Category: zerohedge

After a busy news day in which Trump tripled-down on his feud with Amazon, met with the leaders of the Baltic states and threatened to scrap NAFTA and foreign aid to Central America if Mexico doesn’t stop a caravan of migrants from reaching the US border, the Washington Post has published the most notable update about the Mueller probe in recent history.

Citing three people familiar with the investigation, the paper reports that Mueller told Trump’s legal team last month that the president isn’t a criminal target in the Russia probe at this point.

However, Mueller also informed Trump’s lawyers that he is preparing a report about the president’s conduct while in office, and that report will include details about Trump’s purported obstruction of justice. Of course, the prosecutor didn’t hesitate to use this report as leverage to try and convince the Trump legal team to assent to an unrestricted interview between Trump and Mueller.

Mueller has described Trump as a “subject” of the investigation – a term that has also been used to described his son-in-law Jared Kushner’s involvement.

Some of Trump’s legal advisors have taken this as a positive sign, but others have warned that Trump’s status could easily be moved from “subject” to a criminal indictment.

Mueller’s description of the president’s status has sparked friction within Trump’s inner circle as his advisers have debated his legal standing. The president and some of his allies seized on the special counsel’s words as an assurance that Trump’s risk of criminal jeopardy is low. Other advisers, however, noted that subjects of investigations can easily become indicted targets — and expressed concern that the special prosecutor was baiting Trump into an interview that could put the president in greater legal peril.

Typically special counsel probes end with a private report to the attorney general or deputy attorney general (in this case, the latter). That report can then be made public at their discretion – but, according to WaPo, it appears as if Rod Rosenstein has already made up his mind that some record of the investigation must be released to the public.

Mueller’s team has also told Trump’s legal team – which has endured an unprecedented shakeup in recent weeks – that the DOJ intends to issue the report in stages, with the first stage dealing with obstruction, and the next detailing what Trump knew about his campaign advisors contacts with Russian officials.

Mueller’s investigators have indicated to the president’s legal team that they are considering writing reports on their findings in stages — with the first report focused on the obstruction issue, according to two people briefed on the discussions.

Under special counsel regulations, Mueller is required to report his conclusions confidentially to Deputy Attorney General Rod J. Rosenstein, who has the authority to decide whether to release the information publicly.

“They’ve said they want to write a report on this — to answer the public’s questions — and they need the president’s interview as the last step,” one person familiar with the discussions said of Mueller’s team.

Trump’s attorneys expect the president would also face questions about what he knew about any contacts by his associates with Russians officials and emissaries in 2016, several White House advisers said. The president’s allies believe a second report detailing the special counsel’s findings on Russia’s interference would be issued later.

The president has privately expressed relief at the description of his legal status, which has increased his determination to agree to a special counsel interview, the people said. He has repeatedly told allies that he is not a target of the probe and believes an interview will help him put the matter behind him, friends said.

However, legal experts said Mueller’s description of Trump as a subject of a grand jury probe does not mean he is in the clear.

Under Justice Department guidelines, a subject of an investigation is a person whose conduct falls within the scope of a grand jury’s investigation. A target is a person for which there is substantial evidence linking him or her to a crime.

A subject could become a target with his or her own testimony, legal experts warn.

“If I were the president, I would be very reluctant to think I’m off the hook,” said Keith Whittington, a professor of politics at Princeton University and impeachment expert.

Trump has repeatedly said he’d be happy to sit down with Mueller, but his legal team has been working to limit the scope of his testimony to written answers or agreeing to exclude certain topics.

It’s also widely believed that Trump’s legal team has been split on whether Trump should testify, with Dowd reportedly leaving because the president ignored his advice. Even if Trump refuses to meet with Mueller, it’s unlikely he’d decide to subpoena the president or pursue him further. Such an act would instigate a legal battle that could escalate to the Supreme Court, where Mueller risks an embarrassing defeat.

So, why risk it? It’d be easier to put the president’s mind at ease while exerting some pressure on his legal team, hoping the mixture convinces them all that Trump – the “walking perjury trap,” according to one source – assents to the interview.

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By Frank Shostak of Mises.org

In his article released on March 21 2018 – Economics failed us before the global crisis – Martin Wolf the economics editor of The Financial Times expressed some misgivings about macroeconomics.

Economics is, like medicine (and unlike, say, cosmology), a practical discipline. Its goal is to make the world a better place. This is particularly true of macroeconomics, which was invented by John Maynard Keynes in response to the Great Depression. The tests of this discipline are whether its adepts understand what might go wrong in the economy and how to put it right. When the financial crisis that hit in 2007 caught the profession almost completely unawares, it failed the first of these tests. It did better on the second. Nevertheless, it needs rebuilding.

