Biden Campaign Threatens To “Escort Trespassers From The White House”

Biden Campaign Threatens To “Escort Trespassers From The White House”

Tyler Durden

Fri, 11/06/2020 – 13:19

Authored by Paul Joseph Watson via Summit News,

With the media about to declare Joe Biden victorious as Donald Trump vows to fight on in court, the Biden campaign has publicly threatened to ‘escort trespassers from the White House.’

Last night, President Trump gave a speech asserting that he wouldn’t allow an election to be “stolen like this.”

“We think there’s going to be a lot of litigation because we have so much evidence, so much proof, it’s going to end up perhaps at the highest court in the land, you’ll see,” said Trump.

The Trump campaign also released a statement insisting, “This election is not over.”

However, Team Biden responded with an open threat to physically remove Trump from the White House if necessary.

A spokesperson for Biden responded:

“The United States government is capable of escorting trespassers from the White House.”

As we previously reported, the Chairman of the Joint Chiefs of Staff Mark Milley met with TV network anchors last weekend to inform them that the U.S. Military would not intervene in the election.

Milley sought to “dispel any notion of a role for the military in adjudicating a disputed election or making any decision around removing a president from the White House.”

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The Senate Judiciary Committee in the 117th Congress

The 117th Congress will assemble on January 3, 2021. As the vote stands now, the Democrats will have at least 48 seats in the Senate. They successfully flipped Republican-held seats in Colorado and Arizona. And the Republicans will have at least 48 seats in the Senate. The Alaska and North Carolina races have not been called yet, but the Republicans will probably hold both seats. Therefore, I will presume that the Republicans will have at least 50 seats on the Senate.

The two Georgia seats are headed for runoff elections on January 5. But the current two Georgia senators–Perdue and Loeffler–will lose their positions on January 3 when the new Congress meets. At that point, I believe the Governor can fill the Senate vacancy by appointment. (If I’m wrong about this point, please email me). Presumably, the Georgia Governor, a Republican, will select Perdue and Loeffler immediately upon their positions becoming vacant. They would then hold those seats until the results of the January 5 election are certified. It might only be for a few days.

If both Perdue and Loeffler prevail, the Republicans would then have a 52-48 majority. If one prevails, the Republicans would have a 51-49 majority. If both lose, the Senate would be split 50-50. When the Senate is split, the majority is determined by the vote of the Vice President, as President of the Senate. The Senate has only been evenly divided three times: 1881, 1953, and 2000. The most recent tie didn’t last long. In May 2001, Senator Jim Jeffords switched from the Republican party to the Democrat party, giving the Democrats control over the Senate.

Vice President Pence remains the President of the Senate until January 20. Therefore, with a 50-50 majority, the Republicans would still keep control of the chamber. With a 50-50 tie, during the period from January 3 through January 20, Senator McConnell will remain the majority leader. (Here, I will presume that the current votes hold, and Biden is elected). But on January 20, Vice President Harris would break the tie the other way for the Democrats. Senator Schumer would become the majority leader. And Senator Feinstein, or more likely someone else, would take the gavel for the Senate Judiciary Committee. The Committee could schedule votes on all of Biden’s nominees, and they would pass through on a party line vote. At that point, a floor vote would be held, and the nominee would be confirmed on a near-party line vote.

If the Republicans hold the Senate with a 51-49 or 52-48 vote, the Republicans would maintain control of the Senate Judiciary Committee. At that point, the Chairman of the Senate Judiciary Committee becomes, very, very powerful. He would have the power to decide which nominees receive a hearing and a vote. The chairman could effectively hold up all nominations to the executive branch, as well as to the judiciary. Moreover, even if a hearing and vote is held, the Republicans could simply vote down Biden’s nominees. Imagine that the committee votes down Biden’s nominee for the Supreme Court. It is unclear that Leader McConnell would give a nominee a floor vote if he is voted down in committee. The more likely response is “nominate someone else.” I can even see a scenario where cabinet nominee are voted down. We may be stuck with Acting Attorney General Jeff Rosen for some time. (Remember Sally Yates?)

These thoughts are somewhat tentative. Please email me if I got anything wrong.

