Elementary School Art Panic: New at Reason

Administrators at a Utah elementary school fired an art teacher for circulating classical painting postcards in his class, a few of them displaying nude figures. The police got involved, Lindsay Marchello writes.

Some students were okay with the classical nude paintings, but a few others expressed discomfort and approached Rueda about the cards. He promptly removed them and discussed the issue with his students.

A few days later Rueda learned that some parents had complained to the school and someone even called the police, alleging the art teacher had shown his students pornography. Police called aff the investigation after prosecutors determined the images were not pornographic.

School administrators initially suspended Rueda for a few days, but then sent him a termination letter. “In a Friday meeting, they gave me two choices: to resign, accepting their terms of my alleged wrongdoing (eliminating any possibility to voice my opinion in the future), or to be terminated with a scathing and defamatory letter,” Rueda wrote to a supportive parent, Kamee Jensen, which she posted to her Facebook page.

Rueda is appealing the decision and has requested a hearing to clear his name, the Washington Post is reporting.

View this article.

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America’s Whiniest Ex-Sheriff Announces Senate Run

A bit more than a year after voters booted him out of office, former Maricopa County sheriff Joe Arpaio has announced he’s running for the U.S. Senate.

The 85-year-old Arizonan—an unrepentant birther, nativist, and whiny babytold the Washington Examiner that he will run on a platform of supporting the agenda of President Donald Trump, who pardoned Arpaio last year after a federal judge held the ex-sheriff in criminal contempt.

“I have a lot to offer. I’m a big supporter of President Trump,” Arpaio told the paper. “I’m going to have to work hard; you don’t take anything for granted. But I would not being doing this if I thought that I could not win. I’m not here to get my name in the paper, I get that every day, anyway.”

A federal judge found Arpaio, who was notorious for jailing inmates in a sweltering desert tent camp, in contempt of court last July for flouting a 2011 order to stop the unconstitutional racial profiling and detainment of Latino residents.

Arpaio gained national prominence, a rare feat for a local sheriff, for his aggressive immigration sweeps. He styled himself as “America’s toughest sheriff” and was politically untouchable for most of his 24-year career in local Arizona politics, despite ongoing scandals, lawsuits, and abuses of power.

The tent-city jail that Arpaio enjoyed showing off to reporters was a magnet for inmate lawsuit. Abuses and corruption festered under Arpaio’s management. He used his office to target reporters and political opponents, flouting court orders and stonewalling federal investigators.

In 2016, facing a flood of out-of-state money, a well-organized Latino get-out-the-vote campaign, and the criminal contempt charges, Arpaio lost by a stunning 10 points.

Arpaio had been an ardent Trump supporter, though, and the president returned the favor. Both Arpaio and Trump characterized the charges against the former sheriff as judicial activism. Trump told Fox News prior to the pardon that Arpaio was “a great American patriot and I hate to see what has happened to him.”

As I wrote at the time: “In pardoning Arpaio, Trump has given a free pass to an unrepentant and habitual abuser of authority, a man with insufficient regard for the Constitution he swore to uphold or the separation of powers it enshrines.”

In 2013, Reason named Arpaio one of its 45 enemies of freedom, where he joined such luminaries as Idi Amin, Michael Bloomberg, and Hillary Clinton:

Maricopa County, Arizona’s chief law enforcement officer is famous mostly for publicly degrading inmates: forcing them to live in a tent city, work on chain gangs, wear pink underwear. Meanwhile, his more serious transgressions receive far less attention. Arpaio has created citizen posses to track down and arrest illegal immigrants, overseen a jail staff that has violently abused inmates (resulting in the death of three prisoners and the paralysis of a fourth), and used law enforcement resources to harass and intimidate his political opponents.

Arpaio will join a now three-way race with Rep. Marth McSally and state Sen. Kelli Ward to be the Republican nominee to replace outgoing senator Jeff Flake. If elected, Arpaio would vote to confirm nominees to the federal bench, the same institution that held him in contempt.

Arpaio, not content with his pardon, is still fighting to have the conviction completely erased from his record. A U.S. District Judge denied that request in October, but Arpaio’s lawyers have filed an appeal to the Ninth Circuit Court of Appeals.

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Bill Blain: “There Is Just So Much Nonsense Out There In The Global Markets”

Submitted by Bill Blain of Mint Partners

So many improbable things in this market – how long can it last?

“If you don’t know where you are going, any road can take you there….” 

Oh, I have missed this market so much during the holiday season. I’m just catching up on the infinite jest, hypocrisy, comedy and pathos it throws our way every day! Today is no exception – there is just so much nonsense out there in the global markets…. How many improbable impossible things did you spot before breakfast this morning?

