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The Fate Of “Tech” Is In Apple’s Hands: Here’s What To Expect From Today’s Earnings

Q2 earnings season has not been kind to tech stocks: while all but one of the 36 tech firms that had reported results through this weekend exceeded analyst estimates, over the next five days their stocks were down an average 3.5%. That compares with a gain of 0.9 percent for all S&P 500 stocks, according to Bloomberg calculations.

As a result, there has been a furious rotation out of growth and into value names, which as we noted earlier today saw the biggest 3-day move in the past decade, which Nomura defined as a 4.3-sigma event.

And with the the bulk of “growth” names having reported, that just leaves Apple to give momentum and growth chasing traders some glimmer that the “most important trade of the past decade” is not yet over, or as Bloomberg puts it, “Apple Earnings Are Last Bet to Stop Bleeding in Tech Stocks“.

The flipside, of course, is that another blockbuster quarter, would bring AAPL that much closer to becoming the first trillion-dollar company, now that Amazon failed to capitalize on its strong earnings.

As Bloomberg notes, AAPL shares have gained 13% since its last earnings report on May 1, when a better-than-expected revenue forecast and a $100 billion stock buyback plan calmed concern about iPhone demand.

Naturally, spooked tech investors are hoping for a repeat performance as Apple closes out a rocky earnings season for the megacap FAANG bloc. Apple shares 0.8% to $191.53 at 3:30 p.m. EDT, putting the $1 trillion market cap bogey just $60 billion away.

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So what to expect from Apple which reports later today at 4:30pm EDT?

First, here are the key sellside estimates for the top and bottom line::

  • 3Q EPS $2.18 (range $2.10 to $2.24)
  • 3Q revenue $52.42 billion (range $51.48 billion to $53.46 billion); Company’s forecast on May 1 of $51.5 billion to $53.5 billion; Services revenue estimate $9.22 billion (8 estimates compiled by Bloomberg News)
  • 4Q revenue estimate $59.37 billion

Unit sales, margin and ASP:

  • 3Q iPhone unit estimate 41.6 million (10 estimates); ASP $699 (8 estimates)
  • 3Q gross margin estimate 38.3%; forecast 38.0%-38.5%
  • 4Q gross margin estimate 38.2%
  • 4Q iPhone unit estimate 47.3 million (7 estimates); ASP $720 (7 estimates)

According to RBC, unlike prior quarters when the focus was almost exclusively on iPhone sales growth, in the second quarter it will be “all about services and buybacks.” RBC, which has a $210 price target on the stock, and sees 11% upside to the current stock price, notes that prevailing street expectations are driven by stable revenues, modest upside to GMs and buyback tailwinds.

The Canadian bank notes that it sees “strong services momentum led by subscription growth and strong gaming (Fortnite and others) trends, partly offset by modest slowdown in Google TAC spend. While FX could be a slight headwind, AAPL’s hedging program should offset it particularly when it comes to EPS & FCF.”

The bank is optimistic on unit sales as a result of higher iPhone promotional activity across carriers, “which should support revenues and unit sell through in the quarter.” Additionally, the higher ASP dynamic should continue in Sep-qtr, given iPhone X wasn’t a part of the mix last year until Dec-qtr and its pending launch impacted iPhone 8 sales last year.

RBC’s favorable outlook, and Outperform rating is driven by the following:

we see Sep-qtr revenues up mid/high-teens vs Sep-2017. On the GM side, in addition to ASP dynamic we should start seeing impact of lower NAND prices flowing through particularly with the launch of new iPhones

RBC lists the following key investor focus points for the current quarter:

  1. iPhone: Investors will likely focus on iPhone units, ASP, and sales mix during the quarter. Investors would also look for color on memory mix within iPhone.
  2. Capital Allocation: Investors would look for buyback cadence post AAPL’s cap allocation update last qtr.
  3. China: Investors would also look for iPhone and services performance in China.
  4. Gross Margins: Puts and takes from mix changes, services growth, NAND pricing & FX impact.
  5. Services mix: Contribution of services to total revenues and any data points on revenue/profitability of Apple Music, AppStore and ApplePay.

