As Prisoners, They Can Help Fight California’s Huge Wildfires. As Free People, They’re Banned From Being Firefighters

As the largest wildfire in California’s history continues to burn out of control, thousands of inmates from the California Department of Corrections are helping professional firefighters battle the flames.

Those inmates are literally risking their lives to protect people, homes, and businesses as part of the state’s volunteer inmate firefighter program—and they are paid less than $2 per day for their work, even as they toil alongside professionals who earn an average of $74,000 annually (and that’s not counting overtime).

An even crueler twist? Once they are released from prison, those same men and women will likely be denied the opportunity to put their skills to use, as California’s licensing laws prohibit individuals with criminal records from becoming firefighters.

“The persistent, horrific wildfires year after year make this human rights issue even more pressing for the men and women fighting these fires every day who cannot do so once released,” says Katherine Katcher, founder and executive director of Root and Rebound, a California-based nonprofit that helps the formerly incarcerated find jobs after getting out of prison. Katcher tells Reason that the state’s discriminatory licensing rules “shut people out of living wage careers that they are trained and qualified for solely because of old, expunged, and irrelevant convictions.”

California’s inmate firefighter program is open to prisoners who are not convicted of arson, sexual crimes, kidnapping or gang-related offenses, as long as they do not have a history of escape attempts and are not facing a life sentence. They receive two weeks of firefighting training and must pass a physical exam. The department says more than 2,000 volunteer inmate firefighters, including 58 youth offenders, have been deployed to battle the Mendocino Complex Fire, which has burned more than 300,000 acres near Redding and is now considered the largest fire in state history.

Inmates are used to fight smaller fires too. According to The New York Times, about half the firefighting personnel at any California wildfire will be part of the inmate program. Using them—and paying them so little compared to professional firefighters—allows the state to save between $80 million and $100 million every year.

But the real injustice is what happens once those inmates have finished serving their time.

In California, firefighters are required to be licensed as emergency medical technicians (EMTs), which requires taking classes and passing a few state-administered exams. No problem there, but state law allows licensing boards to block anyone with a criminal record from getting an EMT license, says Katcher.

“It’s sadistic on so many levels,” Shoshana Weissman, digital media specialist for the free-market R Street Institute, tells Reason. Weissman recently authored an op-ed calling attention to the various absurd ways that California limits the formerly incarcerated from finding work upon release.

Indeed, such prohibitions cause problems on many levels. Being able to use in-demand skills makes the adjustment to post-prison life more difficult for the formerly incarcerated, who often lack solid job prospects and have a hard time finding work. It unnecessarily reduces the number of qualified and trained firefighters in a state where wildfires are a serious concern. And it means the time and money spent training inmates to battle wildfires is at least partially wasted.

It might also increase crime in the long run. With fewer options for legal work, the formerly incarcerated are more likely to resume a life of crime, according to a 2017 study by the Center for the Study of Economic Liberty at Arizona State University. After reviewing licensing rules and recidivism rates for a 10-year period beginning in 1997, the study found that formerly incarcerated residents are more likely to commit a new crime within three years of being released from prison if they live in a state where they’re prohibited from getting a license solely for having a criminal record.

“Those with good jobs and good employment prospects in the legitimate labor market tend to commit less crime,” writes U.C. Berkeley public policy professor Steven Raphael in The New Scarlet Letter: Negotiating the U.S. Labor Market with a Criminal Record. “Those with poor employment prospects tend to commit more.”

According to the American Bar Assoaciation, there are more than 12,000 different restrictions in state licensing laws that limit the career choices for the roughly 70 million Americans with a criminal record. Many of those restrictions are what the National Employment Law Project, a nonprofit that advocates for loosening access to jobs, calls “blanket bans” that leave no room for an applicant to argue his or her case—by pointing out, for example, that they have been trained to fight wildfires.

Instead of blanket bans, NELP suggests that states should write licensing laws that include prohibitions for specific criminal offenses—exactly how the California Department of Corrections operates their inmate firefighter program, for example. California’s licensing laws “need improvement” the nonprofit concluded in a 2016 report assessing each state’s licensing laws based on whether they create barriers for the formerly incarcerated.

“Licensing boards and certifying agencies claim these practices are for public safety, when the real threat is chronic unemployment and poverty,” says Katcher.

