Australian Diplomat Whose Tip Launched Russia Probe Has $25 Million Tie To Clintons

The Australian diplomat whose 2016 tip resulted in the FBI’s Trump-Russia counterintelligence investigation had previously arranged one of the largest donations to Clinton charities, documents reveal.

Alexander Downer, formerly Australia’s Foreign Minister, secured $25 million in aid from Australia for the Clinton Foundation’s fight against AIDS – according to decade-old government memos archived on the Australian foreign ministry website, report John Solomon and Alison Spann of The Hill

A 2006 Memorandum of Understanding (MOU) signed by both Downer and President Clinton outlines a four year project to provide screening and drug treatment to AIDS patients in Asia. 

The funds were originally slated for the Clinton Foundation, but were later routed to the Clinton Health Access Initative (CHAI). 

Australia was one of the largest donors to CHAI:

In the years that followed, the project won praise for helping thousands of HIV-infected patients in Papua New Guinea, Vietnam, China and Indonesia, but also garnered criticism from auditors about “management weaknesses” and inadequate budget oversight, the memos show. –The Hill

Downer tipped off Australian authorities after a conversation with Trump campaign advisor George Papadopoulos at a London bar, in which Papadopoulos reportedly said the Russians had “dirt” on Hillary Clinton. After Australian authorities alerted the FBI, a counterintelligence probe was launched according to reports – despite the fact that Papadopoulos was likely referring to already-public information concerning hacker Guccifer.

Moreover, Congressional investigators weren’t told about Downer’s connection to the Clinton Foundation.  

“Republicans say they are concerned the new information means nearly all of the early evidence the FBI used to justify its election-year probe of Trump came from sources supportive of the Clintons, including the controversial Steele dossier,” reports The Hill

“The Clintons’ tentacles go everywhere. So, that’s why it’s important,” said Rep. Jim Jordan (R-Ohio) chairman of a House Oversight and Government Reform subcommittee. “We continue to get new information every week it seems that sort of underscores the fact that the FBI hasn’t been square with us.

Democrats have accused the GOP overreach, claiming that Downer’s role with the Clinton Foundation deal shouldn’t be a factor. 

“The effort to attack the FBI and DOJ as a way of defending the President continues,” said Rep. Adam Schiff (D-Calif.), the top Democrat on the House Intelligence panel. “Not content to disparage our British allies and one of their former intelligence officers, the majority now seeks to defame our Australian partners as a way of undermining the Russia probe. It will not succeed, but may do lasting damage to our institutions and allies in the process.”

Australia and the Clinton Charities

In January we reported that the FBI had asked retired Australian policeman-turned investigative journalist, Michael Smith, to provide information he has gathered detailing multiple allegations of the Clinton Foundation receiving tens of millions of mishandled taxpayer funds, according to LifeZette

[insert: Hillary-Clinton-Foundation-Julia-Gillard-Australia-taxpayers-corruption.jpg ]

“I have been asked to provide the FBI with further and better particulars about allegations regarding improper donations to the CF funded by Australian taxpayers,” Smith told LifeZette.

Of note, the Clinton Foundation received some $88 million from Australian taxpayers between 2006 and 2014, reaching its peak in 2012-2013 – which was coincidentally (we’re sure) Australian Prime Minister Julia Gillard’s last year in office. Smith names several key figures in his complaints of malfeasance, including Bill and Hillary Clinton and Alexander Downer

The materials Smith gave to the FBI concern the MOU between the Clinton Foundation’s HIV/AIDs Initiative (CHAI) and the Australian government. 

Smith claims the foundation received a “$25M financial advantage dishonestly obtained by deception” as a result of actions by Bill Clinton and Downer, who was then Australia’s minister of foreign affairs. 

Also included in the Smith materials are evidence he believes shows “corrupt October 2006 backdating of false tender advertisements purporting to advertise the availability of a $15 million contract to provide HIV/AIDS services in Papua New Guinea on behalf of the Australian government after an agreement was already in place to pay the Clinton Foundation and/or associates.”-Lifezette

As a reminder, the Australian government announced that they would stop pouring millions of dollars into accounts linked to the Clinton charities in November of 2016 – right after Hillary Clinton lost the election. 

The federal government confirmed to news.com.au it has not renewed any of its partnerships with the scandal-plagued Clinton Foundation, effectively ending 10 years of taxpayer-funded contributions worth more than $88 million.

The Clinton Foundation has a rocky past. It was described as “a slush fund”, is still at the centre of an FBI investigation and was revealed to have spent more than $50 million on travel.

Despite that, the official website for the charity shows contributions from both AUSAID and the Commonwealth of Australia, each worth between $10 million and $25 million.

Norway, coincidentally, also reduced its $20 million / year donations to the Clinton Foundation right after Hillary’s loss.

A third complaint by Smith revolves around a “$10 million financial advantage dishonestly obtained by deception between April 1, 2008, and Sept. 25, 2008, at Washington, D.C., New York, New York, and Canberra Australia involving an MOU between the Australian government, the “Clinton Climate Initiative,” and the purported “Global Carbon Capture and Storage Institute Inc.”

When asked why the Clinton Foundation was chosen as a recipient of Australian taxpayer dollars, a spokesman for the Department of Foreign Affairs and Trade said that all funding was used “solely for agreed development projects” and Clinton charities have “a proven track record” in helping developing countries.

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Bitcoin Drops Over $1000 As Cryptos Go Red For Week

Following yesterday’s exciting ramp, cryptocurrencies are tumbling today (down 6-8% overnight)..

A major seller appeared around 5amET…

 

And back in the red for the week.

 

Bitcoin is down over $1000 from its highs yesterday…

The move does not seem to have been driven any specific news catalyst.

Google Trends data show searches for bitcoin have fallen by 80 percent.

The last time google searches were this low in relation to bitcoin, the cryptocurrency was valued at $5,000.

And as CoinTelegraph reports, Harvard professor and economist Kenneth Rogoff implied Bitcoin only had value because of its use in “money laundering and tax evasion.”

“I would see $100 as being a lot more likely than $100,000 ten years from now,” he said, continuing:

“Basically, if you take away the possibility of money laundering and tax evasion, [Bitcoin’s] actual uses as a transaction vehicle are very small.”