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The Senate Judiciary Committee in the 117th Congress

The 117th Congress will assemble on January 3, 2021. As the vote stands now, the Democrats will have at least 48 seats in the Senate. They successfully flipped Republican-held seats in Colorado and Arizona. And the Republicans will have at least 48 seats in the Senate. The Alaska and North Carolina races have not been called yet, but the Republicans will probably hold both seats. Therefore, I will presume that the Republicans will have at least 50 seats on the Senate.

The two Georgia seats are headed for runoff elections on January 5. But the current two Georgia senators–Perdue and Loeffler–will lose their positions on January 3 when the new Congress meets. At that point, I believe the Governor can fill the Senate vacancy by appointment. (If I’m wrong about this point, please email me). Presumably, the Georgia Governor, a Republican, will select Perdue and Loeffler immediately upon their positions becoming vacant. They would then hold those seats until the results of the January 5 election are certified. It might only be for a few days.

If both Perdue and Loeffler prevail, the Republicans would then have a 52-48 majority. If one prevails, the Republicans would have a 51-49 majority. If both lose, the Senate would be split 50-50. When the Senate is split, the majority is determined by the vote of the Vice President, as President of the Senate. The Senate has only been evenly divided three times: 1881, 1953, and 2000. The most recent tie didn’t last long. In May 2001, Senator Jim Jeffords switched from the Republican party to the Democrat party, giving the Democrats control over the Senate.

Vice President Pence remains the President of the Senate until January 20. Therefore, with a 50-50 majority, the Republicans would still keep control of the chamber. With a 50-50 tie, during the period from January 3 through January 20, Senator McConnell will remain the majority leader. (Here, I will presume that the current votes hold, and Biden is elected). But on January 20, Vice President Harris would break the tie the other way for the Democrats. Senator Schumer would become the majority leader. And Senator Feinstein, or more likely someone else, would take the gavel for the Senate Judiciary Committee. The Committee could schedule votes on all of Biden’s nominees, and they would pass through on a party line vote. At that point, a floor vote would be held, and the nominee would be confirmed on a near-party line vote.

If the Republicans hold the Senate with a 51-49 or 52-48 vote, the Republicans would maintain control of the Senate Judiciary Committee. At that point, the Chairman of the Senate Judiciary Committee becomes, very, very powerful. He would have the power to decide which nominees receive a hearing and a vote. The chairman could effectively hold up nominations to the executive branch, as well as to the judiciary. Moreover, even if a hearing and vote is held, the Republicans could simply vote down Biden’s nominees. Imagine that the committee votes down Biden’s nominee for the Supreme Court. It is unclear that Leader McConnell would give a nominee a floor vote if he is voted down in committee. The more likely response is “nominate someone else.” I can even see a scenario where cabinet nominee are voted down. We may be stuck with Acting Attorney General Jeff Rosen for some time. (Remember Sally Yates?)

These thoughts are somewhat tentative. Please email me if I got anything wrong.

Update: I initially wrote that Senator Graham would remain the chair of the SJC, but I was mistaken. Senator Grassley is slated to resume chairmanship of the SJC.

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New Jersey Slaps Lyft With $16 Million Tax Bill, Continuing Pressure On “Gig Economy” Business Model

New Jersey Slaps Lyft With $16 Million Tax Bill, Continuing Pressure On “Gig Economy” Business Model

Tyler Durden

Fri, 11/06/2020 – 13:05

While Uber and Lyft may have found some respite on Election Day, with California voters allowing the two companies to continue to function as “gig” companies that don’t need to take on the liabilities of employing their independent contractors, that doesn’t mean the ridesharing giants won’t face continued business model pressures elsewhere in the country.

Right now, one of those pressures is coming from New Jersey, where regulators are seeking $16 million from Lyft for unemployment and disability taxes that include back pay and interest. The New Jersey Department of Labor and Workforce Development is seeking similar unpaid taxes from Uber. Last year, the state told Uber it owed it $650 million after an audit.

The state’s argument is that worker classification standards makes it difficult to run a business with contractors only, according to Bloomberg Law. The state’s determinations against the companies could easily mutate into demands that the companies pay drivers minimum wages and overtime under state law.