Lawmakers in California could start making those improvements by recognizing that inmate firefighters who are risking their lives to fight the state’s biggest wildfire deserve a chance to do the exact same thing once they are no longer locked up. Root and Rebound pushed state lawmakers to pass a bill ending the prohibition on granting EMT licenses to anyone with a criminal record, but the bill has not yet passed.

“Considering that finding a job after prison reduces the likelihood non-violent former offenders will reoffend,” says Weissman, “this is all just terrible policy.”

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“It’s Going To Blow Up On Them”: Giuliani Says Mueller’s Team In Deep Trouble

Rudy Giuliani appeared on Fox News with Sean Hannity Wednesday night to elaborate on why President Trump’s legal team rejected special Robert Mueller’s terms for an interview, suggesting that the “real story” is that the investigation isn’t just going to fizzle out – “it’s going to blow up on them.” 

“The reality is, the real story is not that this case isn’t going to fizzle,” said Giuliani, Trump’s lead attorney in the matter. “It’s going to blow up on them. The real question is, what we talked about before, there’s a lot more to what they did that nobody knows about yet.”

A lot more to the obstruction of justice, to the collusion, to the fake dossier,” Giuliani added.

“I know some of it” replied Hannity. 

According to Giuliani, the only collusion in the 2016 election was the US intelligence community’s use of the Kremlin-linked Steele Dossier to obtain “several fraudulent FISA wires.” 

Can it get any worse? I mean, what do we need to know that this is a totally illegitimate investigation based on a report, a dossier that was paid for by Hillary Clinton and the Democrats — probably the biggest illegality so far, the biggest collusion so far. Completely made up. Completely made up. Led to nothing except several fraudulent FISA wires,” said Giuliani.

Giuliani described the special counsel team as a “different kind of Watergate,” which is corrupt “through and through.” 

“And I believe that when this plays out over the next year or two, it’s not going to be about President Trump … It’s going to be about all the things they did,” he said of Mueller’s team.

Watch:

(h/t Ian Schwartz, RealClearPolitics)

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Americans Are Begging The Government And Corporations To End Free Speech

Authored by Carey Wedler, op-ed via TheAntiMedia.com,

This week, internet giants like Facebook, Youtube, Spotify and others banned the notorious Alex Jones and InfoWars from their platforms, and the purge is enjoying widespread support among the left, which has made a reputation for itself as intolerant of differing opinions (last year, for example, a group of Antifa protesters beat one of our own Anti-Media reporters and destroyed his camera equipment at a rally simply because he was filming).

In Jones’ case, Facebook cited hate speech, though this stance seems inconsistent considering the platform has caught flack for allowing anti-semitic content. This lack of principle doesn’t matter to many left-wing partisans, though, as long as someone they find reprehensible is silenced – even as others with far better reputations are banned from other platforms (to clarify, Anti-Media does not endorse Infowars in any way, nor do we consider them to be a legitimate news outlet).

At the same time, however, the right is proving equally open to banning speech and news outlets they dislike. A recent poll from Ipsos found  43 percent of Republicans advocate giving the president, and thereby the government, the power to shut news outlets down. The president, too, has fantasized about doing so:

Disdain for journalists is palpable at Trump rallies, and popular right-wing commentator Milo Yiannopoulos recently called for the assassination of journalists (before claiming the comment was just a joke).

Adherents to both sides of the false dichotomy are increasingly okay with silencing speech and ideas that conflict with their own. What this represents is a bipartisan war on free speech as both factions lust after control of the power institutions that create and perpetuate the divide and conquer struggle for that authority in the first place.

Worse still, companies like Facebook, Google, and Youtube, which is now owned by Google, are aligned with intrusive government agencies and policies that regulate speech and expression on the internet — whether it’s these platforms working with government to monitor speech, colluding to install backdoors for spy agencies to access users’ private data, or Google having roots with the CIA and NSA. Further, we may not know the extent of just how much shadowy levers of government dictate platform’s decisions to allow or ban users and pages, but it has happened and will likely continue.