Rogoff joins a diminishing number of traditional finance figures still maintaining a firm anti-Bitcoin stance.

Additionally, CoinTelegraph notes that Bitcoin’s sideways price action has led to the lowest number of confirmed transactions per day since March 2016, according to Blockchain.info.

Data shows BTC transactions falling in line with downward trends in price since the all-time highsof December 2017.

The number of transactions reached a two-year low on Feb. 26 with only 180,000 confirmed transactions, while Sunday, March 4 saw just 195,500.

The slump comes at a time when Bitcoin struggles to regain the sky-high USD value it achieved late last year, when it reached $20,000 on some major exchanges.

Despite the release of support for Segregated Witness (SegWit) technology by Bitcoin Core and exchanges Coinbase and Bitfinex in February, faster and cheaper Bitcoin transactions appear to interest investors less than overall trading potential.

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Market Continues Searching For Greater Fool

Authored by Lance Roberts via RealInvestmentAdvice.com,

This past weekend, I discussed the recent weekly violation of the market back below its respective 50-dma and the triggering of actions in our underlying portfolios.

‘If the market fails to hold the 50-dma by the end of this week, we will add our hedges back to portfolios, rebalance risk in portfolios and raise cash as needed.

We did exactly that on Friday by reinstating our short-market hedge and raised some cash by reducing some of our long-equity exposure. While previously we had only hedged portfolios, the action this past week to simultaneously reduce some equity exposure was due to both of our primary “sell” signals being tripped as shown below.”

Notice that while the much surged more than 1% on Monday:

  • Both “sell signals” remain firmly entrenched at relatively high levels
  • The market is not oversold as of yet; and,
  • Prices remain below the short-term moving average.

All of this suggests the correction process is not yet complete.

On a short-term trading view, the consolidation process continues with the Monday’s rally also remaining below the 50-dma keeping short-hedges in place for now. This is particularly the case given the confirmed “sell” signal on a weekly basis as noted above.

Most importantly, the market is currently in the process of building a consolidation pattern as shown by the ‘red’ triangle below. Whichever direction the market breaks out from this consolidation will dictate the direction of the next intermediate-term move.”

“Turning points in the market, if this is one, are extremely difficult to navigate. They are also the juncture where the most investing mistakes are made.”

Over the last several weeks, I have been providing constant prodding to clean up portfolios and reduce risks. I also provided guidelines for that process –  click here.

The rally on Monday was not surprising, due to the short-term oversold conditions that existed. However, as discussed in the newsletter:

“It isn’t too late to take some actions next week as I suspect we could very likely see a further bounce on Monday or Tuesday.

Use that bounce wisely.”

For now, it is important to note the “bullish trend” remains solidly intact and, therefore, we must give the “benefit of the doubt” to the bulls. However, with “bearish signals” beginning to mount, the increase in risks certainly justifies become more cautious currently.  Goldman Sachs recently noted the potential of a further corrective process:

As has been discussed in previous updates, the market could also be starting a much bigger/more structurally corrective process, counter to a V wave sequence from the ‘09 lows. If that’s the case, there should be room to continue a lot further over time. At least 23.6% of the rally since ‘09 which is down at 2,352.

Bottom line, it’s worth considering the possibility of continuing further than 2,467-2,449. Doing so might imply that this is not an ABC but rather a 1-2-3 of 5 waves down, in a larger degree ABC count that could take months to fully manifest. While it is still far too early to make this call, the important thing to note is that the 2,467-2,449 area will likely be trend-defining.”

Searching For The Greater Fool

ValueWalk recently published the following note:

Klarman writes when purchasing stocks:

“You may find a buyer at a higher price – a greater fool – or you may not, in which case you yourself are the greater fool.”

Here’s an excerpt from Klarman’s book, Margin of Safety, in which he discusses the importance of doing your homework and avoiding speculation when it comes to investing:

“There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, “You don’t understand. These are not eating sardines, they are trading sardines.”‘

Like sardine traders, many financial-market participants are attracted to speculation, never bothering to taste the sardines they are trading. Speculation offers the prospect of instant gratification; why get rich slowly if you can get rich quickly?

Moreover, speculation involves going along with the crowd, not against it. There is comfort in consensus; those in the majority gain confidence from their very number. Today many financial-market participants, knowingly or unknowingly, have become speculators. They may not even realize that they are playing a ‘greater-fool game,’ buying overvalued securities and expecting—hoping—to find someone, a greater fool, to buy from them at a still higher price.

There is great allure to treating stocks as pieces of paper that you trade. Viewing stocks this way requires neither rigorous analysis nor knowledge of the underlying businesses. Moreover, trading in and of itself can be exciting and, as long as the market is rising, lucrative. But essentially it is speculating, not investing.

You may find a buyer at a higher price—a greater fool—or you may not, in which case you yourself are the greater fool.”

I really enjoyed this analysis as it epitomizes the problem facing investors today. Investors are currently faced with a “binary” choice given an overvalued, overly bullish and extended market.

  1. Stay out of the market and miss out on short-term gains but remain protected against a future “mean reverting event;” or,
  2. Chase the market for short-term capital appreciation but potentially suffer severe capital destruction in the future.

It is an impossible choice.

Let me explain.

In an overly valued, extended and bullish market, the logical choice would be to go to cash (sell high) and wait for a “mean reverting” event to redeploy capital (buy low) at much better valuations. The chart below shows, even using a simplistic process for doing so, the long-term returns have far outpaced those of “buy and hold” investors.

Yes, as notated, investors would have “missed out” of the market for nearly 3-years in 2000, almost 2-years in 2008, and 6-months in 2016. Yet, using even a simplistic method of risk-management, in this case a 12-month moving average, the net result greatly outweighed the mainstream “buy and hold” approach.

But it’s impossible for most individuals to actually do. 

The reality is that most investors “sold” the lows in 2002, and 2008, and waited far too long to get back “in.” As has always been the case, investors tend to do the exact opposite of what they should.

“Buy high and sell low.” 