 

That would increase operating costs between 20% and 40% for Uber and Lyft, if enforced.

Rachael Kohl, an assistant law professor at the University of Michigan, said: “There are a lot of benefits to businesses to hire independent contractors to avoid all the laws that govern workers. In New Jersey, it’s been determined they misclassified everybody and if the companies are employers, they should have been paying the tax.”

New Jersey’s Labor Department reached out in a letter to Lyft on August 14 detailing the amount it says the company owes. The company responded by disagreeing and requesting a hearing on September 10. 

Lyft responded: “Drivers are correctly classified as independent contractors and overwhelmingly want to remain that way by a 4-to-1 margin. Efforts to force them to be employees would have dire economic consequences and cost thousands of jobs.”

At the same time, Uber remains in the midst of fighting its audit. 

The worker classification issue was thrust into the spotlight as the pandemic started. Many drivers saw their driving opportunities dry up, while others filed for unemployment and disability. A spokesperson for the NJ Labor Department said: “When a company doesn’t make contributions to the unemployment trust fund, drivers who are deemed employees still receive benefits when they file claims.”

As we noted days ago, California voters approved Proposition 22 Tuesday evening, which would exempt gig-economy companies from a state law requiring them to classify their workers as employees. The ballot measure mandates that these companies’ drivers will receive new benefits, such as hourly earnings of some sort but will not receive the full suite of employment protections that comes with normal jobs. 

Uber and Lyft, along with other gig-economy companies, spent more than $200 million to fund “Yes on 22,” the costliest ballot measure in state history. Uber and Lyft had threatened to leave the state if they lost. 

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Georgia Will Recount Its Presidential Votes. Other States Might Too.

zumaamericastwentynine038945

As more states finish counting votes on Friday and throughout the weekend, the presidential election might seem like it’s almost over.

It’s not.

Recounts loom in Georgia and Wisconsin at least, and perhaps also in Pennsylvania, Arizona, and Nevada, where the margins between former Vice President Joe Biden and President Donald Trump remain slim. After overtaking Trump in Georgia and Pennsylvania, Biden leads in enough states to clinch the presidency—but those leads remain tenuous, and major media outlets have not yet called the race for either candidate, though Decision Desk, an independent vote-counting operation, has called both Pennsylvania and the race for Biden.

The bigger question at this point is not whether recounts will happen, but whether they will affect the overall outcome of the race.

Take Georgia, for example. As of noon on Friday, Biden led in Georgia by fewer than 1,600 votes—a margin of less than 0.1 percent of the more than 4.8 million votes counted so far in the state.

“With a margin that small, there will be a recount in Georgia,” said their Republican Secretary of State Brad Raffensperger in a Friday morning press conference.

Georgia state law does not allow for automatic recounts in the event of close races, but candidates are allowed to request recounts in any race decided by less than half of 1 percent. Trump’s campaign would have to wait until counting is finished to make such a request, but Raffensperger seems to believe that outcome is inevitable.

Georgia, however, is not essential for Biden’s most obvious path to the all-important 270 electoral votes. Even if a prolonged recount in the Peach State were to flip the outcome back to Trump, Biden could clinch the presidential race by winning other states.

Pennsylvania, where Biden leads by about 9,700 votes, is the second-closest race at the moment. They have a law requiring automatic recounts in any statewide election decided by less than half of 1 percent—and individual candidates are allowed to ask (and pay) for recounts in races that exceed that threshold.

At the moment, Pennsylvania’s presidential election falls within automatic recount territory, but Biden’s lead is expected to grow as the counting continues. Whether it’s automatic or requested by Trump, a recount there seems likely. And a recount in Pennsylvania is more likely to swing the outcome of the whole election by virtue of Pennsylvania’s 20 electoral votes—though, realistically, Trump’s campaign would have to win recounts in both Georgia and Pennsylvania to have a chance of winning reelection.

The wild card in all this could be Wisconsin, where Trump’s campaign has already initiated a request for a recount. But Biden’s lead in Wisconsin, which has 10 electoral votes, exceeds 20,000 votes. It seems unlikely that a recount would result in a swing that large.

