These days when one hears “Tesla” and “lawsuit” in the same sentence, conventional wisdom is that yet another disgruntled investor is suing Elon Musk’s company and/or Musk himself, seeking recoveries from Musk’s “going private” tweet, either longs or shorts. In this case however, the tables are turned, because as Electrek reports, one month after the Ontario government shut down its “generous” EV rebate, Tesla is suing the Ontario government claiming it “deliberately and arbitrarily” targeted the company, discriminating against Tesla based on how it was treated differently from other automakers through the shutdown of the EV incentives.
This is what happened: after the election of the Conservative party in June, Doug Ford, the party’s leader, said that they were shutting down the cap-and-trade program, which was financing the EV rebate – which was worth up to $14,000 – to finance a 10-cent per litre tax reduction on gasoline.
While one can debate whether the decision was good or not, few can argue that the new government was within its rights to shut down the program.
What Tesla is contesting, however, is how Ontario handled the sudden phaseout of the EV rebate, which Tesla claims is disadvantaging Tesla buyers, and is discriminating the company because it doesn’t use third-party dealers.
The $14,000 EV rebate was killed – effective July 14 – after the Conservative party took over the government. And, at the time, it wasn’t exactly clear who would be affected: some, such as Electrek, had assumed that the many Model 3 buyers who had a car on order, which would be many as Tesla had just opened orders for the dual motor and performance versions in Canada, were safe because the government announced this:
Inventory that dealers have on lots or orders made by dealerships with manufacturers on or before July 11, will also be honoured for the incentive provided that the vehicle is delivered to consumers, registered, and plated by September 10.
One question emerged because while Tesla doesn’t have third-party dealers, it does have dealership licenses for its stores in Ontario. At the same time, buyers expressed concerns as the government announced they are treating orders for Tesla vehicles differently and if buyers don’t have their cars by July 11, they won’t have access to the $14,000 rebate. Meanwhile, with Tesla’s logistical issues, it was unlikely that most buyers would receive their cars on time.
Subsequently, the government changed its wording to explicitly mention “franchise dealerships.”
This means that many Model 3 buyers who budgeted their order while taking into account the $14,000 rebate for electric vehicles are now not going to be able to get the rebate. This is the case even if Tesla delivers the vehicles before September 10, while EVs sold by any other automakers through dealerships will be eligible for the rebate if delivered and plated by then.
As a result of the nuanced government wording, Electrek estimated that this situation could affect close to 1,000 buyers.
And, as a result, Tesla is now contesting the government’s decision with a lawsuit against the government claiming the Ministry of Transport had “discriminatory intentions”, and as evidence, Musk brought forward a comment that Minister of Transportation John Yakabuski said in the Legislative Assembly:
“But we also were extremely fair in the way that we ended it. On July 11, we announced that until September 10, all dealers and anyone who had purchased a vehicle or had a vehicle on order, as long it was plated and delivered by September 10, other than Tesla—they would receive their rebate. [Emphasis added]”
In the suit, Tesla also claimed that it had tried to work with the ministry to try understand the exclusion from the phase-out period, but it wasn’t able to, which resulted in the lawsuit. The company is also asking for the case to be heard urgently as there is less than a month left until September 10, he deadline that has been set for all other automakers except Tesla.
Less than five months after passing legislation that made creating and disseminating fake news punishable by jail time, Malaysia’s parliament has repealed the law.
The Anti-Fake News Bill 2018 was approved in early April by the government of then-Prime Minister Najib Razak. But as the Associated Press reports, human rights advocates worried the law would be used to stamp out opposition ahead of Malaysia’s general election in May.
“This is a law that was clearly designed to silence criticism of the authorities and to quell public debate—it should never have been allowed to pass in the first place,” Teddy Baguilat, a Philippine member of parliament, said in a statement. Baguilat serves on the board for the Southeast Asian nonprofit group ASEAN Parliamentarians for Human Rights.
Those found guilty under the now-repealed fake news measure faced up to six years behind bars, as well as a fine of up to 500,000 ringgit (about $123,000).
But if the law’s purpose was to keep Najib in power, then it failed. Najib’s party was defeated in May, and Mahathir Mohamad became the new prime minister. On Thursday, the new government repealed the fake news bill by a voice vote. “We don’t need new legislation. We already have existing laws, such as the Communications and Multimedia Act 1998 and others that can deal with” fake news, Deputy Minister Mohamed Hanipa Maidin told lawmakers prior to the vote.
Baguilat praised the government’s decision to get rid of the law. “The Malaysian lower house’s decision today to repeal the wildly repressive Anti-Fake News Law marks a huge step forward for human rights in Malaysia,” he said in his statement. “It not only shows that the Pakatan Harapan government is serious about its promises to strip controversial laws from the legal books, it also sends a signal to the wider region that positive human rights change is within reach.”
But while Malaysia may have gotten rid of this one law, it’s still far from a bastion of free speech and press. The nation was ranked 145th out of 180 countries in the press freedom group Reporters Without Borders’ 2018 World Press Freedom Index.
The group noted that Malaysian newspapers must renew their operating licenses with the government every year. And under the decades-oldSedition Act, criticism of the government is heavily restricted. “The Malaysian authorities should now follow up and repeal all other repressive laws, including the Sedition Act,” Baguilat said.
Fake news is a real problem around the globe. But as Reason’s Nick Gillespie has previously argued, that doesn’t mean regulation is the answer.
Public transportation in the U.S. is often overly expensive and unnecessary, so it makes sense that the agencies that run transit systems would want a security system to match.
On Tuesday, the Los Angeles County Metropolitan Transportation Authority (Metro) announced that it was partnering with the Transportation Security Administration (TSA) in deploying new body scanners on its subway system.
Metro will be the first transit agency in the country to deploy the new machines, which are supplied by British company Thruvision at the rough cost of $100,000 a piece. According to a TSA press release, the scanners will be used to “keep transit riders safe from person-borne improvised explosive devices or other weapons that are intended to cause mass casualties.”(Similiar machines are being experimented with at bus and rail stops in New York and San Francisco.)
