3 Things People Don’t Get About the Homemade Gun Printing Story

The whole world, including President Donald Trump, seems to be going nuts about the fact that the feds have settled a long-simmering lawsuit that challenged its attempt to prohibit the company Defense Distributed from making available certain software that could instruct certain devices to manufacture weapons.

You can catch up on what’s going on with Reason‘s reporting on the frantic wave of attempts in the past week—by upset gun control groups, threatening petty officials, and litigious state governments—to scuttle the settlement.

There are three important points that the public panic over this rather limited and technical legal story miss, or misunderstand:

1) Nothing of any new significance to anyone but Defense Distributed really happened. That company, founded by Cody Wilson, a provocateur who designed the first functional 3D-printed plastic gun, is now out from under an expensive multi-year lawsuit against the federal government. The suit challenged the feds for using arcane International Traffic in Arms Regulations (ITAR) rules to restrain his group from distributing potentially gun-making software. The organization can now pursue its business/cause of distributing hardware and software for home gun use freely.

Supposedly. Except now a bunch of authorities below the federal level are trying to stymie them via threat and lawsuit now that the federal government has stopped.

So is this a huge, alarming change in law and culture? Has the crazy Trump administration decided to making home gun manufacturing legal, at great potential peril to the republic?

Making guns at home for personal use has always been legal. (Reason provided a step-by-step guide on doing so in our July issue!) And since 1988, it has been and remains illegal to make or sell a gun that “is not…detectable…by walk-through metal detectors” or “when subjected to inspection by the types of x-ray machines commonly used at airports, does not generate an image that accurately depicts the shape of the component.”

The federal government’s decision to settle, based at least in part on arcane shifts in regulatory authority between the State Department and the Commerce Department, does not change that. And there was never, as far as I know, any attempt to enforce ITAR regulations on anyone else who might be distributing the same or similar files, which were already widely available on the internet. (There is, and should be, a difference between actually violating the law and spreading information that could allow someone to violate the law.)

So anyone and everyone else was in practical terms free to distribute and use software that instructed devices such as computerized CNC mills and 3D printers to make things that could function as guns. Many people were already doing exactly that. Most of the hobbyist action is now in CNC mills, used to make metal guns. The feared plastic ones? Well, as Wilson described his original “Liberator” to me in 2013, “to reduce it to materiality, it still is a crude plastic gun that few people can make.”

2) This is not about the Trump administration being wild pro-gun ideologues. Despite speculations spread, for example, in a Wired story on the settlement, the decision was a specific technical decision based on ITAR. As one of Defense Distributed’s lawyers, Alan Gura, told me, the Trump administration continues to fight against gun rights in all the same cases the Obama administration did, and the most likely reason for settlement was that the government “realized that not a single 5th Circuit judge offered that they were likely to succeed on the merits. To the contrary, the centerpiece of their victory was that they could somehow avoid the merits. When they could avoid the merits no longer, suddenly the national security threat faded away.”

Donald Trump tweeted today that he is “looking into 3-D Plastic Guns being sold to the public. Already spoke to NRA, doesn’t seem to make much sense!” The settlement has nothing to do with any pro-gun agenda on the part of Trump.

For their part, the NRA, which has mostly avoided any comment on the 3D printed weapon matter, issued a press release this afternoon in which their executive director Chris Cox reiterates that at least when it comes to plastic homemade guns, they are and have always been against them: “Regardless of what a person may be able to publish on the Internet, undetectable plastic guns have been illegal for 30 years. Federal law passed in 1988, crafted with the NRA’s support, makes it unlawful to manufacture, import, sell, ship, deliver, possess, transfer, or receive an undetectable firearm.”

3) The case is as much about free speech as it is about gun rights. Since the case ended via settlement and not a decision, no explicit precedent has been set that these specific computer instructional files count as expression protected under the First Amendment. But that was the core of the legal argument Defense Distributed was making, and is still having to make against all the new authorities trying to restrain it.

As the company’s legal team wrote in the lawsuit, “the use of the ITAR to impose a prior restraint on publications of privately generated unclassified information into the public domain violated the First Amendment of United States Constitution,” a point with which they believed previous Department of Justice doctrine agreed.

In a court filing responding to the multi-state lawsuit to stop Wilson’s organization from distributing the files, one of Defense Distributed’s lawyers, Josh Blackman, said that such attempts to legally prohibit Americans ability to “access, discuss, use, reproduce, or otherwise benefit from the technical data” are not constitutionally permitted, as such acts are “expressly protected by the First Amendment. In Sorrell v. IMS Health Inc. [2011], the [Supreme] Court recognized ‘that the creation and dissemination of information are speech within the meaning of the First Amendment.'”

