Category: zerohedge

Authored by John Rubinho via DollarCollapse.com,

The idea that as more people move to Hurricane Alley and other storm-prone places, the future cost of those storms will rise – and that we’re not accounting for that future cost and are therefore likely to be shocked by it – makes intuitive sense.

Now some recent studies have fleshed out the numbers, making it possible to tell this story visually (courtesy of yesterday’s Wall Street Journal). So here goes:

We’ve been encouraging people (through Federal Flood Insurance, artificially-low interest rates and state/local greed) to move from the interior of the country to the coasts, raising the population density of sunny but stormy locales like the Carolinas and South Florida:

All these new people need houses, stores, roads, etc., which means the cost of rebuilding after future storms is rising as well. Note on the following chart that completely rebuilding Naples, FL would for some reason cost 250% of municipal GDP:

Meanwhile, it turns out that a hurricane’s impact has less to do with the speed of its winds than with how long it sticks around, dropping rain and causing floods. So the important number is a storm’s “forward speed,” with slower being more damaging. And lately – perhaps due to warming ocean waters – storms have been slowing down:

So: Add more people to places that are seeing bigger, slower-moving storms, and the equation spits out higher damages per storm:

The conclusion? Rising storm damage for as far as the eye can see, with a real chance of a monster storm hitting a big city like Miami or New York and giving us a trillion-dollar summer, bankrupting some major insurance companies, depleting Federal Flood Insurance and forcing the federal government into yet another massive bail-out – just as federal deficits are exploding, public sector pensions are imploding, and student loans are defaulting en masse.

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With virtually every bank now urging their clients to fade the rally in US stocks, and instead take advantage of the gaping chasm that has opened up between US and European stocks to put on a pair trade that is long Europe and short the US, “renowned commodity investor” Dennis Gartman has defied the sellside again, and in his latest note writes that he “officially” bought US stocks while selling Europe “generally via the Euro Stoxx 50 Index.” So far, the trade appears to be working, to wit:

The US equity market futures are soaring on [the Nafta] news with the Dow futures trading approximately 200 points higher… or about 0.7% higher… and with the S&P futures trading 17- 18 “handles” higher o4 +0.5%.

On Friday… finally… after discussing the idea at some length for some rather long while we actually and “officially” did buy US  stock indices while selling Europe generally via the EURO STOXX 50 Index and we got very, very lucky for as we write we are nearly 1% higher on the US side of the trade and nearly 1% better on the European side of the trade. The only question now is when to add to the trade and we shall wait to see how far this initial trade moves before adding to the position on the inevitable correction.

We may scoff at President Trump’s insistence that the new agreement not be called the NAFTA and must henceforth be referred to as the USMC but the fact that agreement has been reached is hugely positive news and has sent US stock index futures soaring. Canada’s stock market shall follow suit, and so too should Mexico’s.

As for our retirement account we’ve done nothing for the third or fourth day in a row, remaining long of gold and remaining long of bond and/or bond-like funds, most of which went ex-dividend on Friday. We’ll be looking to swap out of the funds we have for funds that go ex-dividend in the next week or two, but otherwise we are very likely to sit tight and do nothing else.

As an added bonus, here is Gartman discussing the SEC’s settlement with Elon Musk…

Finally, the SEC has proven itself to be emasculated in its decision to fine Elon Musk and Tesla a scant $40 million… $20 million for both… and to have Tesla remove Mr. Musk from his position as Chairman but allowing him to remain as the company’s CEO. This is comically insufficient punishment as far as we are concerned given the seriousness of the offenses. Shame upon the SEC for this diminished decision.

… and his take on the ongoing Kavanaugh nomination drama:

We feel again compelled to discuss the events of last week as Judge Kavanaugh’s and Dr. Ford’s appearances made the most compelling television we’ve witnessed since the Watergate hearings nearly four decades ago. Let us be quite honest here: we were stunned by the sincerity and compelling nature of both Judge Kavanaugh and Dr. Ford. As we said here on Friday, there is no question in our mind but that something horrible happened to Dr. Ford that night in ’82. Her story was real; her appearance compelling. Her desire initially to have remained anonymous was obvious and just as obvious was the vile nature of the Left’s use of her as an attack point against Judge Kavanaugh. Initially, and before her appearance, we thought of her as a Left-wing partisan. Clearly, she was not and is not. We are convinced that was not her intention.

Shame then upon Sen. Feinstein for having rather withheld Dr. Ford’s letter to her until so late in the proceedings and nothing shall ever convince us that someone in her office… or perhaps even she…had leaked Dr. Ford’s letter to the press. That was a  shameful act of partisanship on Sen. Feinstein’s part and she should be ashamed of herself. Obviously, however, she’s not only not even slightly ashamed, and we suppose she now sees herself as an icon of the Left. We are all diminished for her actions and what we’ve been forced to witness.

Indeed, what last week and what this week shall be about was and is the fear on the part of the Left that it is about to lose control of the Supreme Court for decades into the future with the appointment of Judge Kavanaugh. The Left has viciously sacrificed Dr. Ford, her family, Judge Kavanaugh and his family for that fear and they are willing to embarrass the US in front of the world to stem that fear. Shame upon Sen. Feinstein; shame upon Sen. Booker; shame upon Sen. Coon et al. Who, after this shameful scenario forced upon us by the Left, shall ever allow his or her name to be put into the nomination process for any ranking government position? Who… really, who?

Barring some further salacious rumors regarding Judge Kavanaugh’s past this week, when this is done, Judge Kavanaugh’s nomination to the Supreme Court will pass through the Senate with more than 50 votes. When the vote counting is done, but before the vote is actually taken and when Sen. McConnell quietly reports to his fellow Senators that he has the votes to win, Senators Manchin and Heitkamp will vote for his nomination too giving the vote a clearer majority of perhaps 53-47. Judge Kavanaugh will become Justice Kavanaugh but the smell… the stench… of what the Left has done shall linger for years into the future. Again, shame upon them. We are disgusted, and we are embarrassed.

 

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With just six months left before Britain is due to leave the EU in the country’s biggest shift in foreign and trade policy in more than 40 years, and with the Brexit drama ongoing without a clear resolution, moments ago Bloomberg reported that U.K. Prime Minister Theresa May is preparing to make a significant new Brexit offer to the European Union in an attempt to open the door to a deal.

Brexit negotiations have stalled on the question of how to avoid the need for police and customs checks on the border between the U.K. and Ireland, but the British side now sees a path to reaching an agreement, a senior British official told Bloomberg.

The U.K.’s offer applies to the so-called Irish backstop, a legal guarantee to ensure that the border between Northern Ireland and the Irish Republic remains open and free for travel and trade after Brexit. It would only apply as a last resort in case an overarching trade deal doesn’t address the issue.

