A group of House Republicans stormed a closed-door impeachment inquiry hearing Wednesday morning to lodge a protest against the secretive deposition of a top Defense Department official who was testifying about President Trump’s dealings with Ukraine, The Hill reports.
“They crashed the party,” said Rep. Harley Rouda (D-CA), who sits on the House Oversight Committee, one of three House panels participating in the impeachment probe.
Dozens of Republicans, including some members of leadership, barged into the secure hearing room in the Capitol basement where Laura Cooper, the deputy assistant secretary of defense for Russia, Ukraine and Eurasia, was providing private testimony.
Several lawmakers said that, in response to the Republican protest, House Intelligence Committee Chairman Adam Schiff (D-Calif.) had left the room with Cooper, postponing the interview indefinitely. –The Hill
According to Rep. Roger Marshall (R-KS), Rep. Adam Schiff ssaid “nothing” when the members sat down.
UPDATE: We are in the SCIF and every GOP Member is quietly listening.
Meanwhile, Adam Schiff, clearly peeved that he will no longer be able to hide his impeachment sham, is threatening Ethics punishment for all of us.
His fake intimidation can’t hide his lies–Open the process!
“He doesn’t have the guts to come talk to us,” said Marshall. “He left, he just got up and left. He doesn’t have the guts to tell us why we can’t come in the room, why he doesn’t want this to be transparent. It’s the biggest facade, biggest farce of my life.“
Schiff then reportedly threatened GOP members with ethics violations after 25 Republican lawmakers remained in the room, per Rep. Debbie Wasserman Schultz (D-FL), adding that the Democrats’ impeachment probe has “far too much fact for their comfort level, so they have to try to stop it from moving forward.” (So much fact, in fact, that they have to conduct the probe in secret!)
The move by House Republicans comes a day after another witness, top diplomat William Taylor, testified that Trump withheld military aid to Ukraine to pressure the country to conduct a pair of investigations — one into the 2016 election hacking, the other into the family of former Vice President Joe Biden — that might have helped Trump’s reelection campaign next year.
Some of Republicans who barged into the hearing room were in possession of cellphones, a violation of the rules governing the so-called sensitive compartmented information facility, known as the SCIF, where the depositions have been taking place.
Wassermann Schultz said Cooper was not in the room at the time the Republicans entered. It’s unclear, she added, what will happen next in terms of Cooper’s testimony. –The Hill
“We want this to continue,” said Rep. Chris Stewart (R-UT), who added that Republicans aren’t trying to stop the hearing.
“We want to hear from this witness but so do the other members of Congress,” Stewart continued. “This may be within House rules, that’s not the question. The question is, is it a good idea to try and impeach the president in secret hearings.”
Opening day is a glorious time for baseball fans. Warmer temperatures and blooming shrubbery are on their way, and more importantly, their favorite teams will begin a stretch of 162 games that culminates with a best-of-seven battle between the American and National League champions.
With leaves falling and colder temperatures upon us, most baseball fans are left out in the cold. However, here in Washington D.C., and no doubt in Houston, everyone is a diehard fan cheering their team on to a World Series crown.
Curly W’s, the logo of the Washington Nationals (Nats) baseball team, litter the streets, schools, and even office buildings of D.C. Everyone is on board the Nationals train, yet in August you could have spent a paltry $20 for a decent seat and shown up to a half-empty stadium to see the same Nationals play. Today, standing room only tickets for the World Series are said to be fetching $1000.
As the Nationals and Astros begin the World Series, the baseball gods are teaching us a valuable lesson that applies to investing as much as it does sports.
Bandwagon Bias
Within the last month or so, the Nationals and Astros have attracted a huge following of “bandwagon” fans. People who were casual fans or not even fans at all are gripped by a desire and the camaraderie of being with a winner.