Some other banks’ takes, courtesy of Bloomberg:

  • Bank of America Merrill Lynch, Wamsi Mohan

“We expect focus to be around services growth (we model 25%), gross margin performance (we model 38.1%) and expect low single-digit iPhone growth,” Mohan wrote in a note to clients on Monday. The bank estimates 47 million iPhones for the September quarter but notes that a potential later introduction of the 6.1-inch LCD model could shift some unit sales to the December quarter.

  • Morgan Stanley, Katy Huberty

“We expect Apple to report an in-line June quarter and provide a slightly weaker than consensus September quarter outlook due to a possible October launch of the 6.1-inch LCD iPhone,” Huberty said in a note last week. Investors will focus increasingly on services revenue to drive growth. Morgan Stanley estimates services grew 32 percent in the June quarter. Huberty sees the announcement of three new iPhone models in September as the next big catalyst for Apple shares.

  • GBH Insights, Daniel Ives

“We expect a generally in-line June quarter with no major surprises to iPhone units (42 million units) or gross margins,” Ives said in a note to clients Monday. “The Street is all focused on the demand trajectory for the September quarter and most importantly into 2019 with the trifecta of next generation iPhones on the horizon.” “With June and September Street numbers now hittable/beatable, it appears Apple shares/valuation is set up well heading into a potentially robust product cycle over the coming quarters along with a massive capital return strategy as another tailwind.”

* * *

Apple has 27 buys, 18 holds and no sell ratings. The average analyst price target of $201 implies 5 percent upside over next 12 months.

* * *

What happened last quarter:

  • Mar-18: Mar-qtr revenue/EPS were above expectations driven by better than expected iPhone revenues (units slightly lower vs. Street, but ASP increase of +11% y/y), services performance (+30.5%) and others segment. Gross-margins of 38.3% were inline with guide. iPhone unit sales (52.2M) were somewhat below expectations of 53M. Overall revenues/ EPS came in at $61.1B/$2.73 vs. Street at $61.2B/$2.69. From a geographic basis, Greater China reported 21.4% y/y revenue growth, The Americas region increased 17.4% y/y, Europe grew 8.7% y/y, Asia Pacific was up 4.3% and Japan reported 21.9% y/y growth in revenue.
  • Guidance: AAPL guided Jun-qtr to $51.5-53.5B revenue, 38.0%-38.5% gross margins (down ~20bps y/y at mid-point), $7.7-7.8B in opex, $400M in interest income and tax rate of 14.5%, implying EPS of $2.17 (Street at $51.7B/$2.12).

Putting AAPL’s results in context:

Finally, this is how the stock responded to earnings in the prior 10 quarters:

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Americans To Pay 4% More For Diapers, Tissues And Toilet Paper

Over the weekend, we reported that as a result of rising tariffs and escalating trade war, various US companies had passed on rising input costs to consumers, resulting in higher prices, in some cases significantly so, for a variety of products.

The first industry hit by higher prices was in discretionary purchases such as recreational vehicles. Earlier this month, Winnebago Industries warned that the recreational-vehicle boom seen in the last several years could have popped: “We’ve had to go to the market a bit more frequently and a bit more aggressively with some price increases as of late,” said Michael Happe, chief executive of recreational-vehicle manufacturer Winnebago Industries Inc, who spoke with The Wall Street Journal. The CEO of the Iowa-based company said that trade tensions and rising inflation could lead to a gloomy outlook for the company. “Uncertainty is never a great thing for the economy and the more noise there is there’s a risk that consumers will press pause,” he said.

Another RV company, Polaris Industries, announced it was hiking prices on its vehicles including boats, motorcycles, snowmobiles to cover $15 million of the $40 million in tariff-related charges to pay for steel, aluminum, and components from China this year. The company is facing severe headwinds from retaliatory tariffs from other countries on products it exports from the U.S., including the Indian-brand motorcycles it ships to Europe.

And while higher costs for recreational-vehicles – and soon cars if auto tariffs are implemented – are slowly but surely being passed along to the American consumer, at least these are discretionary purchases for members of society’s upper-middle and top income classes, and as such the hit to their wallet will be manageable.