Biden also has a roughly 20,000-vote lead in Nevada, a state without a mandatory recount law. In a statement on Friday, Trump’s campaign alleged that “thousands of individuals” in Nevada “improperly cast ballots,” but it is unclear whether Trump is seeking a recount or taking that issue into the courts.

It should be fairly obvious that the election is far from settled. Trump appears to be losing, but he is entitled to contest the results through recounts in various states and to pursue court challenges against what his campaign calls “irregularities” in vote counting in Pennsylvania and elsewhere. Even with a candidate less personally combative than Trump, it would be premature to expect a concession when so many results remain up in the air.

At the same time, it’s important to keep in mind that Trump’s allegations of widespread voter fraud and talk of a stolen election remain unsubstantiated.

“The president’s allegations of large-scale fraud and theft of the election are just not substantiated,” Sen. Pat Toomey (R–Pa.) said Friday morning. “I’m not aware of any significant wrongdoing here.” Other Republicans including Sens. Susan Collins (R–Maine) and Mitt Romney (R–Utah) have made similar remarks.

The mantra for the past several days has been to keep calm and let the votes be counted. Now, keep calm and let them be recounted, too.

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Senate Inquiry Into Google: Only “Liberal Field Agents Received Vote Reminders” Before Election

Senate Inquiry Into Google: Only “Liberal Field Agents Received Vote Reminders” Before Election

Tyler Durden

Fri, 11/06/2020 – 12:50

Authored by Sara Carter via SaraACarter.com,

Two top GOP Senators sent a letter to Google LLC Chief Executive Officer Sundar Pichai Thursday, questioning the platforms actions during the 2020 presidential elections, and noting that despite its promises to stay neutral the company sent voting reminders to only “liberal field agents” but not to conservatives.

Senate Homeland Security and Governmental Affairs Committee Chairman Ron Johnson, R-Wis., along with Senator’s Ted Cruz, R-Texas, and Mike Lee, R-Utah, informed Pichai that they were aware that an academic monitoring project gathered evidence that Google was sending out voter reminder messages to liberals and not conservatives. The story was first reported Thursday and Google has until November 12 at 5 p.m. to answer the inquiry by the Senators.

Google sent out these reminders to Democrats despite testimony given to Congress that it was not biased.

I sent materials about the monitoring project to Ebony Bowden, a reporter at the New York Post, who was writing a story about the project. I did so knowing that all nypost.com emails are shared with algorithms and employees at Google.

Dr. Robert Epstein

In a letter to Pichai the Senators stated that “on August 6, 2020, Senators Ron Johnson and Mike Lee wrote you regarding your testimony to the House Committee on the Judiciary in which you stated, ‘We won’t do any work, you know, to politically tilt anything one way or the other. It’s against our core values’ In your response to the letter, you reiterated this assertion and further stated, “Google does not modify any products, including Search, to promote a particular political viewpoint…[we] will not do so for the upcoming 2020 presidential election.”

However, on Nov. 4, 2020, Johnson spoke with Dr. Robert Epstein. He asked Epstein if he had determined if his 2020 Election monitoring of Google’s activities uncovered anything suspicious or anything that would be considered politically motivated.

Unfortunately, as we’ve seen in this election is that our media organizations and “Big Tech” worked in concert to ensure that the Democrats would be favored. These massive entities were extraordinary effective at targeting President Donald Trump and those who support him and they have done so from the beginning.

According to the letter to Pichai, this is what Dr. Epstein reported to the Senate:

“In our election monitoring project this year, we recruited a politically-diverse group of 733 field agents in Arizona, Florida, and North Carolina. Through their computers, we were able to preserve more than 400,000 ephemeral experiences that tech companies use to shift opinions and votes and that normally are lost forever.

One of our most disturbing findings so far is that between Monday, October 26th (the day our system became fully operational) and Thursday, October 29th, only our liberal field agents received vote reminders on Google’s home page. Conservatives did not receive even a single vote reminder. This kind of targeting, if present nationwide, could shift millions of votes, in part because Google’s home page is seen 500 million times a day in the U.S.