The scanners, which TSA tested and recommended but which Metro staff will operate, mercifully do not require people to line up one by one to be scanned. Rather, the portable Thruvision machines are able to pick up the waves emitted by the human body as they walk through the machine’s field of vision, while security personal look for concealed objects that might be blocking these waves. That makes them less invasive and cumbersome then the body scanners you might find at airports. It doesn’t make them any more useful.
Because they rely on those waves emitted from the human body to reveal hidden objects, these scanners can only detect things that people are carrying on their person. In the case of terrorism prevention, that would be suicide vests or maybe pipe bombs (like the one used in an unsuccessful attack near the New York Port Authority Bus Terminal in December 2017).
A would-be terrorist with any kind of guile could get around this security precaution by simply carrying an explosive device in a backpack.
The two most high profile attacks on rail transit in Western Europe—the 2004 Madrid train bombing and the 2005 London Underground bombing—both saw the perpetrators smuggle explosive devices onto trains in backpacks or small bags.
There’s reason to be skeptical about how useful these scanners will be even for spotting dangerous concealed objects on passengers’ persons. According to a 2015 ABC investigation, undercover federal agents had a 95 percent success rate at getting fake weapons and explosive devices through far more intensive and individualized TSA airport screenings. A 2017 report from the Department of Homeland Security’s Inspector General also found that TSA screeners and equipment often failed to detect contraband smuggled through security by undercover agents, with failure rates possibly as high as 80 percent.
It’s possible LA Metro security staff scanning whole crowds of people at once will do a better job, but I doubt it.
This ineffectiveness shouldn’t worry passengers too much. Actual instances of terror attacks on public transit in the U.S. remain incredibly rare. Apart from the 2017 Port Authority bombing—which killed no one, and only left the attacker seriously injured—I could find no example of similar attacks on U.S. buses or trains.
The security threats one actually faces on America’s public transit systems are more mundane: muggings, assaults, and occasional homicides. The new scanners will do precious little to prevent these crimes. Judging by videos of Thruvision scanners in action, security personal will have a hard time telling the difference between someone’s phone or wallet and all but the most conspicuous weapons.
The end result of these scanners then will be less privacy, and the same amount of safety for Metro riders.
Newly released text messages between Steele and Ohr before Comey’s congressional testimony raise questions
In March, 2017, two days before former FBI Director James Comey testified to lawmakers that the bureau had an open counterintelligence investigation into President Trump’s campaign, former British spy Christopher Steele sent an urgent message to Department of Justice official Bruce Ohr hoping that “important firewalls will hold” when Comey testified.
The text message from Steele, who compiled the infamous unverified dossier on Trump, was sent on March 18, 2017, to Ohr and obtained by SaraACarter.com from a government source, familiar with the ongoing investigation.
Ohr was demoted twice by the Department of Justice for not disclosing that his wife, Nellie Ohr, worked for Fusion GPS, the now-embattled research firm which paid Steele for the documents. Ohr has been deposed for questioning by the House Judiciary Committee and is expected to speak to lawmakers behind closed doors on Aug. 28.
In the text, Steele writes Ohr:
“Hi! Just wondering if you had any news? Obviously, we’re a bit apprehensive given scheduled appearance at Congress on Monday. Hoping that important firewalls will hold. Many thanks.”
Ohr writes back later that day, saying:
“Sorry, no new news. I believe my earlier information is still accurate. I will let you know immediately if there is any change.”
It is not certain, based on the limited communications obtained by Congress between the pair, what Ohr was referring to when he discussed “earlier information” that he delivered to Steele.
The exchange raises questions, according to a government source who asked, “What did Steele mean by important firewalls before Comey testimony? And what did Ohr mean by earlier information he provided?” The source noted that the ‘firewall’ statement seemed raise similar questions posed by lawmakers after (now-fired) FBI Special Agent Peter Strzok sent the infamous “insurance policy” texts to his paramour, former FBI Attorney Lisa Page.
Strzok, who was the lead investigator in the FBI’s investigation into Trump, was removed last August from Special Counsel Robert Mueller’s investigation after the DOJ’s Inspector General revealed thousands of text messages, including troves of anti-Trump text messages, between him and Page. Page, who was working as the general counsel for now-fired Deputy Attorney General Andrew McCabe, is no longer with the FBI.
Last week, SaraACarter.com published a law enforcement sensitive document written by Ohr that raised serious concerns among lawmakers regarding his possible contacts with FBI agents involved in the Russia-Trump bureau investigation.
Months before Comey’s testimony, on Nov. 21, 2016, the handwritten document by Ohr lists a possible meeting with Strzok, Page and Special Agent Joe Pientka (who along with Strzok interviewed former National Security Advisor Lt. Gen. Michael Flynn). The document is one of several hundred documents obtained by lawmakers after long battles with the DOJ.
In the handwritten note, Ohr jots down, “no prosecution yet, pushing ahead on M case,” in reference to Paul Manafort, who is now facing years old charges on financial crimes and money laundering.
Ohr also wrote on the same memo, “may go back to Chris,” in reference to Christopher Steele.
The Los Angeles times has refused to participate in the Boston Globe’s coordinated ‘call to action’ in which they have colluded with over 400 newspapers to publish anti-Trump editorials.
Calling the Globe‘s campaign “groupthink,” the Times writes that while they may agree with the anti-Trump sentiment, they “would not want to leave the impression that we take our lead from others.”
Each of the papers will publish editorials — their own separate editorials, in their own words — defending freedom of the press.
The Los Angeles Times, however, has decided not to participate. There will be no free press editorial on our page today.
This is not because we don’t believe that President Trump has been engaged in a cynical, demagogic and unfair assault on our industry.