I’m surprised Donald Trump didn’t feel it necessary to tweet about the inequity of Greek 2 year bonds now yielding considerably less than US 2-year Treasuries… What does that tell us about the respective might of Europe’s fast-growing economic recovery miracle vs the debt ridden, inflation-addled, and politically rudderless US of A? Hah… (US Readers: Sarcasm Alert). Fake News Fake News!

Meanwhile, as we all struggle with the intricacies of MiFID 2, I idly wonder if the ECB dumped its holding in Steinhoff bonds before Europe’s new regulatory dictum went live on Jan 3rd.

Maybe not… there was a 5 cent price collapse on Friday’s. Wonder why? Not that I’m inferring anything underhand or wrong about Europe’s central bank dumping a ton of corporate coprolites on a market struggling to come to terms with the declining credit. (Extra points if you know what a coprolite is.) Not at all. Who would even suggest such a thing? After all.. the ECB’s corporate bond buying programme wasn’t set up with market stability in mind… was it?

While other investors follow their investment guidelines and polices, and hold the bonds because to dump them might look like panic, and they remain in the indices, the ECB justifies dumping them on the basis they no longer met their credit criteria. Nice. It’s as good a reason to run for the hills as any other. And in thin holiday markets, who would notice? No wonder no one wants to underwrite bonds any more.

Bear in mind the ECB holds about €132 bln of corporate debt – about 18% of the total outstanding amount in the 1064 corporate bonds it holds. Who could possibly think their actions might have any influence on price or sentiment? Clue: in markets struggling with real liquidity and a sinking feeling that transparency has been imposed by regulatory fiat, rather than real (who said that!) markets… what possible harm can an unstable holder possibly do markets?

Markets fret about what will happen to corporate bond spreads when the ECB cuts it buying programme to €30 bln and then zero. A little less distortion might be a good thing. On the other hand, smart traders will be pricking their bond lists and noting “Wobbly Unstable Holder” on the bonds the ECB holds… any negative news, wait for the market to tumble on fears the ECB will wobble, and buy ‘em cheap.

Nothing is impossible in bond markets. Remember Blain’s Market Mantra No 3 – The Market Has No Memory. To illustrate that let me refer you to a great story from one my favourite market journalists, Marcus Ashworth of Bloomberg.

This is the surprising tale of how Monte Dei Paschi (the world’s oldest bank, and incidently the first bank I ever did a deal for way back in the mid-80s), bailed-in its junior investors just last year, yet has successfully launched and sold new subordinated debt in the first week of the new year. Wowser! Apparently, January is a good time, because that’s when people are most susceptible to taking impronbable risk! Despite all the government talk about banks no longer being too big fail, the Italian corollary of that rule is “banks are not too big to fail, unless they are Italian when other rules apply…”

A good number of Financial Institution Investors tell me they are buyers because they are arbitraging the likelihood Italian authorities will do anything to avoid the “embarrassment” of another bail-in by ensuring the bank “avoids” further problems. No wonder other European countries’ financial authorities are rolling their eyes heavenwards at the prospect of being embroiled in a banking union that includes Italy, and is certainly going to involve more Italian banking crisis.  

And then there is the Melt-Up – expression of the year thus far – in Emerging Markets. Index records have been breached as everyone buys into the story they are this year’s hot performing sector. Buy ‘em now before you miss the chance. Anyone for some Angola?

And lets not forget stocks. With Japan now everyone’s favourite stock market, I was a tad surprised to hear someone joke; “The Nikkei – Japan’s answer to Bitcoin”. Of course, they were only joking.. weren’t they?

One thing that does have me very nervous is the massive number of articles now saying further stock market gains are inevitable. Nobody seems to worry there might be downside or even a modest correction. Instead I read this boom is not even close in terms of day count to previous winning streaks, and the coming earnings season will simply confirm the buy signals. Everyone is fully invested in the Global Synchronised Growth “Melt-Up” story.

I must admit I am feeling a tad humiliated by stock market performance. Last year I fully subscribed to the Growth Story, but reckoned stocks had moved too fast. I expected a correction – so I parked cash in liquid fund and waited for the inevitable 7-10% correction. It didn’t happen. I’ve missed 10% upside. I feel a fool…

I shall comfort myself by reminding readers of Blain’s No I Mantra: “The Market has but one objective: to inflict the maximum amount of pain on the maximum amount of participants.”

 

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Global Stocks Are The Most Overbought Since Right Before 1987 Bloodbath

While world stocks are on their longest streak (without a 5% correction) in history, the last few weeks have seen that exuberance accelerate with MSCI World now at its most ‘overbought’ since the summer of 1987… and we know what happened next.

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But this global euphoria is ‘trumped’ by the melt-up in US stocks, and as Bloomberg reports, John Murphy, StockCharts.com’s chief technical analyst, warns U.S. stocks have shown so much momentum lately “that 2018 may not end as well as it started.”