Under the plan, which is expected to be proposed later this month, the U.K. would back down on its opposition to new checks on goods moving between the British mainland and Northern Ireland. In exchange, May’s team would need the EU to compromise and allow the whole of the U.K. including Northern Ireland to stay in the bloc’s customs regime.

Although the picture is detailed and complex, the outline of a deal — as the British see it — would potentially unlock negotiations which have been in virtual stalemate since March.

The EU says without agreement on the backstop, there can’t be an exit deal. That would mean Britain crashing out of the bloc in March, and no transition period before future trading arrangements take effect.

As previously explained, the Irish border problem arises because after Brexit, the U.K. will no longer be part of the EU’s customs union and single market. The EU says this will mean goods moving into Ireland will need to be checked to ensure they comply with safety and quality standards rules and that the correct tariffs are paid.

Both sides want to avoid imposing security and customs checks at the frontier between Ireland and the British province – which would revive memories of the sectarian conflict that gripped the region for decades until a peace deal was reached 20 years ago. In order to avoid these checks taking place at the Irish border with Northern Ireland, the EU has proposed keeping the region inside its customs territory.

That would require checks to take place instead at a notional border down the Irish Sea – between Northern Ireland and the British mainland. May has flatly rejected this option – warning it would divide the U.K. constitutionally into two separate customs territories, something she said no prime minister could ever contemplate.

So what is the solution?

The proposed compromise revolves around the distinction between customs checks and regulatory checks. May wants to keep the whole U.K. – including Northern Ireland – inside the EU tariff regime as part of the backstop plan. The EU is currently opposed to allowing this, and wants only Northern Ireland to remain inside its customs territory after Brexit. That will need to change if there is to be a deal.

Under the British plan — which has not yet been announced and could change — the U.K. would keep goods regulations in Northern Ireland closely aligned with the EU rules applying in the Irish Republic. But new regulatory checks would be implemented on goods passing between Northern Ireland and the British mainland, where different rules could apply once the country is outside the EU.

* * *

Following the news, the pound jumped, rising as high as 1.3116 against the dollar before paring some gains. As Bloomberg’s Richard Jones notes, “we’ve been here before.” He adds that obviously the devil is in the details, “so the reaction will probably remain muted. Any compromise still has to get through Parliament (not to mention Conservative party conference) and the EU will need to approve it as well. Pitfalls remain and a deal is still not nailed on.” Still, at the margin this does move the situation away from a no-deal Brexit.

 

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Authored by Charles Hugh Smith via OfTwoMinds blog,

Few conventional-media commentators are willing or able to discuss these factors in the labor shortage / declining participation trends.

Is there a labor shortage in the U.S.? Employers are shouting “yes.” Economists keep looking for wage increases as evidence of a labor shortage, and since wage increases are still relatively modest, the argument that there are severe labor shortages in parts of the U.S. is unpersuasive to many conventional economists.

But if we look at “we’re hiring” signs and billboards, it’s clear employers are having trouble filling available positions. Longtime correspondent Harvey D. recently submitted this list of billboards advertising job openings in South Carolina:

“Here’s a sample of billboards in upstate South Carolina, a heavily industrialized area along I-85:

Michelin – $16.50 & up to start, depending on experience.

BMW – $18.50 & up (not to mention that they’re going to build the 23,000 Amazon delivery vans there.)

MAU (staffing firm) – $18.50 & up for forklift operators; they have 3,000+ students in industrial skill training courses in GA/SC/NC/AL 

DHL (staffing) – need forklift & general machinists, $20 & benefits

Greenville Tech (vo-tech school) – recruiting students for master welding classes, you can make $80K w/ 5 yrs experience.

Even Chick-Fil-A is offering $13 w/ bennies for full/part-time if you can pass a drug test and are 18+…

every trucking firm & almost every business has a banner in their front yard saying “WE’RE HIRING”.

There are numerous theories about the causes of labor shortages and the lack of wage pressure. One reality Harvey described in his email is the difficulty small businesses have in raising wages as 1) the cost of benefits such as healthcare insurance skyrocket, pushing total compensation costs higher even if the wages employees see remain the same and 2) the difficulty in passing on higher labor costs.

Few small businesses are monopolies; if prices move up, customers go elsewhere or put off the purchase. Even corporations’ ability to raise prices without losing sales is limited, hence the popularity of reducing quantity (the ever-shrinking serving size) or quality (appliances with inferior components that fail in a few years, etc.)

Let’s look at the labor participation rates for the populace at large, women and men. The labor participation rate reflects the percentage of the population that’s in the workforce, either working or actively looking for work.

That the number of people in the workforce has declined significantly is well-known. The US Census pegs the number of people ‘not in the labor force’ at 95 million.This includes people who are disabled, in school, etc., so the number should be taken with a grain of salt. But the decline in the relative size of the labor force is stunning:

Interestingly, the labor participation rate for women has held steady compared to the entire populace.

Now compare it to the labor participation rate for men, which has absolutely cratered:

Labor Force Statistics from the Current Population Survey (Bureau of Labor Statistics)

It’s hard to find statistics for many of the dynamics behind the sharp decline of male participation in the official workforce, as few institutions track such trends such as the number of men making a living in the black market. It’s hard to estimate this number and hard to get those engaged in the black market to answer honestly to questions about activities that break laws requiring the reporting of all income, regardless of source.

Despite the lack of statistics, we can assemble some anecdotal factors:

1. Failing the standard employment drug test. Should marijuana use bar all employment? Employers are beginning to question this Drug Gulag Inquisition assumption. Anecdotally, up to 70% of all applicants fail these drug tests.

2. Felony conviction for non-violent (i.e. drug-related) crime. Once again, Employers are beginning to question this Drug Gulag Inquisition assumption, as felony convictions are excluding millions of otherwise employable people from the conventional job market.

3. Pay not worth the trouble. As difficult as this might be for many to accept, a job paying X dollars per hour can be viewed as not worth the trouble if the commuting costs are high, the cost of living near the job is higher, and some other source of lower but still adequate income is available: disability, parents, girlfriend, dealing drugs, working informally for cash, the gig economy, etc.

4. Informal / black-market income. $15 per hour after deductions equals $11 per hour, while $15 in cash is still $15. Over the course of a year, that’s the difference between $30,000 and $22,000. That $8,000 represents a 36% “raise.”

5. Misplaced sense of pride / dignity. Many tradecraft jobs (welding, construction, etc.) have traditionally provided male workers with strong identities and sources of pride and dignity. That even these jobs are going begging suggests the possibility that at least some males no longer gain the pride / dignity they desire from work, or they’ve surrendered the desire for earning pride / dignity in the workplace: work is for chumps,etc.