At the same time, public opinion is creating demand for these kinds of crackdowns. It may be true that Facebook is a “private” platform, but the reality is that whether it’s Facebook banning Jones or Disney firing Guardians of the Galaxy director James Gunn, who was critical of conservatives, they are, at least in part, responding to the public’s intolerance of ideas and opinions that don’t align with their own — and this intolerance is directly linked to people’s views on government and politics.

Aside from ever-encroaching state and corporatist power, the biggest problem is that due to people’s dogmatic, programmed, and evidently fragile beliefs on both sides – views emboldened by government and “acceptable” media outlets – the people themselves are condoning the suppression of ideas and speech, and this further cements consent for government and corporatists to continue doing just that, fueling an ever-worsening cycle specific to neither left nor right.

This disdain for free expression is parallelled in government. American press freedom in the U.S. has been deteriorating for years, Obama and his cabinet had their own blatant war on journalism, and in 2012, Congress legalized government-funded propaganda. Democrats are currently looking to regulate speech on the internet in the name of fighting the Russians and fake news, and Senator Chris Murphy is eager to shut down more pages:

Meanwhile, “acceptable” outlets spew propaganda for bipartisan priorities, like war and the two-party system itself (in 2016, the Washington Post ran a story smearing independent anti-war outlets, including Anti-Media, as “useful idiots” for Russia, if not outright shills, and weeks later issued a clarification admitting that the “experts” they were citing were anonymous and many of the outlets they condemned objected to the designation).

The government and their corporate partners are objectively terrible, but the influence of the mainstream ideologies they espouse has made the public they’re supposed to be accountable to so blind with hysteria that they are voluntarily demanding suppression of speech. This inevitably requires more state power as both sides grapple for government control and battle each other instead of the institutions breathing down their necks.

We can blame the government and Big Tech all we want, but at some point, we’re going to have to take a look in the mirror and stop begging those suffocating our freedom for more power to regulate it.

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The Trump Administration Is a Sinkhole of Sleaze: New at Reason

Since Jan. 20, 2017, Americans have seen an endless torrent of corruption beyond anything previously imagined. No president has ever had a surer instinct than Donald Trump for finding and empowering scam artists, spongers, and thugs.

As a candidate, Trump promised, “I’ll choose the best people for my administration.” Maybe he inadvertently omitted the word “not.” Looking for the best people in Trump’s circle, observes Steve Chapman, would be like looking for icebergs in the Everglades.

View this article.

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More Trouble For Musk As Another “Untruth” Emerges

As we enter the third day of the Tesla “going private” saga, one big question continues to haunt investors: who is (are) the source(s) of the “secured funding” that Elon Musk promised he had arranged ahead of his unprecedented tweet that sent Tesla stock soaring, eventually resulting in a delayed halt.

As Bloomberg writes this morning, “no one has stepped forward publicly – or privately – to say they’re behind the plan.”

People with or close to 15 financial institutions and technology firms who spoke on the condition of anonymity said they weren’t aware of financing having been locked in before Musk’s tweet.

It’s not just traders who are scratching their head over this question: late on Wednesday, the WSJ first reported that regulators have also started asking the company if what Musk tweeted was factual and why such a disclosure was made via social media rather than in a filing.

But while everyone has so far focused on the Musk financing tweet, the CEO has now been caught in a second potential “untruth”, which would only add to the severity of any market manipulation enforcement action lobbed at the eccentric CEO.

Recall that as part of Musk’s Tuesday tweetstorm, when addressing shareholder receptivity, he said that Investor support is confirmed.”

Only, as Bloomberg reported this morning, it wasn’t, as this too appears to have been gross hyperbole at best, and outright misrepresentation at worst: “At the California State Teachers’ Retirement System, which as of March owned about 213,000 shares, spokeswoman Michelle Mussuto said there was no advance warning.”

“We have not been contacted by Tesla IR,” she said. “They didn’t reach out before the tweet either.”

So here’s what we know so far: the “natural” source of cash for a deal of this magnitude, SoftBank, has passed on a possible deal, saying the company was “overvalued”, and that following an April 2017  meeting between Musk and Masayoshi San that touched on a potential investment in TSLA (whose stock at the time was far lower), the talks failed to progress due to disagreements over ownership and have not started up again.

