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Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

President Trump’s planned 25 percent tariff on steel imports and 10 percent tariff on aluminum imports may provide a temporary boost for those industries, but the tariffs will do tremendous long-term damage to the American and global economies. Tariffs raise the price of, and reduce demand for, imported goods. Tariffs ensure the preferences of politicians, instead of the preferences of consumers, to determine how resources are allocated. This reduces economic efficiency and living standards.

Some justify these economic inefficiencies as being worth it to save American jobs. This ignores how tariffs increase costs of production for industries reliant on imported materials to produce their products. These increased costs lead to job losses in those industries. For example, President Trump’s proposed steel tariff could cost nearly 40,000 jobs in the steel-dependent auto manufacturing industry. Tariffs also cause job losses in industries reliant on exports. This is especially true if — as is likely to be the case — other countries respond to President Trump’s actions by increasing tariffs on US products.

Many of President Trump’s critics do not themselves support true free trade, which is the voluntary exchange of goods and services across borders. Instead, they support the managed (by government) trade of NAFTA and the World Trade Organization (WTO). NAFTA and the WTO promote world government and crony capitalism, not free markets. Any libertarian or free-market conservative who thinks the WTO promotes economic liberty should remember that the WTO once ordered Congress to raise taxes!

Foreign manufacturers may make convenient scapegoats for the problems facing US industry. However, the truth is that most of the problems plaguing American businesses stem from the US government. American businesses are burdened by thousands of federal regulations controlling every aspect of their operations. The tax system also burdens businesses. Until last year’s tax reform bill, the US had the highest corporate tax rates in the developed world. The tax reform bill lowered corporate taxes, but the US corporate tax rate is still higher than that of many other developed countries.

The United States not only spends more on military weapons than the combined budgets of the next eight biggest spending countries, but also spends billions subsidizing the defense of developed counties like Germany, Japan, and South Korea. Bringing US troops home from these countries is an excellent place to start reducing spending on militarism.

The biggest cause of our economic problems is the Federal Reserve. America’s experiment with fiat currency has enabled a system based on private and public debt. This makes trade imbalances inevitable as the US government needs foreign investors to purchase its debt. Foreign investors get the money to purchase the US government’s debt by selling products to American consumers. A trade war could cause foreign investors to stop buying US debt instruments and could end the dollar’s world reserves currency status. This would cause a major economic crisis — but at least it would stop our shores from being flooded with “cheap foreign goods.”

President Trump’s claim that trade wars can be easily won is as credible as the neoconservative claim that the Iraq War would be a cakewalk. A trade war would likely push the global economy into a recession or worse. Instead of imposing costs on American businesses and consumers and putting those whose livelihoods depend on imports out of s job, President Trump should address the real causes of our economic problems: the welfare-warfare state, the IRS, and the Federal Reserve.

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Two weeks ago, the punditry was left scratching its head when in his annual Berkshire letter to investors, Warren Buffett – traditionally a huge bull on the economy and markets – said that not only were there no more bargain deals, but tacitly hinted that he is amassing record “dry powder” for when the markets tumbled, or as he put its “to withstand economic difficulties“, so he can buy assets on the cheap.

It turns out the world’s most famous investor is not the only one who is hunkering down. According to Reuters, private equity professionals are warning that today’s market could be as good as it gets, with comparisons to 2007’s pre-crisis conditions becoming increasingly more common resulting in debates among industry figures “whether today’s robust conditions constitute a bubble, as purchase prices rise, jumbo buyouts proliferate and deal terms become more aggressive.“

Among the factors cited for market frowth are LBO multiples, which in 2017 hit a record high of 11.2x EBITDA up from 10x in 2016, according to Bain & Co.

Meanwhile, increasingly large buyout loans have been announced this year, including Blackstone’s $20bn buyout of  Thomson Reuters’ Financial and Risk division, and the upcoming €10bn carve-out of Akzo Nobel’s specialty chemicals division: in fact, the average buyout size hit a new record of $675MM in Q3 2017.

Strong debt markets are currently seeing good investor demand, but private equity firms are targeting companies that they can take through a recession, Gregor Bohm, co-head of Carlyle’s European buyout business, said at Berlin’s SuperReturn conference. “You have to sell all the companies that you don’t want to hold through a recession,” he said.

Others were less diplomatic.

“I think we’re now in bubble territory,” said Frode Strand-Nielsen, founder of Nordic private equity firm FSN Capital, who added that the next five years could be a difficult environment for private equity and leveraged credits, particularly as buyouts that have been financed with cheap debt will get more expensive if interest rates rise.