This also suggests that some percentage of the male workforce no longer feels the same need as females do to take jobs in the formal economy regardless of the costs and indignities that go with the territory of commoditized work / employment. In other words, opting out of formal employment appears to be much less of an option for women than for men.

Few conventional-media commentators are willing or able to discuss these cultural / financial factors in the labor shortage / declining participation trends. As with so much of American life, the inconvenient realities may upset somebody, so better to stick with magical-thinking or politically-correct truisms that are completely out of touch with reality but oh-so-acceptable to the status quo.

Maybe it’s time for a real discussion of work and employment in a system dominated by mobile capital and self-serving insiders.

*  * *

My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free in PDF format. My new book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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Rachel Mitchell, the veteran sex crimes prosecutor who was chosen by the GOP to question Christine Ford and Brett Kavanaugh, sent a memo to Republican senators calling Ford’s allegations a “he said, she said” case that “is even weaker than that.”

In her 5-page memo (at the bottom of this article), Mitchell wrote that she was presenting her “independent assessment” of the allegations. She said this was based on her independent review of the evidence and her nearly 25 years of experience. She alleged in the document that “the activities of Congressional Democrats and Dr. Ford’s attorneys likely affected Dr. Ford’s account.”

Mitchell, who worked in the Maricopa County Attorney’s Office in Phoenix as the chief of the Special Victims Division, which covers sex crimes and family violence, said she was not pressured to write the memorandum and it did not necessarily reflect the views of any other senator or committee member. “While I am a registered Republican, I am not a political or partisan person,” she wrote and added that  “There is no clear standard of proof for allegations made during the Senate’s confirmation process. But the world in which I work is the legal world, not the political world. Thus, I can only provide my assessment of Dr. Ford’s allegations in that legal context.”

Noting the obvious, Mitchell wrote that a “‘he said, she said’ case is incredibly difficult to prove. But this case is even weaker than that. Dr. Ford identified other witnesses to the event, and those witnesses either refuted her allegations or failed to corroborate them….I do not think that a reasonable prosecutor would bring this case based on the evidence before the Committee. Nor do I believe that this evidence is sufficient to satisfy the preponderance-of-the-evidence standard.”

Mitchell listed several reasons for that conclusion. Courtesy of Heavy.com, these included:

• Dr. Ford “has not offered a consistent account of when the alleged assault happened.”

Under this header, Mitchell listed different accounts she says Ford gave, ranging from “mid 1980s” in a text to the Washington Post to “early 80s” in a letter to Sen. Dianne Feinstein, among other things.

• Dr. Ford “has struggled to identify Judge Kavanaugh as the assailant by name.”

According to Rachel Mitchell, no name was listed in 2012 and 2013 individual and marriage therapy notes. She did note that Ford’s husband “claims to recall that she identified Judge Kavanaugh by name in 2012” and added “in any event, it took Dr. Ford over thirty years to name her assailant. Delayed disclosure of abuse is common so this is not dispositive.”

• “When speaking with her husband, Dr. Ford changed her description of the incident to become less specific.”

Mitchell stated that Ford told The Washington Post that she told her husband she was the victim of “physical abuse,” whereas she has now testified that she told her husband about a “sexual assault.”

• “Dr. Ford has no memory of key details of the night in question – details that could help corroborate her account.”

Among the lack of details, Mitchell said that “she does not remember who invited her to the party or how she heard about it. She does not remember how she got to the party.” Mitchell continued: “She does not remember in what house the assault allegedly took place or where that house was located with any specificity. Perhaps most importantly, she does not remember how she got from the party to her house.” The memo then continued listing more details.

Mitchell pointed out that Ford “does, however, remember small, distinct details from the party unrelated to the assault. For example, she testified that she had exactly one beer at the party and was taking no medication at the time of the alleged assault.”

• “Dr. Ford’s Account of the Alleged Assault Has Not Been Corroborated by Anyone She Identified as Having Attended – Including Her Lifelong Friend.”

Mitchell wrote that Dr. Ford has named three people other than Judge Kavanaugh who attended the party – Mark Judge, Patrick PJ Smyth, and her lifelong friend Leland Keyser, formerly Ingham. She said another boy attended but she couldn’t remember his name, but Mitchell pointed out that “no others have come forward.”

“All three named eyewitnesses have submitted statements to the Committee denying any memory of the party whatsoever,” Mitchell wrote. She stated that Keyser stated through counsel in her first statement that “Keyser does not know Mr. Kavanaugh and she has no recollection of ever being at a party or gathering where he was present with, or without, Dr. Ford.”

In a later statement, Keyser’s lawyer said, “the simple and unchangeable truth is that she is unable to corroborate [Dr. Ford’s allegations] because she has no recollection of the incident in question.”

Ford testified that Leland did “not follow up with Dr. Ford after the party to ask why she had suddenly disappeared.”

• “Dr. Ford has not offered a consistent account of the alleged attack.”

Mitchell wrote that Ford wrote in her letter to Sen. Dianne Feinstein that she had heard Kavanaugh and Mark Judge talking to other partygoers downstairs while hiding in the bathroom after the alleged assault but testified that she could not hear them talking to anyone.

• Her “account of who was at the party has been inconsistent.”

Mitchell said The Washington Post’s account of Dr. Ford’s therapist notes say there were four boys in the bedroom when she was allegedly assaulted. Ford told The Post the notes were erroneous because there were four boys at the party but only two in the bedroom.

In her letter to Feinstein, she said “me and 4 others” were at the party but in her testimony she said there were four boys in additional to Leland Keyser and herself. She listed Smyth as a bystander in a text to The Post and to a polygrapher and then testified it was inaccurate to call him a bystander. “She did not list Leland Keyser even though they are good friends. Leland Keyser’s presence should have been more memorable than PJ Smyth’s,” wrote Mitchell.

• “Dr. Ford has struggled to recall important recent events relating to her allegations, and her testimony regarding recent events raises further questions about her memory.”

Mitchell said that Ford doesn’t remember if she showed a full or partial set of therapy notes to the Washington Post. She doesn’t remember if she showed the Post the notes or her summary of the notes.

Mitchell stated that Ford refused to provide her therapy notes to the Senate Committee.

• “Dr. Ford’s explanation of why she disclosed her allegations the way she did raises questions.”

Mitchell says that Ford wanted to remain confidential but called a tipline at the Washington Post. She testified that she had a “sense of urgency to relay the information to the Senate and the president.” But she also said she did not contact the Senate because she claimed she “did not know how to do that.”

Mitchell also noted that Ford “could not remember if she was being audio or video-recorded when she took the polygraph. She could not remember whether the polygraph occurred the same day as her grandmother’s funeral or the day after her grandmother’s funeral. It would also have been inappropriate to administer a polygraph to someone who was grieving.” (Ford’s attorneys have said she took and passed a polygraph.)