The good news is that it appears that we got Google to stop this manipulation four days before Election Day. On Thursday, October 29th, I sent materials about the monitoring project to Ebony Bowden, a reporter at the New York Post, who was writing a story about the project. I did so knowing that all nypost.com emails are shared with algorithms and employees at Google.”

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Georgia Will Recount Its Presidential Votes. Other States Might Too.

zumaamericastwentynine038945

As more states finish counting votes on Friday and throughout the weekend, the presidential election might seem like it’s almost over.

It’s not.

Recounts loom in Georgia and Wisconsin at least, and perhaps also in Pennsylvania, Arizona, and Nevada, where the margins between former Vice President Joe Biden and President Donald Trump remain slim. After overtaking Trump in Georgia and Pennsylvania, Biden leads in enough states to clinch the presidency—but those leads remain tenuous, and major media outlets have not yet called the race for either candidate, though Decision Desk, an independent vote-counting operation, has called both Pennsylvania and the race for Biden.

The bigger question at this point is not whether recounts will happen, but whether they will affect the overall outcome of the race.

Take Georgia, for example. As of noon on Friday, Biden led in Georgia by fewer than 1,600 votes—a margin of less than 0.1 percent of the more than 4.8 million votes counted so far in the state.

“With a margin that small, there will be a recount in Georgia,” said their Republican Secretary of State Brad Raffensperger in a Friday morning press conference.

Georgia state law does not allow for automatic recounts in the event of close races, but candidates are allowed to request recounts in any race decided by less than half of 1 percent. Trump’s campaign would have to wait until counting is finished to make such a request, but Raffensperger seems to believe that outcome is inevitable.

Georgia, however, is not essential for Biden’s most obvious path to the all-important 270 electoral votes. Even if a prolonged recount in the Peach State were to flip the outcome back to Trump, Biden could clinch the presidential race by winning other states.

Pennsylvania, where Biden leads by about 9,700 votes, is the second-closest race at the moment. They have a law requiring automatic recounts in any statewide election decided by less than half of 1 percent—and individual candidates are allowed to ask (and pay) for recounts in races that exceed that threshold.

At the moment, Pennsylvania’s presidential election falls within automatic recount territory, but Biden’s lead is expected to grow as the counting continues. Whether it’s automatic or requested by Trump, a recount there seems likely. And a recount in Pennsylvania is more likely to swing the outcome of the whole election by virtue of Pennsylvania’s 20 electoral votes—though, realistically, Trump’s campaign would have to win recounts in both Georgia and Pennsylvania to have a chance of winning reelection.

The wild card in all this could be Wisconsin, where Trump’s campaign has already initiated a request for a recount. But Biden’s lead in Wisconsin, which has 10 electoral votes, exceeds 20,000 votes. It seems unlikely that a recount would result in a swing that large.

Biden also has a roughly 20,000-vote lead in Nevada, a state without a mandatory recount law. In a statement on Friday, Trump’s campaign alleged that “thousands of individuals” in Nevada “improperly cast ballots,” but it is unclear whether Trump is seeking a recount or taking that issue into the courts.

It should be fairly obvious that the election is far from settled. Trump appears to be losing, but he is entitled to contest the results through recounts in various states and to pursue court challenges against what his campaign calls “irregularities” in vote counting in Pennsylvania and elsewhere. Even with a candidate less personally combative than Trump, it would be premature to expect a concession when so many results remain up in the air.

At the same time, it’s important to keep in mind that Trump’s allegations of widespread voter fraud and talk of a stolen election remain unsubstantiated.

“The president’s allegations of large-scale fraud and theft of the election are just not substantiated,” Sen. Pat Toomey (R–Pa.) said Friday morning. “I’m not aware of any significant wrongdoing here.” Other Republicans including Sens. Susan Collins (R–Maine) and Mitt Romney (R–Utah) have made similar remarks.

The mantra for the past several days has been to keep calm and let the votes be counted. Now, keep calm and let them be recounted, too.