As study after study shows, investors are driven by their emotions of “greed” and “fear.” Those emotional biases are fed by the mainstream media who consistently berate individuals for “missing out” and “not beating the market.” Yet, scream “panic” at the first sign of trouble.

This drives investors to consistently do the wrong things at the wrong time. Repeatedly.

Currently, investors are riding a nine-year-old bull market with an inherent belief they will be smart enough to get out before the next bear market begins. This is the very essence of the “greater fool theory.”

Unfortunately, most individuals will once again be “eating their sardines.” As discussed previously:

While the answer is ‘yes,’ as there is always a buyer for every seller, the question is always ‘at what price?’ 

At some point, that reversion process will take hold. It is then investor ‘psychology’ will collide with ‘margin debt’ and ETF liquidity.

When the ‘robot trading algorithms’  begin to reverse, it will not be a slow and methodical process but rather a stampede with little regard to price, valuation or fundamental measures as the exit will become very narrow.

Importantly, as prices decline it will trigger margin calls which will induce more indiscriminate selling. The forced redemption cycle will cause catastrophic spreads between the current bid and ask pricing for ETF’s. As investors are forced to dump positions to meet margin calls, the lack of buyers will form a vacuum causing rapid price declines which leave investors helpless on the sidelines watching years of capital appreciation vanish in moments.

Currently, the markets remain above their 12-month moving average which keeps portfolios allocated on the long-side.

However, such will not always be the case.

Trying to beat a “benchmark index” is a fool’s errand and should be left to the “fools.”

1) The index contains no cash

2) It has no life expectancy requirements – but you do.

3) It does not have to compensate for distributions to meet living requirements – but you do.

4) It requires you to take on excess risk (potential for loss) in order to obtain equivalent performance – this is fine on the way up, but not on the way down.

5) It has no taxes, costs or other expenses associated with it – but you do.

6) It has the ability to substitute at no penalty – but you don’t.

7) It benefits from share buybacks – but you don’t.

In order to win the long-term investing game your portfolio should be built around the things that matter most to you, and your money.

– Capital preservation

– A rate of return sufficient to keep pace with the rate of inflation.

– Expectations based on realistic objectives.  (The market does not compound at 8%, 6% or 4%)

– Higher rates of return require an exponential increase in the underlying risk profile.  This tends to not work out well.

– You can replace lost capital – but you can’t replace lost time.  Time is a precious commodity that you cannot afford to waste.

– Portfolios are time-frame specific.  If you have a 5-years to retirement but build a portfolio with a 20-year time horizon (taking on more risk) the results will likely be disastrous.

Investing is not a competition and, as history shows, there are horrid consequences for treating it as such. So, do yourself a favor and turn off the media. Focus instead on matching your portfolio to your own personal goals, objectives, and time frames. In the long run, you may not beat the index from one year to the next, but you are much more likely to achieve your investment goals which is why you invest in the first place.

Unfortunately, the rules are REALLY hard to follow. If they were easy, then everyone would be wealthy from investing. They aren’t because investing without a discipline and a strategy tends to have horrid consequences.

Personally, I hate the  “taste of sardines.” 

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Europe’s “Zombies” Brace For Mass Extinction In 2019

One especially sensitive topic that has gotten renewed prominence in financial circles in recent weeks, is the fate of “zombie” companies in a low yield world, where the yield is starting to rise uncomfortably fast.

It started last December, when the IMF published a blog discussing the “Walking Debt: China’s Zombies” (a topic we first covered in October 2015 in “More Than Half Of China’s Commodity Companies Can’t Pay The Interest On Their Debt“). Slamming China’s “zombies”, the IMF said they “are non-viable firms that are adding to the country’s rising corporate debt problem, and are bad business. Zombie firms are highly indebted and incur persistent losses, but continue to operate with the support of local governments or soft loans by banks—adding very little value to economic prospects.”

Then, last week, as part of Deutsche Bank’s series on the impact of rising rates in a low rate world, Jim Reid also looked at “The persistence of zombie firms in a low yield world” which looked at the productivity and deflationary impact from keeping undead companies operating way beyond their expiration date.

If the survival of zombie firms is a drag on productivity growth, then one would expect to see further evidence of falling business dynamism. That can be seen in the decline in the share of young firms in the economy, halving to 8 per cent of all US firms since late 1970s. If bankruptcies represent an essential process of capitalism’s creative destruction, that too has slowed, and are now the lowest they’ve been since at least 1980 in the US.

Today, completing the “zombie trifecta” is Bank of America’s Barnaby Martin who looks at a day in the life of quasi-insolvent companies one year ahead, in a world in which the ECB’s bond buying is a thing of the past:

Although some months away, 2019 will be the first time in four years that European markets will have to manage without the helping hand of ECB asset buying. And Chart 8 highlights the immediate challenge for markets in this new era. The total amount of fixed-income redemptions in Europe (sovereigns +IG credit + HY credit) will jump by 20% next year to €1.1tr. Private investors will likely have to swallow a lot more bonds next year.

To be sure, there is an easy way to find buyers for the €1.1 trillion in debt: just push the yields much higher. Alas, here lies the rub, because the upcoming jump in interest expense is precisely the silver bullet that will lead to a mass zombie genocide, or as Martin puts it, “we fear another issue in a world where central bank asset buying has ground to a halt” – that issue is what happens when “misallocation of capital” comes home to roost.

In Martin’s take on the “zombie problem”, the core issue is that the record low yields unleashed by the ECB’s QE have resulted in capital allocation decisions that would have been impossible under normal conditions:

QE has driven such a powerful reach for yield over the last few years – whether it be from high-grade into high-yield, from senior bonds into subordinated debt, or from eligible assets into non-eligible ones – that levels of spread compression have been pulled to incredibly low levels. And when the riskier appear riskless, capital allocation decision cannot function properly.

As he has done previously, Martin then draw another parallel of this cycle to the low-volatility, reach for yield 2004-2007 cycle, and “while the CDO phenomenon today is a far cry from what it was a decade ago, other facets of the market feel eerily similar.” 