Meanwhile not a single bank that would be part of the obvious financing syndiate that would fund such a deal, has been approached by Musk. Finally, the investors, whose support Musk allegedly had canvassed ahead of his announcement, had little idea of what Musk was set to announce.

Surely the SEC will be curious to connect the dots between all these three potential misrepresentations contained in a statement that boosted Musk’s own net worth by hundreds of millions.

And then there is a report from the NYT overnight, according to which Tesla and banks are studying a structure that would involve reducing the number of holders such that Tesla’s shares could be delisted from Nasdaq and it would no longer be required to make quarterly filings with the SEC, NYT reports. Call it an “LBO-lite”, or what the NYT calls a “going dark” transaction.

While still expensive – it could cost $10 billion to $20 billion – it would be much less so than a full leveraged buyout, the NYT reported.

In this situation, Tesla could buy out many but not all of its shareholders to reduce the total number of investors who hold Tesla stock. One way to make that math work would be to persuade as many small shareholders as possible to sell their holdings.

The largest shareholders of the company — including Mr. Musk, Fidelity, T. Rowe Price and Scotland’s Baillie Gifford, who collectively own about 45 percent of Tesla shares — would not need to sell their stakes under that arrangement.

Tesla’s shares would no longer be listed on the Nasdaq, but investors could buy or sell them on loosely regulated, over-the-counter markets that are typically the domain of small companies. Because shares on these exchanges are generally traded less heavily than those on larger public markets, it would likely be harder for investors to bet against, or short, Tesla’s stock, which is one of the rationales Mr. Musk outlined on Tuesday for taking the company private.

While examining creative alternative structures is great, the problem for Musk is that has already represented a going private deal, together with a take out price, to the public. And with every hour that passes and neither Musk, nor the board, disclose just what were the facts that led Musk to his bizarre announcement, it becomes more likely that the SEC will eventually launch enforcement action against either the company, its CEO, or both.

Finally, as we first noted last night, the SEC has a simple solution it can pursue to end all the debate of Musk’s tweet mystery. As former NYSE president Thomas Farley said yesterday, “this is an easy one: ask TSLA to show you the agreement(s) signed by their funding source(s) by 5pm EST that demonstrates the funding is “secured” and “certain.” If there is no such agreement, require a statement by 5:30pm. Inspire market confidence.”

With the entire world watching with Musk, or the US capital markets regulator will do next, the SEC may have no choice but to pursue Farley’s advice. And judging by the stock price, which recently dipped below the conversion price on the March 2019 converts, the market is starting to get cold feet about this whole soap opera.

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Wholesale Sales Slump In June

Wholesale Trade Sales were hit with a double-whammy, revised notably lower in May and dropping 0.1% MoM in June. Wholesale inventories rose a modest 0.1% MoM leaving inventories-to-sales flat on the month.

Expectations were for a 0.2% rise in June after a 2.5% gain in May but the entire curve dropped with a 0.1% drop in June after a revised lower 2.1% gain in May…

Inventory growth slowed in June…

 

On a YoY basis, both sales and inventory growth slowed…

The scale of June’s data shifts suggests very modest shifts in GDP forecasts (if at all)

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Argentine Senate Rejects Abortion Legalization Bill

The Argentine Senate rejected a measure Wednesday that would have legalized abortion within the first 14 weeks of pregnancy.

The law narrowly passed the lower house of Argentina’s legislature in June. But in a 38-31 vote yesterday, the Senate opted to keep most abortions illegal.

In addition to legalizing the procedure within 14 weeks of conception, the bill would have allowed girls 13 years of age and older to get an abortion. Women who asked for an abortion would have had to wait no more than five days to get one.

Argentine women can still obtain legal abortions, but only in limited cases, like rape or if the health of the mother is in jeopardy. According to Argentina’s Ministry of Health, at least 350,000 illegal abortions are carried out in the country each year. Women who get abortions illegally can face up to four years in prison, while the doctors who provide them can be incarcerated for up to six years.

Argentine President Mauricio Macri, a conservative, said he would sign the measure into law if it passed in the Senate, even though he personally opposes abortion. Similarly, former President and current Sen. Cristina Fernández de Kirchner, whose administration was against legalizing abortion, voted in favor of the bill.