Trina Ulrich, a friend of ours and sports psychology professor at American University, was recently interviewed by radio station WAMU to talk about the psychology behind bandwagon fans. The interview and article can be found HERE. Stay tuned as The Lance Roberts Podcast will be interviewing Trina in November.
Trina Ulrich defines the bandwagon effect as follows:
“[It’s] essentially a psychological phenomenon that happens when people are doing something because others are doing it already.”
Sound familiar?
We have written many articles describing and warning about the dangers of market bandwagons, in particular, investor conformity and the so-called herding effect. These biases are widespread in today’s market place and are extremely important to grasp.
In no uncertain terms, a FOMO (fear of missing out) is leading equity markets to valuations that are at or above those of 1929 and only bettered by those in the late 1990s. Other risk assets such as corporate debt, private equity, and high-end real estate trade at similarly rich valuations. The burgeoning bandwagons in these markets have been growing for years, unlike the short term nature of those simmering in Washington, D.C. and Houston.
Trina Ulrich says our attraction to bandwagons is defined by a psychological term called dispositional hope. Dispositional hope is the belief that one can achieve their goals. The high dispositional hopes that some baseball fans and investors carry is attractive to others with less dispositional hope. Those with less hope are enticed as the goal of winning is seen as attainable and beneficial.
As the Nationals and Astros advanced through the regular season and the playoffs, diehard fans with hope that their team will win attracted others looking for dispositional hope. Similarly, investors over the last few years with high hopes for generous future returns are drawing in a wide swath of investors. In both cases, hope is selling off the shelves.
Trina Ulrich goes on to explain that human minds are built to buy hope. Per Ulrich, “So if you have a bunch of die-hard Nats fans with high dispositional hope, they will draw in other fans that may have a low dispositional hope. It has to do with the feel-good hormones in the brain like serotonin, oxytocin, and dopamine.
“When [the hormones] rise because of motivation and excitement and success, the brain gets bathed in this and there is a pleasure effect.”
“So why not feel this way too when you see someone else feeling this way?”
“As individuals, we are “addicted” to the “dopamine effect.” It is why social media has become so ingrained in society today as individuals constantly look to see how many likes, shares, retweets, or comments they have received. That instant gratification and acknowledgment keep us glued to our screens and less involved in the world around us.”
We are addicted to winning, be it on the baseball field or in our investment accounts, because it delivers a gratification that we crave. Consistently winning is remarkably satisfying, ask any New England Patriots fan. Yet, even Patriot quarterback Tom Brady will eventually retire (or die of old age on the field), and the game for Patriots fans will likely change dramatically. Similarly, in spite of a dynastic run of success, there is the cold hard reality that markets do not, indeed cannot, always go up.
Markets have a strong tendency to oscillate between high and low valuations. Rarely, if ever, does a market follow a straight line that mimics the true fundamentals. When markets are overvalued, they tend to get even more overvalued due in large part to the bandwagon effect. At some point, however, markets must face the reality of the limitations of valuations. When prices can no longer be justified by marginal investors, reality sets in.
“From time to time, financial markets produce a similar behavioral herding effect as those described above. In fact, the main ingredient fueling financial bubbles has always been a strong desire to do what other investors are doing. As asset bubbles grow and valuation metrics get further stretched, the FOMO siren song becomes louder, drowning out logic. Investors struggle watching from the sidelines as neighbors and friends make “easy” money. One by one, reluctant investors are forced into the market despite their troubling concerns.”
“Justification for chasing the market higher is further reinforced by leading investors, Wall Street analysts, and the media which use faulty logic and narratives to rationalize prices trading at steep premiums to historical norms. Such narratives help investors convince themselves that, “this time is different,” despite facts evidencing the contrary.”
Summary
In baseball and other sports, the bandwagon effect is a good thing as winning unites people that would otherwise have little in common. Today, a city as politically divided as Washington can greatly benefit when its people of such diverse political mindsets are united, even if only for a few weeks. The downside of joining the wrong bandwagon is an emotional hangover and maybe a lost bet or two.