As Blackman rightly stated, this latest state lawsuit to limit Defense Distributed’s activities constitutes a

demand [of] a prior restraint of constitutionally protected speech that is already in the public domain. We know that “[a]ny system of prior restraints of expression comes to this Court bearing a heavy presumption against its constitutional validity.” That presumption of liberty is even heavier where, as here, the speech is already available on the internet, and has been available for years….Yet, nine Attorneys General, who swore an oath to the Constitution, failed to even mention the First Amendment in their emergency pleadings. Such a careless disregard for the Bill of Rights fails to meet the “heavy burden” needed to justify a prior restraint.

By eliding what’s really at stake here—more a matter of free expression than any meaningful expansion of the already existing legal ability to make a gun at home—the states suing, and alas too much of the media, are ginning up unwarranted fear to expand the government’s power to restrict speech.

Just this hour, Blackman tweets that in one more of the relentless barrage of actions against them, an attempt in New Jersey state court to get a temporary restraining order against Defense Distributed failed today, though for now Wilson says he’s blocking I.P. addresses from New Jersey and Pennsylvania pending final resolution of the various legal actions.

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“Scant Progress” In US-China Trade Talks Despite Hopeful Morning Report

Hours after Bloomberg reported that Beijing and Washington are working towards a resumption of trade talks, the Wall Street Journal reports that the two countries have “yet to make meaningful progress” moving forward from an impasse, as the next wave of US tariffs are set to hit as soon as Wednesday. 

Treasury Secretary Steven Mnuchin and Chinese envoy Liu He and their staffs continue to talk about a possible meeting, said officials in both capitals, but the talks remain at a very preliminary stage. Both sides argue that it is up to the other to make the first move after several preliminary Chinese offers, mainly involving the purchase of more U.S. goods, were rejected by President  Trump as inadequate.

The two sides have agreed that their initial offers weren’t a solid base for further negotiations, according to a senior member of the U.S. business community tracking the discussions. Those included the Chinese offer to buy more U.S. exports, and the U.S. demand that China essentially scrap the industrial policy that turned it into an economic powerhouse, the senior executive said. –WSJ

Stocks initially dropped on the ‘lack of meaningful progress’ headline but being month-end, they ramped off that dip into the close: 

“They are discarding useless ideas and rhetoric,” the executive said. “They are figuring out what could be on an agenda and what could be a solution.”

Mnuchin told during last week’s G20 meeting in Buenos Aires that his team and members of the Chinese delegation had engaged in “chitchat,” while former US officials, including former Treasury Secretary Hank Paulson (Mnuchin’s old boss at Goldman Sachs), have urged Washington and Beijing to move forward with discussions as soon as possible. 

Last week’s tentative trade accord with the European Union has emboldened the Trump administration, after the two sides agreed to go through the World Trade Organization to handle intellectual property theft cases, government pressure on companies for technology transfers and the operation of state-owned industries: all code for alleged infractions committed by China. 

China is “in a very difficult position,” following the EU agreement, said Lawrence Kudlow, director of the National Economic Council in a Sunday appearance on CBS. “China is, I think, being isolated.

Whatever gains the U.S. might have made with Europe, however, haven’t eased the trade fight with Beijing. The U.S. alleges that China presses U.S. companies to hand over valuable technology and uses unfair trade practices to produce an enormous trade surplus with the U.S.

The Trump administration remains deeply divided over how best to deal with the Chinese, and the two main factions are moving in different directions. China trade hawks, led by U.S. Trade Representative Robert Lighthizer, believe that China will make concessions only if it feels the brunt of heavy tariffs, said U.S. officials. –WSJ

Washington has already slapped Beijing with 25% tariffs on $34 billion worth of Chinese imports, and could levy another $16 billion on goods as early as Wednesday. After that, Lighthizer is looking to add 10% tariffs to another $200 billion of Chinese imports – which would translate to overall tariffs of $505 billion

Trade doves such as Mnuchin and Kudlow, however, have been searching for a solution that doesn’t include massive tariffs out of concern that those penalties, on top of Chinese retaliatory tariffs on several American goods, could hinder US growth and tank financial markets. 

And the pain is already being felt. Qualcomm last week had to scuttle its agreement to purchase Dutch semiconductor manufacturer NXP after China refused to greenlight the deal. Days earlier, Mnuchin called on Liu to lobby for its approval, reports the WSJ, however he didn’t believe the call went well. 

The decision was a blow to the Trump administration, which worked to reduce US penalties on Chinese telecom giant ZTE Corp – after it was accused of sanctions violations imposed on Iran and North Korea. Several US government and industry officials assumed Trump’s ZTE efforts would translate to reciprocal action by China on the Qualcomm-NXP deal. 

That said, China is now growing skeptical over Mnuchin’s ability to deliver a trade deal, after President Trump steamrolled a Chinese bid to buy nearly $70 billion in US farm, energy and other products in June – a move Beijing thought might go a long way to meet Trump’s demand of a $200 billion trade deficit reduction – only to have Trump steamroll the proposal. “The two sides just keep talking past each other,” said a person familiar with the discussions.