• “Dr. Ford’s description of the psychological impact of the event raises questions.”

According to Mitchell, the date of the hearing was delayed because the Committee was told that Ford’s symptoms prevented her from flying, but she agreed during testimony that she flies “fairly frequently.” She also flew to Washington D.C. for the hearing. Mitchell noted that Ford testified that she was not “clear” whether investigators were willing to travel to California to interview her.

She said she struggled academically in college, but she didn’t make the claim about the last two years of high school.

• “The activities of Congressional Democrats and Dr. Ford’s attorneys likely affected Dr. Ford’s account.”

Under the above header, Mitchell referred to an additional timeline. You can read it at the end of the document embedded at the bottom of this article.

* * *

The above is a partial summary of the conclusions in the memo; in numerous instances Mitchell provided additional examples to back up her claims.

In his statement appointing Mitchell, Chuck Grassley praised Rachel Mitchell’s career. Grassley said that Mitchell has “decades of experience prosecuting sex crimes,” calling her a “career prosecutor.”

Although critics have alleged the GOP Senators just don’t want the bad optics of an all-male panel questioning Ford, Grassley gave another motive. “The goal is to de-politicize the process and get to the truth, instead of grandstanding and giving senators an opportunity to launch their presidential campaigns,” Grassley said.

“I’m very appreciative that Rachel Mitchell has stepped forward to serve in this important and serious role. Ms. Mitchell has been recognized in the legal community for her experience and objectivity. I’ve worked to give Dr. Ford an opportunity to share serious allegations with committee members in any format she’d like after learning of the allegations. I promised Dr. Ford that I would do everything in my power to avoid a repeat of the ‘circus’ atmosphere in the hearing room that we saw the week of September 4. I’ve taken this additional step to have questions asked by expert staff counsel to establish the most fair and respectful treatment of the witnesses possible.”

Rachel Mitchell has donated to the campaign of Mark Brnovich, Arizona’s Republican attorney general, according to The Post. The County Attorney’s newsletter also mentions that Mitchell was part of a team that won an award for dealing with a “sex assault backlog.”

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One week after we reported that India’s NPL crisis finally erupted after IL&FS, a major shadow bank at the heart of India’s economy defaulted in one day on three debt payments, India’s government announced on Monday that it would immediately seize control of a shadow lender whose defaults have caused widespread upheaval at mutual funds.

The nationalization is virtually unprecedented: the nation’s corporate affairs ministry has sought to take control of a company on just two prior occasions, and only followed through once, with Satyam Computer Services in 2009. A bid by the government to take control of debt-laden realty firm Unitech in late 2017 was stalled by the Supreme Court after the move was challenged.

According to Bloomberg, officials ousted Infrastructure Leasing & Financial Services Ltd.’s entire board and a new six-member board will meet before Oct. 8, the National Company Law Tribunal said on Monday. India’s richest banker Uday Kotak and ICICI Bank Chairman G.C. Chaturvedi will be part of the proposed board, which will elect a chairperson themselves.

An AAA-rated entity for decades, over the last few years IL&FS, saw an increase in its debt levels. The situation worsened in the last two months with both the parent company and its subsidiaries defaulting on a number of repayment obligations. Banks and insurance companies have the largest exposure to IL&FS.

For India to resort to such a dramatic move, the panic must have been palpable: the nationalization, which unfolded within the span of a hectic day in Mumbai, underscores the government’s concern about IL&FS’s defaults spreading to other lenders in the world’s fastest-growing major economy.

Considered systemically important, the group has total debt of $12.6 billion, 61 percent in the form of loans from financial institutions. The ripple effects of its defaults have already seen mutual funds post mark-to-market losses, a slump in corporate bond issuance and a brief but sharp sell-off in equities.

As we noted previously, IL&FS’s outstanding debentures and commercial paper account for 1% and 2% respectively, of India’s domestic corporate debt market as of March 31, according to Moody, while its bank loans made up about 0.5% to 0.7% of the entire banking system loans. It is, in a word, systemic.

And while bad loans in the Italian banking system have received a ton of attention from investors, India is not far behind and India’s economic recovery is built on an even shakier foundation.

It took IL&FS insolvency to bring these to the forefront.

In addition to its direct debt exposure, there was also concern that the group’s troubles could spread to other shadow banks and crimp Prime Minister Narendra Modi’s infrastructure plans before elections next year.

“The solution would need to address how to prevent massive write downs by the banks, not merely by regulatory engineering — as that would simply defer the real problem by a few years,” said Krishnava Dutt, a managing partner at law firm Argus Partners. “As I see it, someone now needs to bite the bullet.”

The National Company Law Tribunal will next hear the matter on Oct. 31.

In response to the news, shares of the group’s listed subsidiaries climbed in Mumbai. IL&FS Transportation Networks Ltd., which develops and maintains toll highways, surged nearly 19 percent to close at 26.80 rupees, paring the year’s slump to 68 percent. Fund manager IL&FS Investment Managers Ltd. advanced about 10 percent.

The nationalized company, and the new board, will inherit a restructuring process that just saw IL&FS shareholders sign off on a non-convertible debt sale, a higher borrowing limit and a rights offering.

Some bankers to IL&FS have been hesitant to provide fresh cash injections without more details on asset sales, people familiar with the matter have said.

Other investors in IL&FS include Japan’s Orix Corp., the second-largest shareholder in the company with , Abu Dhabi Investment Authority and Housing Development Finance Corp., India’s biggest mortgage lender.

“Dismissal of the IL&FS board will raise uncertainty on the firm’s plans to sell off assets and pay off debtors,” Sunil Pachisia, vice president at brokerage Pratibhuti Viniyog, said by phone. “There is a fear that the lenders may have to take deeper hair cuts once the government steps in.”

LIC, IL&FS’ biggest shareholder with a more than 25% stake, had said last week that it would participate in the rights issue. Other investors in IL&FS include Japan’s Orix Corp., the second-largest shareholder in the company with a 23.54% stake, Abu Dhabi Investment Authority, with 12.56% and Housing Development Finance Corp., India’s biggest mortgage lender.

“Dismissal of the IL&FS board will raise uncertainty on the firm’s plans to sell off assets and pay off debtors,” Sunil Pachisia, vice president at brokerage Pratibhuti Viniyog, said by phone. “There is a fear that the lenders may have to take deeper hair cuts once the government steps in.”

IL&FS funds infrastructure projects across Asia’s third-largest economy. Its defaults on commercial paper, once considered rock-solid, from August sparked concern among households holding mutual funds invested in such debt, and forced banks, mutual and pension fund managers to brace for further losses.

In retrospect, the only solution to restore confidence and stabilize the financial system was for the government to step in. Whether this will be sufficient, or merely boost fears about what else is hiding below the surface of India’s financial system remains to be seen.