Murphy cited 14-week and 14-month relative strength indexes for the S&P 500 Index in a blog posting Saturday.

Data compiled by Bloomberg shows the weekly RSI, displayed in the chart, closed Friday at 85.27 — the highest since January 1959.

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The monthly RSI ended last week at 86.07, above every month-end reading since June 1996.

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And as Morgan Stanely notes, these extremes of relative strength do not end well.

In the past, when the RSI has peaked above 80 an average correction of -3.5% has followed one month later.

The corrections have ranged from -0.8% to -7.7% (Exhibit below).

In our view, a pull back feels close and it is now just a matter of time. We would be buyers of that pullback but think it is prudent for investors who are looking to add risk to wait at this point.

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However, histoical facts aside, JPMorgan disagrees that an extreme overbought signal is worrisome.

While a rally has pushed S&P 500’s relative strength index to levels not seen since the dot-com era, that alone is no evidence that a bubble is forming in the stock market, JPMorgan’s technical analyst Jason Hunter writes in a note.

And finally, as Bloomberg reports, euphoria on Wall Street that stocks can just keep on building on record highs is getting so stratospheric that it’s reaching levels that previously signaled a slump.

Analysts are ratcheting up their forecasts for U.S. corporate profits at the fastest pace in more than 10 years, according to the research firm Bespoke Investment Group. And that’s happening, unusually, right in the run-up to an earnings-season kick-off.

 

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While the upgrades could be taken as a positive reflection on the economy’s outlook, in the past such bullish analyst sentiment has served as a precursor to a market decline.

 

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The last time the gap between analysts lifting forecasts and those lowering estimates was this wide was in May 2010. The divergence at the time widened after the U.S. S&P 500 Index had climbed more than 10 percent over the previous three months. Just before analyst sentiment peaked, stock prices also topped out, and the index slid more than 15 percent.

And more and more major firms are warning against complacency. As Bloomberg reports, while riskier assets have recorded further gains in the first trading week of the year, Mark Schofield at Citi warned the potential payoff from such trades is diminishing.

“It is too early to call an end to the bull-market in risk assets but the risk/reward profile is deteriorating as expected returns peak and volatility begins to rise. Asset allocators must weigh up where we are in the business cycle, and what comes next. The ‘Goldilocks’ environment cannot last forever; a plateau in growth would be more bearish than a pick-up in inflation.”

Meanwhile, Joachim Fels at Pimco points to signs that U.S. jobs growth may be peaking as a “a clear sign that we are reaching the later stages of the business cycle” — a fact that also increases the chance of an inflation overshoot.

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Trump Will Attend 2018 World Economic Forum In Davos

A White House official told the New York Times on Tuesday that President Donald Trump will attend the 48th World Economic Forum in Davos, Switzerland later this month, making him the first sitting US president since the Clinton administration to attend the annual gathering of world leaders and captains of industry.

Referred to simply as “Davos”, the event is a haven of privilege and wealth. In recent years, it has begun to attract celebrities like Bono and Matt Damon.

Sarah Sanders said Trump is excited to attend the forum in the Swiss Alps. The forum will be his fifth foreign trip as president.

“The President welcomes opportunities to advance his America First agenda with world leaders,” Sanders said. “At this year’s World Economic Forum, the President looks forward to promoting his policies to strengthen American businesses, American industries and American workers.”

Last year, Trump avoided the conference – it unfolded during the same week as his inauguration – while its attendees were forced to confront the political realities of Trump’s upset victory over Democrat Hillary Clinton: Namely that widening wealth inequality was helping stoke the rise of populist movements in the US, Asia and Europe.

While the president might be looking forward to “advancing his America First agenda” – whatever that means – the event’s organizers don’t seem very receptive. The theme of this year’s event – “Creating a Shared Future in a Fractured World” –  takes an oblique swipe at Trump’s decision to withdraw the US from the Paris Accords, the Trans-Pacific Partnership as well as his decision to reauthorize some sanctions against Iran.

There’s also the question of whether Trump will encounter his erstwhile rival. The Clintons are regular attendees. While Barack Obama avoided Davos during his time in office, it’s possible he might make an appearance now that he’s a private citizen.

 

Trump

As CNN  pointed out, American administrations regularly send representatives to Davos, but presidents typically decline to attend. Aside from Clinton, Ronald Reagan spoke to the forum via satellite as president. But the Bushes and Obama avoided the gathering.

Though Vice Presidents Dick Cheney and Joe Biden both attended the forum while they were in office.

The forum runs from Jan. 23 through Jan. 26, ending just days before Trump’s State of the Union address, which is scheduled for Jan. 30. His attendance is also surprising because it will overlap with Nafta negotiations, which are set to take place between Jan. 23 and Jan. 28.