…
Even when we do agree with another editorial page — on the death penalty or climate change or war in Afghanistan, say — we reach our own decisions and positions after careful consultation and deliberation among ourselves, and then we write our own editorials. We would not want to leave the impression that we take our lead from others, or that we engage in groupthink.
Earlier Thursday, President Trump began the day attacking the “Fake News Media,” calling it the opposition party:
THE FAKE NEWS MEDIA IS THE OPPOSITION PARTY. It is very bad for our Great Country….BUT WE ARE WINNING!
Then shifted to a more direct shot at The Boston Globe…“Now the Globe is in COLLUSION with other papers on free press.”
The Boston Globe, which was sold to the the Failing New York Times for 1.3 BILLION DOLLARS (plus 800 million dollars in losses & investment), or 2.1 BILLION DOLLARS, was then sold by the Times for 1 DOLLAR. Now the Globe is in COLLUSION with other papers on free press. PROVE IT!
And attempted to end on a positive note… “Honesty wins…”
There is nothing that I would want more for our Country than true FREEDOM OF THE PRESS. The fact is that the Press is FREE to write and say anything it wants, but much of what it says is FAKE NEWS, pushing a political agenda or just plain trying to hurt people. HONESTY WINS!
As Twitter user @KidBrightwillow notes, when the pro-Trump Sinclair Broadcast group coordinated a right-leaning message that anchors across the country read, the same papers now colluding with the Globe cried foul.
https://t.co/xiUowDhSqL@BBCNews@BBC
Sinclair Broadcast-condemned for coordinating opinions
Boston Globe-praised for coordinating opinions
Difference?
Sinclair supports Trump
Boston Globe is anti-Trump
Double standards of US media are very stark@BostonGlobe@WeAreSinclair
We will protest again that we are really good for democracy, that we are vital to the nation… and the people who agree with the president won’t give a damn what 200-plus newspaper editorials or a thousand editorials have to say.
Tompkins brings a common-sense perspective, likely echoing what most average Americans might be thinking right now, ultimately concluding of the breathless headlines now promising 350 “pro-journalism editorials” that it’ll be little more than the usual self-congratulatory and meaningless noise that many Americans have come to expect from the mainstream press.
So the editorials Thursday will create a lot of chatter. Trump backers will call journalists whiners and journalists will counter-attack. Twitter and cable news will have a ball with it all.
And Friday morning we will be right where we were this morning.
And crucially Tompkins, himself a prominent longtime educator of journalists across the nation, says that journalists as a collective profession have gotten so much disastrously wrong yet remain intransigent, and the American people understand this well.
Lots of journalists were surprised after the 2016 election. We vowed to listen to the public more, to find out why we were so surprised to hear that the public didn’t love journalists and a growing number didn’t believe us.
Meanwhile, the US Senate passed a resolution on Thursday that “affirms that the press is not the enemy of the people.”
JUST IN: US Senate passes resolution with unanimous consent by voice vote that “affirms that the press is not the enemy of the people” and “reaffirms the vital and indispensable role that the free press serves” and “condemns the attacks on the institution of the free press.” pic.twitter.com/uK8DvhsXie
California officials are wondering if the decision to force coffee shops to post cancer warnings went a bit too far.
California’s Proposition 65 requires that all businesses use explicit warning labels on their products if there is a cancer-causing agent present. A March ruling by a Los Angeles Counter Superior Court judge extended that requirement to coffee shops, even major chains like Starbucks, because of the existence of acrylamide.
Acrylamide, a byproduct of roasting coffee beans, was included following a study showing that lab rats who consumed the chemical in high doses were much more likely to develop cancer. A human coffee drinker would need to consume 35,000 cups of regular coffee every single day to face the same risk.
The L.A. Timesreports that the Office of Environmental Health Hazard Assessment (OEHHA) determined that coffee did not pose a significant risk to consumers and is seeking to reverse the labeling requirement. OEHHA announced a Thursday hearing to propose an update to the regulations that would clarify “exposures to Proposition 65 listed chemicals in coffee that are produced as part of and inherent in the processes of roasting coffee beans and brewing coffee pose no significant risk of cancer.”
Other groups have similarly found no connection between coffee and cancer in human beings. The American Institute for Cancer Research (AICR), for example, wrote in February that while “acrylamide increases risk for lab animals, no links have been established between acrylamide in food and cancer risk for humans as research is inconclusive.” AICR added that the topic of whether or not coffee is linked to cancer “is a well-studied one.”
Bonus links: Simple coffee is not the only part of one’s morning routine that has faced scrutiny from regulators. Coffee additives and accessories like sweetener, plant-based milk, and straws (for the cold brew fans) have been the subject of a legal battle or two at some point.
President Donald Trump has revoked the security clearance of former CIA Director John Brennan.
In a statement, Trump accused Brennan of leveraging his “status as a former high-ranking official with access to highly sensitive information to make a series of unfounded and outrageous allegations—wild outbursts on the internet and television—about this administration.” Trump added that “Mr. Brennan’s lying and recent conduct, characterized by increasingly frenzied commentary, is wholly inconsistent with access to the nation’s most closely held secrets and facilitates the very aim of our adversaries, which is to sow division and chaos.”
Which is to say, Trump doesn’t like Brennan’s very vocal criticism of him. The president toldTheWall Street Journal he holds Brennan largely responsible for the special investigation to determine the extent of Russian meddling in the 2016 presidential election and whether anybody in Trump’s orbit was involved.
Let us not weep much over Brennan’s fate. As director of the CIA, Brennan defended terrible practices such as torture and extrajudicial drone assassinations. Under him, the CIA secretly snooped on Senate Intelligence Committee staff who were researching and producing a report critical of the CIA’s use of torture in interrogations of terrorism suspects during the wars in Iraq and Afghanistan. Then Brennan played dumb about it. And then nothing happened. Brennan is neither the hero of this story nor a victim, and he is probably still going to do just fine as a talking head on the news.