Take for instance the LBO cycle – something that dominated corporate headlines between 2005 and 2006. Fast forward to today, and as Chart 10 overleaf shows, big public to private deals seem to be back again in Europe, given huge private equity cash balances. And the outlook for private equity activity in Europe looks promising given no  change in Europe’s tax treatment of debt, unlike in the US.

And ironically, the company that kick-started the European LBO cycle in 2005 – namely TDC – is the company that is again kick-starting the LBO cycle this time around.

Needless to say, the 2006 LBO cycle did not have a happy ending for many. This time it’s very much the same: while on one hand, “as money is increasingly crowded into riskier parts of the market, the fundamental weaknesses of companies can be conveniently glossed over.”  However, “when central bank asset buying is no more, the risk is that the market undergoes a collective reassessment of valuations – in other words we think dispersion in credit will materially jump in ’19.”

Which brings us to a face to face encounter with Europe’s zombies, a topic that the Bank of America strategist has touched upon previously, most recently last July, when he argued that Europe has a conspicuously large number of “zombie” companies – defined as those with interest coverage ratios less than 1x. He was right, and Europe’s zombies have Mario Draghi to thank.

Last July, 9% of Stoxx 600 companies were zombies. In our view, a combination of easy monetary policy and bank  regulatory forbearance had allowed these issuers to “live another day”, when in normal times they would have defaulted.

What happens to Europe’s zombies next? Martin thinks much can be learned regarding how things change when QE is no more, by looking at the experience of the US high-yield market post the end of the Fed’s asset buying.

Chart 12 shows the 6m change in the Fed’s balance sheet versus US high-yield energy defaults. Interestingly, as the rate of growth in the Fed’s balance sheet slowed to zero in March 2015, US high-yield energy defaults began to rise. The growth of US high yield energy debt had been tremendous between 2012 and 2014 – with the market almost doubling in size – as the shale phenomenon took off. Overlending in the sector thus became problematic.

And while other risk-off factors materialized in 2015 to pressure US energy defaults – such as China weakness and a falling oil price – we find it nonetheless revealing that when the Fed stopped QE, leveraged capital structures in the US credit market began to suffer. “Misallocation of capital” had come home to roost

So what does using the 2015 energy crash framework reveal about the fate of “zombies” in Europe? As Chart 13 above shows, there is a clear correlation between the rate of change of the ECB’s balance sheet and the number of EU zombie companies.

An interesting relationship unfolds, in our view, with similar conclusions to the US example above. We find a reasonable link between the rate of growth of the ECB’s balance sheet over time and the growth rate of European zombies.

Or simply said, “when the ECB has been supporting markets through periods of QE, zombies have been growing in Europe, as companies have used the cheap liquidity to “live for another day”. But when the ECB has been shrinking its balance sheet (LTRO roll-offs etc.) the number of zombie companies has declined – and the default rate has consequently risen.

Martin’s conclusion: credit investors should brace themselves for not only volatility, but a surge in defaults in 2019:

In a year where ECB balance sheet growth will likely be over, the chart below implies that the liquidity support for zombie companies will fall away. And other things being equal – just as was the case in late 2011/early 2012 – the number of “zombies” will decline through the process of higher default rates in Europe.

And so we’re left with a paradox…that in 2019, just as the ECB endorse the strengthening of the Eurozone recovery by stopping QE, Europe may experience a “flash” jump in default rates, as “zombies” disappear. “Misallocation of capital” may again come home to roost…

Martin is half-right: what 2019 will expose is that there never was a recovery in the first place, but a mirage created from the vapors of monetary printing presses, as trillions in new money were created out of thin air and propping up the illusion of a recovery.

Finally, while Martin is focused on Europe, he may want to also take a look at the US, because while the IMF may have warned about zombie companies, it was the BIS which one year ago warned that no less than 20% of US corporations are “challenged” and at risk of default once rates start rising.

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Prosecutors Seek 15 Years In Prison For “Remorseless” Martin Shkreli

It appears that Martin Shkreli’s all too public contempt for the law – evidenced by his disregard for court orders pertaining to his communications with journalists and his snubbing of lawmakers during a Congressional hearing on drug prices – is about to catch up with him.

On Tuesday, US prosecutors recommended that Judge Kiyo Matsumoto sentence Shrkeli to at least 15 years in prison during his sentencing hearing on Friday, according to Reuters. Shkreli, who has been held in a Brooklyn jail since his bail was revoked last year, was also ordered to hand over a rare Wu-Tang Clan album that Shkreli paid $2 million for back in 2015 – part of a $7.4 million forfeiture ordered yesterday by a judge.

Shkreli

Previously Shkreli argued that he shouldn’t have to forfeit anything because he didn’t profit from the crimes. As was disclosed during the trial, the money from his investors went into the stock market, and he didn’t get anything from his plan to control Retrophin shares, his lawyers have said.

Prosecutors emphasized Shkreli’s “lack of remorse”, clearly ignoring the letter he penned to the Judge  last week begging for mercy and leniency.

In a filing in Brooklyn federal court, prosecutors called Shkreli “a man who stands before this court without any showing of genuine remorse, a man who has consistently chosen to put profit and the cultivation of a public image before all else, and a man who believes the ends always justify the means.”

Shkreli’s legal team, led by famed criminal defense attorney Benjamin Brafman, is asking for between 12 and 18 months.

Shkreli was convicted of three counts of securities and wire fraud during a trial that ended in August. Barring some last minute delay, the length of his prison stay will be announced some time on Friday afternoon.

 

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Companies Eliminating Drug Tests Amid Job Shortages, Pot Legalization

Employers struggling to fill jobs have begun to relax or eliminate drug testing requirements amid increased marijuana legalization and a tightening U.S. job market. 

Drug testing has been standard procedure for decades across a variety of industries, ranging from finance to manufacturing to healthcare – which several employers have begun to eschew. 

Las Vegas based Excellence Health Inc., for example, stopped testing employees for marijuana two years ago – and completely dropped drug tests in the beginning of 2018 for employees on the pharmaceutical side of the business. “We don’t care what people do in their free time,” said company spokesperson Liam Meyer. “We want to help these people, instead of saying: ‘Hey, you can’t work for us because you used a substance.” The company also provides a hotline for workers who might be struggling with drug issues.