In markets, the bandwagon effect can also be a good thing as rising markets fuel optimism and help investors meet their financial objectives. Unfortunately, jumping on a market bandwagon at the wrong time can come with steep costs. Bandwagons, after all, are always a speculative venture. Currently, a normalization of equity valuations can result in investors losing half of their wealth or possibly more. Not only will those on the bandwagon have a lasting emotional hangover but they will also have a tremendous loss that could take years to recoup.
Beyond Meat Battered Back Below $100 To 5-Month Lows
The fake meat bubble has burst…
While Beyond Meat IPO’d at $25, the secondary offering at $160 on August 1st (when some holders, including CEO Ethan Brown took advantage of the fake meat bubble to sell shares) looks a long way from here as BYND shares drop back below $100 for the first time since May…
Beyond Meat’s third-quarter revenue is expected to triple from the same period last year given the rising number of partnerships with retailers and restaurants, Bloomberg Intelligence analyst Jennifer Bartashus wrote. Profit is still “elusive” as investments in R&D and infrastructure continue to weigh on results.
The El Segundo, California-based company reports after the bell on Monday.
Russia Says US Has ‘Betrayed The Kurds’; Suggests They Scram To Avoid Turkish Death
The Kremlin has accused the United States of betraying and abandoning the Kurds, and suggests that they withdraw from the Syrian border in order to avoid a direct conflict with the Turkish military, according to Euronews.
“The United States has been the Kurds’ closest ally in recent years. (But) in the end, it abandoned the Kurds and, in essence, betrayed them,” said Kremlin spokesman Dmitry Peskov, adding “Now they (the Americans) prefer to leave the Kurds at the border (with Turkey) and almost force them to fight the Turks.”
The comments by Kremlin spokesman Dmitry Peskov to Russian news agencies followed a deal agreed on Tuesday between Russia and Turkey that will see Syrian and Russian forces deploy to northeast Syria to remove Kurdish YPG fighters and their weapons from the border with Turkey.
Peskov, who was reported to be reacting to comments by U.S. President Donald Trump’s special envoy for Syria James Jeffrey, complained that it appeared that the United States was encouraging the Kurds to stay close to the Syrian border and fight the Turkish army. –Euronews
Peskov said that whether or not the Kurds withdraw as per the deal between Moscow and Ankara, the Russian military police would evacuate, leaving the Kurds to fight the Turkish army on their own.
“You’ve Got To Be Kidding Me”: Outraged WeWork Employees Furious At Neumann’s $1.2BN “Platinum Parachute”
In the aftermath of the stunning news that after extracting $700 million from WeWork, which was effectively insolvent before SoftBank doubled down on its money-losing investment to breathe some life in the imploding office subletter, the company’s ex-CEO Adam Neumann was set to reap another $1.2 billion payday, outspoken critic Scott Galloway said that “This is a disaster we’ll be teaching for decades in b-school” adding that while the CEO gets a platinum parachute, “thousands of employees are scrambling to clean up the mess, knowing they have a 1 in 2 chance of being fired.”
This is a disaster we’ll be teaching for decades in b-school. The idolatry of innovators leads to billion-dollar payouts while thousands of employees are scrambling to clean up the mess, knowing they have a 1 in 2 chance of being fired. https://t.co/NUdBQrZbUF
Yet while Galloway may be correct in his business school case study forecast, he may have underestimated the anger bubbling among the company’s employees, because as Bloomberg notes, the reaction from his ex-colleagues, who are facing the prospect of mass job cuts and a corporate crisis: “You’ve got to be kidding me.“
As WeWork’s disheartened employees walked in on Tuesday to learn that their recently departed messiah CEO was set to wave farewell to his noble pursuit of “elevating the world’s consciousness” and quit as WeWork’s Chairman in exchange for over $1 billion even as most of them faced near-certain termination, they took to the company’s system-wide communication system and that was one of the comments posted, reflecting the mood of anger and betrayal throughout its headquarters in New York. And, as Bloomberg adds, “dozens of employees expressed indignation in interviews and messages to colleagues on company Slack channels.” Predictably, those speaking out against an epic injustice that will be used by politicians for years to show the wealth chasm that has developed between the rich and everyone else, requested anonymity in a bid to protect their jobs, especially with management weighing the dismissal of thousands of employees.