Sadly, not very many people cared about Brennan’s behavior in connection with the Senate torture report at the time, which makes Trump’s inclusion of it as a justification in his statement a bit unexpected. Sen. Rand Paul (R-Ky.), who is encouraging Trump to revoke the security clearances of former officials and who filibustered Brennan’s appointment as CIA director to highlight the secret use of drones by Barack Obama’s administration, certainly knows all about Brennan’s background. Other Republicans, however, were hardly big supporters of the torture report, and the Trump administration apparently wants nothing to do with the issue.
There is little about Brennan’s actual behavior as CIA director that Trump would disagree with, so let’s not play dumb about Trump’s motivation in revoking his security clearance or those of other potential targets. It’s obviously a way of punishing critics within the national security and intelligence community whom Trump loathes (and who loathe him in return).
Does the motive matter? Trump, for his own reasons, is punishing former officials whose behavior may be detestable on other grounds. Or even possibly illegal: One of Trump’s targets is form National Intelligence Director James Clapper, who lied to a Senate panel about the existence of the National Security Agency’s massive domestic surveillance program.
Let’s not fall for a false choice. We can welcome the outcome here and still be concerned about the downstream consequences of tying security clearances to personal loyalty. This is an administration under investigation, and Trump is clearly using his powers against those who support the investigation. There’s a pretty clear message here for anyone working within the administration who may be connected to the Trump investigation or anybody currently employed by the Justice Department who may be involved: If you support this investigation, it could hurt your career.
Peak oil demand might be near, but the consumption of oil for plastics will keep demand elevated for decades. Indeed, the IEA has said that plastics and other petrochemicals are the only sector in which oil consumption could continue to grow well into the 2030s.
Rising plastic consumption is driven by population growth, higher median incomes and urbanization. Plastic production and consumption has absolutely skyrocketed over the last two decades and the growth in emerging economies such as China and India will ensure that consumption continues on its steep upward trajectory.
While there are multiple feedstocks for plastics, solvents and other derivatives, the two main feedstocks are ethane and naptha, which come from natural gas and crude oil.
Oil demand in the transportation sector is expected to peak, and while there is a great deal of disagreement over when we might arrive at that date, many forecasts converge at around the 2030s as the most likely period. But long before then, oil demand for transportation will begin to slow as more and more electric vehicles cut into the market share of the internal combustion engine.
With oil demand in transit slowing, petrochemicals take on a larger role. Over the next two decades, petrochemicals could account for the largest portion of oil demand growth, and by 2035, petrochemicals will “account for almost all growth” by 2035, according to a new report from Wood Mackenzie. Surging petrochemical production and consumption largely comes down to plastics.
To be sure, the ghastly levels of plastic in the world’s oceans and waterways have sparked a nascent movement to ban plastic, at least in some form. Starbucks made headlines when it recently announced plans to phase out plastic straws by 2020. In their place, Starbucks will use a recyclable strawless lid and alternative materials for straws. The company also said it would spend $10 million to develop compostable cups.
Meanwhile, governments are also slowly beginning to target plastic. States and municipalities have placed taxes on plastic bags at the checkout counter, or banned them altogether. Europe is mulling a ban on plastic bags.
“However, in their current form, these decisions are likely to have only a marginal impact,” Bank of America Merrill Lynch wrote in an August 3 research note. “While a clear risk to our view, we do not see enough support for recycling and alternatives for now to significantly move the needle on petrochemical oil demand.”
Consumption is rising because plastic is extremely cheap, so finding alternatives is tricky. “Plastics are incredibly efficient and cost effective and finding alternative solutions for their myriad applications and benefits is not easy. It’s also going to be more expensive and few want to incur the burden of higher costs,” Wood Mackenzie wrote.
“The aspirations to curb plastics is long on intentions and short solutions.” There are a variety of bio-based alternatives that companies are exploring, but “plastics are just too efficient to be easily replaced,” WoodMac concluded.
WoodMac noted a few upsides to plastics, including reduced food spoilage, reduced transit costs and fuel consumption. “If plastic food packaging is banned, spoilage increases and this will lead to more land, water, pesticides, equipment and so on being consumed. In the end, is this better for the environment?” Paper is often cited as an alternative to plastic, but paper production has a larger carbon impact than plastic, WoodMac says.
Still, a shockingly low percentage of plastic is recycled. According to Bank of America Merrill Lynch, packaging accounts for about 36 percent of plastic production. But only 14 percent of plastic in packaging is recycled, with the rest either incinerated, littered or sent to a landfill. Sorting is a big issue because different materials need to be processed in different ways. Meanwhile, as the volume of plastic in individual packaging is reduced, it becomes less profitable to recycle. This practice, known as “lightweighting,” actually leads to reduced recycling rates. Plus, plastic replete with food and drink is too dirty to recycle and ends up discarded into a landfill.
Overall, oil and natural gas demand for the production and use of plastic is set to rise substantially in the years ahead, although prices will influence the rate of growth. “It is important to mention that recycling will also be impacted by oil prices. High oil prices lead to high chemical prices, incentivising recycling,” WoodMac wrote. “Low oil prices result in lower virgin [plastic] prices making it difficult for recycled products to remain economically viable.”
Ironically, EVs could keep plastic consumption aloft. EVs could lead to a peak in oil demand and potentially push the oil market into decline. But that could translate into a structural decline in prices as demand in transportation steadily falls. Cheap oil, in turn, may keep demand elevated in the petrochemical sector, boxing out alternatives to plastic.
It’s a tough nut to crack. But any campaign to definitively break the fossil fuel addiction is going to have to systematically include a colossal effort to wean the global economy off plastic. As of now, it’s hard to envision. The conundrum of plastic makes the campaign for electric vehicles look easy by comparison.
Was it Turkey’s “executive presidency” and its unwillingness to hike rates in the face of soaring inflation? Or maybe the record global debt accumulated over the past decade? Maybe the artificially low interest rates? Or perhaps it was the pervasive current account deficits amid easy outside capital. How about the rapid slowdown in China, its escalating trade war with the US, and the Yuan devaluation? Or perhaps it’s just the rising US interest rates and global quantitative tightening soaking up billions in excess liquidity?