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MassRoots employee taking pot break during brainstorming session

In February, AutoNation Inc. – the largest auto dealer in the country, announced it would no longer refuse job applicants who tested positive for marijuana, while the Denver Post ended pre-employment drug testing last September for all positions that don’t require safety precautions.

As the Daily Caller reported in February, the manufacturing industry in Ohio has experienced stunted growth because many potential employees are also addicted to drugs – primarily opioids.  

“Steve Staub, who runs Staub Manufacturing Solutions in Ohio, attended the State of the Union address Tuesday as a special guest to President Donald Trump. While there, aside from participating in the pageantry, Staub discussed problems in the manufacturing industry and business in general with the president.

Staub mentioned to Trump the toll the opioid crisis has had on business’ ability to fill jobs. About two million Americans nationwide are addicted to the drug. The crisis has been particularly hard on Staub’s home state of Ohio, were thousands of job applicants are turned away because of substance abuse,” reports the Caller

“In Ohio alone, they have about 20,000 available jobs in manufacturing. In Dayton, Ohio, where I’m from, we have about 4,000 jobs available today in manufacturing that we can’t fill,” Staub told TheDCNF.

“We can’t get people to pass a drug test.”

States that have legalized either recreational or medicinal marijuana now lead the way in companies which are dropping drug tests. 

A survey last year by the Mountain States Employers Council of 609 Colorado employers found that the share of companies testing for marijuana use fell to 66 percent, down from 77 percent the year before. –Bloomberg

Last year the Fed noted in their traditionally drab Beige Book that employers are having an increasingly difficult time finding qualified and skilled workers to fill empty positions. 

Labor markets remained tight, and employers in most Districts had more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers. Modest wage increases broadened, and reports noted bigger increases for workers with skills that are in short supply. A couple of Districts reported that worker shortages and increased labor costs were restraining growth in some sectors, including manufacturing, transportation, and construction.

And according to the Boston Fed the qualified labor shortage is so bad, that the hit rate on hiring after a simple math and drug test, collapses below 50%. To wit:

Labor markets in the First District continued to tighten somewhat. Many employers sought to add modestly to head counts (although one manufacturer laid off about 4 percent of staff over the last year), while wage increases were modest. Some smaller retailers noted increasing labor costs, in part driven by increases in state minimum wages being implemented over a multi-year period. Restaurant contacts, particularly in heavy tourism regions, expressed concern about possible labor shortages this summer, exacerbated by an expected slowdown in granting H-2B visas. Half of contacted manufacturers were hiring, though none in large numbers; several firms said it was hard to find workers.

One respondent said that during a recent six-month attempt to add to staff for a new product, two-thirds of applicants for assembly line jobs were screened out before hiring via math tests and drug tests; of 400 workers hired, only 180 worked out.

According to data from Quest Diagnostics Inc., failed drug tests reached an all-time high in 2017, which is estimated to get worse as more people begin to use state-legalized marijuana. 

The benefits of at least reconsidering the drug policy on behalf of an employer would be pretty high,” according to Mercer Law School professor Jeremy Kidd, who wrote a paper on the economics of workplace drug testing. “A blanket prohibition can’t possibly be the most economically efficient policy.”

Kidd also believes that eliminating drug testing would benefit the overall economy, allowing employers to hire the best, and theoretically most-productive workers which would otherwise not fall under consideration due to their recreational (or medical) habits. 

Indeed, more and more companies having a hard time hiring with unemployment around 4 percent are quietly pulling back on their strict drug policies. 

Employers are really strapped and saying ‘We’re going to forgive certain things,’” said James Reidy, a lawyer that works with employers on their human resources policies. Reidy knows of a half-dozen other large employers that have quietly changed their policies in recent years. Not all companies want to advertise the change, fearing it might imply they are soft on drugs. (Even former FBI director James Comey in 2014 half-joked about the need for the bureau to re-evaluate its drug-testing policy to attract the best candidates.) –Bloomberg

Employers are justifying the changes by claiming pre-employment testing isn’t worth the expense in a society which has become increasingly accepting of recreational drug use. In October, a Gallup poll found that 64 percent of Americans favor legalizing marijuana – while Republican support for legalization is now at a majority level. 

When Gallup began asking the question in 1969, just 12% of American supported changing Marijuana’s legal status.

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As Gallup concludes: “As efforts to legalize marijuana at the state level continue to yield successes, public opinion, too, has shifted toward greater support. The Department of Justice under the current Republican administration has been perceived as hostile to state-level legalization. But Attorney General Jeff Sessions could find himself out of step with his own party if the current trends continue. Rank-and-file Republicans’ views on the issue have evolved just as Democrats’ and independents’ have, though Republicans remain least likely to support legalizing pot.”

With drug tests costing employers between $30 and $50 each time, the value of maintaining a drug-free workplace has become less and less attractive tradeoff. 

While pre-employment drug testing has waned in recent years, dangerous jobs such as operating heavy machinery and flying airplanes will always require checks. Companies which also contract with the U.S. government will also likely continue the practice of drug testing in accordance with federal mandates. 

Not all employers are feelin’ the vibe. Burger King parent company Restaurant Brands International Inc isn’t altering its corporate marijuana policy, according to CEO Daniel Schwartz. Ford Motor Co. similarly treats pot as an illegal substance.

Said companies have an ally in Attorney General Jeff Sessions – whose war on marijuana is in direct conflict with several statements made by President Trump on the campaign trail in which he said the federal government should leave weed policy to the states.

“In terms of marijuana and legalization, I think that should be a state issue, state-by-state,” Trump told The Washington Post. “… Marijuana is such a big thing. I think medical should happen — right? Don’t we agree? I think so. And then I really believe we should leave it up to the states.”

Sessions, meanwhile, rescinded Obama-era policies in January which enabled state-legalized cannabis industries to thrive. The uncertainty caused by the DOJ’s actions may put a crimp in both the industry, as well as employer plans to relax their drug policies. 