The event is a magnet for the world’s richest people. With a personal fortune of just under $3 billion, Trump doesn’t make Bloomberg’s list of the 500 richest people.

Davos

According to the Wall Street Journal, last year’s attendees included Google co-founder Sergey Brin, British Prime Minister Theresa May and Chinese President Xi Jinping.

Even former White House Communications Director Anthony Scaramucci appeared in a panel at Davos last year.

At Davos, Trump will come face-to-face with many of the global elites that he attacked during his campaign. The event’s reputation as a bastion of elitist principles, like free trade, should make his attendance all the more interesting. But since the event is also a haven for world leaders, it could give Trump an opportunity to engage in some casual diplomacy as he seeks to rally support for his decision to move the US’s Israeli embassy to Jerusalem while also recruiting more countries to severe economic and political ties with North Korea and Iran.

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Kodak Announces Launch Of “Kodakcoin”, Stocks Surges 50%

Now that it is all too clear to everyone that all it takes to send your microcap stock price soaring anywhere between 50% and 500% or more, is to either add “Blockchain” to the company name, or announce some “Cryptocurrency initiative” as we showed two weeks ago, moments ago former camera and film giant Eastman Kodak did both, sending its stock soaring as much as 77%.

In a press release on Tuesday afternoon, Kodak stock soared after the recently insolvent photography company said it would launch the Kodakcoin, “a photocentric cryptocurrency to empower photographers and agencies to take greater control in image rights management.”

From the press release:

Today Kodak and WENN Digital, in a licensing partnership, announced the launch of the KODAKOne image rights management platform and KODAKCoin, a photo-centric cryptocurrency to empower photographers and agencies to take greater control in image rights management.

Utilizing blockchain technology, the KODAKOne platform will create an encrypted, digital ledger of rights ownership for photographers to register both new and archive work that they can then license within the platform. With KODAKCoin, participating photographers are invited to take part in a new economy for photography, receive payment for licensing their work immediately upon sale, and for both professional and amateur photographers, sell their work confidently on a secure blockchain platform. KODAKOne platform provides continual web crawling in order to monitor and protect the IP of the images registered in the KODAKOne system. Where unlicensed usage of images is detected, the KODAKOne platform can efficiently manage the post-licensing process in order to reward photographers.

The immediate result is shown below:

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But wait, it gets better, because in the press release, Kodak actually goes so far to mock the fact that “blockchain” and “Cryptocurrency” have become hot buzzwords, something Kodak is disgusted by… but will gladly take the 50% stock spike. To wit:

For many in the tech industry, ‘blockchain’ and ‘cryptocurrency’ are hot buzzwords, but for photographers who’ve long struggled to assert control over their work and how it’s used, these buzzwords are the keys to solving what felt like an unsolvable problem,” said Kodak CEO Jeff Clarke. “Kodak has always sought to democratize photography and make licensing fair to artists. These technologies give the photography community an innovative and easy way to do just that.”

As for Kodak, these “buzzwords” are a shortcut to nearly doubling the stock in seconds.

 

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The move comes as investors continue to bid up virtually any asset related to cryptos or the blockchain technology that underpins them, no matter how ridiculous or tenuous the tie. Microcaps previously involved in sports bras, fruit juices and teas have made the move and been rewarded with spikes in their share prices.

As for Kodak, the company emerged from bankruptcy in 2013 after selling off most of its patents to companies including Apple and Microsoft. The Rochester, New York-based company now focuses on digital photography and printing, as well as licensing agreements, and judging by its stock price, another bankruptcy may be inevitable unless the company somehow manages to capitalize on its brand new cryptocurrency.

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Exchanging Dirty Jokes Is Now a ‘Sexual Relationship’ at George Washington University

Longtime professor Catherine Woytowicz is suing George Washington University (GWU) for how it handled a sexual harassment complaint against her. The complaint against Woytowicz was found to be without merit, but the school nonetheless dropped Woytowicz as an adjunct assistant professor—another casualty of the convoluted, secretive, and often unfair harassment proceedings that have overtaken U.S. schools.

For 17 years, Woytowicz taught part-time at the university, presiding over more than 65 courses in its chemistry and international relations departments while working full-time elsewhere. By myriad accounts, “Dr. Cat” was a compelling and effective instructor, winning accolades from her students and awards from the school.

But Woytowicz’s good standing with the university started crumbling in January 2016, when one of her former students accused her of sexual harassment. The student, labeled John Doe in court proceedings, had taken chemistry courses with Woytowicz in 2015. During this time, he claimed, Woytowicz “overtly pursued a sexual relationship with him and threatened academic and professional consequences if he did not comply,” according to GWU’s motion to dismiss her lawsuit.