Beijing appears to be digging in for a long fight, reports the Journal, after President Xi Jinping oversaw a high-level meeting on Tuesday which “signaled a shift in economic priorities toward supporting growth through means such as debt control. 

The meeting laid out a range of pro-growth measures, such as greater spending on infrastructure and easier credit for banks and businesses.

Chinese officials have also been weighing how far to press the pledged retaliation against the U.S. on trade without hurting other national interests. Measures being rolled out so far include holding up licenses for U.S. businesses, delaying approval of mergers and acquisitions involving U.S. companies, and ramping up inspections of American products at China’s borders. –WSJ

So far China has been hesitant to push so hard that US businesses abandon the country – which would be a giant blow to Beijing’s efforts to attract foreign capital and keep their citizens employed during an increasingly worrisome economic contraction. To assuage fears, a statement released from Tuesday’s meeting reads “legitimate rights of foreign companies in China will be protected.”

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QE4 – When… Not If!

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Many market prognosticators attribute the rise in interest rates to a consensus outlook for expanded economic growth and increasing inflationary pressures. In our article, Deficits Do Matter, we took this view to task by providing market-based evidence to show that those factors only account for about a third of the increase in interest rates.  Our perspective is that the rapidly growing forecasted supply of Treasury debt coupled with limited demand from the two largest holders of Treasury securities are currently the main drivers of higher yields.

In this article we take that analysis a step further and ask a question that few seem to be considering; what if there is a recession in the coming year or two? In answering that question, from the perspective of the federal deficit and related debt issuance, the current fiscal situation is more precarious than perceived and points to a high probability that the Fed will need to re-initiate quantitative easing (QE) but for altogether different reasons than it has done so in the past.

Prior Recessions

John Maynard Keynes, a cult-like figure in the economics community, asserted that to smooth the fluctuations in the business cycle governments should run deficits when economic activity slows and surpluses when economic expansions resume. This simple concept is nothing more than the age-old “save for a rainy day” adage. Despite strict adherence to many of Keynes theories, most politicians only seem to hear the part about running deficits. Without regard for whether or not you agree with Keynes thinking, there is absolutely no logic or wisdom in the idea that debts can consistently grow faster than one’s ability to pay for them. 

The U.S. government is expected to borrow over $1 trillion per year in each of the next five years. This Congressional Budget Office (CBO) estimate is based on a host of assumptions all of which depend on a consistent nominal economic (GDP) growth rate varying closely around 3.90%. The obvious problem with this model is that even if such a growth rate is achieved quarter in and quarter out, economic growth would only be approximately $800 billion per year. In other words, the burden of debt will rise faster than the ability to fund it.  Furthermore, it seems to us more than a little short-sighted that no one is asking what if GDP growth is not as stable and optimistic as forecast. Importantly, what if the economy enters a recession?

According to the National Bureau of Economic Research (NBER), there have been 34 recessions since 1857. The longest period between any of these recessions was 120 months. The current expansion just entered its 108thmonth. The average period of economic expansion is 56 months or about half the length of the current expansion. From a statistical point of view, one is tempting history if they are not expecting a recession within the next 24 months.

The graph below shows the ridiculous CBO forecast of GDP growth for the next ten years. Given the degree of difficulty in projecting economic output (high) and their poor track record of forecasting it, it does not seem unfair to impose critical judgments about the feasibility of such a forecast.

The “R” Word

Investors in all asset classes should be carefully considering what will happen to the nation’s debt outstanding if the rosy economic growth forecast, which in turn is built into economic, market and deficit forecasts, turns out to be wrong.

The graph below offers some guidance in assessing how a recession might affect the amount of Treasury debt that would likely need to be issued in the event of an economic downturn.

The red dots on the graph show the peak growth rate of debt outstanding associated with each recession (gray bars) since 1967. As shown, the red dots range from an increase of debt from 9% to 22%, with an average over 15%.

To put prior increases into current context, a conservative 10% increase in debt outstanding would roughly equate to an additional $2 trillion of debt issuance per year, which is about double the current annual issuance. A 20% increase would result in about $4 trillion of new debt.  Keep in mind that these massive estimates of new debt would occur alongside declining GDP output.

QE to the Rescue

The bond market is currently reflecting some anxiety at the prospect of digesting over $1 trillion a year of debt. This concern also appears to have spread to the stock market to some degree.

Now consider how multiples of that number might affect bond yields, stock prices, and credit spreads. If $2, 3, or 4 trillion of additional debt needs to find a home, it is quite likely that interest rates would rise sharply to attract new investors. Plus, there is one other small problem. As interest rates rise, the interest expense on the debt increases and drives funding needs even higher.  This mushrooming debt issuance dynamic would crowd out investment dollars from other markets.