Moreover, employers have to weigh the financial costs of changing their rules surrounding drug tests – as discounts are often offered on workers’ compensation insurance for companies which maintain “drug free” workplaces. That said, the type of job the test is for makes a huge difference – as white collar and other clerical positions are less likely to have many workers comp claims vs. factory jobs, for example. For many employers, the money saved by meeting the “drug free zone” qualifications isn’t worth the savings. 

“We assume that a certain level of employees are going to be partaking on the weekends,” said Reidy. “We don’t care. We’re going to exclude a whole group of people, and we desperately need workers.” 

via Zero Hedge http://ift.tt/2FikBcl Tyler Durden

Stocks Soar On Trump “Open To Tariff Changes” Comments

Following a Bloomberg headline proclaiming that Senator Purdue (a well-known Trump ally) has made comments that President Trump is “open to changes on tariffs.”

While not news per se, since Trump already stated the same this morning with regard his NAFTA, it appears the algos are eager to buy the dip…

The Dow is back in the green…

 

 

via Zero Hedge http://ift.tt/2I94JdR Tyler Durden

“That’s Not A Bond Bear Market…”

Authored by Kevin Muir via The Macro Tourist blog,

What a true bond bear market looks like

A couple of years ago I remember having a discussion with a hedge fund manager. I told him about my theory that the next big surprise would be higher bond rates, not the other way round. I distinctly remember him lecturing me about the overwhelming forces of demographics, technology and globalization. All of these added up to deflation – not inflation. I couldn’t convince him that when everyone agrees on something, it’s time to expect something different. We agreed to disagree.

Today, the tables have completely turned. It’s now fashionable to be a bond bear. So much so, I probably don’t need to repeat the common bond negative narrative that has spread through the financial community faster than chlamydia at a Banff youth hostel.

To see the preponderance of negative bond sentiment, all one has to do is look at the speculative positioning in the fixed income futures market. One of the easiest ways to hedge against higher interest rates is the CME 3-month Eurodollar contract. This contract has nothing to do with the euro currency, but instead represents the rate at which banks lend US dollars to one another overseas. Speculators are so confident about higher rates that they are short almost $4 trillion ED futures.

That’s a mind bogglingly large position.

And it’s not confined to eurodollar futures. The US 5-year treasury future is also stuffed full of speculative short positions.

The anecdotal evidence is also adding up. Market legends are appearing all over the newswire – warning about fixed income.

“With rates so low, you can’t trust asset prices today. And if you can’t tell by now, I would steer very clear of bonds,” Paul Tudor Jones at a recent Goldman event.

It’s easy to see why these pros are so bearish. The tape looks like crap.

You might notice that I have been focusing on the front end of the yield curve. That’s on purpose.

Not all parts of the curve are the same

During the next part of this post, it might appear I am making contradictory arguments, but it’s important to note that different parts of the yield curve react in different ways. It’s not as easy as just saying you are bearish on bonds and then shorting TLT. It’s much more nuanced, and without understanding all the dynamics in play, you might find yourself right about your call, but not making any money.

Anyway, here it goes – the statement most likely no one will like. The short end of the yield curve is oversold, while the long end has not even started to understand what a true bond bear market looks like.

Huh? What do I mean by that? Well, I think the front end of the curve is overly optimistic about the Fed’s ability to keep hiking, while the long end of the curve is way too sanguine about the Fed’s skill in controlling inflation.

So far, most market participants have assumed that Central Banks will keep inflation under wraps. As economic indicators have continued to tick higher, markets have pushed yields up at the front end of the curve. This has traditionally been the playbook. Economy does better. Market rates rise. Fed follows curve higher by raising Fed funds rate. This continues until rates rise enough that the Fed inverts the yield curve and the economy rolls over. Then the Fed slashes rates and the whole process repeats.

What’s different this time is that the stakes are so much higher. Although the Fed has raised rates as the economy improved, the consequences of going too fast scare the bejesus out of them. The Great Financial Crisis is still very much gnawing at the back of their mind. Much of Europe is still experimenting with negative rates, Japan’s massive QE and pegging of the 10-year rate ensures their shadow level of interest is still firmly below zero, and to top it off, until recently, inflation has been relatively muted throughout the globe. So it’s no wonder the Fed has not rushed to get out ahead of the curve and raise rates aggressively. Up until a few months ago, overly easy financial conditions were about the only reason to raise rates.

But now that inflation is perking up, many market participants are aggressively selling the front end of the curve, assuming the Fed will raise rates to combat rising prices.

I think they are wrong.

Don’t misunderstand me, the Fed will raise rates – just not as fast as the market expects. And let’s face it, forecasting the direction does not matter. Forecasting the actual amount versus expectations is what pays the bills.

Why do I feel the Fed will be slow to raise rates? Two reasons; the Federal Reserve’s and Treasury’s balance sheet.

Let’s start with the Federal Reserve.

Four-and-a-half trillion dollars of securities. And although they vary in maturity, a fair slug of it is long dated.

More than half of it is longer than five years in duration. Holding a portfolio of this monstrous size was all good and fine with rates at 25 basis points, but don’t forget, as the Federal Reserve increases the IOER (Interest on Excess Reserves), they increase the cost of funds that they are paying out.

From Bloomberg:

(Bloomberg) – The Federal Reserve system provided for payments of $80.2 billion to the U.S. Treasury in 2017, down from $91.5 billion in 2016, based on preliminary results released Wednesday.
* Fed’s estimated net income was $80.7 billion in 2017, down $11.7 billion, primarily due to an increase of $13.8 billion in interest expenses
* Interest expense rose to $25.9 billion, mostly for interest paid on reserve balances deposited by commercial banks at the Fed; interest expenses on repurchase agreements was $3.4 billion
* Interest income on securities held by the Fed totaled $113.6 billion; foreign currency gains were $1.9 billion
* Operating expenses were $4.1 billion for reserve banks, $740 million for the Board of Governors, $724 million for costs related to producing, issuing and retiring currency, and $573 million for the Consumer Financial Protection Bureau
* Other services provided $442 million in additional earnings
* NOTE: The Fed raised interest rates three times in 2017 in quarter percentage-point steps, increasing interest rates paid on reserves, and began trimming the size of its balance sheet, thereby reducing interest income from securities it holds

There is a large contingent of inflation/deficit hawks who believe the Federal Reserve should immediately crank rates to head off the coming inflation. Paul Tudor Jones’ rant sums up their feelings awfully well:

Allison Nathan (Goldman): So, what should Powell do?