Had the bill passed the Senate and been signed by Macri, Argentina would have become the most populous of a handful of Latin American nations—including Uruguay, Cuba, Guyana, and parts of Mexico—where abortion is legal. Brazil’s Supreme Court, meanwhile, is currently considering the issue.

Legalizing abortion is a particularly contentious issue in the predominantly Catholic region, as the Catholic Church says life begins at conception. Pope Francis, who was born in Argentina, has yet to publicly comment on the law that was rejected yesterday. In June, however, he likened abortions meant to prevent birth defects to the Nazi eugenics program.

Argentina and Brazil are not the only Catholic nations where abortion has been at the forefront of the national conversation in recent months. In May, Irish citizens overwhelmingly voted to legalize the procedure. The referendum received roughly two-thirds support.

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The EU Blew A Trillion Dollars Of “Cohesion Money” Seeking Unity… For What?

Authored by Mike Shedlock via MishTalk,

The EU spent nearly a trillion dollars of cohesion money. It turns out neither the donors nor the recipients are happy.

The WSJ reports The EU Spent a Bundle to Unify the Continent. It’s Not Working.

The European Union has spent nearly one trillion dollars to unify the continent by delivering highways and trains into places where there were once gravel paths. In current dollars, that is over eight times the size of the Marshall Plan that rebuilt Europe after World War II. The EU has built airports and bridges, trams and swimming pools. It has repaired castles and medieval churches.

It hasn’t bought love.

To the vexation of European leaders, some of the biggest recipients of funding are now hotbeds of discontent, brimming with voters disquieted by the cultural and political pressures that have accompanied European integration, and threatening the bloc’s cohesion.

The biggest recipient of EU cohesion funds in mainland France is Nord-Pas-de-Calais, once an industrial powerhouse of coal, steel and textiles. In parliament, it is represented by Marine Le Pen, the French presidential runner-up who proposed France hold an EU exit referendum.

Many locals say EU funding was overshadowed by the disadvantages of membership, including the obligation to accept migrants from other EU nations. Blaenau Gwent voters favored Brexit by 62% to 38% to leave the EU in 2016. It was Wales’ highest “leave” vote.

The future of the EU still hangs in the balance, with divisions over refugees in particular driving wedges between its member states. If copious spending during decades of European optimism couldn’t revive fading communities or unite the continent, EU officials worry about what comes next. Rising nationalism is pitting smaller, eastern countries against larger, western powers.

EU funding can carry onerous rules and stipulations involving complex paperwork and restrictions on project types, irking recipients. East European nationalists allege that much of the money flows back to German and French construction companies.

Donor countries have soured on cohesion funds, too, partly because of alleged corruption among recipients. In Hungary, where skepticism of the EU runs thick, the bloc’s antifraud agency says $47.8 million spent upgrading street lamps through EU contracts awarded to a company once owned by Prime Minister Viktor Orban’s son-in-law contained “serious irregularities” that may constitute fraud. The son-in-law denies the accusation. Mr. Orban says Hungary no longer needs EU cash.

Who Gives, Who Gets?

Donors and Recipients Both Unhappy

Recipients are unhappy because of immigration and strings attached to the money. The donors are unhappy their money is going elsewhere.

Coming up, Brexit will leave a big hole in cohesion budget.The UK was the third largest contributor. For what?

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TSA No Longer Keeping ‘Quiet’ About Citizen Surveillance Program: Reason Roundup

TSA speaks up about “Quiet Skies” and Muslim group files lawsuit against it. The recently revealed Transportation Security Administration (TSA) program enlists U.S. Federal Marshals to spy on U.S. citizens at airports, reporting on innocuous behaviors like watching one’s boarding gate, having a “cold stare,” and sleeping for any period of time on a flight.

“In my view, it’s been very effective,” TSA Administrator David Pekoske told USA Today, after the agency last week refused to comment on the program.

I would say to the American public: Ordinary citizens don’t need to worry about Quiet Skies. They don’t. Actually ordinary citizens should be very happy that a program like Quiet Skies is in place because I think everybody expects us to do everything that we can do that protects the privacy and constitutional rights of our citizens to ensure that there is not an incident in an aircraft in flight.

But TSA doesn’t claim the program has caught any terrorists or other evildoers, and it won’t say what targeting criteria U.S. Federal Air Marshals use or what becomes of the information they collect on passengers. All we know is that these individuals are not on the terror-watch list or under criminal investigation.