Ultimately, “there was insufficient evidence to support a charge of sexual harassment against her,” the motion states. But the school’s Title IX coordinator—the administrator charged with enforcing the federal rule that prohibits sex-based discrimination in education—”determined that Doe had consented to a relationship with Woytowicz,” the motion claims.

Woytowicz maintains that she “has never had, or tried to have, a sexual relationship” with any of her students. She is seeking damages from GWU for violating her constitutional rights to free speech, free association, and due process; violating her right to a employment environment free of sex discrimination; conspiracy to deprive her of constitutionally guaranteed rights; breach of contract; and intentional infliction of emotional distress.

A ‘Nebulous Fog’ of Allegations

Rory Muhammad, Title IX coordinator at GWU, was tasked with investigating Doe’s complaint against Woytowicz. In March 2016, Muhammad emailed Woytowicz to say she was under investigation for alleged violations of the school’s “Sexual Harassment and Sexual Violence Policy and Procedures.”

As is typical of Title IX proceedings, the email provided Woytowicz little information about the allegations against her, according to her suit. It offered nothing on the specific nature of the allegations, or when and where they supposedly occurred. Little more insight could be gleaned from a subsequent meeting with Muhammad: Though it lasted more than two and a half hours, Woytowicz says the explanations offered were a “nebulous fog.”

When Woytowicz asked whether she should retain a lawyer, Muhammad allegedly welcomed to do so but told her that if she did, it would bar any possibility of informal resolution of the student’s complaint and compel GWU to get its own lawyers involved.

While providing little detail about the accusations, Muhammad allegedly peppered Woytowicz with “invasive questions about her personal life and sexual relationships,” her lawsuit states. Throughout the meeting “Muhammad seemed to be gloating,” and at the end

he became loud, hostile, and accusatory. While Prof. Woytowicz was headed out the door, Defendant Muhammad continued shouting questions at her about sex with an adult, who was not a student [at GWU] and had never been a student of the University. Defendant Muhammad asked if Prof. Woytowicz had had sex with this person, and she responded that she had not. Defendant Muhammad asked if Prof. Woytowicz had wanted a “three-way” with this person, and she responded that she did not….Defendant Muhammad never explained his fascination with trying to get Prof. Woytowicz to say she had had sex, or even an unusual desire about sex, concerning an adult nonstudent.

The school claimed to have “hundreds” of texts between Woytowicz and Doe, but she wasn’t allowed to see or be read these texts directly during the meeting. Later, Muhammad would email a list of “phrases, paraphrases, and purported quotations assertedly from text messages” between Woytowicz and Doe, which were said to corroborate “frequency of communication, late hours of communication, meetings, multiple requests to see [the student complainant] or talk to [him], restaurants and drinks,” talking about “emotional feelings,” and “some texts [that] could be interpreted as sexual innuendo.”

Of the 18 purported quotations, “at least some” are “false,” asserts Woytowicz’s suit. While it was not uncommon for her to communicate with students, including Doe, via text, the list provided included “fragments of communications to which [Muhammad] invented context that would make them seem improper,” “cherry-picked words or phrases to suggest something was meant sexually, and ignored the context showing they either had no such meaning or were ambiguous,” it says.

Mentoring or Harassment?

As part of her lawsuit against against GWU—filed in D.C. Superior Court but moved by the school to federal court—Woytowicz provided copies of dozens of emails sent by former students from 2014 to 2016. They suggest a professor who was willing to put in extra effort to help young people succeed: meeting them one on one to discuss med-school applications or internship opportunities, organizing women’s networking events for female chemistry students, taking her classes out for pizza at the end of each semester. Contact with some former students extended years beyond their time in her classroom.

The messages also show Woytowicz engaging in the same sorts of conduct that GWU deemed suspicious in the context of Doe: arranging meetings with current and former students in non-office locales, such as coffee shops; meeting with students during weekend or evening hours (a necessity because of her full-time non-academic work, Woytowicz says); inviting students to cultural or artistic events; inviting students to networking and end-of-semester parties where alcohol was present; offering to meet with current and former students one on one to help with studies or scholarship applications.

After her initial contact with GWU’s Title IX office, Woytowicz attempted to provide context for her communications with Doe in a 74-page response, submitted through her lawyer in May 2016. The response, and Woytowicz’s lawsuit, maintain that it was ordinary professorial behavior which GWU read sinister motives into after a malicious student slung unfounded accusations at her. (The suit also mentions—but never further elaborates on—another component of this response: “Evidence of the student complainant’s motive for bringing a false complaint, to wit, his admitted interest in ‘mindfucking’ her the same way Iago did to Othello and his showing her a sophomoric book on that subject titled ‘Mindfucking.'”)