Martin Wolf argues that a situation could emerge when the economy might end up in self-reinforcing bad states. In this possibility, it is vital to respond to crises forcefully.

It seems that regardless of our understanding of the key causes behind the crises authorities should always administer strong fiscal and monetary policies holds Martin Wolf. On this way of thinking, strong fiscal and monetary policies somehow will fix things.

A big question is not only whether we know how to respond to a crisis, but whether we did so. In his contribution, the Nobel laureate Paul Krugman argues, to my mind persuasively, that the basic Keynesian remedies — a strong fiscal and monetary response — remain right.

While agreeing with Krugman, Martin Wolf holds the view that, we remain ignorant to how economies work. Having expressed this, curiously Martin Wolf still holds the view that Keynesian policies could help during an economic crisis.

For Martin Wolf as for most mainstream economists the Keynesian remedy is always viewed with positive benefits — if in doubt just push more money and boost government spending to resolve any possible economic crisis. It did not occur to our writer that without understanding the causes of a crisis, administering Keynesian remedies could make things much worse.

The proponents for strong government outlays and easy money policy when the economy falls into a crisis hold that stronger outlays by the government coupled with increases in money supply will strengthen monetary flow and this in turn will strengthen the economy. What is the reason behind this way of thinking?

In this way of thinking, economic activity is presented in terms of the circular flow of money. Spending by one individual becomes a part of the earnings of another individual, and spending by another individual becomes a part of the first individual’s earnings.

So if for some reason people have become less confident about the future and have decided to reduce their spending this is going to weaken the circular flow of money. Once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending.

Following this logic, in order to prevent a recession from getting out of hand, the government and the central bank should step in and lift government outlays and monetary pumping, thereby filling the shortfall in the private sector spending.

Once the circular monetary flow is re-established, things should go back to normal and sound economic growth is re-established, so it is held.

The Problem with the Mainstream View

Given that the government is not itself a wealth generator, this means that whenever it raises its outlays it also lifts the pace of the wealth diversion from the wealth-generating private sector. Hence the more the government plans to spend the more wealth it is going to take from wealth generators.

By diverting real wealth towards various non-productive activities, the increase in government outlays in fact undermines the process of wealth generation and weakens the economy’s growth rate over time.

The whole idea that the government can grow an economy originates from the Keynesian multiplier. On this way of thinking an increase in government outlays gives rise to the economy’s output by a multiple of the initial government increase.

Let us examine the effect of an increase in the government’s spending on an economy’s overall output. Can such an increase give rise to more output as popular wisdom has it? On the contrary, it will impoverish producers. By means of taxation or other means such as borrowings, Government forces producers to part with their products for Government services i.e. for goods and services that are likely to be on a lower priority list of producers and this in turn weakens the production of wealth.

As one can see, not only does the increase in government outlays fail to raise overall output by a positive multiple, but on the contrary this leads to the weakening in the process of wealth generation in general.

According to Mises,

…there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.¹

For most commentators including Martin Wolf, the occurrence of a recession is due to unexpected events such as shocks that push the economy away from a trajectory of stable economic growth. Shocks weaken the economy i.e. cause lower economic growth so it is held.

The True Cause of Recessions

Following the Austrian Economics School of thinking — which Martin Wolf seems to ignore —  as a rule a recession emerges in response to a decline in the growth rate of money supply.

Usually this takes place in response to a tighter stance of the central bank. Various activities that sprang up on the back of the previous strong money growth rate (usually because of previous loose central bank monetary policy) come under pressure.

These activities cannot support themselves — they survive because of the support that the increase in money supply provides.

The increase in money diverts to them real wealth from wealth generating activities. Consequently, this weakens these activities.  That is, it weakens the the wealth-generating activities.

A tighter stance and a consequent fall in the growth rate of money undermines various nonproductive activities and this is what recession is all about.

Given that, nonproductive activities cannot support themselves since they are not profitable, once the growth rate of money supply declines, these activities begin to deteriorate. (A fall in the money growth rate means that nonproductive activities access to various resources is curtailed).

Recession then is not about a weakening in economic activity as such but about the liquidations of various nonproductive activities that sprang up on the back of increases in money supply.

Obviously then both aggressive fiscal and monetary policies, which will provide support to nonproductive activities, will re-start the weakening process of real wealth generation thereby weakening the prospects for a meaningful economic recovery.

It is for this reason that economists from the Austrian School such as Ludwig von Mises and Murray Rothbard held that once an economy falls into a recession the government and the central bank should restrain themselves and do, as soon as possible, nothing.

