make Americans pay until “illegal migrants coming through Mexico” stop. The president tweeted Thursday night that starting soon, every single item imported from Mexico will be subject to a five percent tariff—a rate that “will gradually increase” until undocumented border crossings end. In August it would rise to 15 percent and then to 25 percent in October. When “the Illegal Immigration problem is remedied,” Trump tweeted, “the Tariffs will be removed.”

By this morning, stocks are tumbling and pretty much everyone is asking, basically, wtf?

Trump’s Mexico Tariffs Are Borderline Crazy,” reads one Washington Post headline. Opening sentence: “How far down the rabbit hole are we on U.S. trade policy right now?”

“Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent,” says Sen. Chuck Grassley (R–Iowa), who chairs the Senate Finance Committee, in a statement.

In a nutso White House press release, Trump whines that “for years, Mexico has not treated us fairly” and declares we are “now asserting our rights as a sovereign Nation.” He continues:

To address the emergency at the Southern Border, I am invoking the authorities granted to me by the International Emergency Economic Powers Act. Accordingly, starting on June 10, 2019, the United States will impose a 5 percent Tariff on all goods imported from Mexico. If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed. If the crisis persists, however, the Tariffs will be raised to 10 percent on July 1, 2019. Similarly, if Mexico still has not taken action to dramatically reduce or eliminate the number of illegal aliens crossing its territory into the United States, Tariffs will be increased to 15 percent on August 1, 2019, to 20 percent on September 1, 2019, and to 25 percent on October 1, 2019. Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory. Workers who come to our country through the legal admissions process, including those working on farms, ranches, and in other businesses, will be allowed easy passage.

Those are the only real details offered in the 15-paragraph statement, which is mostly the same TV tough-guy caricature meets crime-panic fever dream that the president rambles out on the regular.

But the tariffs would be anything but business as usual, of course. They could “throw into chaos corporate and agricultural supply chains that have essentially worked in a system without tariffs since the 1994 North American Free Trade Agreement,” write Washington Post financial reporters David J. Lynch and Kevin Sieff. “Mexico is on track to become the United States’ largest trading partner, ahead of China and Canada, according to census data through March.”


FREE MINDS

Unlicensed diet tips in court. A federal court will soon address another Institute for Justice suit on licensing laws and free speech. This one centers on Florida nutrition coach Heather Del Castillo. From the AP:

After getting a complaint that she was working without a license, Florida officials sent a cease-and-desist order and fined her $750. Del Castillo sued, saying her free speech rights were violated. Now, a federal court is expected to rule on her lawsuit as other states weigh regulations on professional dietary advice.

The case highlights the confusion around dietitians and health coaches, and how their qualifications differ.

“I literally didn’t even know I was doing anything that was wrong,” said Del Castillo, who noted her business was legal when she was living in California.


FREE MARKETS

California lawmakers are once again taking aim at independent contractors. A bill that passed the California State Assembly this week would create new standards for determining whether workers are independent contractors or employees. From Vox:

To hire an independent contractor, businesses must prove that the worker (a) is free from the company’s control, (b) is doing work that isn’t central to the company’s business, and (c) has an independent business in that industry. If they don’t meet all three of those conditions, then they have to be classified as employees.

This could radically upend so many different industries and businesses. Of course lawmakers are handing out exemptions to those they like:

The state’s Chamber of Commerce and dozens of industry groups have been lobbying for exemptions, and a long list of professions were excluded from the bill: doctors, dentists, lawyers, architects, insurance agents, accountants, engineers, financial advisers, real estate agents, and hairstylists who rent booths at salons.

But “Uber and Amazon drivers…manicurists and exotic dancers” and many others that politicians disfavor would be screwed.


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  • Protecting and serving:

from Latest – Reason.com http://bit.ly/2IdF18Y
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Risks For The Second Half Of 2019 Are Mounting By The Day, Part 1

Authored by Bryce Coward via Knowledge Leaders Capital blog,

As we look into the second half of the year and into 2020, we are left with a fleeting feeling about the prospects for a cyclical uptick in growth and therefore earnings. The problem is not so much with the current pace of growth or incoming data (which by the way hasn’t been very good). It’s more about the tea leaves telling us that the slowdown we’ve experienced over the past few months could continue and even accelerate through year end and into next year. As we see it, the three main impediments to economic growth are:

  1. Baked in fiscal tightening

  2. Lagged effects of the monetary tightening cycle

  3. Tariffs and the second order effects

Baked In Fiscal Tightening

It’s often overlooked that the US economy has a serious fiscal tightening in the pipeline,which is in stark contrast to 2018 and 2019. As a matter of fact, fiscal policy added 1.32% to overall growth in 2018 and .83% in 2019. In 2020 it will subtract .77% from overall growth. That is to say, if we assume trend nominal GDP growth is 3.5%, then all else equal the economy should have grown by 4.82% in 2018 and should grow by 4.33% in 2019, both above trend. For 2018 at least, actual nominal GDP growth came in at 5.18%, not far from what would have been expected from the fiscal expansion alone. In contrast, 2020 nominal growth will only be 2.73% if we assume fiscal policy is the only variable that would create a delta between trend growth and realized growth. That would be the lowest growth rate since 2016 when we had a recession scare and an actual profits recession. We had hoped that some sort of infrastructure package would act as an offset to the baked in fiscal tightening, but for now that deal appears to have been tabled.

Lagged Effects of Monetary Tightening

The tightening isn’t just on the fiscal side. The monetary tightening that we experienced for two years leading to the Fed’s last rate hike in December, 2018 will be with us for some time.

We know our readers understand that monetary policy impacts the real economy with long lags ranging from 18 months to 2 years. By that math, we’ve still got 13 to 19 months left until the after affects of the tightening cycle stop being a drag on economic growth. One of the areas that are traditionally affected by Fed tightenings is employment, which has so far been extremely resilient.

History suggests that could change in the second half of 2019.

Tariffs and Second Order Affects 

The escalation of the US-Sino geopolitical conflict will have consequences to economic growth. Tariffs are a dead weight loss to economic output, thus the higher they go the higher the dead weight loss. Private estimates have the impact to 2019 growth ranging from -0.2% of GDP to -1% of GDP, depending on the quantity of Chinese products that will ultimately be subject to tariffs and at what rate. Of course, the impact to growth can be mitigated by phasing the tariffs in over time. Of possibly greater significance is the impact on private business confidence.

When business owners are confident they invest, and the opposite is also true. Last year, shortly after large-scale tariffs were levied on Chinese imports, small business investment peaked and has since been going down. The escalation we’ve seen in the US-Sino conflict could further dent confidence and thus capex, adding yet another headwind to growth.

In part two of this series we will discuss what this all means from an asset allocation perspective and why the rally in long bonds could just be getting started.

via ZeroHedge News http://bit.ly/2YV0vOA Tyler Durden