But now Americans are about to suffer rising prices on their purchases of key staples as well. Last week, Coca-Cola CEO James Quincey said tariffs are going to inflate drink prices. “Clearly it’s disruptive for us. It’s disruptive for our customers,” Quincey said. He believes distributors and retailers will pass along increased prices to consumers in the third quarter.

Today, household products giant Procter & Gamble joined the “tariffs club”, warning that its profit margin are getting squeezed by higher costs and rising competition, and a result the prices of Bounty paper towels, Pampers diapers, Charmin toilet paper and Puffs tissues are going up. In its quarterly earnings report, P&G unveiled that the cost of Pampers will go up by an average of 4%, raising the price of a 128-count pack of swaddlers for newborns from $34.99 at Target to about $36.39.

Other paper staples, such as Bounty, Charmin and Puffs will see 5% price increases on average.

The company said it was raising prices to help offset disappointing earnings results and another 15% slide in profits, to $1.89 billion in the second quarter, from $2.22 billion in the same period last year.

On the conference call, CEO David Taylor said “these [price hikes] are aimed to address commodity costs the entire industry is experiencing.” In other words, its competitors will unleash similar price hikes in the immediate future. And since price increases tend to be sticky on the way up, should normalcy return on the trade front it would unlikely lead to price reductions.

Naturally, there is a question of how much price elasticity and pricing power P&G has: already the company noted that it had suffered a 2% drop in sales in its baby business – which includes Pampers and other brands – which it blamed in part on market pullback in the Middle-East, Africa and Latin America, potentially the result of price indexation to account for the higher dollar. Worse, the business was also affected by deep discounts by other retailers (coughamazoncough), the Achilles heel for the consumer giant in recent years.

Not surprisingly, P&L earnings badly missed analyst expectations, and despite a 3% increase in revenues, the company’s profit margins dropped in the past year; organic sales rose just 1%, below the 2.3% consensus estimate.

Proctor has already been forced to cut prices on some namesake products, like Gillette razors as a result of shrinking market share.

Which is why a recurring question is what happens if instead of boosting revenue, the price increases lead to a drop in sales, and whether – as CNBC notes – it has “the marketplace clout to raise prices on products like paper towels and toilet paper, as those businesses continue to battle cheaper private label options.”

“I do not think that the new normal is we don’t have pricing power at all,” Taylor said on the call. “…I believe superior products at competitive prices will win and I believe in time, the industry has to address input costs.”

And as he spoke, somewhere Jeff Bezos was laughing…

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Kevin McCarthy Wants Twitter to Kick Out a Congressional Candidate

House Majority Leader Kevin McCarthy (R–Calif.) wants Twitter to ban a congressional candidate who called first lady Melania Trump a “hoebag.”

In a tweet yesterday, Turning Point USA founder Charlie Kirk pointed out that Trump has significantly fewer staffers than her predecessor, Michelle Obama. Mark Roberts, an independent running to represent Oregon’s 2nd Congressional District, responded by suggesting Trump is a prostitute:

I’d call that tasteless but harmless and move on. McCarthy called it “disgraceful” and declared that Twitter CEO Jack Dorsey should ban Roberts from the platform as soon as possible:

The punchline: McCarthy has spent the last few months accusing social media companies of censoring conservative viewpoints. Apparently, it’s not the censorship part that offended him.

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Facebook – The Anti-Social Network

Authored by Tom Luongo,

“I thought we were gonna get television. The truth is… television is gonna get us.”
—Dick Goodwin, Quiz Show

When Mark Zuckerberg went to Capitol Hill earlier in the year I knew Facebook was in serious trouble.

Ostensibly, he was there to apologize to us about how Facebook used customer data so cavalierly.

But, really he was there to explain how everything had gone so wrong.

Facebook was designed to be the enforcer of social norms pushed by the political and corporate establishment.

It was built with Wall Street’s decade-long access to cost-free money to invest in the technologies to create a voluntary layer of social control.

The Fed is pulling back the punchbowl and Wall St. already cashed out most if its chips, leaving the retail “muppets” holding the bag.