Contrary to Martin Wolf, during an economic crisis what is required for the government and the central bank is to do as little as possible. With less tampering, the more real wealth remains with wealth generators, which allows them to facilitate a further expansion in the pool of real wealth.

With a larger pool of wealth, it will be much easier to absorb various unemployed resources and eliminate the crisis. Aggressive monetary and fiscal policies will only hurt the process of wealth generation thereby making things much worse.

As long as the pool of real wealth is still growing, the government and the central bank could get away with the illusion that they can grow the economy.

Once the pool starts to stagnate or decline the illusion of government and central bank policies is shattered.

The key reason why Keynesian economics fails to explain the occurrence of recessions is because it ignores the key factor behind this, which is the tampering policy of the government and the central bank.

______

1. Ludwig von Mises, Human Action, 3rd revised edition, Contemporary Books Inc, p. 744.

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Bloomberg may have launched today’s last hour marketwide buying panic, when it reported that there have been no ongoing talks in the White House about action on Amazon, and it may be Bloomberg that now sinks futures, because in a report that at least partially refutes what it said earlier, according to Bloomberg, tonight President Trump will have dinner with Oracle co-CEO, Safra Catz, whose company is competing with Amazon.com Inc. for a multibillion-dollar Pentagon contract.

Joining them will be Trump supporter and venture capitalist, Peter Thiel, according to Bloomberg’s sources.

While Trump has aggressively attacked Amazon in both tweets and before the press since March 29, sending its market value by as much as $55 billion before Tuesday’s last hour ramp, he has  not mentioned the competition to provide cloud computing services to the Defense Department.

That is now changing.

The Pentagon intends to award a single company the multi-year contract, plans that have drawn criticism from lawmakers as well as Amazon competitors including Microsoft Corp., International Business Machines Corp. and industry groups that include Oracle. They’re worried the move will favor Amazon, which is dominant in the cloud services market.

After tonight’s dinner, and if Catz plays her cards right, they won’t have to worry any more.

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Facebook CEO Mark Zuckerberg has found himself with few friends in Silicon Valley in the wake of the massive data harvesting scandal.

Tim Cook and Elon Musk are perhaps the highest profile tech leaders to criticize Facebook for playing fast and loose with user data – along with Salesforce.com CEO Marc Benioff and Whatspp founder Brian Acton, whose company Facebook bought for $22 billion.

Other tech leaders have remained quiet as the scandal has unfolded – which as Bloomberg notes, is unusual for Silicon Valley execs who traditionally circle the wagon when a peer is having a crisis. 

Facebook has sought to repair its public image and trust with more than 2 billion users after reports surfaced that Cambridge Analytica obtained data on as many 50 million of those U.S. accounts. As Zuckerberg, 33, faces calls to testify before Congress and lawmakers raise the idea of new regulations on tech, his peers have either stayed quiet or publicly criticized his company. In times of crisis, tech companies have sometimes huddled together to defend the industry, such as when Apple fought the FBI to protect an encrypted iPhone and during President Donald Trump’s proposed immigration ban last year against mostly Muslim countries.

When James Comey’s FBI came banging on Apple’s door asking them to decrypt an iPhone linked to the 2015 San Bernardino attack in which married couple Syed Rizwan Farook and Tashfeen Malik shot up a San Bernardino County Christmas party, killing 14 and injuring 22 – Facebook, Google, Microsoft and other big tech firms rallied around Tim Cook after the Apple CEO refused to comply.

The FBI was eventually able to unlock Farook’s phone after a “mysterious third party” showed them how to bypass Apple security protocols. 

“Protecting privacy is good for business now,” said Gennie Gebhart, a researcher at the Electronic Frontier Foundation (EFF), a digital privacy rights group. “Users are looking for other big tech personalities like Tim Cook, like Elon Musk, to be reassured that they’re not doing what Facebook did.”

Cook was asked about Facebook’s privacy crisis last month and called for stronger regulation of user data. Then, in an interview with Recode and MSNBC, Cook said he “wouldn’t be in this situation” if he were in Zuckerberg’s shoes. While Facebook makes money selling targeted advertisements based on user data, Apple’s profit comes from hardware products like the iPhone, iPad, and Mac.

Zuckerberg slapped back at Cook, telling Vox “I find that argument — that if you’re not paying, that somehow we can’t care about you — to be extremely glib and not at all aligned with the truth.”

“There are a lot of people who can’t afford to pay” for a service, while having an “advertising-supported model is the only rational model that can support building this service to reach people,” Zuckerberg said. “If you want to build a service which is not just serving rich people, then you need to have something that people can afford.”