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Several months after it was kicked out of the DJIA, GE shares have touched their lowest levels since the financial crisis while the rest of the market has surged to fresh record highs. And with the company searching for something, anything, to pull shares out of their more than decade long slump, the board announced the departure of CEO and Chairman John Flannery Monday morning. Flannery, who had led the company for just 10 months after replacing longtime CEO Jeff Immelt, will himself be replaced by board member Lawrence Culp, former CEO of Danager Corp from 2000 to 2014. In addition, Thomas Horton will take over as lead director.

But that wasn’t all: The company issued a “kitchen sink” announcement, disclosing that it would miss its 2018 earnings guidance and would take a massive $23 billion charge in the company’s power business – effectively writing down all of the company’s Goodwill – which has recently been the source of most of the company’s woes. According to CNBC, the board was unsatisfied with Flannery’s “execution” since taking over.

• *GE SAYS WILL FALL SHORT OF 2018 EPS GUIDANCE; TO RECORD CHARGE
• *GE NAMES LAWRENCE CULP CHAIRMAN & CEO
• *GE SAYS WILL FALL SHORT OF 2018 EPS GUIDANCE; TO RECORD CHARGE
• *GE: CHARGE TO BE SUBSTANTIALLY ALL OF GE POWER’S $23B GOODWILL

Shares initially sunk, then snapped higher on the news, rallying 10%:

 

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Out with the old, in with the new…

Just hours before the end-of-month deadline, US trade rep Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland announced last night that Canada and the US had successfully agreed on a sweeping revision of the Nafta trade accord (an agreement that had been reached with Mexico’s outgoing PRI government weeks ago), maneuvering the final leg of the new trilateral deal, which will henceforth be known as the US-Mexico-Canada Agreement, or USMCA, into place. The US heralded the deal by proclaiming that it would mean “freer markets, fairer trade and robust economic growth.” After both President Trump and Canadian Prime Minister reportedly approved the agreement, markets rejoiced, sparking rallies in the loonie, Mexican peso and US stock futures.

The preliminary terms reflected a resolution of the dairy-market problem, which had proved to be an intractable point of contention, with Canada offering access to roughly 3.5% of domestic dairy market to the US and will agree to a vehicle export quota of 2.6 million vehicles that could be exported to the US tariff free or near tariff free. Meanwhile, as reported previously, the Chapter 19 dispute resolution process – something that Canada demanded be preserved in the final accord – will remain unchanged.

Given that, in the Trump era, nothing is done until it’s done, Trump lauded the agreement on Twitter Monday morning, saying it would correct “deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world.”

Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico. The new name will be The United States Mexico Canada Agreement, or USMCA. It is a great deal for all three countries, solves the many……

— Donald J. Trump (@realDonaldTrump) October 1, 2018

….deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world. The USMCA is a historic transaction!

— Donald J. Trump (@realDonaldTrump) October 1, 2018

Congratulations to Mexico and Canada!

— Donald J. Trump (@realDonaldTrump) October 1, 2018

To be sure, Congress must still approve the deal, which they are widely expected to do now that Canada has been brought on board. According to media reports, lawmakers would have resisted any deal that didn’t involve Canada. But with markets rejoicing on the news, we can’t help but wonder how much longer the resolution of this trade dispute will keep stocks elevated when a full blown US-China trade war is increasingly being factored into “baseline” expectations.

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With China on holiday this week, traders had fewer distractions and more time to focus on the main overnight event, namely the last minute deal between the US and Canada to reconstitute NAFTA (or USMCA as Trump now calls it) and what it would mean for trade relations, which sent US equity futures soaring to just shy of all time highs…

… and helped world markets kick off the fourth quarter of the year in a positive vein, overcoming lingering concerns about Italian politics and a slowdown in Chinese manufacturing over the weekend.

Last on Sunday, the US and Canada said in an official statement that they have reached a trade deal with Mexico in an agreement dubbed the USMCA (US-Mexico-Canada Agreement). US President Trump is to sign the new trade agreement by the end of November, which will then get passed on to Congress.

Canada agreed to eliminate the “Class 7” milk protein pricing system and increase US access to Canada’s dairy market beyond Trans-Pacific partnership levels. The New trade deal does not make major changes to current Chapter 19 trade dispute settlement mechanism which gives the three countries the right to challenge each other’s anti-dumping and countervailing duty decisions in front of an expert panel with members from both countries involved in a dispute. US said the trade deal with Canada does not affect US steel and aluminium tariffs currently levied on Canada, and that these tariffs are separate to the trilateral deal. A Senior Trump Administration official said if Trump imposes auto tariffs, both Mexico and Canada will be accommodated in “side letters”.

The deal was the latest “feather in the cap” for U.S. trade negotiator Robert Lighthizer, who has advocated a tough line towards China, compared with Treasury Secretary Steven Mnuchin.

The news sent the Canadian dollar up 0.65% against the dollar to a four-month high while the Mexican peso hit its highest in over seven weeks.

“The trade deal is helping risk appetite across the board, especially the Canadian dollar, and that will likely lift appetite for emerging-market currencies across the board,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The breakthrough also supported global equity markets, with European stocks climbing as havens including the yen and gold fell. The Stoxx Europe 600 Index rose for the fourth day in the last five, led by technology and chemicals companies, ignoring the latest political noise in Italy, where an unconfirmed report in the media suggested that the EU would reject Italy’s 2.4% budget deficit proposal in November and open a procedure against the country’s public accounts which extended the selloff in Italian bonds from last week.

EU Commissioner Dombrovskis said what emerges so far from discussions in Italy does not seem to be in line with EU fiscal rules, he added it’s important to stick to responsible fiscal policy to keep interest rates low. The Dutch PM has also expressed his concerns over the Italian budget plan. Meanwhile, Italy’s Finance Minister Tria is attempting to head off a confrontation between the EU and Italy that by insisting that the country will reduce public debt despite its plans to increase spending.

“It is quite clear that the European Commission will not like (the budget proposal),” said Commerzbank rates strategist Michael Leister. “Brussels will give its opinion, which we think won’t be positive and … the ratings agencies will opt for a similar stance. A downgrade is our base case.”

The euro was initially hit by worries about Italy’s fiscal deficit, dropping below the $1.16 mark having lost 1.2 percent last week and off three-month high of $1.18155 touched a week ago; however it since rebounded and was trading virtually unchanged, just above 1.16 at last check.

Investors will also be closely watching the market impact from the latest ECB tapering: the central bank will cut its monthly bond purchases in half to €15 billion starting this month, with a full phase out expected by year end. However the euro edged up, shrugging off data showing growth in euro-area factory output slid to the weakest pace in two years, on the back of renewed dollar weaknss.