However one justifies the current emerging market crisis, one thing is clear “virtually everybody knew this was coming.” At least that’s the common theme according to SocGen’s Albert Edwards, who after an extended absence has returned, with a new note looking at the turmoil gripping the EM sector. It’s hardly new territory for the SocGen strategist, who prior to his current role, was most famous for his correct observations on the Asian Financial Crisis of 1997.
Fast forward some 21 years, and having previously everything the world is currently going through, Edwards believes the current turmoil boils down to two things: the Fed’s ongoing tightening – a point we discussed earlier this week in “Forget About Turkey: Asia Is The Elephant In The Room” – and China’s rapid devaluation. And, as Nedbank noted previously, it’s about much more than just Turkey, which is merely the symptomatic “tip of the iceberg.” Here’s Edwards’ take on where we stand:
Many commentators have thought for some time that Turkey was a macro-accident waiting to happen. But the key issue is not Turkey’s idiosyncratic macro problems. The unfolding crisis in EM is the direct result of Fed tightening and the strong dollar. The Fed always raises rates until something breaks. But Turkey breaking will not be enough to derail this Fed’s tightening mission. But what is the significance of China’s ongoing devaluation in the face of rapidly weakening growth and trade tensions? Is that also playing a role in draining global liquidity from the financial markets?
And speaking of Turkey, nothing that is taking place now should be a surprise: after all, until the recent diplomatic spat, all the same trends were in place – sliding currency, rising inflation, surging USD-denominated debt, gaping current account deficit…. In fact, if one did not see the Turkey crisis, they should probably look for a job outside of finance (like this Barclays bond trader for example). This is how SocGen’s Alvin Tan summed up the current crisis in Turkey:
“A textbook currency crisis is unfolding in Turkey. Large and widening current account deficit, check. Growing foreign currency debt, check. High and rising inflation, check. Constrained monetary policymaking, check. Just as King Canute could not stem the waters by ordering the tide to stop, a country with a 6% current account deficit and 15% inflation will be powerless to stop its bonds and currency sliding without hiking interest rates and/or restricting capital outflows. The triggers may be unique, but the crisis in Turkey is all too familiar, and the required policy response is too.”
What’s more, Edwards says that in the same way that the Asian crisis and the subsequent 1994 Mexican Peso (Tequila) crisis were wholly predictable, so too was this crisis, even though Turkeys has a unique vulnerability has stood head and shoulders above other EM countries for some time, the same one we discussed in “16 Billion Reasons Why Turkey’s Currency Crisis Will Become A Debt Crisis.”
As we first noted yesterday, Edwards echoes that “Turkey has discovered that high and rising foreign-denominated debt never sits well with a huge current account deficit and a reluctance to raise interest rates.”
And while there is no easy way out for Turkey, especially with some $16 billion in in USD-denominated debt maturing by the end of 2019 and an economy in which rate hikes are forbidden…
… in the bigger picture this is not about Turkey or even EM. It is – as Edwards points out – “as always, about the Fed. But what is China’s role in all this? Are we missing something important in focusing too much on the Fed and the US dollar?”
Edwards answers these questions, and start by focusing on Turkey, not because of some obsession but because the country truly combines all the worst possible aspects of a distressed emerging market nation: not only the soaring foreign-denominated debt…
… but also that the current account deficit has remained stuck at 6% of GDP. And as an added kicker, there is a cartoonish self-appointed dictator to boot.
In this context, Edwards writes that “when you are relying on the “kindness of strangers”: to fund this deficit, it is best not to try and invent a new form of economics in which the higher interest rates needed to restrain a rampant credit bubble and defend the currency are deemed politically unacceptable.“
Alas, that is precisely what Erdogan has been doing, and not just for the past few years, but for over a decade. Meanwhile, the unfolding EM crisis has been building up for years, and just as investors ignored the naysayers in the run-up to the Global Financial Crisis (GFC), they have ignored the IMF and BIS, who have been cautioning for some years about the explosive build-up in EM debt and especially dollar-denominated debt (see charts below).
Edwards makes some further points on the ticking time bomb that is growing foreign debt ownership for any EM nation:
According to the BIS, total dollar-denominated debt outside the U.S. reached $10.7 trillion in the first quarter of 2017, and about a third of this debt is owed by the EM nonfinancial sector. EM specialists, the Institute of International Finance (IIF), have also warned about this build-up in EM foreign-denominated debt. They too note that the EM corporate sector has been leading the explosion of debt, with Turkey standing out for the increase in its exposure since the GFC (see charts below).
Turkey has never managed to escape membership of “The Fragile Five” EM country club. These, the most macro-vulnerable of EM countries, wobbled badly during the 2013 Taper Tantrum when the then Fed Chair Bernanke floated the idea of Quantitative Tightening. Yet the other members of “The Fragile Five”, Brazil, South Africa, Indonesia and India, have to a greater (Indonesia) or lesser (South Africa) extent shuffled away from their perilous situation, leaving Turkey as the standout accident waiting to happen.
But did these charts just now appear? Was the Turkish crisis as much a surprise as the collapse in the Turkish Lira would make it seem? Not at all, but there was always the Fed’s soothing promise to never allow rates to rise to fast that let a generation of EM “experts” go to bed at night, certain of the knowledge they would see their carry trades implode in the middle of the night. That has now changed. Here’s Albert:
Let’s face it: virtually everybody knew this was coming. But in the frantic QE-inspired hunt for yield, no-one cared. And this is always the problem while liquidity is washing through the financial markets because of loose money polices (usually centred around the Fed).
It’s not just that the Fed which set the ticking time bomb below the entire emerging market: it’s also the certainty of the bulls that nothing bad could ever again happen, as “almost no-one is interested in heeding the pessimists and positioning of the inevitable financial market blow-up when eventually excessively loose monetary policy is belatedly tightened” Edwards laments.