The flow of funds from one market to another, as stated in the preceding paragraph, is how such a problem would resolve itself if free market forces were left to their own devices. Unfortunately, the government has a history of manipulating interest rates and allowing debt to build at faster rates than economic growth portends. While this buys temporary tranquility, the result is accumulating risk and consequences.

During the financial crisis, QE helped the Fed accomplish their goals of stabilizing the equity markets and the banking sector. After the crisis, they initiated two more rounds of QE despite calmer markets and economic expansion. Through these actions, they removed over $3.5 trillion of government debt and mortgage-backed securities from public markets. By erasing this supply of securities/debt, investors were forced into other investment options. This tool not only made the government appear fiscally sound in what amounted to monetary policy creep into fiscal policy, but benefited all asset classes.

No Spare Tire

Despite recent rate hikes, there is very little room for a traditional monetary policy response in the event of a downturn. Add to that the recent fiscal policy actions that will ratchet deficits higher and the United States finds itself with limited fiscal space to combat a recession. This confluence of events argues that the U.S. economy is now driving without a spare tire. It also suggests that if the economy stalls, the likelihood of central banks reviving QE among other unconventional policies is high.

Summary

At this point, we are clearly observing a transition of U.S. policy away from reliance on monetary measures toward that of fiscal policy. This is not, however, an even-handed exchange. There is overlap as the Fed gradually reduces liquidity and Congress and the executive branch pass tax cuts and a newly expanded budget. It will be messy and fraught with risk as markets have begun to imply.

The growth of debt is not unique to the Trump administration as government debt doubled under each of the last two presidents. As this debt burden extends beyond our ability to repay it, the consequences become more apparent, and the risks for both stocks and bonds rise. Despite the lack of concern from many in the financial media and Wall Street, the diagnosis is only getting worse and the treatment more extraordinary and experimental.

The debasement of the currency which results from acute fiscal and monetary imprudence has meaningful ramifications for all investments. Investors should consider investment options that are likely to retain purchasing power when said purchasing power is being destroyed by the central banks and other government authorities. To mention a few which have a precedence of performing well, commodities and natural resource stocks, Treasury inflation-protected securities (TIPS) and precious metals. There is also the other side of this equation which stresses what to underweight, short or avoid altogether. We would argue that anything currently leading the market higher (financials and technology stocks), and therefore seriously overvalued, is a good thing to reduce or sidestep altogether.

In closing and to further emphasize the points above, former New York Fed President Bill Dudley often speaks of keeping extraordinary policies in the Fed “toolkit.” Specifically, he stated that QE would be “useful to have in the toolkit for those times when the short-term interest rate tool may not be available,” adding that the Fed is “quite likely” to require large-scale asset purchases again because real rates will remain low due to slow productivity and labor-force growth. He also shared that “if LSAPs (large-scale asset purchases) are indeed not effective, then the Fed may need to take other measures.” What these “other measures” may be is anyone’s guess but arriving at plausible conclusions would require even more radical creative thought.

The only question in our mind is when, not if, QE4 will be initiated.

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North Carolina Doctor Sues to Break Up State-Enforced Medical Cartels

Should a licensed doctor have to ask the government and industry competitors for permission before purchasing potentially life-saving medical equipment? That’s the question at issue in a new lawsuit challenging North Carolina’s “certificate of need” laws.

In 2017, Dr. Gajendra Singh opened a medical imaging center in the town of Winston-Salem with the goal of providing MRIs, ultrasounds, and other screenings to patients at prices that were both lower and more transparent than what they were paying at the existing local hospital.

Singh was able to either purchase or lease the X-ray scanner, CT scanner, and ultrasound machines he needed without incident. But when it came to getting an MRI machine, he hit a wall.

The state of North Carolina requires medical service providers like Singh to go through an arduous application process to prove that they need an MRI machine before they are allowed to buy or lease one. Need, mind you, is determined not by how many patients are asking for services, but rather by how many MRI’s the state’s Department of Health thinks an area requires.

In Singh’s case, the Health Department had determined that two local hospitals operating MRI machines is more than enough for the Winston-Salem area. Thus, Singh has been denied the “certificate of need” that would allow him to get a machine of his own. Instead, he has been forced to rent a portable MRI machine two days a week, limiting the number of scans he can perform, and effectively preventing him from competing with the incumbent hospitals.

The good doctor is now suing the state Department of Health as well as the governor and members of the state legislature in order to overturn the law that’s hamstringing his practice and depriving his patients of medical services he would otherwise be able to provide them.

“As a medical doctor, Dr. Singh took an oath to help people in need, yet the state is standing in his way to protect established medical providers from competition,” says Renée Flaherty, an attorney with the Institute for Justice, a public interest law firm representing Singh. “That’s plainly unconstitutional.”

North Carolina’s constitution prohibits the granting of either monopolies or exclusive “emoluments” i.e privileges to the private entities.