With China, Australia and Hong Kong out on vacation, attention focused on Japan where the Nikkei 225 Average closed at its highest level in nearly 27 years amid muted trading as much of Asia was on holiday.

Also casting a shadow were two surveys on Sunday that showed growth in Chinese manufacturing sputtered in September as domestic and export demand softened. As a result, the MSCI’s index of Asia-Pacific shares outside Japan fell 0.25 percent.

In rates, Treasury 10-year yields advanced to 3.09%, wiping out all the TSY gains since last week’s Fed meeting.

Investors will also be keenly focused on Tesla after Elon Musk’s agreement with U.S. regulators; the shares soared 16% in pre-market after Musk agreed to resign as chairman for three years and pay a fine, he would however keep his job as CEO.

Oil prices held their gains, with international benchmark Brent briefly hitting a four-year high, as U.S. sanctions on Tehran squeezed Iranian crude exports, tightening supply even as other key exporters increased production. Brent crude futures rose 0.6% to as high as $83.25 per barrel, the highest since November 2014, before trading flat on the day at $82.72.

In the latest Brexit news, UK PM May said the Chequers plan is not dead, while added she is prepared to listen to EU counter-proposals but she wants to hear the details of EU’s concerns, and EU leaders want a deal just as she does. She said she believes Chequers will not destroy the single market and a Canada-style deal is not on the table for EU. In the interview, she refused to answer whether a no-deal Brexit will mean a hard border in Ireland. Note: BBC’s Andrew Marr noted a no-deal under WTO would result in a hard border. May, in a Sunday Times interview, told Tory rebels to “stop playing politics” and the only proposal on the table at the moment that delivers, is the Chequers plan, while she reiterated that no deal is better than a bad deal but she thought a good deal could be reached. She also challenged the EU to come forward with a counter proposal. Meanwhile, former UK Foreign Secretary Boris Johnson has refused to rule out a leadership challenge to UK PM May. Furthermore, in an interview with The Sunday Times, Johnson questioned whether UK PM May believes in Brexit and branded her Chequers plan “deranged”.

In geopoliticsNorth Korea’s Foreign Minister announced that North Korea would not take the first steps towards denuclearisation without further
guarantees from the US. He also warned of the increasing mistrust between Pyongyang and Washington DC. (Telegraph)
Russian Foreign Affairs Minister Lavrov said everything possible will be done to preserve Iran nuclear deal.

Expected data includes manufacturing PMI and construction spending. Cal-Maine and Stitch Fix are among companies reporting earnings.

Market Snapshot

• S&P 500 futures up 0.6% to 2,937.00
• STOXX Europe 600 up 0.3% to 384.27
• MXAP down 0.2% to 164.98
• MXAPJ down 0.2% to 524.93
• Nikkei up 0.5% to 24,245.76
• Topix up 0.04% to 1,817.96
• Hang Seng Index up 0.3% to 27,788.52
• Shanghai Composite up 1.1% to 2,821.35
• Sensex up 0.2% to 36,285.78
• Australia S&P/ASX 200 down 0.6% to 6,172.26
• Kospi down 0.2% to 2,338.88
• German 10Y yield rose 2.4 bps to 0.494%
• Euro down 0.05% to $1.1598
• Italian 10Y yield rose 25.4 bps to 2.781%
• Spanish 10Y yield rose 1.5 bps to 1.515%
• Brent futures up 0.2% to $82.91/bbl
• Gold spot down 0.4% to $1,186.65
• U.S. Dollar Index little changed at 95.10

Top Overnight News

• Trump is set to sign a successor to NAFTA that will make modest revisions to a deal he once called a “disaster,” easing uncertainty for companies reliant on tariff-free commerce; the new accord will be named the United States-Mexico-Canada Agreement, or USMCA
• Growth in euro-area factory output slid to the weakest pace in two years as the spillover from trade wars is starting to dent demand. IHS Markit’s Purchasing Managers’ Index for manufacturing slowed to 53.2 in September, down from 54.6 in August, and below a previous flash estimate of 53.3
• U.K. Prime Minister Theresa May faces the battle of her political life to retain control of the governing Conservative Party as top Tory politicians undermined her leadership. After arch rival Boris Johnson went for the jugular, Chancellor Philip Hammond swept in to defend her in an increasingly chaotic political scene
• Italian Finance Minister Giovanni Tria is certain to face questions about the nation’s 2019 spending plan even though it’s not on Monday’s Eurogroup agenda in Luxembourg
• Royal Dutch Shell Plc and its four partners have agreed to invest in a $31 billion LNG project in Canada
• Two- thirds of business economists in the U.S. expect a recession to begin by the end of 2020, while a plurality of respondents say trade policy is the greatest risk to the expansion, according to a new survey
• China’s official manufacturing PMI stood at 50.8 in September versus 51.3 in August, lower than the median analyst estimate of 51.2. Meanwhile, the Caixin manufacturing PMI, which better reflects sentiment among smaller, private firms, declined to 50 from 50.6, the lowest since May 2017

Asian stocks traded mixed following a rather uneventful lead from Wall St. on Friday where major bourses ended the day little changed as markets wrapped up a strong quarter where the S&P showed it best quarterly gain since Q4 2013. ASX 200 (-0.6%) underperformed amid a slowdown in China’s manufacturing sector shown by the Caixin data, while Nikkei 225 (+0.5%) was buoyed on currency effect in a continued weakness of the JPY following a downbeat Tankan release and Manufacturing PMI. Elsewhere, Hong Kong and Mainland China are closed today due to public holidays. Indonesia’s island Sulawesi was hit by a 7.5 magnitude earthquake, which triggered a 6m (20ft) tsunami that hit the cities of Palu and Donggala. Officials have confirmed the death toll rose to over 800.

Top Asian News

• India Seeks Court Approval to Take Control of Indebted Financier

European equities have started the day on the front foot, with the FTSE the laggard, as a slightly bid GBP is weighing on the index. The consumer discretionary sector is the marked underperformer as RyanAir (-8.7%) cutting guidance due to lower than expected Q2 and Q3 traffic has hit European airline stocks, with all of Air France (-2.5%), EasyJet (-3.0%) and Lufthansa (-1.0%) in the red. Linde (+1.2%) is leading the gains in Germany and has supported the DAX to near the top of the index pile after receiving antitrust approval from China for their Praxair merger. The FTSE MIB is the outperforming index as Italian stocks are seeing some reprieve from last week’s sell off. Index heavyweight Telecom Italia (-1.5%) are, however, in the red after a broker downgrade at Barclays.