Investors, drunk on the elixir of free money, think the good times will roll on forever. And even if they are cautious, a few quarters of underperformance usually invites either capitulation or being fired. With few exceptions, being too early with a bear call is usually a career ending decision. Better to stay in the crowd, remain fully invested and go over the cliff with the herd.
But besides complacent investor behavior, the Fed’s policies had a far greater impact on something even more important: dollar liquidity.
While US rates were low and the dollar was weak, the global carry-trade was a “no-brainer” (borrowing from US$ and investing in EM bonds). Then, as this year began, the dollar resumed its upward march after a 2017 pause, fuelled both by widening interest differentials in favour of the US and President Trump’s belligerent tariff talk. This has been a key ingredient in the stress on EM, because of their huge exposure to dollar-denominated debt.
The so-called “dollar shortage” has become a hot topic as EM companies scramble to unwind their dollar debt. Indeed, Raoul Pal, the keynote speaker in our January London 2017 Conference spent virtually his entire presentation talking about the coming EM crisis and the dollar shortage. But extreme long dollar positioning and a series of dovish Fed rate hikes took the steam out of the late-2016 dollar surge, and its further ascent was postponed until this year. But make no mistake, what we are seeing is exactly what Raoul predicted “a disorderly unwind of the global carry trade.”
Here Edwards repeats one of our favorite sayings, namely that the key for most commentators on whether the risk dominoes will continue to fall is the Fed tightening cycle. “To repeat: 10 of the last 13 Fed tightening cycles have ended in recession.”
Of course, no-one knows how much tightening will cause a recession this time around, or perhaps nobody really cares, because after a decade of doves in the Fed, few think that Fed will follow up its hawkish comments with the rate hikes it wants to deliver, especially if there is a market crash in the process. To Edwards, “part of this is baggage from the Bernanke and Yellen Feds who consistently over-promised and under-delivered.”
But many commentators, including myself, think that the Powell Fed will deliver rate hikes and that the strike price for the Powell equity put is far lower that it was for Greenspan/Bernanke/Yellen (ie, how much equity market weakness is the Fed prepared to tolerate before cutting rates). Powell is not one to freely allow the equity tail to wag the policy dog.
To be sure, it’s hardly rocket science to blame convulsing emerging markets on Fed policy, US interest rates, and a strong dollar. What else can there be, or as Edwards asks, “apart from Turkey-specific issues, has there been anything else that has triggered the immediate EM crisis that we should be watching closely?”
The answer to that is yes, China.
As we first discussed earlier this week, economic data reported by China has been progressively weaker culminating in this week’s abysmal data dump which missed across the board.
Even in the context of recent months the recently released July data were shockingly weak. Commenting on the Chinese slowdown, SocGen’s Wei Yao said that “in July, retail sales growth slid from 9.0% to 8.8%, or from 7.0% to 6.5% in real terms. In particular, retail sales of autos remained in contraction (-2.0%) and overall car sales dropped by 4.2%.” (see chart below, where I find it really is surprising how quickly REAL retail sales growth has decelerated).
Wei continues “Worse, there are signs that the labour market is starting to be affected by the economic slowdown. The surveyed unemployment rate edged up from 4.8% in July to 5.1%, a return to the March level. This was probably the most alarming data in July for policymakers.”
Edwards then shows the two charts we used in our latest observations on China’s ongoing credit impulse slowdown, which is taking place despite solid new loan creation, largely as a result of the ongoing collapse in China’s shadow banking sector.
But it’s what’s happen on the currency front that may be most interesting: according to Wei, “the central bank sent on 3 August the clearest signal so far of its dislike of large currency devaluation, as it re-introduced the 20% required reserve ratio on onshore currency derivative trading, thus making shorting the renminbi more expensive. This action taken at the time of still manageable capital outflows confirms our long-held view that devaluing the renminbi is not a tool that the Chinese government is willing to use lightly.”
Notwithstanding one’s opinions about whether the PBOC is or isn’t actively devaluting, the renminbi (RMB) is declining at an unusually fast pace compared to recent history, and according to Edwards, “this cant just be market-related; if the Chinese authorities have moved into easing mode and begun lowering interest rates the currency will inevitably fall” and continues:
I certainly have been surprised by the pace of the renminbi decline since mid-year. At the time of writing the offshore rate is RMb6.95, only a tad above its early 2017 lows. In a few short weeks, the renminbi has lost all of its 18 months of gains, which in turn saw it recapture virtually all of its post Aug 2015 devaluation losses (see charts below).
Here Edwards highlights one notable difference from the 2015 devaluation: the speed with which the renminbi has tumbled, and has kept pace with other regional currencies, perhaps thanks to China’s relatively new FX basket.
What is significant to me is that the behaviour of the RMB seems very different now to that around the time of the Aug 2015 devaluation. We were writing then that the Abe-inspired slump in the yen had dragged down other regional Asian currencies (especially during H1 2015 see chart below), and that ultimately the Chinese authorities would be forced to participate in a competitive devaluation albeit grudgingly. The situation was not dissimilar in the run-up to the 1997 Asian crisis, which also had mega-yen weakness as a trigger.
One can see from the chart above the sharp downward move in the Korean won and the JPM EM FX Index before China devalued in August 2015, and that even after the devaluation the RMB declined in a much more subdued manner than its competing currencies.
Contrast that with the more recent plunge in the RMB, which is every bit as rapid as other regional currencies, if not more so. Kit Juckes has even just shouted to me from the other side the room that the RMB might be leading the way down in the region.
Which bring us to the conclusion, and the question which Edwards believes no-one is asking: is the entire house of Emerging Market cards about to topple, and is China – the dynamo behind the world’s EM (and DM) growth – losing control of its economy and using the RMB as a cushion?
“No-one is asking this question because we have got so used to the China naysayers (such as myself) being wrong that we dismiss their worries out of hand nowadays”, Edwards surmises.