In a compliant filed today, the Institute for Justice argues the state—by requiring that medical service providers obtain a certificate of need to own an MRI machine, and then give out a limited number of such certificates to select health care providers—is in effect handing out monopolies and exclusive privileges to those providers lucky enough to get the certificates.

Not only is this practice potentially unconstitutional, it raises prices for consumers. Singh’s lawsuit claims the average MRI costs just under $2,000 in the state of North Carolina, a service the doctor’s imaging center usually provides (when it has a machine available) for somewhere in the $500-$700 range. Because his practice posts all their prices on line, patients are not left with unexpected bills.

Absent North Carolina’s certificate of need laws, Singh would be able to service far more patients than he currently does, helping them get access to the care they need. Subject to the competitive pressures of a freer market, the hospitals in his area would likely have to lower their prices to stay in business.

Singh’s practice is not the only one stifled by certificate of need laws. As Reason‘s Eric Boehm reported last January, two providers in Brunswick County have had to fight tooth and nail for permission to open the one new surgery center the state is allowing in that county, while a local hospital has done everything it can to sabotage this effort.

Should Singh’s lawsuit prevail, the state would be prohibited from enforcing its certificate-of-need laws, allowing most any qualified medical service provider to offer whatever services people are willing to pay for.

That would be a blessing for patients’ financial and physical health alike.

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Apple Jumps After Beating On Revenue And Earnings, Despite iPhone Sales Miss

When we wrote our preview of AAPL earnings, we said they could be a trade-off between iPhone sales on one hand, and the company service revenues as well as broader revenue picture, and sure enough that’s precisely what happened.

In the third fiscal quarter, Apple sold 41.3MM iPhones, up from 41.0MM a year ago, but missing analyst estimates of 41.6MM, with disappointing unit sales for iPads and Macs as well, but because it beat on the bottom and top line, reporting Q3 EPS of $2.34, vs Exp. $2.18 on revenue of $53.3BN, also topping expectations of $52.4BN, while providing Q4 revenue guidance that was well above analyst estimates, the stock jumped over 2.7% after hours.

As some had expected, Apple product sales missed on every metric:

  • Q3 iPhone sales 41.3MM, vs Exp. 41.6MM
  • Q3 iPad sales 11.6MM, vs Exp. 11.7MM
  • Q3 Mac sales 3.7MM, vs Exp. 4.3MM, the lowest since Q3 2010

A clearer breakdown of iPhone sales in Q3, shows that after peaking in 2015, Apple may have hit a bit of a peak (via Jon Erlichman):

  • Q3 2018: 41.3 million
  • Q3 2017: 41.0 million
  • Q3 2016: 40.4 million
  • Q3 2015: 47.5 million
  • Q3 2014: 35.2 million
  • Q3 2013: 31.2 million
  • Q3 2012: 26.0 million
  • Q3 2011: 20.3 million
  • Q3 2010: 8.4 million
  • Q3 2009: 5.2 million
  • Q3 2008: 717 thousand

And yet, despite stagnant iPhone growth, the following breakdown of Q1 revenue shows that the company has been more than able to offset the topline growth:

  • Q3 2018: $53.3 billion
  • Q3 2017: $45.4 billion
  • Q3 2016: $42.4 billion
  • Q3 2015: $49.6 billion
  • Q3 2014: $37.4 billion
  • Q3 2013: $35.3 billion
  • Q3 2012: $35 billion
  • Q3 2011: $28.6 billion
  • Q3 2010: $15.7 billion
  • Q3 2009: $9.7 billion
  • Q3 2008: $7.6 billion

Indeed, despite softer iPhone sales, the company’s sold revenue beat suggests that the company is leveraging average selling prices and other revenue streams. And to be sure, Apple once again announced blockbuster service revenues of $9.5BN which includes the App Store and Apple Music, beating Wall Street expectations of $9.2BN. That is 31% growth from $7.3 billion in the year-ago quarter and 4% quarter over quarter growth. As RBC noted earlier, Apple is increasingly becoming a service company.

Further boosting the stock after hours, ASPs also came in above expectations, at $724 vs the $699 expected. Meanwhile, gross profit margin came in exactly as expected, at 53.3%

But even more important was Apple’s forecast for the next quarter, in which Apple sees revenue between $60 and $62Bn, above consensus estimates of $594BN, on margins of 38.0-38.5%, vs est of 38.2%.

The full forecast in a nutshell:

  • revenue between $60 billion and $62 billion
  • gross margin between 38 percent and 38.5 percent
  • operating expenses between $7.95 billion and $8.05 billion
  • other income/(expense) of $300 million
  • tax rate of approximately 15 percent before discrete items

Notable is that the company also returned almost $25 billion to investors through its capital return program during the quarter, including $20 billion in share repurchases, just shy of the Q2 record of $22.8 billion.