Paul Tudor Jones: Unlike his predecessors, he needs to be symmetrically fearless. Policy unorthodoxy needs to be reversed as quickly as it was deployed. After Alan Greenspan ignored the NASDAQ bubble, it crashed and led to this incredible foray into negative real rates. That created the mortgage bubble, which was initially ignored by Ben Bernanke and ultimately spawned the financial crisis, leading us to fiscal and monetary measures that were unfathomable 20 years ago.

Today, we need a Fed chair who is proactive, not reactive. Policy-wise, that means moving as quickly as possible to raise rates and restore appropriate risk premia so as to promote the long-term, efficient allocation of capital. While this will hurt a bit in the short run, it is better than the intergenerational theft that is being perpetrated now with the combination of low rates and high deficits. And it definitely will promote a more stable long-term economic equilibrium.

Let’s take a moment to think about Jones’ solution. Let’s say that instead of raising every other meeting, the Fed changes to every meeting (just like Greenspan did during the 2004-6 cycle). That would mean 8 raises a year, which would translate into $69 billion in extra interest expense for the Federal Reserve. By early next year, the Federal Reserve would be breaking even on their $4.4 trillion portfolio and from then on, every increase would cost the US Treasury an extra $8.6 billion. Now, I realize this is all semantics. Whether the Fed or the Treasury pays the bill, it doesn’t matter from an absolute point of view.

But can you imagine the uproar if the Federal Reserve was not only raising borrowing rates on the average American (who are struggling with high debt loads), but also demanding the Treasury send them an extra $100 billion a year to maintain these high rates?

And how do you think Trump & Co. will feel about this increase in rates?

The Federal debt level is more than 100% of GDP. The US simply can’t afford higher rates.

Especially since the Treasury has consistently missed their chance to extend duration to protect against raising rates.

Although wise sages like Paul know that it is better to take the hit up front rather than simply letting them fester until they explode into a crisis, the history of humankind does not make this a good bet. Nope, the higher probability outcome is that the problems will be pushed off into the future until the markets force the issue.

I am sure many of my regular readers will be sick of hearing this, but I will repeat it anyway. As Bill Fleckenstein says, “Central Banks will continue with their easy money policies until the bond market takes away the keys.”

The specs are short the wrong part of the curve

The speculators are short the front end of the curve assuming that inflation will be met with higher rates. To some extent they are correct, but the Fed (and all Central Banks for that matter) will be extremely slow to raise rates. Any excuse at all will cause a delay. An economic hiccup? Pause. Worries about a geopolitical event? Pause.

And you would think that this might be bullish for bonds, but no, far from it. A Central Bank that is not willing to invert the curve and take the economic hit from forcing a recession is a bond investor’s nightmare. After all, apart from default, inflation is the absolute worse thing out there.

Here is where my argument gets really confusing. I am bearish long bonds because the Fed will be overly easy. And even though it feels like bonds have entered into a vicious bear market, you ain’t see nothing yet.

I can’t remember where I heard the line the other day, but supposedly AQR’s Cliff Asness believes when evaluating market strategies, you should take the largest historical drawdown… and double it! He argues that markets have a way of surprising us with moves that we have never before experienced.

I couldn’t agree more.

We have had a 35 year bond bull market. Almost no one in the investment industry can remember a period where bonds went down for a considerable period.

Have a look at this chart of the total return of the US 10-year treasury future.

Yeah maybe we are down 10 handles from the high, but in the grand scheme of things, this is barely a scratch. It’s like the Monty Python’s Black Knight. Although the bond market has lost an arm, ‘tis but a scratch.

Before this is all through, the bond market will go through years of negative returns. The latest dip is just the start and by no means represents the worst of the bear market.

The term premium on long dated bonds will explode higher, and the yield curve will eventually hit record wides.

Bonds are going down, but mostly because no one will be able to afford higher rates, so therefore no government will raise rates high enough, thus creating the inflation that bonds fear the most.

Buying the front part of the curve and shorting the long end is probably the best risk reward trade on the board. I told you it wouldn’t be as easy as simply shorting the TLT…

via Zero Hedge http://ift.tt/2tmjKG0 Tyler Durden

Mueller Hits Conway With ‘Hatch Act’ Violations, Recommends “Appropriate Discipline”

Less than a week after Hope Hicks, one of the most prominent women serving in the senior ranks of the White House staff, announced that she’s planning on leaving the West Wing, The Office Of Special Counsel Robert Mueller has released a statement attacking Kellyanne Conway – not for anything related to the Russia probe, of course, but instead for the serious sin of uttering a partisan opinion on a cable news show.

According to a statement released by the Office of the Special Counsel, On Nov. 20 and Dec. 6 2017, Conway appeared to try and influence a partisan election while serving in her “official capacity” as a “commissioned officer” of the West Wing.

Subsequently, the special counsel’s office decided there was grounds to accuse her of violating the Hatch Act, and are recommending that the president punish her. They made their recommendation in a report submitted to the president.

OSC Concludes Hatch Act Investigation of Kellyanne Conway, Finds Two Violations, and Refers Findings to President for Appropriate Disciplinary Action

WASHINGTON, D.C./March 6, 2018 — The U.S. Office of Special Counsel (OSC) today sent an investigative report to President Donald Trump finding that Counselor to the President Kellyanne Conway violated the Hatch Act in two television interviews. According to the report, in both instances, Conway appeared in her official capacity.

In the first interview, Conway advocated against one Senate candidate and gave an implied endorsement of another candidate.

In the second interview, she advocated for the defeat of one Senate candidate and the election of another candidate.

Both instances constituted prohibited political activity under the Hatch Act and occurred after Conway received significant training on Hatch Act prohibitions, according to the report.

OSC submitted the report to the President for appropriate disciplinary action. The report states that OSC gave Conway the opportunity to respond to the allegations during the OSC investigation and in response to the completed report and that she did not respond. The Office of White House Counsel provided brief explanations of Conway’s statements. The report includes and analyzes those explanations.