To his credit, Neumann did build WeWork into a global real estate company fueled by relentless optimism and billions of dollars in investment capital and debt. In retrospect, however, virtually anyone could have done with Neumann did: after all, he was essentially selling a dollar for less than 50 cents, with the company set to burn through almost as much cash this year as it makes in revenue.
As such, it was only the generous investments by SoftBank, Benchmark and other VC who fell for Neumann’s spell that made WeWork “success” possible in the first place. In the end, however, the company sports a mere $8 billion valuation after investors already put down more than $17 billion into the venture: so far they are losing more than 50 cents for every dollar invested.
Which means that the only winner here is Adam Neumann who somehow will walk away with nearly $2 billion.
Ironically, it was his fake, virtue signaling sermons about community and mission that engendered a fierce loyalty among his gullible staff and investors for years. But it took just a few weeks for his aura to vanish over once public investors were given a closer look at the business ahead of an initial public offering: as a result of the wholesale revolt at what Neumann was peddling, WeWork’s valuation imploded from $47 billion to $8 billion as it abandoned its IPO. More importantly, absent a last minute bailout from SoftBank – which had already sunk $9 billion into WeWork – it would have been bankrupt in November.
Meanwhile, the company’s thousands of employees were forgotten by everyone, including their former messiah who it turned out, cared only about his exit package than his co-workers, whose consciousness would no longer be elevated.
To be sure, in recent weeks, an executive exodus and cost-saving measures had already dampened morale. Especially in satellite offices, many workers had stopped coming into work. But it was the news of Neumann’s “platinum parachute,” as one former employee described it, made things a lot worse this week.
A link to a news article about the deal on WeWork’s Slack network Tuesday drew more than 100 “thumbs down” emoji from employees. Several workers noted the irony that WeWork could not afford payroll costs associated with the planned job cuts but that its largest shareholder agreed to pay a hefty fee to Neumann. One post read: “So we’re too broke to pay employees severance, but Adam gets $200m?”
Another employee posted a photo of the orphan from “Oliver Twist” with the caption: “Please, Masayoshi Son, can I have some severance?” To that employee we have some soothing words: when this insane liquidity bubble finally bursts, Masayoshi Son will be in urgent need of severance himself.
As Bloomberg concludes, whereas Neumann was the main subject of staff fury, some complaints were also pointed at the pair of men who replaced him as CEO last month: “Seriously, where’s the email from our co-CEOs or whoever’s running the company now?”
Lira Surges As Trump Confirms Ceasefire Is Permanent, Will Lift Turkey Sanctions
Update (1145ET): President Trump has confirmed that the ceasefire will be permanent and that US will lift sanctions on Turkey.
Trump then confirmed: “now we’re getting out…let someone else fight over this long bloodstained sand.”
The Lira is spiking on the news…
* * *
As we detailed earlier, EU governments have been fiercely divided over how to react to Turkey’s military incursion into northern Syria which commenced on Oct. 9 amid a US draw down from the region. One senior European diplomat described the situation to Reuters as “complete chaos”.
However, a draft resolution has been prepared this week, seen by Reuters, reportedly with the backing of all political groups in EU parliament, which urges “appropriate and targeted economic measures against Turkey” — and is expected to be adopted Thursday.
Turkey-backed fighters in northeast Syria. Getty Image.