Commenting on the result, CEO Tim Cook said “we’re thrilled to report Apple’s best June quarter ever, and our fourth consecutive quarter of double-digit revenue growth. Our Q3 results were driven by continued strong sales of iPhone, Services and Wearables, and we are very excited about the products and services in our pipeline.”

CFO Luca Maestri also chimed in, saying that “our strong business performance drove revenue growth in each of our geographic segments, net income of $11.5 billion, and operating cash flow of $14.5 billion. We returned almost $25 billion to investors through our capital return program during the quarter, including $20 billion in share repurchases.”

Developing

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Facebook Removes More Fake Pages Trying to Make You Mad About Politics

Facebook announced today that it has removed 32 accounts that it believes were fraudulently attempting to use divisive politics to influence the midterm elections.

Only a handful of pages had any significant number of followers, but in total, 290,000 accounts followed at least one of the pages, all of which were made since 2017. Based on the information Facebook released, this particular group of fake pages was targeting people on the left. One of the fake pages—for a group called “Resisters”—created a Facebook event called “No Unite the Right 2” in Washington, D.C., to take place on August 10; it apparently coordinated with five real organizations to co-host it. Facebook canceled the event and warned the other groups what was going on. The event had attracted 2,600 interested users, and 600 people said they would attend.

Fake Facebook Rally

This campaign sounds similar to the fraudulent pages and rallies that preceded the 2016 election, which were ultimately blamed on the Russia-based Internet Research Agency (IRA). At this point, Facebook does not have enough information to say with any certainty that Russian interests are responsible for this latest round of content and advertising ($11,000 worth). The people responsible for these pages are doing a better job at covering their tracks, but Facebook says some of the activity is “consistent” with the behavior they saw the IRA doing during the run-up to the 2016 election.

Facebook doesn’t offer any evidence that these campaigns are targeting any particular candidate.

Sen. Mark Warner (D-Va.), on the Senate’s Intelligence Committee, is already responding to demand changes in laws to censor these campaigns: “Today’s disclosure is further evidence that the Kremlin continues to exploit platforms like Facebook to sow division and spread disinformation, and I am glad that Facebook is taking some steps to pinpoint and address this activity. I also expect Facebook, along with other platform companies, will continue to identify Russian troll activity and to work with Congress on updating our laws to better protect our democracy in the future.”

But what Facebook has released so far is really just an attempt to magnify already existent cultural divisions. These pages are peddling anger and outrage. People can choose whether to care or be outraged. This apparent threat to democracy is a handful of outside actors telling a certain group of people exactly what they want to hear. If that’s a threat to our democracy, it’s way too late.

When details of the Russian social media trolling attempt to influence the 2016 election came out, Reason‘s Jacob Sullum looked it over and questioned how much impact it actually had. It’s probably worth asking the same questions this time. Watch below:

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WTI Extends Losses After Huge Surprise Inventory Build

Having posted its biggest monthly loss since 2016, amid over-supply fears, all eyes are back on API tonight with bulls hoping that last week’s across the board inventory draws continue… but it reported a shocking 5.59mm inventory build and WTI dropped.

 

API

  • Crude +5.59mm  (-3mm exp)

  • Cushing -930k (-500k exp)

  • Gasoline -791k

  • Distillates +2.89mm

Just like we saw two weeks ago, a shockingly large crude inventory build reported by API…

WTI was hovering around $68.75 into the API print and kneejerked lower…

 

“It’s some of these concerns about oversupply with OPEC. There are also starting to be concerns about the slowdown or the plateauing in demand,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York.

Still, the low volume is indicative of “the summer doldrums. The prices are down, but the activity actually hasn’t been that high.”

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Mark Cuban On AI: “If You Don’t Think A Terminator Will Appear, You’re Crazy!”

Authored by Mark Cuban via SHTFplan.com,

Billionaire Mark Cuban didn’t hold back when he recently discussed the dangers of artificial intelligence.  Refusing to mince words, Cuban said, “Let me scare the s— out of you, all right? If you don’t think by the time most of you are in your mid-40s that a Terminator will appear, you’re crazy.”

Cuban is a billionaire entrepreneur, a star of the ABC reality show “Shark Tank” and the owner of the Dallas Mavericks basketball team. He is also certain that a version of the Terminator is coming thanks to the advancements in artificial intelligence and robotics weaponry. Speaking to an audience of high school students at the High School Leadership Summit Turning Point USA event in Washington D.C., Cuban laid down several serious warnings about the future of artificial intelligence and among them was a reference to the 1984 movie, “The Terminator,” starring Arnold Schwarzenegger as a cyborg assassin.

“For weaponry, we already have the ability to have weapons think…They’re only going to go further and further as technology progresses,” declared Cuban, according to Observer. 

“If we don’t win this battle, the world is going to be upside down and that scares the shit out of me.”

Back in November, the billionaire warned that the United States should not allow countries like China and Russia to pull ahead in terms of developing artificial intelligence.