“The arbitrary surveillance of innocent people at airports guarantees that Muslim passengers will be disproportionately harassed by federal officials based on racial and religious profiling, with no benefit to the traveling public or to our nation’s security,” said Gadeir Abbas, a senior litigation attorney with the Council on American-Islamic Relations. “This is just the latest example of the federal government’s counterproductive and misguided approach to aviation security.”

The Council on American-Islamic Relations just filed a challenge to the federal government’s whole watch-listing system, “including the TSA’s recently revealed Quiet Skies program,” the group announced yesterday.

The lawsuit was filed in U.S. District Court for the District of Maryland on behalf of 20 individuals targeted by the watchlisting system. The lawsuit’s plaintiffs are all innocent American Muslims—people who have not been charged, arrested or convicted of a violent crime—from Washington DC, Florida, Michigan, Virginia, Washington State, Indiana, Kansas and New Jersey. The lawsuit alleges that the watchlisting system imposes “a kind of second-class citizenship.”

ACLU is also filing Freedom of Information Act (FOIA) requests to learn more about the program. “Like the old, debunked ‘behavior detection’ program, Quiet Skies looks like the worst kind of waste,” ACLU lawyer Hugh Handeyside said.

Even the deputies have doubts about the program. “The Air Marshal Association believes that missions based on recognized intelligence, or in support of ongoing federal investigations, is the proper criteria for flight scheduling,” said association president John Casaretti in a statement. “Currently, the Quiet Skies program does not meet the criteria we find acceptable.”

FREE MINDS

Ron Paul talks Twitter action against libertarian writers. Commenting on Twitter suspending two Antiwar.com writer accounts and banning the Ron Paul Institute director from the site, Paul suggested that “antiwar activists and libertarians” were under fire for political reasons.

“You get accused of treasonous activity and treasonous speech because in an empire of lies the truth is treason,” Paul told RT. “Challenging the status quo is what they can’t stand and it unnerves them, so they have to silence people.”

(More about this and other recent Twitter drama in yesterday’s Roundup.)

JUSTICE WATCH

Police enable heroin addicts. If this “heroin ring” was so dangerous and detrimental, why did police buy drugs for three years before doing anything? That’s what an attorney for the defendants is now asking.

“The drug police elected to drag out their investigation,” wrote defense attorney Brady Musgrave in a July court filing. “They decided to allow these individuals to spiral farther into their addictions and to do so by distributing heroin in the Western District of Missouri.”

Unfortunately, this sort of things is common in vice investigations, as cops work to build more high-profile and profitable conspiracy, money laundering, and racketeering cases and rope more people into these alleged operations instead of arresting individuals when warranted, or helping users get help. In a Seattle sex investigation, King County cops simultaneously claimed Asian escorts they were investigating were victims of horrific sex trafficking and also that they visited them for years without doing anything while they made a case against a website where the women advertised and the men who wrote there about them.

QUICK HITS

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Nomura: “There Is A Widespread Breakdown In Macro Regimes Across The Market”