“There’s a lot of financial engineering, which usually indicates we’re going into a concerning environment,” he said at SuperReturn.

Here, predictably, the biggest threat cited as facing the market this year is the spectre of monetary tightening as the European Central Bank ends its QE program…

… which as BofA explained recently, threatens to crush hundreds of European “zombie” companies which only exist thanks to unnaturally low rates.

If acknowledging there is a problem is half the battle, what happens next and will PE companies rush to dump their investments? Most likely not: Reuters reports that while private equity firms and bankers are aware that they are at the top of the market, “benign borrowing conditions could persist for some time, allowing borrowers to lock in cheap debt.”

“Borrowers are enjoying peak funding conditions,” said Ed Eyerman, head of European leveraged finance at Fitch in London.  And, apparently, the smart money believes that these unnatural borrowing conditions can last so long that there is no point in even being the first to sell for all the Margin Call fans in the audience.

Adding to the skepticism is that it was almost 5 years ago when some the biggest luminaries in the PE world declared the rally over. After all who can forget the words of Apollo’s Leon Black who in May 2013 said that the Smart Money Is “Selling Everything That Is Not Nailed Down“

Little did he know that first QE from Japan, and then Europe, would follow.

Still, concerns are clearly rising fast again: co-president Scott Sperling said that Thomas H. Lee Partners is focusing on less cyclical growth businesses which are better positioned to weather a downturn that could have a similar magnitude to the last financial crisis.

“It’s certainly not a brave new world that includes no cycle,” he said. Worse, he said that the PE firm’s “base case incorporates a recession of the size of 2008. The swings can be reasonably violent so you have to recognise how that could affect capital structures.”

So is a correction or – more likely – a crash inevitable? The bulls naturally disagree, pointing to the global macroeconomic backdrop, which they claims is also stronger than 2007 and private equity firms are continuing to benefit from broad-based global economic growth, Sperling and Eyerman said.

Of course, there is a simple reason why everyone believes there is a strong “macroeconomic backfrop”. Or rather, 20 trillion simple reasons:

Undaunted, the bulls go on:

Interest rates are rising, but are expected to stay lower for longer than before the financial crisis, which is unlikely to affect companies’ debt-servicing ability in the short term.  Fixed charge cover ratios, which measure how comfortably businesses can meet operating costs, are also higher in leveraged companies than before the crisis.

The type of companies borrowing has also changed with the rise of software and business services with fewer assets and higher free cash flow margins, that require less onerous credit protections, Eyerman said.

“They don’t have the capex and fixed costs of pre-2007 leveraged credits in sectors such as auto supply and building materials.”

And yet, despite lower (but rising) debt servicing costs, some still think the market’s record nine-year bull run is simply delaying the inevitable correction, which will only make it more painful.

“We’re watching a movie where we know what the ending is,” said Guthrie Stewart, global head of private investments at PSP Investments. “Just not how long it is until we get there.”

Ironically, he echoed almost verbatim what Citi’s notoriously skeptical chief of credit, Matt King, asked rhetorically over the weekend: “we know what central banks are doing… why are we so slow to price that in.“

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For Dow traders…

 

Ugly close but Nasdaq soared, S&P red, but Dow dropped hard after an exuberant open…

NOTE – Both rebounds in markets today were from the same headline on Larry Kudlow!!

 

The Dow fell back below its Fib 61.8% retrace line and notably made a lower-high…

 

Bank stocks extended Friday’s gain with Goldman jumping on the heels of confirmation about Blankfein’s successor…

While Nasdaq ripped, helped by chip stocks but FANG stocks rolled over (mainly due to NFLX)…

 

It’s an OPEX week – so historically that means a collapse in vol – but VIX jumped back above 16 today following Friday’s flash-crash (its first rise in 7 days)…

 

Although the put-call ratio has normalized to pre-crash levels…

 

And so has the VIX yield curve…

 

High yield bonds fell in price once again as did IG bonds, extending their losing streak. Last week was the 10th straight week that corporate borrowing costs have risen, the longest streak since 1994.