The targeted measures includes the following per Reuters:
freezing of preferential treatment for Turkish agriculture exports to the EU.
urges the suspension of the EU customs union with Ankara, a measure that would hit the 200-billion-euro ($222.3 billion) annual trade between the 28 EU nations and Turkey.
and opens the possibility to reduce the nearly 250-million-euro yearly financing given to Ankara as part of its protracted process to become an EU member, an option backed by the center-right group.
One German center-right lawmaker Michael Gahler, who represents the largest political bloc in the EU assembly, said, “We demand that Turkey immediately withdraw from Syria.”
This latest push to slash economic preferential treatment for Turkey comes after a failed push led by Germany and France to impose an EU-wide arms embargo on Ankara, who were concerned Turkey would use European weaponry to conduct massacres and human rights violations against the Kurds.
It also comes after President Erdogan has repeatedly threatened to flood European countries with millions of Syrian refugees if he couldn’t gain international backing for his ‘safe zone’ plan.
While the EU has called for a UN-administered zone in northern Syria, its parliament could additionally block any new EU funding for Turkey’s resettlement of refugees, estimated at 3 million people.
Fed’s Fourth Bill POMO Is Most Oversubscribed Yet Amid Liquidity Scramble
One day after the Fed unexpectedly saw a surge in demand for its term-repo operation, which was oversubscribed for the first time since the mid-September repo crisis erupted, the liquidity shortage in the funding market appears to be getting worse by the day, and in today’s just concluded 4th consecutive T-Bill POMO, which saw the Fed monetize another batch of Bills, Dealers submitted $44.2BN in bids for the maximum $7.5BN in Fed “Reserve Management” (note: not QE) purchases.
This means that today’s operation was 5.9x oversubscribed, the most of any operation since the launch of “Not QE4”, and clearly an increase from the first three POMOs, when operations were 4.3x, 4.8x and 5.5x oversubscribed.
The results confirm that demand for the Fed’s permanent liquidity injection is increasing with every operation – suggesting that not only was the September repo turmoil not a one-time liquidity event, but that that liquidity shortage is getting worse – even as usage of the Fed’s latest overnight repo saw a modest decline.
As such the question we have been asking for the past month – and one which Elizabeth Warren should also consider asking of Steven Mnuchin – remains: why are banks still so desperate for liquidity even though the Fed has now made clear that its balance sheet will expand to accommodate all reserve needs, and why do they so stubbornly refuse to approach the interbank market for their funding needs? In short, what do they know about the banking system that we don’t?
Rates Tumbling Everywhere, Except Credit Cards Where They’ve Never Been Higher
Submitted by Joseph Carson, Former Director of Global Economic Research, Alliance Bernstein
The State of the Consumer: Views From Retail & Banks
How strong is the consumer sector? It depends on where you sit in the food chain of consumer sales and finance.
Nominal growth of consumer spending in 2019 has slowed to its weakest growth rate in three years, with many traditional retailers seeing no growth in top-line sales. And yet large commercial banks indicate that their consumer finance arm shows a “healthy consumer”.
The difference in the direction and tone of business is very straightforward; retail is counting how much consumers are spending at their establishments, while commercial banks are counting how much consumers are paying in interest when they borrow to spend.
Banks are happy (for now) as consumer interest payments at record levels are rising more than twice as fast as consumer spending. Yet, that trend can’t continue for long as rising interest expense drains consumer liquidity, weakens the consumer ability to spend, dampens growth and eventually ends up impacting retail and banks alike.
Painting By The Numbers
Through the first 9 months of 2019, nominal consumer spending—which includes all goods and services and traditional and e-commerce retailers— is running less than 4%, a drop-off of roughly 125 basis points from the 2018 performance.
Although nominal income growth is running close to 5%, consumers still saw the need to increase consumer borrowing (i.e., personal loans and credit cards) by 5% in order to support spending. Perhaps that reflects the unevenness of income growth and lack of a liquidity buffer among various income groups.
On the surface, the growth of consumer borrowing is not excessive, but what is excessive is how much it costs consumers to borrow.