Authored by Nomura’s Charlie McElligott; head of Cross-asset strategy

Feeling January

  • As “yield enhancement” volatility selling returns across asset spectrum, systematic funds are re-leveraging into broad “max” positioning—a move reminiscent of January behavior
    • VIX Futures positioning (as of 7/31) shows “net vega” growing to the largest “short” position of 2018 at ~$103mm
    • CTA positioning model shows “Max Longs” currently seen or being re-established across Equities—SPX, FTSE, CAC at “Max,” while Euro Stoxx and Nikkei nearing “100% Long” trigger-levels as well
    • U.S. Rates “Max Short” intact in both UST 10Y and ED$
    • FX shows consensual “Max Long” US Dollar positioning (“100% Short” EURUSD, “100% Long” USDJPY)
    • WTI Crude has been near “max” levels at “91% Long”—however, CTAs are the likely source of “price insensitive” selling yesterday across Crude complex as momentum fades, seemingly confirmed EMEA Quant Strategy model showing Brent flipping / deleveraging powerfully to “Neutral”
    • “Max Short” Metals (Gold, Silver, Copper, Lead and Zinc) remains, with Gold / Silver a simple offshoot of the “bearish Rates”- (higher “real yields” = lower Gold) and “bullish USD”-trades
  • This “max bullish Equities, max bearish Rates / USTs” posture is occurring in front of both VIX and SKEW index positive seasonality into August
  • USTs again struggling to further sell-off is similarly notable in light of large U.S. auctions and Corporate Issuance, as U.S. economic data “surprise impulse” pivots to “misses” from “beats” on average for the first time since early Fall ‘17
  • U.S. Breakeven rates slowly crumbling as well, with 5Y BE’s back to mid-February levels as Crude loses momentum and “Inflation Expectations” begin to fade
  • Another “troubling” signal relative to this “short vol” risk re-leveraging is the “Quant-Insight” model showing-us a widespread breakdown in macro regimes across major asset-classes, with 13 out of 18 “no longer” explained by their previously-leading macro factor sensitivities
  • The “regime change” is likely reflecting that “Domestic / U.S. Inflation Expectations” are no longer dictating global asset prices as they have for much of the past few years across both Fixed-Income and Equities
  • Instead, Quant Insight shows the recent collapse in Japanese “Inflation Expectations” and the BoJ’s new “forward guidance” policy-response as now the highest R-Squared model for U.S. Rates at 77%—with the recent breakdown in JGB Breakeven rates then looming ominously for UST / Rates “bears” if this speaks to a potential BoJ “policy error”
  • The global “steepening impetus” provided by the BoJ’s policy modifications is looking increasingly fatigued as expected, with last night’s JGB auction showing large demand for 30Y JGBs (4.68 bid-to-cover vs avg of 4.13 over AS past year)—speaking to investor belief that Japanese yields will remain “lower for longer” off the back of their new “forward guidance” policy
  • As I have spoken about frequently of late, until the yield curve steepening turns “sticky”which in my mind is a 2019 story, as the market begins to “sniff a slowdown” (and thus re-prices the front-end on lowered rate-hike expectations)—it is then highly unlikely that the recent “rebalancing burst” seen in U.S. Equities “Value” outperformance over “Growth” can sustain in the near-term
  • HOWEVER, One final point on UST yield curve trajectory and the recent Equities “Value / Growth”- and related “Defensives / Cyclicals”- reversals which could speak to POTENTIAL for a “pain trade” looking out T+6m, and roughly aligning with that “2019 timing expectation” of mine for the market “picking-up” on the negative impact of tightening financial conditions on the economy / curve steepening:
    • An analog series run by Anthony Antonucci shows that with a comparable UST 2s10s yield curve “trigger” (~30bps and coming from a steeper level for the first time in 6m while moving towards eventual inversion), the market exhibits an increasing “Value”- / “Defensive”- lean, while “Secular Growth” leaders like Tech and Cons Disc show large underperformance
    • 1m returns after said “trigger” shows SPX -0.4%, with “Defensives” Utes / Staples / Telcos outperforming Tech and Cons Discretionary
    • 3m returns show SPX rallying powerfully but with a “Value” shift, as Financials / Staples / Utes / Telcos lead while Materials and Cons Disc lag
    • 6m returns evidence the worst potential pain-trade of them all: best performing sectors are Fins / Utes / Healthcare / Telco / Energy, with Tech as worst-performing sector
  • Why this scenario would be a major “pain trade”: 
    • Nomura positioning data shows the largest current “common overweights” of both Mutual Funds and Long-Short Hedge Funds as Software, Tech Hardware, Semiconductors and Transports
    • Conversely, the largest “common underweights” are Utilities, Household & Personal, Telco, Food Beverage & Tobacco, Food & Staples, Banks, Commercial Banks, Regional Banks, REITS and Diversified Financials

CTA POSITIONING AGAIN “MAXING”:

JAPAN INFLATION EXPECTATIONS / BREAKEVEN RATES BREAKDOWN OMINOUS FOR UST / RATES BEARS:

NON-COMM VIX FUTURES VEGA MOST ‘NET SHORT’ OF YEAR:

SKEW INDEX SEASONALITY:

CTA POSITIONING STILL ‘VERY LONG’ CRUDE, AT RISK IF FURTHER MOMENTUM IS LOST:

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