China’s government has said publicly it plans to be the global leader in artificial intelligence by 2030 and Russian President Vladimir Putin has said, “the one who becomes the leader in this sphere will be the ruler of the world.”

“And our defense organizations are starting to, but as a country, the administration is barely even acknowledging that it is an issue,” Cuban said to Charlie Kirk of artificial intelligence research in the United States.  Kirk is the 24-year-old founder of Turning Point USA, a right-wing non-profit organization which is aimed at promoting conservative political ideas among high school students.

During his speech, while promoting the belief that politicians should “leverage” technology in their campaigns to best discover what drives voters and constituents, Cuban gave President Trump credit for “always challenging the status quo.”

“I do give President Trump credit for always challenging the status quo,” conceded the billionaire, before encouraging high schoolers in the room to “go break shit” in reference to entrenched power structures and processes.

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Toss-Up Senate Races Abandoned by Koch Network Feature Unusually Strong Libertarian Party Contenders

Because everyone enjoys a good catfight, and journalists in particular like it when two of their biggest bogeymen go at each other’s throats, today’s big political news is obviously the Trump-Koch feud.

There’s a significantly underreported aspect to the Koch donor network’s growing objection to the Trumpian GOP’s anti-libertarian actions on trade, spending, and immigration. Two of the three Senate races in which the network is reportedly declining to back Republicans—Nevada and Indiana—are not just widely considered by prognosticators to be “toss-ups“; each features Libertarian Party candidates who have previously cracked the 5 percent mark in elections.

Tim Hagan ||| Tim HaganNevada’s Tim Hagan, an engineer and longtime Libertarian activist, has on three occasions trounced the point spread in a swing-district state Senate election, earning 5.1 percent of the vote in 2016 (the Democrat won 47.9 percent to 47.0), 4.8 percent in 2008 (46.5–45.8), and 7.6 percent in 2006 (47.6–44.8). Hagan has never dipped below 3 percent in any of the nine elections he has run in, hitting a high of 23.7 percent in a 2014 race for Clark County assessor (in which no Republican ran).

And yet in this crucial swing-state race between vulnerable Republican incumbent Dean Heller and Democratic challenger Jacky Rosen, who the Real Clear Politics polling average separates by less than a percentage point, Hagan is nowhere to be found in six of the seven publicly available polls that have been conducted since he secured the L.P. nomination in early March. Only a Suffolk University survey of 500 likely voters last week included Hagan’s name, showing him with 2.4 percent. (Heller edged Rosen in the poll, 41–40, while 8.6 percent were undecided and 5.4 percent went for none of the above.)

To reiterate a point I made a month ago about the New York gubernatorial race, not listing Hagan as an option constitutes journalistic malpractice. The last time Heller ran for re-election, winning by 1.1 percentage points, an Independent American Party candidate named David Lory VanDerBeek pulled down 4.9 percent of the vote. Gary Johnson won 3.3 percent in the Silver State two years ago, more than Hillary Clinton’s 2.4-point margin over Donald Trump.

Nevada is a swing state, Heller-Rosen is neck-and-neck, and Republican control over the Senate rests on a 51–49 knife’s edge in a possible Democratic wave year. If you want to know what’s going to happen in (and to) this country, you need to put the damn Libertarian in your poll.

Lucy Brenton ||| Lucy BrentonIndiana is arguably even more interesting as a disaffected-Republican thought experiment, since A) the Libertarian candidate in question is pro-life (though she doesn’t think the federal government has any role in abortion policy), and B) she’s going to be in the televised debates.

Lucy Brenton, who like Hagan has been active in Libertarian politics since the early 1990s, is a real estate entrepreneur and mother of 10 who in 2016 got 5.5 percent of the vote in the U.S. Senate race won by Republican Todd Young. Brenton this time is facing Democratic incumbent Joe Donnelly and Republican Mike Braun for a seat that in 2012 drew 5.7 percent of the vote for Libertarian Andy Horning (who was accused, innumerately, of spoiling the election for losing Republican Richard Mourdock).

Indiana has one of the country’s strongest Libertarian Party chapters. Four times in the past 12 years, L.P. senatorial candidates there have drawn more than 5 percent of the vote, twice as many as the next best state. So how many polls has Brenton appeared in since securing her party’s nomination in May?

Zero. In fairness, there has been only one public survey since then. (The lack of good state-level data on Senate races is shocking, given the stakes involved.) Whenever you hear conjecture about the Indiana race, know that it’s only that—until we start getting more and better polls that include the letter L.

Matt Waters ||| Matt WatersThe broader fact remains that there are alternatives on the ballot plausible to Republican voters who are weary of President Trump’s illibertarian words and deeds. Matt Waters, the L.P. Senate candidate in Virginia, is very consciously providing a conservative-friendly option to the super-Trumpy GOP nominee Corey Stewart (drawing calls from the likes of Larry Sabato to have Waters included in polls).