 

Treasury yields tumbled on the day, after two strong auctions, erasing Friday’s hype…

 

With 30Y back below pre-payrolls levels…

 

Breakevens tumbled from the US cash open…

 

The Dollar Index tumbled for the second day, erasing Thursday’s spike higher…

 

Crude was worst as gold scrambled back to unch, despite the drop in the dollar…

 

WTI/RBOB sank on the day, but rebounded in the afternoon…

 

Gold roundtripped from its early morning plunge…

 

Cryptos had another ugly day (although Bitcoin remains green from Friday’s close)…after some notable buying overnight…

 

As many start to wonder if Bitcoin is really leading The Dow…

 

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Authored by James Howard Kunstler via Kunstler.com,

Sunday night was Secretary of Education Betsy DeVos’s turn through the CBS 60-Minutes wringer of censure with a visibly frustrated inquisitor Lesley Stahl trying to hector her into self-incrimination.

Sec. of Education Betsy DeVos struggles to answer fairly basic questions on school performance on 60 Minutes pic.twitter.com/lFVq3USwUW

— Axios (@axios) March 12, 2018

The sad truth about American schools is that they’re a mirror for the painful collapse of the society they supposedly serve – a process ongoing for decades before Ms. DeVos came on the scene.

The expectation that some uber-regent can or ought to fix public education is bound to disappoint a news media searching for saviors. The further we leave the 20th century behind, the more anomalous its organizing principles look, especially the idea of preparing masses of young people for mass, regimented work at the giant corporate scale.

There’s a big divergence underway between the promises of schooling and the kind of future that the 21st century is actually presenting — of no plausible careers or vocations besides providing “therapy” and policing for the discontented masses stewing in anomie and compensatory pleasure-seeking, with all its nasty side effects. In the meantime, we’re stuck with wildly expensive, out-of-scale, giant centralized schools where the worst tendencies of human status competition are amplified by smart phones and social media to all but eclipse classroom learning.

Education in the years to come is destined to become more of a privilege than a right, and it will probably depend more on how much an individual young person really desires an education than just compelling masses of uninterested or indisposed kids to show up everyday for an elaborate and rather poorly supervised form of day-care. But it’s difficult to let go of old habits and obsolete arrangements, especially when we’ve spent countless billions of dollars on them.

I call the future a World Made By Hand because it is going to be entirely unlike the sci-fi robotic fantasy that currently preoccupies the thought-leaders in this culture. A lot of what will be required in this time-to-come will be physical labor and small-scale skilled work in traditional crafts. There never were that many job openings for astronauts, not even in the 1960s, but in the decades ahead there will be none — notwithstanding Elon Musk’s wish to colonize Mars.

Even if you believe the current model of education must be defended and “fixed,” two issues stood out in Ms. DeVos’s interrogation.

One was the question of behavior in the classroom. The Dept of Education under Mr. Obama put out a directive to reduce suspensions of black and Hispanic students because they were being punished at a greater rate than whites and Asians and it looked bad. Lesley Stahl tried to put over this idea as if it were just a matter of racial animus.

“…let’s say there’s a disruption in the classroom,” she said, “and a bunch of white kids are disruptive and they get punished, you know, go see the principal, but the black kids are, you know, they call in the cops. I mean, that’s the issue: who and how the kids who disrupt are being punished.”

I doubt that it happens that way. Rather, it’s probably the case that there is more disruption among the black student demographic, and probably more violent disruption. The reasons may range from bad parenting (especially absent fathers), inability of students to express themselves (and subsequent frustration) due to poor language skills that are not corrected in school, and the victim narrative that emanates from the universities and distorts culture everywhere else. But to actually state that would be branded as “racist,” so the authorities have to dissemble acrobatically to evade the truth, and in the end it’s learning that suffers.

The other issue was the Obama-era directive (“guidance,” they call it) that sexual misconduct be prosecuted more aggressively by colleges and universities. That led to an era of campus kangaroo courts in which due process of law was cast aside in favor of medieval-style star chambers where the accused had no right to a lawyer, or cross-examination of their accusers, and other established legal protections. Apparently, the producers of 60-Minutes thought that was a good idea, and that Betsy DeVos should not attempt to change it.

Of course, school shootings are the most shocking symptom that something has gone terribly wrong in the system we’ve set up for occupying children and teens. It will be very hard to do anything about that without turning the buildings into something like medium security prisons. We’ve already managed to design them to look like that, but now we’re seriously talking about turning teachers into armed guards. And I’m sure we’ll be spending additional billions to fortify the entrances with metal detectors and officers to mind them. That will only shove the school districts a little closer to bankruptcy.

I felt a little sorry for Ms. DeVos. She seems to understand, at least, that the trend is taking us away from the system we currently know to some uncharted territory of social organization.

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