Facebook, along with Twitter and Google, were outsourced by the real power brokers to erect a web of censorship platforms which circumvent the 1st amendment, because they are ‘private’ companies.

Like Alex Jones or hate him, he brings a lot of traffic to Facebook.  Traffic the company doesn’t want, apparently.

It doesn’t need people who like Alex Jones…

But they still want your data.  

Just like the payment processors Stripe, PayPal and VISA are all private companies which can kick you off their platform and deny you a business and a livelihood because you’re not ‘woke’ enough.

The blockchain will fix this in the future, but right now things are dicey at best.  People like me are very vulnerable to running afoul of these people.

But, like I told my subscribers last fall, the moment of Peak Facebook would arrive soon enough.

Why?

Because it’s all fake interactions by increasingly fake personas we have to erect lest we get shouted at by someone looking for a dragon to slay to bring meaning to their otherwise pointless lives.

And sometimes those people are our very best friends.

Facebook was built on the false premise that we want to be in contact with all of the people we ever met ALL THE TIME.  But no, we really don’t.  We all, as T.S. Eliot put it, “prepare a face to meet the faces that you meet.”

And once the bloom is off the digital rose, once the social environment becomes toxic, what’s left to do on Facebook?

Cat videos, Huskies arguing with their owners (my personal favorite) and food porn.

So, it came as no shock to me that Facebook finally hit the earnings wall in Q2.

And the shock was immense.

And it gutted the stock 20% to hit short-term support.

But, the big damage was done back in Q1, with the blow to Facebook’s credibility.

Most people don’t want to believe in ‘conspiracy theories.’  Their default position is to put themselves in the shoes of the person or group and project their behavior onto them.

And, that’s why when Zuckerberg spoke to Congress and came off like a stiffer version of Data from Star Trek, millions of people finally figured out what was happening.

You can’t fake body language for very long.  Mark Zuckerberg isn’t a psychopath, he’s a just a creepy, stalker kid, way out of his depth with an over-inflated sense of his importance.

In short, he’s a bad liar.

And that’s why Facebook is where it is.

And why, in my mind, the stock will drop further this week as it targets medium-term support near $150.

The pump and dump on Facebook by Wall Street began at the beginning of the year.

They could see the numbers then, the chart spells it out candle by candle.

I’d almost go so far to say that once Cambridge Analytica’s malfeasance got out, Zuckerberg was thrown to the wolves.

So far, he got himself a $3.5 billion golden parachute, selling that much stock after those hearings.

And to give you an idea of how much he cares about his company he had Facebook buy back $3.2 of his stock at now 20% over the market price.

This is the essence of insider-trading.  Publicly selling billions in stock while operating a stock buyback program with company money at prices you know will be lower once earnings come out?

It’s the essence of dishonest.  I told you Zuckerberg was a bad liar.

It only makes the case against Facebook that much stronger.

And don’t get me started on what’s wrong with Twitter!

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I go over Facebook’s chart, along with Gold and Bitcoin in this week’s Market Report for subscribers.  15 Minutes of news and technical analysis every Wednesday and Sunday. Click here to join Patreon and get this Market Report for just $4/month.

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Charges Against a North Carolina Police Chief Lead to the Suspension of His Entire Department

|||National Motor Museum Heritage Images/NewscomAn entire North Carolina police department has been suspended and placed on paid leave following the arrest of the chief and another officer on corruption charges.

Southport Police Chief Gary Smith and Lt. Mike Simmons are accused of working second jobs at a trucking company while on department time. A press release from the State Bureau of Investigations states that Smith and Simmons “were completing overnight shifts during the same hours they had claimed on their daily activity reports to be working at the Southport Police Department.” Brunswick County District Attorney Jon David said at a press conference that Smith and Simmons had a “habitual and repeated pattern” of leaving their posts to do their second jobs.

Smith and Simmons were arrested last week and charged with obtaining property by false pretense. Smith faces additional charges, including willful failure to discharge duties and obstruction of justice.

The Brunswick County Sheriff’s Office will take over police duties in the city until further notice.