Personal loan rates at commercial banks stand at 10%, and average credit card rates stand at 15%. However, the actual cost of credit card borrowing is much higher, since banks charge interest not only on the daily balance but also on prior months interest rate charges, along with other fees.
The Federal Reserve has estimated the true cost of credit card borrowing. The assessed interest rate charges on all credit card accounts averaged 17% in 2019 (200 basis points above published average rates), and represent the highest assessed rate since the Federal Reserve started measuring the all-in-costs of credit card borrowing in 1995.
Record high rates for credit card borrowers runs counter to the JP Morgan view that “consumer remains healthy, with growth in wages and spending, combined with strong balance sheets”. A “good” consumer borrower, with “good” wage growth and “good” balance sheets should not be paying record high interest rates.
According to the Bureau of Economic Analysis, consumer interest rate payments hit a new record high of $368 billion in Q3 2019, more than one third above the peak of the 2008 financial crisis, and 10% above what consumers paid in 2018.
In short, rising interest expenses are sucking the “spending power” out of the consumer. Retail is already seeing the impact and banks will soon see it as well.
EU Reportedly Pushes Decision On Brexit Delay Until Friday
Amid rumors that UK PM Boris Johnson might capitulate and agree to delay Brexit Day until the end of January, reports have surfaced claiming that the EU won’t release its decision on postponement until Friday.
EU DECISION ON BREXIT DELAY WILL PROBABLY COME FRIDAY: OFFICIALS
Sources from within No. 10 Downing Street have reportedly been talking with reporters all day, claiming that if there is an extension, the Johnson government will opt to push for an election, and that the conservatives will campaign on their plan.
Earlier, Ireland PM Leo Varadkar reportedly pushed his European counterparts to back the delay.
Thanks to Johnson’s last-minute maneuvering, Britain appears closer than ever to wrapping up a 3 1/2 year Brexit conundrum, with Johnson having agreed a deal with the EU last week and secured an early signal of support for the deal from the EU Parliament.
Hong Kong Formally Withdraws Extradition Bill That Sparked Mass Protests
The government of Hong Kong on Wednesday formally withdrew an unpopular extradition bill which sparked months of anti-government protests.
“I now formally announce the withdrawal of the bill,” Secretary for Security John Lee announced during a legislative meeting.
The bill was initially proposed in February by Hong Kong leader Carrie Lam in order to resolve a legal case involving a suspected murderer who couldn’t be extradited to Taiwan to face trial. The proposal sparked immediate fears that anyone could be plucked off the street and sent to mainland China to face Communist Party-controlled courts. Shortly after they began, the protests turned into a general anti-government movement, which has picked up in violence in recent weeks.
Now, after assurances from Ms Lam in September that the bill would be scrapped in the next meeting of the state’s legislative council, it has been formally withdrawn by Secretary for Security John Lee.
In July, with the city crippled by a summer of disruption, Ms Lam said the government’s work on the legislation had been a “total failure” and declared the controversial bill “dead” – stopping short of a full withdrawal. –Independent
And while the bill has been formally withdrawn, the move is unlikely to slow down the weekly demonstrations and deter further conflict. Since the protests began, the movement’s goals have shifted from the extradition bill to securing independence from China and Lam’s resignation.
“There aren’t any big differences between suspension and withdrawal of the extradition bill… It’s too little, too late,” said 27-year-old protesters “Connie,” hours before the bill was withdrawn. “There are still other demands the government needs to meet, especially the problem of police brutality.”
As we noted earlier, the FT reported that Beijing is drawing up plans to replace Lam with an “interim” executive. However, the report has been strenuously denied by the government. Chinese Foreign Ministry spokeswoman Hua Chunying said Wednesday that the government still “firmly backs” Lam and that the report is a”political rumor with ulterior motives.”
Either way, we doubt Lam’s ouster would do much to change protesters’ minds either.