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GOP Analyst Raises $170K To Purchase Data, Conduct Deep Dive On Voter Fraud

GOP Analyst Raises $170K To Purchase Data, Conduct Deep Dive On Voter Fraud

Tyler Durden

Fri, 11/06/2020 – 12:25

GOP political analyst and former Trump Data Chief Matt Braynard believes he can detect voter fraud by comparing absentee ballots and early voters to the Social Security Death Index and the National Change of Address Database.

Braynard – former analyst for pollster Frank Luntz – is the president of Braynard Group, which provides services for voter targeting, polling and fundraising.

In order to accomplish this, Braynard will need up to $100,000 to purchase databases from data vendors. In a Thursday Twitter thread, he outlined his plan to audit the election in key states and launched a GoFundMe page which is currently under review (“Getting nuked still a possibility,” he says).

As of this writing, Braynard’s GoFundMe is up to just under $170,000. And in a Friday update, he says he’s been in touch with the Trump campaign (“but nothing more to say on that now”), has vendors lined up for Social Security and the Change of Address data, and is “Tracking down source data on Early Voters/ABS [absentee ballots]

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Woman in labor wouldn’t go to hospital until she voted

Are you ready for this week’s absurdity? Here’s our Friday roll-up of the most ridiculous stories from around the world that are threats to your liberty, risks to your prosperity… and on occasion, inspiring poetic justice.

Woman in labor wouldn’t go to hospital until she voted

Last week when a woman went into labor, she had just one thing on her mind. It wasn’t the safety of her child, or even herself. Instead, her top priority was, “I need to vote!”

Concerned that she wouldn’t be able to vote after giving birth, she had her husband stop off at an early voting center on the way to the hospital.

She cast her ballot amid controlled intentional breathing to ease the pain of contractions.

The media acted like this was a cute, feel good story about the importance of voting.

In reality, it shows what you might call election derangement syndrome.

In what world is voting more important than receiving the most prompt medical attention to ensure you and your unborn baby are as healthy as possible?

Click here to read the full story.

Kentucky state police train to be “ruthless killers”

After a Kentucky State Police officer shot and killed a suspect, a lawyer filed an open records request.

Amid the documents was included a training presentation for new cadets of the Kentucky State Police.

The slideshow entitled “The Warrior’s Mindset” encouraged trainees to maintain “a mindset void of emotion” and become a “ruthless killer.”

The slideshow also quoted Adolf Hitler… three times. That made Hitler the most quoted man in the presentation.

One quote taken from Mein Kampf stated, “the very first essential for success is a perpetually constant and regular employment of violence.”

And one of the closing slides of the presentation states without explanation, “Über Alles.”

“Deutschland, Deutschland über alles,” means “Germany, Germany above everything,” and is part of a verse of the national anthem closely associated with the Nazis.

Click here to read the full story.

Scottish man arrested for calling politician a nazi

Because of COVID lockdowns in Scotland, a man named Brian Smith was not allowed to attend his uncle’s funeral.

In reaction, he sent a series of angry emails to the leader of the Scottish National Party, Nicola Sturgeon, who was responsible for the strict rules.

One of the profanity laced emails included images of Sturgeon depicted as a Nazi.

For that, Smith was charged with “telecommunications offences” which typically involve threats and abuse… even though there were no threats made.

Click here to read the full story.

Hate crimes and public order bill would ban free speech in scots’ own homes

Clearly it appears that free speech in Scotland is already dead, but the government is just getting started.

In August we talked about a Scottish Hate Crime Bill that would outlaw “stirring up hatred.”

The bill includes language that wouldn’t just make it illegal to use hate speech (in whatever way the government chooses to define this in its sole discretion).

It would also make it illegal to use hate speech in a theatrical performance, or to possess “inflammatory material” which could “stir up hatred”.

So basically the government could ban any book it wants, from “To Kill a Mockingbird” to the Bible.

But just a few days ago, Scottish Justice Secretary Humza Yousaf whined that the legislation doesn’t go far enough.

He testified that it should extend into the home and regulate what people say in private.

This could make it illegal to make crude jokes, teach your children about biological gender, or even indicate your personal preference for one religion over another.

Click here to read the full story.

AOC pushes bill to introduce government banks across the US

Everyone’s favorite Bolshevik member of Congress, Alexandria Ocasio-Cortez, has co-sponsored a bill called the Public Banking Act.