The investigation began in April after whistleblowers within the department tipped off the authorities. “The arrests were unexpected,” City Manager Bruce Oakley tells Reason, “and the City felt the temporary suspension of operations was necessary in order to let all the officers have ample time to process the information. It was in no ways meant to punish the other officers. It also gives the City time to prepare for their return and make sure there is a strong leadership presence in place.”

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Ominous ‘Fire Cloud’ Looms Over California Hellscape As Exhausted Firefighters Battle Fatigue

As California battles its 7th most destructive wildfire in state history, Mendocino County resident Dylan Duarte captured a giant mushroom cloud rising above hills in the distance. 

Known as a pyrocumulus cloud, the ominous red weather formations usually occur over volcanic eruptions or forest fires when intensely heated air triggers an upward motion that pushes smoke and water vapor to rapidly rise. They can develop their own weather patters, including thunderstorms with severe winds which then further fan the flames. 

Other fire-related weather phenomenon was captured by fleeing residents, such as this “fire tornado” in Nevada County, CA. 

There are currently 16 active fires burning across California, sending smoke eastward. 

The deadliest of the blazes is the Carr fire, which has killed six people including two firefighters, and destroyed at least 1,236 structures. Over 2,500 structures remain threatened – while the Mendocino Complex fires threaten over 12,000 structures. 

The carr fire has burned nearly 110,000 acres and is around 27% contained. Evacuation orders have been lifted for Douglas County and portions of Happy Valley, Redding and Shasta Lake City according to officials. 

Meanwhile, firefighters hailing from 16 states are fighting against fatigue as they battle the infernos. 

“You wind up with an extremely exhausted fire service that is still doing everything they can to answer those 911 calls,” said Mike Daw, executive director at the Firefighters Burn Institute. 

Meanwhile, the air quality in Redding has dropped to dangerous levels, as officials warn the public to stay indoors and wear a mask outside. 

Other fires across the state

Several other fires continue to rage across California, including the Ferguson fire which has consumed more than 57,000 acres near Yosemite National Park leading to the closure of the Yosemite Valley, as well as the Cranston fire burning in the San Jacinto mountains east of Los Angeles which has burned over 13,000 acres and is 57% contained. 

The cause of the blaze has been attributed to arson. Cal Fire officials arrested Brandon N. McGlover, 32, of Temecula for allegedly setting multiple fires in southwestern Riverside County on July 25, 2018.

The Riverside County Sheriff’s Office lifted evacuation orders for the communities of Pine Cove, Fern Valley, Cedar Glen, and portions of Idyllwild outside of the fire perimeter. –Accuweather

“Good work was done on the northeast portion of the fire where the biggest threat to the community persists,” officials said Monday.

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The Lopsided March Of Active & Passive Investors

Authored by Huw Van Steenis, op-ed via The Financial Times,

Few debates become as heated in investment circles as those between the advocates of active and passive investing. Duels are compelling. But focusing on this fight risks missing trends which are starting to appear elsewhere in the investment world. Three new reports on my summer reading list illustrate them well.

My guiding view has been that investor flows would polarise into a barbell shape, weighted at both ends. At one extreme, investors would flock to passive funds and exchange-traded funds in order to access benchmark returns cheaply and conveniently. At the other, investors seeking higher returns would increasingly allocate to specialist fund managers investing in private equity, hedge funds, real estate and the like. The conventional fund managers, caught in the middle, would be pressured to up their game, become more specialised or merge for scale.

Fifteen years after I first aired this hypothesis, it is striking quite how lopsided this barbell has become. Although investors have moved almost $3tn into ETFs and index funds globally, the real money is being made at the other end. Forty-three per cent of all the management fees in the investment industry went to alternative asset managers in 2017, up from 29 per cent in 2003, according to new research by Boston Consulting Group. But even this understates the purple patch firms have enjoyed from low rates and changes in bank regulation. If you include an estimate of performance fees, then the alternative strategies now represent over half of the fees paid by investors for the first time.