I wouldn’t bet on the Koch network flowing any money in a Libertarian direction—when you’re into two-party politics, you’re into two-party politics, which helps explain why CEO Emily Seidel of the political Koch group Americans for Prosperity is saying stuff like, “If you are a Democrat and stand up to Elizabeth Warren to corral enough votes for financial reform that breaks barriers for community banks and families, you’re darn right we will work with you.”

But as Nick Gillespie observed this morning, both major parties are shrinking by the day, rallying hardest around populist-nationalism on the right and populist-socialism on the left. Even David Brooks is yearning for a “third-party option” that stresses constitutionalism and decentralization, even if he can’t quite bring himself to name the only national political party that does just that.

The 2018 midterms might end up being not just a referendum on Donald Trump, but an early indicator of whether the country’s only other 50-state party is ready to meaningfully grow from its current position in a distant third place.

David Koch has long been a member of the Reason Foundation’s Board of Trustees.

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Stocks Soar In July Despite FANGover, Crude Carnage, Yield Curve Collapse

This seemed to sum up the month rather well…

July high- (and low-) lights

  • China CHINEXT down for 4th straight month to lowest since Jan 2015

  • Shanghai Composite best month since Jan 2018

  • DAX best month since Sept 2017

  • Trannies best month since Nov 2016 (US election)

  • Dow, S&P’s best month since January 2018

  • Small Caps up for 5th month in a row

  • Nasdaq up for 4th month in a row

  • FANG Stocks worst month since Nov 2016 (US election)

    • TWTR worst month…ever

    • FB worst month since Aug 2012

    • NFLX worst month since Jan 2016

    • TSLA worst month since March

  • UST Yield Curve flattened for 5th straight month to Aug 2007 flats

  • The Dollar Index fell on the month – first drop in 4 months

  • Offshore Yuan dumped for 4th straight month to 13-month lows

  • Emerging Market FX had first monthly gain since Jan 2018

  • Bitcoin’s best month since April

  • Gold fell for the 4th month in a row (lowest monthly close since Jan 2017)

  • Copper’s worst month since Dec 2016

  • WTI Crude’s worst month since July 2016

*  *  *

China stocks were mixed for the month with CHINEXT (China ‘Nasdaq’) worst…

 

All major European indices green for July…

 

All major US equity indices ended July in the green…

 

On the day we saw stocks soar early on after headlines noted the potential for improved trade talks with China but late on those hopes were dashed as officials saw no progress and stocks dipped for a millisecond…

 

FAANG stocks were mixed on the month with FB and NFLX crashing…

 

Semiconductor stocks continue to be a bright spot in an earnings season that has taken its toll on technology investors.

KLA-Tencor Corp. led the group higher Tuesday, climbing as much as 15 percent for the biggest gain in almost three years, after its fourth-quarter results topped the highest expectations. The report echoed a theme of strong demand just days after heavyweights like Advanced Micro Devices Inc. and Xilinx Inc. crushed expectations.

The strength in chip stocks has been magnified as tech investors slammed the sell button for tech darlings in the FANG bloc. The megacap group has stumbled through a rocky earnings season that pushed the FANG Index down 9.3 percent over a three-day slump following Facebook Inc.’s record meltdown. The Philadelphia Semiconductor Index jumped 1.9 percent Thursday, defying the Facebook-led rout, and added another 1.3 percent on Tuesday.

Value stocks outperformed growth for the first month since March

 

Global bond prices fell on the month thanks to BoJ rumors (but barely bounced back on BoJ non-news)…

 

Yields were higher across the entire curve in July (spooked by BoJ but not retracing as much overnight on disappointment)…

 

The Yield curve flattened for the 5th month in a row (and 14th of last 16) to its lowest monthly close since Aug 07…

All eyes were on The BoJ last night  – who disappointed – sending the yield curve tumbling back to pre-rumor levels (and for now, bank stocks haven’t caught all the way down)…

 

The Dollar had its first monthly drop in 4 months..

 

The Loonie rallied on the day after headlines about being rejected from NAFTA talks spooked the currency overnight…

 

On the month, the Mexican Peso was the strongest against the dollar, Turkish Lira the weakest…

And the Offshore Yuan plunged for the 4th straight month – its longest losing streak on record…

Notably though, Yuan spiked today after headlines implied some potential progress on the US-China trade waR…

And the Dollar also spiked at the same time…

 

Emerging Markets FX managed its first monthly gain since January

Despite Dollar weakness, commodities lower across the board in July with Crude down most since July 2016…

 

Crypto extended their losses today leaving only Bitcoin and Bitcoin Cash green for the month…notice the major divergence between bitcoin and the rest of crypto after the 18th

The divergence has sent the price of Ethereum relative to Bitcoin back to unchanged on the year…

 

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