It would create federally-funded, government-owned banks across the nation, to hand out loans at low interest rates to the “unbanked and underbanked.”

But cities and states on the verge of insolvency could also take advantage of the easy taxpayer-funded loans provided by these banks.

Since many of these governments shot themselves in the foot with COVID-19 lockdowns, tax revenue is down.

This would allow them to continue irresponsible spending, and go further into debt to run basic operations, with little hope of ever paying the loans back.

Sounds like another enormous debt bubble of bad loans to people and businesses unable to pay them back, with no collateral.

What could possibly go wrong?

Click here to read the full story.

Source

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Illiquidity & Creative Destruction

Illiquidity & Creative Destruction

Tyler Durden

Fri, 11/06/2020 – 12:04

Authored by Louis-Vincent Gave via Evergreen Gavekal blog,

“Loading up companies with borrowing at a time of peak economic uncertainty allows private equity groups to de-risk their own exposure by taking cash out of the business. But the higher risk of defaults has consequences for stakeholders beyond the private equity owners.”

– Financial Times, September 2020

INTRODUCTION

Winter came a few months early last week, as Snowflake (SNOW) had a highly successful Initial Public Offering, rising over 111% from its offering price in its first day of trading to a cool market cap of $67.4B.  With eight rounds under its parka belt prior to last Wednesday’s IPO, the mountain-top ascent was a highpoint for a number of private investors, some of whom invested in the company as early as 2012. Of course, not all private investments turn out so successfully, but the rapid growth story underscores an important phenomenon that is the subject of this week’s newsletter from Louis-Vincent Gave: the willingness to trade liquidity for the potential of income or growth.

Investors that participated in Snowflake’s Seed Round in 2012 were likely expecting to have their capital tied up for at least ten years, which has become the average timeframe from founding to exit for fledgling venture capital-backed companies. Private investors that participate in the early innings of a company’s development today likely have (or at least should have) similar expectations. However, a lot has changed in the world since 2012, and it’s worth wondering why capital continues to chase illiquid investments in the midst of unparalleled uncertainty.

As Louis outlines, the hunger for income (i.e. a stable return on capital in the form of dividends or interest) and growth (i.e. outsized returns in the form of a company’s market value appreciating) are two key drivers.  The insatiable appetite for return in a near-zero yield world for US treasuries has pushed capital towards non-publicly-traded investment areas such as private equity (PE) and venture capital (VC) recently.  This is in spite of the fact that private equity experienced its largest loss since the Great Recession in the first quarter of 2020. However, as shown in the chart below, both PE and VC returns rebounded in the second quarter of this year, which has likely been a catalyst for ongoing in-flows into them.

The question becomes, is this type of illiquid asset allocation a successful strategy for today’s investors? Read more below to find out what Evergreen Gavekal’s Partner, Louis-Vincent Gave, thinks about the willingness to trade liquidity for the potential of future income or growth.

ILLIQUIDITY AND CREATIVE DESTRUCTION

Covid came as a shock to the world, but in many cases it is merely accelerating fundamental trends that were already unfolding anyway. The US-China rift, the debasement of western currencies, the de-dollarization of emerging markets, the attempts to replace carbon energy with renewables, the increase in social tensions linked to living in multicultural societies: everything now seems to have gone into hyperdrive.

This probably shouldn’t be a surprise. If there has been one constant theme in Gavekal’s research over the last 15 years or so, it is that we are living in an age of accelerating creative destruction. This idea is the common thread that ties together the books Charles and I have written, from Our Brave New World, through A Roadmap For Troubling Times, to Clash Of Empires, and it is one most clients seem happy to agree with.

And this forces us face-to-face with an almighty capital allocation paradox. As the world changes at an ever-increasing rate, and the future becomes ever more challenging, more and more money pours into private equity funds and other forms of locked-up investments. This is odd. In a world in which the future is increasingly uncertain, surely investors should be avoiding illiquid strategies like the plague, and instead falling over each other to seek shelter in the financial industry’s more liquid offerings? Instead, we are seeing precisely the opposite.