Woytowicz suggests that school authorities inferred improprieties where there were none, that they took the complaint at face value immediately and then went fishing for evidence to support it, that they never gave Woytowicz a chance to properly defend herself, that they made too much of ribald humor, that they were motivated by “Victorian” or “fundamentalist” views of women, and that they imposed a sexist standard on Woytowicz that was not applied to male professors.

This last bit is a stretch. Anyone who has followed Title IX inquiries at GWU or elsewhere knows that they can be hopelessly flawed and biased against their targets regardless of gender. If anything, wrongly accused men seem to have it worse.

But Woytowicz is absolutely correct that those accused of sexual misconduct in Title IX territory are often presumed guilty by administrators from the get go, that they’re rarely afforded anything like the due process required in courts of law, and that the result can be biased against the accused. And she’s right that the cautious propriety required under Title IX proceedings does cast suspicion on all sorts of once-typical student/professor camaraderie.

Redefining ‘Sexual Relationship’

The root of the injustice here may lie in how Title IX compliance has perverted the normal process for resolving situations like these. The decision to bar Woytowicz from further teaching may have come directly from the heads of the departments she taught in, but Woytowicz was never able to mount a proper defense to them directly—to offer witnesses on her behalf, to offer her own textual record. Even the 74-page response she had submitted rebutting the Title IX Office’s presumptions about her texts was ignored, as it had been emailed by her lawyer and not by her directly. The department heads received the same “nebulous fog” of accusations against Woytowicz as she did, filtered through the topsy-turvy lens of Title IX culture.

In September 2016, Muhammad emailed Woytowicz to say that his review was complete and that he hadn’t found sufficient evidence to support the student’s complaint of sexual harassment. There was evidence, he claimed, that violated the school’s consensual relationship policy by having a sexual relationship with Doe.

Muhammad had not found evidence that Woytowicz and Doe had actually engaged in sex or other physical activity of an erotic or romantic nature. The “sexual relationship” he had discovered consisted of sexually tinged jokes and discussions of sexual themes.

Rather than pursue that investigation further, Muhammad was willing to agree to an “informal resolution” proposed by the chemistry department: Woytowicz would accept a written reprimand for the relationship and undergo anti-sexual-harassment training. Woytowicz rejected this proposal, her lawyer explained, because it “would require her to submit to a written reprimand for conduct of which she knows she is innocent.”

Woytowicz offered to provide additional witnesses and to take a polygraph test. In February 2017, she submitted an affidavit from Doe’s former roommate stating that he regularly saw Doe interact with Woytowicz during this period but “never [saw] anything indicating to me that there was a sexual relationship” between them, and that from what he “could see of their relationship, it seemed inconsistent with there having been a sexual relationship between them.”

In March 2017, Christopher Alan Bracey, a vice provost and law professor at GWU, informed Woytowicz that his review of her case was complete and he had “decided not to initiate a formal hearing” against her.

Meanwhile, new instructors were appointed to Woytowicz’s usual courses for the upcoming semester.

The School Responds

In its motion to dismiss Woytowicz’s complaint, the school maintains that many of the things Woytowicz characterized as ordinary professorial interactions are in fact problematic. It also introduces a range of other alleged activity that Woytowicz did not mention in her complaint. If these things are true, it’s more understandable why the university may have wanted to sever ties with Woytowicz.

GWU accuses Woytowicz of exchanging “salacious and suggestive” text messages with Doe, in which she “seemed to delight in writing double entendres to her student about the size and shape of the male organ and about oral and anal sex.” (No quotes from or copies of these exchanges are provided.) The university claims that Woytowicz “provided [Doe] with alcoholic beverages even though she would have known he was not old enough to consume them legally” and that “on at least one occasion, she bit Doe on the neck.”

Woytowicz is also accused of having “a sexual encounter at Doe’s apartment with Doe’s friend” (who was not a GWU student) and “allow[ing] herself to be photographed [with the friend] in a warm embrace.”

“The University could not allow a professor to conduct herself with undergraduate students in this way,” states the GWU motion. “Something had to be done.”

But because Title IX inquiries operate in some nebulous land between the U.S. legal system and corporate HR departments, it’s hard to know how much weight to give the above statements. It’s unclear on what, if any, evidence the university has for these allegations, or how Woytowicz might counter them if she were given a chance to defend herself against them. The school also fails to state when the alleged activity occurred—a crucial detail, considering that Doe’s contact with Woytowicz extended after he was in her class.

Or maybe not: The university’s motion says that “the consensual sexual relationship provision” of GWU policy is actually “irrelevant for purposes of this motion.” It doesn’t matter, the school says, if Woytowicz never strictly violated its policies on sexual harassment, consensual relationships, or anything else. GWU is a private employer, Woytowicz was an adjunct professor, and the heads of the chemistry and international relations departments can stop assigning courses to her as they see fit, no particular violation required.