One thing I did not expect was that investors would still be paying almost the same level of fees, on average, as they were 15 years ago. Even though technology has enabled investors to save billions via ETFs, index funds and cheaper mutual funds, large investors have upped their risk and fee budgets on high margin private equity, hedge funds and other specialist managers instead. Understandably, investors are starting to become pickier about value for money – and some of the largest Canadian, American and global schemes are trying to make savings by doing more in-house. But I do not anticipate this will fundamentally alter the lopsided pattern of investment any time soon.

At the other end of the barbell, the march of passive investing has been one of the defining themes of asset management over the past decade. ETFs have grown 17-fold since 2003, and may double again over the next four to eight years, according to BlackRock.

ETFs have democratised access to investing. Individuals can now save for their retirement in ways only previously available to sophisticated institutional managers. But the good news for investors hasn’t translated into the same degree of success for the firms. As the benefits of technological innovation and industrial scale have been passed on, ETFs represent just 3 per cent of industry fees paid, according to BCG.

Indexing has come in for much abuse: it has been called Marxist, and even a weapon of mass destruction. Hyperbole aside, it is clear that the dramatic growth of ETFs has thrown up a number of public policy questions. Do passive firms risk becoming absent landlords, for instance?

Intriguingly, firms at either end of the investment barbell are starting to work in tandem. An updated piece of research by Ian Appel at Boston University demonstrates that the managers of ETFs and index funds are starting to vote far more frequently with activist and engaged investors. Indexers are starting to recognise that as stewards of stocks they have no option but to engage, hiring the same proxy voting services as traditional firms, or beefing up their governance teams. The study shows that a high passive share has materially increased the odds of activist success, both in proxy fights and getting board representation. Not all activist ideas are good, by any means. But markets do need a diverse range of engaged investors. Companies should be on alert for this potentially symbiotic relationship.

Investors have become much fussier in the middle of the barbell, meanwhile, challenging fund managers to adapt. Expectations for traditional fund managers’ future growth have fallen so much that a new Goldman Sachs report suggests that outside crisis periods, US firms are now trading on their lowest multiple of future earnings ever. Growth is low and very unevenly spread but some distinctive strategies are still being rewarded by investors.

The pressure from clients for performance and better value for money as they harness technology will be unrelenting. But for the industry, it’s not just a simple active versus passive duel.

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As Bail Reforms Gain Steam, Civil Rights Groups Warn About Overreliance on Risk Assessment Tools

Prison cellMore than 100 civil rights organizations have endorsed a letter warning that using risk assessment tools and algorithms as a replacement for money bail could perpetuate rather than reduce inequities in pretrial systems.

The letter, titled “A Shared Statement of Civil Rights Concerns,” outlines six principles they want to see applied to any tool used to calculate the whether a defendant will be freed prior to trial. Their stated goal is to make sure that pretrial detention is the last resort, used only when absolutely necessary for public safety, and used only after a rigorous, adversarial process where the defendant can challenge his or her detention.

The groups that have signed the letter include the American Civil Liberties Union, the National Association for the Advancement of Colored People (NAACP), the Drug Policy Alliance, and the National Council of Churches.

In a press call Monday, the NAACP’s Monique Dixon argued: “Pretrial detention reform that addresses the injustice of people being jailed because of their poverty is urgently needed, but substituting risk assessment instruments for money bail is not the answer.”

This comes amid a growing national push to eliminate the use of money bail—a push that all these groups also support. On any given day, America has around half a million people in jail who have not yet been convicted of a crime. Many of these inmates are behind bars not because they’re clear-cut flight risks or threats to their communities but because they cannot afford to pay bail.

To change this system, courts are looking for other tools to assess whether a defendant is likely to skip town or to commit other crimes while freed. Pretrial assessments are intended to objectively calculate the risk factors connected to any specific defendant.

One of the chief factors considered is a defendant’s their past criminal record. But that can be tainted by a history of unequal enforcement, particularly in poorer communities and minority neighborhoods. As the report warns, “Automated predictions based on such data—although they may seem objective or neutral—threaten to further intensify unwarranted discrepancies in the justice system and to provide a misleading and undeserved imprimatur of impartiality for an institution that desperately needs fundamental change.”