Top European News

• Danske Names Interim CEO as Borgen ‘Relieved of His Duties’
• May Faces Tory Fire Over Brexit as Hammond Attacks Boris Johnson
• Swiss Private Banks Urged to Partner in a ‘Complex’ World
• U.K. Manufacturing Growth Unexpectedly Accelerates in September

In FX, the Loonie has leapt to the top of the G10 leader board, and aside from testing resistance round 1.2800 vs its US counterpart that Cad is bid and outperforming right across the board. The clear catalyst is a somewhat unexpected  pre-‘deadline’ deal between the US and Canada on a new style NAFTA deal that will include Mexico and be renamed as USMCA. Looking at technicals, if Usd/Cad breaches 1.2800 and remains below multi-month chart support around 1.2813-19, that includes a 50% Fib, nearest or next downside targets are seen circa 1.2730, 1.2685 and even 1.2500, while from a more fundamental perspective comments from BoC’s Lane later may impact. JPY/CHF – The clear underperformers, as Usd/Jpy continues to break higher and just climbed above 114.00 following dips in Japan’s Q3 Tankan survey and September manufacturing PMI, while Usd/Chf remains within 0.9845-00 parameters in wake of a less robust Swiss manufacturing PMI that overshadowed a recovery in retail sales. EUR/NZD/AUD – All relatively flat or narrowly mixed vs the Greenback, with the single currency pivoting 1.1600 amidst somewhat divergent Eurozone manufacturing PMIs and reports suggesting that the EU will register its objection to Italy’s proposed 2.4% 2019 budget (in November, according to sources). Note also, the spill-over from SOMA may well weigh on the headline pair at some stage. EM – The Peso and Lira are heading the regional pack, with Usd/Mxn testing bids around 18.5000 on the aforementioned NAFTA breakthrough to include all 3 countries in a new pact, while Usd/Try has made a more convincing break below the 6.0000 handle as healthy or at least encouraging Turkish trade data offset a disappointing manufacturing PMI (former boosted by exports vs latter deeper in sub-50 territory).

In commodities, the oil market is uneventful this morning and seeing a lack of newsflow for the fossil fuel, with Brent  essentially unchanged for the day and hanging just below the USD 83.00 handle after last week’s rise to over 4 year highs. A  senior Iranian Oil Official said they have no plans to reduce oil production. Most metals are in the red this morning with zinc and copper down by over 1% and gold down by 0.5% as the week-long holiday in China is hitting demand.

It’s a busy start to the week for data on Monday. The main focus should be the final September manufacturing PMI revisions in Japan, Europe – with a first look at the data for the periphery – and the US. Also due is the August unemployment rate for the euro area and money and credit aggregates data for the UK, while in the US we’ll also get the September ISM manufacturing and September vehicle sales data.

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, est. 55.6, prior 55.6
• 10am: Construction Spending MoM, est. 0.4%, prior 0.1%
• Wards Total Vehicle Sales, est. 16.8m, prior 16.6m

DB’s Jim Reid concludes the overnight wrap

The final September PMI revisions around the world will also be closely watched. Today sees the final manufacturing revisions – including of course a first look at the periphery in Europe where Italy in particular is expected to show little improvement from the 50.1 reading in August – while the final services and composite revisions will be seen on Wednesday. Away from that today sees the September ISM manufacturing in the US. In China we had the September PMIs released over the weekend with the main story being weakness in the manufacturing sector. Indeed both the official (50.8 vs. 51.2 expected) and Caixin manufacturing readings (50.0 vs. 50.5 expected) fell more than expected last month, indicative perhaps of fallout from the trade war. There was better news from the non-manufacturing sector however (54.9 vs. 54.0 expected).

Meanwhile the UK Conservative party conference kicked off yesterday. In a BBC interview yesterday morning PM May indicated that the Chequers plan is still her offer with regards to a Brexit deal. Today sees Brexit Secretary Dominic Raab and Chancellor Philip Hammond speak. Wednesday sees PM May close out the event. Our economists expect May to take a hard line on Brexit to keep the rank and file happy.

Overnight the main news is that of a deal struck between the US and Canada to a NAFTA replacement which includes Mexico. The new deal, which is expected to be signed by the end of November, is to be called the US-Mexico-Canada agreement, or USMCA. The deal includes ground-breaking intellectual property provisions, new provisions in unfair trade practices, new market access for dairy producers and stronger labour provisions. Unsurprisingly the Mexican Peso (+0.65%) and Canadian Dollar (+0.51%) are the big early movers in FX markets while US equity futures are up +0.50%. With China out trading volumes are thinner than usual and the rest of markets in Asia are more mixed (Nikkei +0.43%, Kospi -0.27%).

Back to last week and the Italian budget dominated market attention on Friday. There wasn’t much fresh newsflow on Friday and over the weekend aside from some verbal sparring including comments from Central Bank Governor Visco warning about the need to reduce Italy’s debt burden. The new additional info early on Friday was that the 2.4% deficit would be for each of the next three years although Cabinet Undersecretary Giorgetti did tell La Republica over the weekend that there could be some flexibility in that. BTPs reacted reasonably rationally in that our strategists model based on twin deficits suggested that a 2.4% deficit should increase spreads by 15-35bps on Friday. They closed 25.7bps higher but were nearly 40bps higher by late morning. It was still the biggest move and widest range since the May selloff. Two-year yields rose 24.7bps and were around 40bps at the highs for the day. Perhaps confirmation that Tria is staying helped settle the market down in the afternoon. Tria reiterated his plans to stay over the weekend and did say that debt should fall one percentage point over each of the next 3 years. However this is based on his growth forecasts of 1.6% and 1.7% in 2019 and 2020. To put this into some perspective DB’s forecasts for Italian growth in 2019 has been 0.9%. Mark Wall suggests that if normal fiscal multipliers apply then Italy could get a 0.5% boost but with crowding out due to higher yields it will likely be less. He also made the point that there’s no sign of any structural reforms that would increase growth. So it’s unlikely that debt will fall.

Back to Friday and Bunds rallied on the risk-off flows, with 10-year yields falling 5.8bps, the most since May. Italian equities also underperformed sharply, with the FTSEMIB shedding -3.72% versus the Euro Stoxx 600’s -0.83% fall. European banks led declines (-3.92%), and Italian banks in particular had a terrible day (-7.26%), their worst since the post-Brexit carnage of June 2016.

Looking ahead over the next weeks and months, the reactions to the Italian budget from the European Commission and from ratings agencies will be key. The Commission has the power to request budget changes and can impose sanctions in the event of noncompliance, and the Economic Affairs Commissioner Pierre Moscovici has already signaled that the current plan looks like it is “out of line with our rules.” The three major ratings agencies all place Italy two notches above speculative-grade, and there are risks of downgrades next month.