To take one example: a year ago, owning an office building in Midtown Manhattan, London’s Canary Wharf or downtown San Francisco might have seemed as “safe as houses”. But in the age of the unexpected, what was a sure bet yesterday can turn into a certain loser today. Just look at UnibailRodamco-Westfield, one of Europe’s largest office and commercial property landlords. In two years, it has seen its market capitalization collapse from €27bn to €4.2bn. Two years ago, owning commercial and office space seemed like a good idea. Today, it is toxic.

Alternatively, consider an investor who in January 2000 decided that new technologies were bound to change the way we live, work and play, and that the way to play this change was to put capital into the 10 tech companies with a market cap at the time of over US$200bn (figuring that size and scale would be the key drivers of long-term performance). Our investor would have bought Microsoft, Oracle, Intel, IBM, Cisco, Lucent, Ericsson, Nokia, Sun Microsystems and Nortel Networks.

Reinvesting all his dividends, he would have ended up two decades later with one winner (Microsoft), three washes (Oracle, Intel and IBM), three big disappointments (Cisco, Nokia and Ericsson) and three donuts (Lucent, Sun Micro and Nortel). His total compound annual growth rate (dividends included) would have been 1.4%. And he would have missed out on the likes of Amazon (with a November 1999 peak market cap of US$35bn) and Apple (US$23bn in March 2000).

Clearly, in a single generation, the tech world has changed almost beyond recognition, and the companies which offered scale 20 years ago mostly failed to cope with that change despite all the advantages of size (or perhaps because of them?).

This makes investors’ enthusiasm for illiquidity all the more strange. Why, in a world that is changing so fast, would investors rush headlong into illiquid strategies? Why should they so readily give up the opportunity to say: “The world is changing. My portfolio needs to evolve?”

There are two possible reasons: extra income, and extra growth.

In a world in which income is ever-harder to find, giving up liquidity (especially for those who do not need it immediately) in exchange for extra income might seem to make a lot of sense. However, more often than not, the excess income is delivered by gearing up balance sheets. And increasing leverage typically increases fragility. In a time of accelerating creative destruction, rapid societal shifts and growing geopolitical uncertainty, does increasing fragility (by increasing leverage) really make sense?

Gearing up balance sheets might make sense in an environment of structurally falling interest rates. As interest rates fall, asset prices get rerated and the value of equity increases rapidly. Of course, this cuts both ways: once interest rates stop falling and either flatline or rise, gearing, instead of boosting shareholder returns, begins to destroys them.

Not that rising interest rates are needed to destroy shareholder returns. Think again of a hypothetical Canary Wharf* landlord: gearing up the balance sheet to buy buildings whose yields were higher than the interest rates charged seemed like a no-brainer. Then Covid-19 hit, and rent payments stopped. Very quickly, the equity in the business was facing a wipe out. In this context, shouldn’t the Unibail-Rodamco-Westfield faceplant raise questions over the value of the equity in a whole swathe of real estate private equity funds?

I could go on, but it suffices to say that with interest rates at record lows and with the world changing ever more rapidly, accepting illiquidity in return for the promise of increased income seems like a dangerously shortsighted proposition. Once again, investors are picking up pennies in front of steamrollers.

This leaves the prospect of growth as the only reason to accept illiquidity. This can make excellent sense: investors offering entrepreneurs both capital and time to succeed is what capitalism should be all about. And in a world that changes ever more rapidly, the entrepreneur who can adapt, safe in the knowledge that he is backed by investors that are not pressed for time, has an important competitive advantage.

It follows that when looking at the illiquid strategies institutional investors have poured capital into over recent years, there are two key questions to ask:

  • Is the competitive advantage of this strategy derived from some kind of financial engineering?

  • Or does the competitive advantage of this strategy flow from the ability to identify entrepreneurs and business leaders who need capital?

In a world that is changing ever more quickly, the first type of strategy will become ever riskier. Meanwhile, in a properly functioning capitalist system, investors who are successful at implementing the second type of strategy will continue to be rewarded very handsomely indeed.

via ZeroHedge News https://ift.tt/3k15Yhf Tyler Durden