According to the report, on November 20, 2017, Conway appeared in her official capacity on Fox News’s Fox & Friends and discussed why voters should not support Democrat Doug Jones in the Alabama special election for U.S. Senate. On December 6, 2017, Conway appeared in her official capacity on CNN’s New Day and discussed why voters should support Republican Roy Moore and not Democrat Doug Jones in the Alabama special election for U.S. Senate.

“While the Hatch Act allows federal employees to express their views about candidates and political issues as private citizens, it restricts employees from using their official government positions for partisan political purposes, including by trying to influence partisan elections,” the report says.

“In passing this law, Congress intended to promote public confidence in the Executive branch by ensuring the federal government is working for all Americans without regard to their political views. Ms. Conway’s statements during the Fox & Friends and New Day interviews impermissibly mixed official government business with political views about candidates in the Alabama special election for U.S. Senate.”

The report continues,

The U.S. Constitution confers on the President authority to appoint senior officers of the United States, such as Ms. Conway. Considering the President’s constitutional authority, the proper course of action, in the case of violations of the Hatch Act by such officers, is to refer the violations to the President. OSC hereby submits this Report of Prohibited Political Activity to the President for appropriate disciplinary action. See 5 U.S.C. § 1215(b):’ Some presidentially appointed White House employees and other officials, such as Cabinet secretaries, generally fall under the President’s authority to discipline for Hatch Act violations. For all other federal employees, OSC may pursue disciplinary action with the Merit Systems Protection Board.

Federal employees, including employees designated as “commissioned officers” at the White House, are subject to the Hatch Act. While commissioned officers may engage in some political activity, they are still barred from using their official authority or influence to interfere with or affect elections. Although the President and Vice President are exempt from the Hatch Act, their employees are not.

*  *  *

That is, Conway appeared on CNN’s New Day and discussed why voters should support Republican Roy Moore over Democrat Doug  Jones in an Alabama special election for the Senate, and later made similar remarks during a taping of Fox & Friends.

Conway

Conway was reportedly given the opportunity to respond to the OSC’s allegations during the course of the investigation, but chose not to.

The office will now pass along its findings to the president and advise him to discipline Conway.

Of course, it’s doubtful Trump will do anything to push Conway out, given the number of senior staffers who have left in recent months.

But another scandal involving his staff is certainly not what the president wants to see…

via Zero Hedge http://ift.tt/2I5RYkB Tyler Durden

NY City Weighs 18-Month “Moratorium” On Bitcoin-Mining

In upstate-New York, the City of Plattsburgh is moving toward installing a moratorium on commercial cryptocurrency mining operations, amid concerns from the council that it could drain the city’s electricity supplies.

The WaterTown Daily Times reports that the problem is that mining for cryptocurrency, such as Bitcoin, absorbs a tremendous amount of energy in generating the virtual currency. Municipal Lighting Department Manager Bill Treacy says there are two mining farms in the city that they know of – one in the former Imperial Mill and one in Skyway Plaza, and there may be some smaller private mining operations in households in the city, he said.

The mining farms in the City of Plattsburgh have cropped up over the past year, officials say; and at times they have used up to 11.2 megawatts of power per month, which can be about 10 percent of the city’s power supply — more than is consumed by Georgia-Pacific, one of the city’s largest users.

This is a problem because, as part of the Municipal Electric Utility Association since the 1950s, the city is allotted a certain amount of inexpensive hydropower generated on the St. Lawrence River.

The cheap power has allowed the city to maintain attractive electric rates for households and businesses for more than half a century.

At one time, the city was touted as having some of the lowest rates in the nation.

But when usage is high, the system is in jeopardy of going over its allotment of inexpensive hydropower.

When that happens, the city must buy much more-expensive power on the open market to supplement its supply, which drives up the cost for consumers, Treacy said.

The hydropower costs 4.92 cents per megawatt hour, compared with 37 cents for alternative power. And that means ‘average’ Plattsburghians are facing notably higher costs due to the mining operations.

When the city has to purchase more power, its customers see a spike in their monthly bills.

Treacy said the average home will probably see an increase of $30 to $40 or more in their monthly bill.

“People are surprised when their bills are so high because they say that they turn the lights off when it is cold to save energy, but lights don’t really use much power,” he said.

“It’s the electric heat that is costly.”

Read said the moratorium is proposed not only to give the city time to explore the cost impact, but for health and safety factors.

As the bill (Local Law P-3 of 2018) shows…

Pursuant to the authority and provisions of Section 10 of the Municipal Home Rule Law of the State of New York and the statutory powers vested in the Common Council of the City of Plattsburgh to regulate and control land use and to protect the health, safety and welfare of its residents, the Common Council of the City of Plattsburgh hereby declares an eighteen (18) month moratorium, on all applications or proceedings for applications, for the issuance of approvals or permits for the commercial cryptocurrency mining operations in the City of Plattsburgh. This moratorium will allow time for the zoning code and municipal lighting department regulations to be amended to regulate this potential use.

It is the purpose of this Local Law to allow the City of Plattsburgh the opportunity to consider zoning and land use laws and municipal lighting department regulations before commercial cryptocurrency mining operations results in irreversible change to the character and direction of the City.

Further, it is the purpose of this Local Law to allow the City of Plattsburgh time to address through planning and legislation, the promotion of the protection, order, conduct, safety health and well-being of the residents of the City which are presented as heightened risks associated with commercial cryptocurrency mining operations.

It is the purpose of this Local Law to facilitate the adoption of land use and zoning and/or municipal lighting department regulations to protect and enhance the City’s natural, historic, cultural and electrical resources.

As WCAX reports, one of the mining operators, David Bowman of the Plattsburgh BTC, suggested a solution:

“You know you need to like protect people in the town from being adversely affected by increased electricity rates but I think there are ways to do that like possibly charging the miners more,”

“I think it’s not a great idea to just completely ban the whole thing– it’s just too new.”

But, don’t forget, even Bill Gates is convinced that cryptocurrencies have “directly killed people.”

via Zero Hedge http://ift.tt/2FhElRx Tyler Durden