After the Fed hike week 10yr Treasury yields ended the week close to flat (+0.9bps Friday), though the 2s10s curve flattened back to within 5.6bps of its cyclical low. The dollar rallied +0.97% on the week, with most gains coming against the euro, as the single currency sold off at the end of the week around the Italy headlines (-0.32% Friday). Emerging market currencies gained +0.52% last week with the Turkish Lira (+3.83%) and Russian Ruble (+1.35%) outperforming, while Argentine Peso shed -9.89% to reach its weakest-ever level versus the dollar.

While European equities uniformly retreated amid the Italy drama (Stoxx 600 -0.83% Friday, -0.29% on week), other global bourses were more mixed. The S&P 500 and DOW retreated -0.54% and -1.07%, respectively over the 5 days, while the tech-heavy NASDAQ advanced +0.74%. The latter was on track for even higher gains before Facebook shed -2.59% on Friday after news broke that a security issue had compromised data on some 50 million Facebook users. Equities in Asia mostly advanced on the week with the Nikkei and Shanghai Composite gaining +1.05% and +0.85%, respectively. Brent Crude oil advanced +4.97% to its highest level since 2014, closing above $82 per barrel.

After Thursday’s bumper German CPI, the euro area aggregate CPI missed expectations on Friday, with the core reading falling to 0.9% yoy versus expectations for 1.1%. So, some inflation softness in the periphery of the euro area. Core US PCE inflation modestly missed expectations for August on Friday at 0.0% mom, though the yoy figure stayed steady at the Fed’s target of 2.0%.

It’s a busy start to the week for data on Monday. The main focus should be the final September manufacturing PMI revisions in Japan, Europe – with a first look at the data for the periphery – and the US. Also due is the August unemployment rate for the euro area and money and credit aggregates data for the UK, while in the US we’ll also get the September ISM manufacturing and September vehicle sales data. Away from that the BoE’s Tenreyro and Fed’s Bostic, Kashkari and Rosengren will all be speaking at various times. Worth noting also is that Monday marks the final day of debate at the UN General Assembly, while euro area finance ministers will also meet in Luxembourg to discuss ‘national automatic stabilisers’.

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Barely an hour after California Gov. Jerry Brown signed what’s widely believed to be the toughest net neutrality law ever enacted in the US, the US DOJ announced that it would sue California to invalidate the new law, setting up yet another showdown between the federal government and the largest state in the union.

According to the Washington Post, California has become the largest state to adopt its own rules requiring Internet providers like AT&T, Comcast and Verizon to treat all web traffic equally. State lawmakers wrote their law after the FCC scrapped nationwide protections last year, citing the regulatory burdens they had caused for the telecom industry. The lawsuit opens yet another legal showdown between Brown and Attorney General Jeff Sessions. Recently, a federal judge threw out most of the DOJ’s challenge to California’s sanctuary state laws.

The law will pit massive ISPs like Comcast and Verizon against smaller Internet companies like Etsy and streaming services like Vimeo.

As the DOJ explains in its press release, federal laws explicitly state that the Internet should not be regulated as if it were a utility. However, this assumption undergirds the argument for enforcing net neutrality by law. For years, net neutrality was merely a principle to which ISPs adhered. It wasn’t until the Obama Administration-era FCC imposed certain restrictions on ISPs that net neutrality were enshrined into law.

And as Sessions pointed out in a statement, states do not have the right to regulate interstate commerce.

“Under the Constitution, states do not regulate interstate commerce – the federal government does. The Justice Department should not have to spend valuable time and resources to file this suit today, but we have a duty to defend the prerogatives of the federal government and protect our Constitutional order,” Sessions said in a statement.

[…]

“Not only is California’s Internet regulation law illegal, it also hurts consumers,” Pai said in a statement. “The law prohibits many free-data plans, which allow consumers to stream video, music, and the like exempt from any data limits. They have proven enormously popular in the marketplace, especially among lower-income Americans. But notwithstanding the consumer benefits, this state law bans them.”

FCC Chairman Ajit Pai, who received death threats last year after the FCC undid the Obama-era regulations, said in a statement that the California law isn’t just illegal, but also hurts consumers.

“I’m pleased the Department of Justice has filed this suit.  The Internet is inherently an interstate information service.  As such, only the federal government can set policy in this area.  And the U.S. Court of Appeals for the Eighth Circuit recently reaffirmed that state regulation of information services is preempted by federal law.”

“Not only is California’s Internet regulation law illegal, it also hurts consumers.  The law prohibits many free-data plans, which allow consumers to stream video, music, and the like exempt from any data limits.  They have proven enormously popular in the marketplace, especially among lower-income Americans.  But notwithstanding the consumer benefits, this state law bans them.”

And with other states stepping up to pass net neutrality laws of their own, the DOJ has every incentive to take this lawsuit all the way to the Supreme Court (where hopefully, assuming Brett Kavanaugh is confirmed, the court’s conservative majority will rule in the DOJ’s favor).

In this case, the future of Internet regulation is at stake in a political war that’s pit telecom providers such as Verizon against tech companies, especially smaller ones such as the crafts site Etsy and the streaming service Vimeo. With other states considering net neutrality laws of their own, the DOJ “may want to try to take [California] to the Supreme Court if it goes that far,” said Carl Tobias, a law professor at the University of Richmond.

The first salvos in what looks to be a multiyear legal saga were fired just weeks before the all-important midterm elections (though it’s hard to imagine that this will do much galvanize either side’s base, as most consumers have no idea what net neutrality is, exactly).

Emboldened by online activists, liberal organizers and tech start-ups, California lawmakers set about crafting their own net neutrality rules earlier this year. The proposal that the legislature adopted in September – which the governor’s office allowed to become law Sunday – prohibits Internet providers from blocking access to sites and services, slowing down web connections or charging companies for faster delivery of their movies, music or other content. Smaller web firms, in particular, worry that they do not have the resources to pay telecom giants to make sure their content is seen. The law also bans carriers from exempting apps from counting toward consumers’ data allowances each month if doing so might harm companies, especially start-ups.

California’s law is even tougher than the approach adopted in 2015 while President Obama was in office – which was scrapped after Republicans took over leadership of the FCC two years later. To Ajit Pai, the FCC’s current Republican chairman, such net neutrality protections proved heavy handed and had slowed the telecom industry’s investment in improving their broadband networks nationwide. “I think ultimately it’s going to mean better, faster, cheaper Internet access and more competition,” Pai told the Post as the repeal took effect in June.

The California Assembly and Senate passed the law over the summer, ignoring the objections of telecom lobbyists who have largely favored the DOJ’s less-restrictive approach to the Obama-era policies. While California’s law is certainly ambitious and mirrors the state’s efforts to impose restrictive data privacy laws earlier this year, should the DOJ succeed with its case (an outcome that will almost certainly involve a SCOTUS ruling), it will settle the matter of net neutrality for a generation.

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