The Constitution “simply [does] not apply to private actors such as the University and its employees,” GWU added. That’s certainly true. But to the extent that federal policy is responsible for the school’s behavior, Woytowicz has a strong case that her constitutional rights have been crushed, even if George Washington isn’t the entity that trampled them.

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3-Year Auction Prices At Highest Yield Since May 2007

The rapidly rising yields on short-term TSY auctions is making them increasingly attractive to investors, as the just concluded strong sale of $24 billion in 3Y paper – the first note auction of 2018 – demonstrated.

Printing at a high yield of 2.080%, demand for 3Y paper,  CUSIP 9128283Q1, stopped through the When Issued 2.086% by 0.6 bps, and was the highest since 4.574% in May of 2007.

The internals were also strong, with the Bid to Cover printing at 3.13, below last month’s 3.15, but above the 6 month average of 2.908. Total bids of $75.9b for $24.8b in notes sold vs six previous auction average of $71.6b in bids for average of $25.8b in notes sold.

As Bloomberg notes, summarizing sellside sentiment, the auction was expected to offer “outright value and some concession on the fly against immediate peers, though a perceived inflation pickup could have limited demand for the issue as odds of Fed rate hike in March advance.”

And sure enough, the demand was there. The only potential weakness was the drop in Indirects, which dropped from 59.0% in December to 54.9% in january, if in-line with the 6 month auction average. Directs were awarded 11.5% of the final takedown, the highest since July 2016 and above the 6 month average of 9.0%, leaving Dealers holding 33.6% of the auction, the same as December, and just below the 6MMA of 36.1%.

Overall, this was a very strong auction and hardly indicative of a Treasury bull market tombstone, as Bill Gross declared earlier.

 

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Kenya Plunged Into Darkness (Exactly One Year After Last National Blackout)

In an extremely odd coincidence, one year after a massive power outage left Nairobi in darkness, most parts of the nation of Kenya is plunged into darkness tonight due to a widespread blackout.

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As Kenya’s Daily Nation reports, in a statement, Kenya Power said a power system disturbance caused the outage, but “engineers are battling to identify the fault and restore power supply as quickly as possible.”

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Many traders countrywide were forced to close their businesses early due to the blackout.

In Chuka Town, Tharaka-Nithi County, hotel manager Jane Kathoni told the Nation that she was caught off guard because her back-up power generator was faulty.

She said she might a huge loss if the power is not back soon, as there was a lot of food in refrigerators at the hotel.

“If the power outage continues, it will cause a lot of loss,” said MS Kathoni.

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In western Kenya, many hospitals resorted to emergency back-up generators.

Dr Juliana Otieno, the CEO of the Jaramogi Oginga Odinga Referral Hospital in Kisumu County, said: “I have a very powerful generator. [The hospital] would really suffer before, but now, even my nursery is functional.”

The rest of the town, including the central business district, was in darkness; except in areas with back-up generators.

The disturbance is also affecting Uganda…

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The Swiss National Bank Made $55 Billion In Profits Last Year, More Than Apple, JPM And Berkshire

With a total return of over 22%, the S&P 500 shrugged off international and domestic strife, disappearing trading volumes and three Federal Reserve interest-rate hikes to put in its best annual performance since 2013. And while the rising tide lifted all boats – even long-short equity funds returned 10%, if still underperforming the S&P – the Swiss National Bank, essentially one of the world’s biggest government-backed hedge funds (second only to the ECB) with a taste for megacap US tech stocks, had one of its best years in recent memory.

SNB

And, as the SNB reported overnight, the SNB’s purchases of foreign stocks and bonds netted it a hefty profit in 2017, if only on paper. As has been duly reported here for years, to prevent the Swiss franc from strengthening dramatically, the SNB prints francs (out of thin air) and injects them into the international market. The foreign currency it receives in exchange for its francs are used to buy – you guessed it – bonds but mostly stocks.

SNBFIVE

But while it has long been known that the SNB, along with the BOJ, directly purchase equities and ETFs in the open market, what was stunning in the SNB’s statement is that it expects to report an annual return of 54 billion francs ($55 billion) – a sum equivalent to 8% of Switzerland’s GDP.  As the WSJ observes, this amount is greater than the annual profit at Apple, J.P. Morgan, Berkshire, Wells or Microsoft.

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By comparison, the Fed has earned an annual profit of about $100 billion in recent years, although the SNB’s return is equivalent to a much larger slice of its GDP, as a result of the different types of asset holdings: the Fed is long Treasurys and MBS while the SNB has been buying pretty much everything, including tens of billions in US stocks.

In its latest release, the SNB also reported that it has accumulated about 760BN francs in foreign bonds and stocks through years of foreign-exchange interventions, particularly during Europe’s debt crisis, in which it created francs and used them to purchase foreign assets in a bid to weaken the currency.