No word if Cook has recovered from Zuck’s epic burn, though “rich people” have propelled Apple to revenues of nearly $230 billion in 2017 vs. Facebook’s $40 billion generated almost entirely from advertising – and as we have come to learn, letting app developers have their way with our personal data and helping candidates they favor. 

Meanwhile, Zuck’s been Sabo’d

While Facebook stock has been kneecapped to the tune of around 16% since the Cambridge Analytica story broke – and down 20% since February all-time highs, Mark Zuckerberg has been given “the treatment” by notorious conservative street artist, Sabo.

Banners reading “You can’t watch your kids 24/7, but we can” were put up in Times Square and several other public locations on Monday night – along with fake street signs warning “Caution, Facebook sells your data.”

Several of the signs feature a grotesque graphic of Zuckerberg’s face melting into Chuck Schumer’s (D-NY) – along with other mentions of the Senate Minority Leader whose daughter works for Facebook. 

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 ]

Sabo’s hatred of Zuckerberg is nothing new – as the street artist plastered several posters around Pasadena last August reading “F*ck Zuck 2020” in response to rumors that the Facebook CEO was considering a run for President in 2020.

Meanwhile, artist and nephew of former Australian Prime Minister Kevin Rudd painted a mural of Zuckerberg “forgetting his human mask.”

What fun! Just did this #MarkZuckerberg portrait in Melbourne, Australia. #cambridgeanalytica #DeleteFacebook #datamining #capitalism pic.twitter.com/2u64ZI29Z7

— V-T-R (@V_TT_RR) March 22, 2018

What fun indeed – though maybe not so much for Mark. 

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Via TheCollegeFix.com,

It’s unfair. It’s sexist. And women might get raped.

That’s why a “special [debate] tournament” held at the University of Vermont this past weekend banned men from competing, organizers and participants in the North American Women’s and Gender Minorities Debate Championship told the Associated Press.

Rather than admit the deep sexism inherent to their view, they claim that women “have to be that much better than men to overcome bias on the part of many judges” and “point to statistics that show they are less likely to reach the top echelons of the activity”:

“There is also a lot of sexual predation that happens in the debate community,” said UVM debate director Helen Morgan-Parmett.

“The tournament, I think, provides a safe space where people feel they are debating other women, and their bodies aren’t necessarily on display.”

Intercollegiate debates have been gender-integrated for six decades but women still lag in participation. Sarah Sahagian, program director for Speech and Debate Canada, said women simply can’t measure up yet:

I think even when I was a participant there were women who did well, there were women who won things, but on average, the average female debater did not do as well. Disproportionately, male debaters did better.

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The Department of Homeland Security (DHS) has acknowledged a 2017 discovery of several “rogue devices” placed throughout Washington D.C. often used by spies and criminals to track and eavesdrop on private cellular devices, AP reports.

The DHS admission came in a March 26 response to a November request from Oregon Sen. Ron Wyden (D), however the agency did not say how many devices were detected or where they found them.

The agency’s response, obtained by The Associated Press from Wyden’s office, suggests little has been done about such equipment, known popularly as Stingrays after a brand common among U.S. police departments. The Federal Communications Commission, which regulates the nation’s airwaves, formed a task force on the subject four years ago, but it never produced a report and no longer meets regularly. –AP

American intelligence and law enforcement agencies use similar  eavesdropping equipment in the field, which can cost anywhere between $1,000 to around $200,000. The devices are typically the size of a briefcase but can be as small as a cell phone. Police use Stingrays to track down and implicate perpetrators of mainly domestic crimes.

The devices can be mounted in vehicles, drones, helicopters, and airplanes, allowing police to gain highly specific information on the location of any particular phone, down to a particular apartment complex or hotel room.

The Stingray units operate by tricking a cellular device into locking onto them instead of a legitimate cell tower – revealing the exact location of a particular phone. As AP notes, more sophisticated versions can eavesdrop on calls by forcing phones to step down to the older, unencrypted 2G wireless channel. Other Stingray devices can plant malware on a phone.

Thousands of members of the military, the NSA, the CIA, the FBI and the rest of the national-security apparatus live and work in the Washington area. The surveillance-savvy among them encrypt their phone and data communications and employ electronic countermeasures. But unsuspecting citizens could fall prey. –AP

The DHS reply from official Christopher Krebs said that the agency had observed “anomalous activity” consistent with Stingrays in the Washington area. Another DHS official speaking anonymously to AP says that the devices were detected during a three-month trial of equipment provided by Las Vegas-based agency contractor, ESD America.