And in the very next sentence, he leave with some ominous words: “that is the same complacency that we saw during the run-up to the 2007 financial crisis and indeed in the run-up to the current Turkish crisis, which also defied the bears for so long until now.“
Maybe, or maybe like BMO’s Ian Lyngen wrote yesterday, the tightening is almost over, inflation be damned – after all, the Fed has repeatedly admitted that inflation is a “mystery” to its Econ PhD inhabitants – and not only is quantitative tightening set to end, but the next QE is on deck as soon as one year from today.
Gary Johnson today finally made the official announcement that he is running for the U.S. Senate in New Mexico as a Libertarian. Now the two-time former governor of the state and two-time former Libertarian Party candidate for president has nine weeks to take on overwhelming front-runner Sen. Martin Heidrich (D) and novice Republican nominee Mick Rich.
In a phone interview yesterday, Johnson acknowledged that he is a “long shot” to win a three-way race in a heavily Democratic state. He said Rich seemed determined to stay in the race when the two men talked, but Johnson saw some cause for optimism in Heinrich’s soft numbers and the swiftness with which the incumbent lashed out at the Libertarian when the news broke. “I don’t know if Champagne shouldn’t be popped right now,” Johnson said.
While the idea of running for the Senate “came as a complete surprise” to Johnson just five weeks ago, after years of steadfastly ruling out another political run of any kind, the candidate says he’s relishing the opportunity to talk about the national debt (“I’d be the number-one deficit hawk”), free trade, anti-interventionism, and President Donald Trump’s immigration policies.
A first advertisement by the pro-Johnson Elect Liberty PAC, run by his former and presumed future campaign manager Ron Nielson, has been released:
And for the charges already cropping up that he could play “spoiler” to the Democrats’ dream of retaking control of the Senate, Johnson says bring it on, dreaming of what a Libertarian swing vote could mean. “Potentially,” he said, “I could be the U.S. senator from New Mexico who actually has a say in the direction this country ends up taking.”
The following is a lightly edited transcript of our conversation:
Reason: Let’s talk through how this happened. If I’m not mistaken, five months ago you told…Nick Gillespie that absolutely not would you ever get involved in politics again: “No, I’m done, I’m done with elected political office.” If we can’t trust your word about such important matters, how can we trust you to cut taxes once in office? What happened?
Gary Johnson: Well, so, I would just suggest that your timeline is a little off, that as recently as five weeks [ago], I would have said that…. So this came as a complete surprise—me, in Las Vegas, complete surprise. And everything I’m about to tell you is, was, [former L.P. Senate nominee] Aubrey Dunn‘s idea.
So there is no question in New Mexico that Martin Heinrich was going to win this race. No ifs, ands, or buts about it. But what was surprising was that [Dunn] had [done] some polling and discovered that Martin Heinrich’s numbers are really weak; there aren’t that many people that are committed to voting for him. And if Aubrey Dunn would have been elected to the U.S. Senate—which wasn’t going to happen, but if he would have been—arguably he would have been maybe the most powerful, or certainly among the most powerful, senators in the U.S. Senate, because he would have been the swing vote, and he would have been an independent Libertarian.
So that’s the lure here. This isn’t about bellying up to the trough; this is conceivably about being the swing vote in the Senate and deciding what’s good and what’s bad. And I have to tell you, this being laid on my plate in Las Vegas, anyone with this laid on their plate would seriously have to consider the offer, which in this case was, “Hey, I’m going to drop out, and the Libertarian Party of New Mexico can name you as my replacement.” So a couple of weeks ago, he announced that he was dropping out, and that he was imploring me to enter the race, and that’s what’s happened.
It’s not so much about [Heinrich]; it’s about what is at stake, and in this case, [that’s] balancing the federal budget. Nobody’s talking about the deficit! Yeah, lower taxes are a good thing, reducing the size and scope of government…gee, it doesn’t necessarily seem like he’s doing that, and by that I mean Trump, and the endless wars, and free trade. I’m not intending to be a wallflower if I actually get this opportunity to go to Washington. I could be, you know, a topic of [George] Stephanopoulos’s talk crew every Sunday morning: “Where’s Johnson on this stuff?”
Reason: So, you had said in your public comments up until now that you’re taking it seriously, but you only want to get in if you can win. Can you really win a three-way race in a very strongly Democratic state?
Gary Johnson: Deep question. I’m the underdog, no ifs, ands, or buts. I’m the underdog. We’ll see how much money we raise, and by “money we raise,” you know, you don’t have to outraise your opponent, you’ve got to have a certain parity, and we think that’s going to happen. And if that happens, it’ll be interesting.
And three-way race, yeah, it becomes more difficult in a three-way race. You hit that on the head also. And right now, Mick Rich, I think, is really upset. I mean, he’s pissed off. So at the moment, he’s going to…redouble his efforts; he’s going to win. That’s according to Mick Rich.
Reason: Have you reached out to him? I mean, I can’t help but notice, he’s sort of in the same career profile as yours, right? Like he’s—
Gary Johnson: Yeah, but it kind of ends there. I mean, he took it off his website, [but] on his website, he said his number-one priority was [keeping] illegal drugs from crossing the border. And I’ve got to tell you, that’s a disconnect. That’s just a non-issue. Are there drugs coming across the border? I’m sure there are. To the extent that it should be his number-one priority?…
I did have a conversation with him, and the one takeaway I wanted from the conversation was I didn’t want to make him mad; I just didn’t want to make him mad. And I accomplished that. During that conversation, he really, genuinely, expressed to me that he was going to win…
Reason: Last time you and I were in close contact, which is sort of the end of 2016, the last two months there were not a happy time for you on the campaign trail. You were eagerly looking forward to not reading about Gary Johnson, to not looking at Twitter, to getting up on a bike at 10,000 feet above sea level, doing God knows what kind of terrible athletic things. Are you enthusiastic about running? Are you in it to win it, not just as a concept, but are you a happy warrior in there, and motivated to get out on the trail, given how much it wasn’t always fun last time?