As the WSJ puts it, with just the right amount of snark, “Switzerland got a lot wealthier in 2017, thanks to its central bank’s emergence as a major money manager with a near $800 billion portfolio of foreign stocks and bonds.” More:

The Swiss National Bank said Tuesday it expects to report a record annual profit of 54 billion Swiss francs ($55 billion) for last year—a staggering sum equal to 8% of the country’s entire gross domestic product…  The profit is gargantuan. It is more than Apple earns in a year, and more than JPMorgan Chase & Co. and Berkshire Hathaway Inc. combined. Those are all giant, world-spanning corporations. The SNB employs about 800 people. Its chairman—among the best-paid central bankers—earns about $1 million a year.

The SNB is one of the few central banks with listed shares. Its share price more than doubled last year, and was up nearly 3% midday Tuesday.

Of course, this isn’t a real “profit” as the Swiss can’t spend this massive windfall. Obviously, booking the profits would require the SNB to sell some of its foreign bonds and stocks that included nearly $3 billion in Apple stock and $1.5 billion in Facebook at the end of the third quarter.

So what does the SNB do? Well, while central banks like the Federal Reserve transfer most of their profits to their governments, the SNB is in the early stages of a five-year profit-sharing arrangement whereby the maximum amount it can transfer to the Swiss federal and regional governments is just two billion francs a year.

That agreement runs until 2020.  In other words, the SNB is hoping that the market does not crash in the next 2 years or else all those accrued profits will become instant losses.

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So what stocks did the SNB buy in recent months? Unfortunately, the SNB’s 13-F for Q4 won’t arrive for another month, but during Q3, the central bank went on yet another buying spree, boosting its total holdings of US stocks to an all time high of $87.8 billion, up 4.2%, or $3.5 billion, from $84.3 billion at the end of the second quarter.

Unlike the Fed, ECB and BOJ, the SNB’s balance sheet is overwhelmingly comprised of foreign assets, exposing it to significant foreign exchange risk. Avoiding paper losses due to FX risk is just another incentive for the central bank to keep printing francs and accumulating more foreign assets. The weaker the franc, the higher the central bank’s return, which means any time your P&L goes against you… why you just print some more fiat and buy stocks with it.

The SNB’s profit was lifted by a trio of positive forces: low bond yields preserved the value of its foreign bonds that account for 80% of its foreign reserves; higher stock prices raised the value of its equity holdings and the weaker Swiss currency made those foreign assets worth more in franc terms.

The euro strengthened nearly 10% against the franc last year. Euro-denominated assets are the largest currency holding of the SNB, followed by the dollar.

The SNB said 49 billion francs of its profits came from its foreign assets. Its gold holdings increased in value by about three billion francs last year, and its Swiss franc positions by two billion francs.

The SNB hasn’t reported a loss since 2015, when it abandoned its ceiling for the franc-euro exchange rate, causing the franc to massively and rapidly appreciate. It ended the year with a 23 billion franc loss.

Meanwhile, as we showed last quarter, this is a breakdown of the SNB’s US stock holdings, which have more than doubled in the past 2 years.

SNB

While one might assume that these gains will somehow benefit the Swiss people, the SNB is currently in a profit sharing arrangement with the Swiss government that caps the government’s share of profits at 2 billion francs. The agreement runs until 2020.

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Under the agreement, private shareholders will receive a small return – CHF1.5 million annually. These shareholders have little say over how the bank is run, but it’s important to understand that private investors can buy shares in the SNB as they would any other Swiss stock. Though the central bank is mostly owned by Swiss states, known as cantons, and cantonal banks.

SNB shares were up 2% in midday trading on Tuesday, just shy of record highs reached last year.

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According to WSJ, the SNB said it would allocate about five billion francs to its provisions that guard against future fluctuations in exchange rates. The rest of its paper profits will go to a distribution reserve to ensure that the SNB can still make future payouts even in the event of a loss.

And nowhere are the SNB’s profits tied more closely than to the fate of Apple stock, which remains the SNB’s top investment.

Apple

As we showed a few months ago, the central bank increased its Apple stake to 19.2 million shares, making it a larger holder of AAPL stock than Schwab and Franklin Resources and just behind Janus with 20 million shares. One can’t help but wonder if the SNB continued buying Apple during the fourth quarter, helping lift the broader Nasdaq pushing it above 7,000.

As central banks talk about reeling in their monetary stimulus – the Fed expects to raise interest rates three more times this year while tapering its balance sheet, while the ECB has already started to decrease the size of its purchases – the SNB remains a notable outlier. Because when you’re racking up profits like the SNB is, what incentive is there to change one’s behavior.

Finally, if you’re printing the money that you’re playing with, where is the risk, and why even pretend that the world still has “efficient and rational” capital markets?

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