In short, these groups want to avoid replacing one thoughtlessly applied system—bail schedules—with an opaque automated system that can end up in the exact same place: with people needlessly stuck in jail even though they have not yet been convicted.

Rejecting risk assessment tools entirely is probably not a realistic goal, given that there’s still a huge fight ahead to reduce the dependence on money bail. So the letter puts forth six principles that the authors think should shape how assessment tools are implemented. They want the data to be implemented in a way that reduces the racial disparities within the justice system; they don’t want assessment tools ever to recommend preventative detention, and call instead a release hearing with procedural safeguards; they want pretrial detention or supervision to be imposed only after an adversarial hearing where a prosecutor must make a case that there’s an identifiable risk if the defendant is released; they want pretrial assessment tools to be transparently operated, independently validated, and open to challenge; they want pretrial assessments to calculate and communicate the likelihood of success (that is, that the defendant will return to court and not commit further crimes) rather than failure; and they want pretrial assessment tools to be developed with community input and subjected to regular review and oversight.

That seems like a lot. New Jersey has almost completely abandoned money bail and leans heavily on the use of a pretrial risk assessment algorithmic tool developed by the Laura and John Arnold Foundation to score risk factors. While it does put a score on the risk factors and recommends release (often with monitoring) or detention, the way the state has implemented the assessment is relevant to these principles. The assessment score never determines on its own whether a defendant is released. The prosecutor has to request a hearing if he or she wants to detain a defendant prior to trial—the judge cannot simply decide to detain the defendant on his or her own. Then the prosecutor has to make a case for holding the defendant. The defendant is represented by an attorney through this. New Jersey operates on the assumption of release and requires the prosecutor to prove that there’s no way to make certain a defendant will show up for court or commit crimes while released in order to keep him or her in jail. The information that gets pulled into the assessment score is simple to understand and transparent and based entirely on the defendant’s own background of behavior.

Not all assessment tools are that transparent or so focused on a defendants’ own behavior and record. Others pull in demographic and employment data that the defendant cannot control and that are influenced by policing choices.

Note that New Jersey’s bail reforms did not happen in a vacuum. They were part of a significant overhaul of New Jersey’s criminal justice system intended to discourage police from arresting people for low-level crimes in the first place and to speed up trials significantly. New Jersey’s incarceration rate was already dropping before the bail reforms were implemented, but it has continued to do so under the new system.

In response to these concerns, the Arnold Foundation released a statement saying it agrees with the goals of limiting pretrial detention and reducing racial bias. It adds that it doesn’t intend their pretrial assessment tool to supplant or replace smart decision-making on the part of judges. It’s supposed to aid the process. “We believe—and early research shows—that this type of data-informed approach can help reduce pretrial detention, address racial disparities and increase public safety,” the foundation says.

Read the full letter of concern here.

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Japanic Over: Traders’ “High Hopes” Crushed On “Nothing New”

The Bank of Japan disappointed last night as East Coast traders had to wait for the longest time since 2016 for Kuroda to do practically nothing, creating an unwind of last week’s anxiety-driven spike in bond yields.

Former fund manager and FX trader, Richard Breslow, was among the disappointed as he exclaimed “why are they all trying to crush my high hopes,” adding that he really hopes this isn’t one of those weeks where we get tons of information thrown at us and learn nothing new. Or, more importantly, that nothing is new.

Via Bloomberg,

I’ve been accused this morning of having an unrealistic reaction by being disappointed, nay annoyed, with the policy steps the BOJ chose not to take. We can dress up the wider flexibility of the yield-curve control policy, but it is really mostly just more of the same. With the tweaks they introduced really designed just to make the central bank’s job easier. For them.

All that talk about the negative externalities to the financial sector that we’ve talked so much about recently went right out the door as the official inflation forecasts were once again lowered. Not to mention the ongoing fixation with the planned consumption tax hike and its potential to drag on the economy. And that isn’t even scheduled for over a year. It all doesn’t really scream, “Run out and buy Japanese bank stocks.”