Gary Johnson: Well, you’ve hit on the other aspect of this, which is, “Oh my gosh, this is going to be a nine-week race.” I can do anything for nine weeks!
That was another criticism that I had about [a potential] Senate race: Number one, going up to the trough, number two…you’re looking at a year and a half of your life to campaign for that office. I think this will be terribly exciting; this came as a complete surprise, but it’s a nine-week campaign. Oh my gosh. Oh my gosh.
So, yeah, I think your assessment about what happened in the presidential race is accurate. But…for me, that was the end of like an eight-year, 10-year endeavor, going back a long way.
Reason: So if you were to win this, at a time when currently the split in the Senate is 51/49 Republicans, and the country is feeling pretty anti-Republican, though the Senate math is pretty dicey for Democrats, you could conceivably be the difference between a Republican-controlled or Democratic-controlled Senate. You would be…
Gary Johnson: Exactly!
Reason: …in other words, the most hated man in all of the United States, politically.
Gary Johnson: Or, maybe not, though, depending on what came out of that most hated man’s mouth.
Reason: Talk us through the prospects of being that person, both in terms of the opportunity to be hated, and the opportunity, as you see it, to do something different.
Gary Johnson: Well, talking about these issues, being a skeptic when it comes to our military interventions, genuine free trade being a solution, the size and scope [of government]. Nobody’s talking about the deficit; I’d be the number-one deficit hawk. I’d be in there fighting to reduce spending in meaningful ways, and that would mean reform of Medicaid and Medicare….
So I don’t know, am I going to be the most hated guy, or am I going to be the future of politics if I’m elected?
Reason: Talk about that future a little bit. This is obviously a chance for the Libertarian Party to have a shot at a Senate seat, which it has never really come close to. Talk about how this fits in with the growth of the success of the Libertarian Party, and how that motivates what you are doing right now.
Gary Johnson: Well, it’s an unparalleled opportunity for Libertarians. It’s an unparalleled opportunity for people that are independent, registered independent—which, of course, is the largest political affiliation in the country today. But really, if you can just drill into that a little bit, people I think discover that, “Oh my gosh, I’m independent, but I’m probably leaning Libertarian more than anything else.”
And I have used broad brush strokes to declare…what a Libertarian is. Which—I’ve gotten in big trouble with the Libertarians beccause “it’s not about that at all,” but I’m going to say it here too—is, “Look, I’m running as a Libertarian; this is the opportunity that has presented itself. But I’m really an independent. We’re all independent when it comes to philosophy. Hands down, I’m closer to being a Libertarian than any of the other two parties, but I don’t toe a line either. I’m an independent. We’re all independents. We really are.…
Reason: The bad September 2016 that you had, part of that, as we have discussed previously, was that was the month that Democrats freaked out about you. Tom Steyer threw a bunch of money into the campaign. Suddenly there was a barrage of very similar-sounding headlines about what a disaster you would be for the environment and suchlike. I’ll just throw a couple of headlines out that I just found five minutes ago or so. One is “Gary Johnson, Professional Spoiler, Jumps Into New Mexico Senate Race“; that’s New York magazine. And Esquire says, “Stoplight Skeptic Gary Johnson Just Decided That the Senate Is in Need of a Libertarian Loon.” You’re going to see a lot of that. You ready for that? You looking forward to that?
Gary Johnson: Yeah, well they’re dealing with New Mexico now. So New Mexico did elect me two times as governor, and I sowed a lot of seeds. So we’ll see how it turns out. I mean, hey, I don’t want to in any way diminish the long-shot aspect of this, but I don’t know if that’s wise. I don’t know if Champagne shouldn’t be popped right now, based on what’s happening.
Reason: Some Libertarian Party activists who are, for the most part, pretty excited about this news, have nevertheless back-channeled to me concern that, “Hey, this sounds like Ron Nielson’s idea. This doesn’t sound like Gary Johnson’s idea.” And there have been concerns over the years that too much of the strategy from your camp comes from him and not you. What do you say to those people about those specific concerns?
Gary Johnson: Well, in this case, this was Aubrey Dunn’s idea; this was really Aubrey Dunn’s idea.
Ron and I have had a great relationship; Ron and I now are on a 25-year relationship. I leave the campaign to Ron, but the messaging is me; he leaves that to me….I can’t say enough about Ron Nielson, and I think the guy’s a genius. I come back to the fact that Hillary and Trump each had [$1.8 billion], and we had $12 million. And, you know, I think Ron spent two solid weeks without a minute of sleep, and that was Ron. I mean, that’s what we all did. But Ron’s cooking this up and I’m the puppet? I don’t know. No, I don’t think so.
Reason: So going forward now, you’ve got a nine-week sprint ahead of you. What are some milestones? What are some big things that need to happen? What is the rabbit that you want to pull out of your hat?
Gary Johnson: Well, I think that money is the key….Don’t have to have more money; less is okay, but as long as it’s enough to actually launch into this, that’s really the key. And we’ll see how that goes….
Reason: And just straight up to the “spoiler” charge, which you’re going to hear nonstop from Democrats…How do you respond specifically to that spoiler charge now?
Gary Johnson: Well, I’m going to embrace whatever it is that they’ve got to call me; I’m just going to embrace it and go from there. You can call me anything you want, but here’s what’s at stake, and you want to call that a spoiler? I don’t know. I call that having a voice. I call that as a way to actually express my frustration over the whole system. That’s a vote for me….
Professional spoiler? Like I said, I’ll embrace it, whatever you want to call me. But potentially, I could be the U.S. Senator from New Mexico who actually has a say in the direction this country ends up taking.
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President Donald Trump has revoked the security clearance of former CIA Director John Brennan.
Gary Johnson today finally made the official announcement that he is running for the U.S. Senate in New Mexico as a Libertarian. Now the two-time former governor of the state and two-time former Libertarian Party candidate for president has nine weeks to take on