Meanwhile, the Italian government took time out from being a thorn in the side of their European brethren to make nice in Washington. In a rare cynical moment, I couldn’t help but muse that it’s possible that the two sides not only agree on immigration policy but really are most simpatico with a lack of concern for budget deficits and increased borrowing. As we eagerly await the Italian budget negotiations, it doesn’t feel like a coincidence that EUR/CHF is trading on a 1.15 handle.

On a lighter note, ask anyone which currency has spent July running roughshod over the competition. Give them three guesses and be very impressed if they come up with the Mexican peso.

Despite the political news, the domestic crime difficulties, the wall fight, it has been a killer to be short. The ongoing NAFTA negotiations have apparently been sprinkling pixie dust on Mexican assets across the board.

Banxico meets later this week. More rate hikes are priced into the market even if most, but certainly not all, economists in the Bloomberg survey think they will take a pass this time around. Given recent developments, it’s hard to think the inflation outlook hasn’t moderated and the curve in need of repricing.

U.S. equities have been wobbling over the last week or so. The Mexican Bolsa is just looking on sympathetically. Is it any wonder that the Canadians want in on the party, as the TSX has been making lower highs and lower lows? Or inexplicable that we’ll talk to just about anyone without preconditions except for our bestie up north?

The BOE is likely to raise rates. But doing so just to give room to cut in future may be prudent but is hardly inspiring. Every time you see some good numbers, check out the latest in the Brexit negotiations. I have a mansion in Knightsbridge I’m willing to sell you.

So after all that, we might just have to wait around to see how upbeat the post-meeting Fed statement is and if the non-farm payrolls report confirms what we already know. That’s, bleakly, just back to business as usual.

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Finally. A major victory for common sense

In a major victory for common sense, a group of cosmetologists defeated an insanely stupid regulation passed down by the state of Louisiana.

Louisiana, just like the other 49 states in the Land of the Free, governs licensing requirements for dozens… hundreds of professions… ranging from athletic trainers to tour guides to barbers and cosmetologists.

And most of the time the licensing requirements are just plain idiotic.

In Louisiana, for example, the State Board of Cosmetology had formerly required an unbelievable 750 hours of training (which costs thousands of dollars) simply to be able to thread eyebrows.

(If you’re like me and totally unfamiliar with eyebrow threading, check out this video. You’ll probably agree that 750 hours of training is totally ridiculous.)

And so, in conjunction with the Institute for Justice, several Louisiana-based cosmetologists filed a lawsuit against the Board.

The Board backed down… passing a new regulation exempting eyebrow threaders from such pointless licensing requirements.

One down. 2,214 to go.

That’s right. According to the Institute of Justice’s study License to Work, there are over two thousand licensing requirements across the Land of the Free… and that’s just for low income jobs like manicurists or floor sanders. We’re not even talking about doctors and dentists here.

Another study from the Brookings Institute shows that nearly 30% of US workers require some sort of state license. That’s up from just 5% in the 1950s.

Many of the licenses truly defy any logic whatsoever.

The State of Michigan, for example, sees fit to require 467 days of education and training to receive a barber’s license, but only 26 days to be a licensed Emergency Medical Technician.

The State of California requires aspiring tree trimmers to have 1,460 days of education and training. But pre-school teachers only require 365 days.

The District of Columbia requires 2,190 days of education and training to be an Interior Designer, but ZERO days to be a school bus driver.

The State of Iowa requires 1,460 days for athletic trainers, but just 370 for dental assistants.

What exactly are these people trying to tell us about their priorities? Trees and furniture are more important than children? Hair is more important than health? Abs are more important than teeth?

It’s all quite bizarre.

But there is one occupation I noticed that is conspicuously absent from this list.

And it’s a big one.

Not a single state in the union has a licensing requirement for this profession.

And that’s an incredible irony given that this occupation gets to tell the rest of the occupations how much training they require.

Did you figure it out?

It’s politicians.

Just think about it: Barbers and manicurists require hundreds of hours of training.

But the people who have the power to pass idiotic legislation, waste taxpayer funds, declare war, tell us what we can/cannot put in our own bodies, and regulate every aspect of our lives, don’t even have to be literate.

(And judging by some of the laws they pass, that may very well be the case.)

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