Krebs notes in his letter that the DHS lacks the equipment and funding for wide-scale detection of Stingrays – even though their use by foreign governments “may threaten U.S. national and economic security.”

Legislators have been raising alarms about the use of Stingrays in the capital since at least 2014, when Goldsmith and other security-company researchers conducted public sweeps that located suspected unauthorized devices near the White House, the Supreme Court, the Commerce Department and the Pentagon, among other locations.

The executive branch, however, has shied away from even discussing the subject.

Aaron Turner, president of the mobile security consultancy Integricell, was among the experts who conducted the 2014 sweeps, in part to try to drum up business. Little has changed since, he said.

Like other major world capitals, he said, Washington is awash in unauthorized interception devices. Foreign embassies have free rein because they are on sovereign soil. –AP

Turner says that every embassy “worth their salt” has a cell tower simulator installed, which they use “to track interesting people that come toward their embassies.” The Russians’ equipment is so powerful it can track targets a mile away, he said.

How to shut them down?

As AP notes, shutting down rogue stingray devices is an expensive prospect which would require the wireless industry to completely upgrade its infrastructure, which security experts say companies are loathe to pay for.

The upgrade could also lead to conflict with U.S. intelligence and law enforcement agencies. At least 25 states and the District of Columbia use the devices, according to the ACLU.

After the 2014 news reports about Stingrays in Washington, Rep. Alan Grayson, D-Fla, wrote the FCC in alarm. In a reply, FCC chairman Tom Wheeler said the agency had created a task force to combat illicit and unauthorized use of the devices. In that letter, the FCC did not say it had identified such use itself but cited media reports of the security sweeps.

That task force appears to have accomplished little. A former adviser to Wheeler, Gigi Sohn, said there was no political will to tackle the issue against opposition from the intelligence community and local police forces that were using the devices “willy-nilly.” –AP

“To the extent that there is a major problem here, it’s largely due to the FCC not doing its job,” said Laura Moy of the Center on Privacy and Technology at Georgetown University. Moy says that the agency should require wireless carriers to protect their networks, thus “ensuring that anyone transmitting over licensed spectrum actually has a license to do it.”

The FCC, however, said the agency’s only role is “certifying” that said devices don’t interfere with other wireless communications.

In other words, despite the prevalence of stingray devices throughout our nation’s capital and most assuredly in use across the rest of the United States, nobody seems to be able to do anything about it.

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Authored by James Howard Kunstler via Kunstler.com,

“Peace with Honor” was President Nixon’s anodyne phrase for futzing around as long as possible in Vietnam to conceal the reality that the US military was getting its ass kicked by what we had initially thought was a 98-pound weakling of a Third World country. That was a half-century ago and I remember it now at age 106 thanks to my diet of kale and pepperoni sticks. Not ironically, the long struggle finally ended a few years after Nixon quit the scene, with the last straggling American evacuees waiting desperately for helicopter airlifts off the US embassy roof. And now, of course, Vietnam is a tourism hot-spot.

And so just the other day, the latest POTUS declared (in his usual way) that “we’ll be coming out of Syria, like, very soon. Let the other people take care of it now.” The utterance sent the neocon partisans in government into a paroxysm. Cries of “Say What?” echoed up and down the Great Mall. Which “other people” was Mr. Trump referring to? The United Auto Workers? Gandalf the Grey? The cast of Glee?

I doubt that the average Harvard faculty member can state with any conviction what the fuck is going on in Syria. Vietnam was like a simple game of Animal Lotto compared to the mystifying puzzle of Syria. And then, of course, once you get handle on who the players are, it’s another matter altogether to descry what US interests there might be.

One angle of the story is whether it is in America’s interest for Syria to become another failed state in a region of several other failed states. Whatever else you might say about US policy in that part of the world, the general result in places like Iraq, Libya, and Yemen has been anarchy and irresolvable factional conflict. In today’s world of nation-states, a central government is required to avoid that fate, and the embattled one in Syria happens to be the regime of Bashar al-Assad. The US has long militated for the overthrow of Assad, but I would also challenge you (and the Harvard faculty) to name any credible party or person who we have hypothetically proposed to replace him with.

You might argue that the Great Age of Nation States is winding down, that the world does not need them anymore, that they are the cause of too much strife and anguish. But then you would have to account for all the strife and anguish that occupied the world when it was composed of petty kingdoms, principalities, fiefdoms, and tribes. And, of course, following that logic you’d also have to inquire into the legitimacy of the US government — which, by the way, California is well into testing these days.

One might also propose that the battlefield of Syria, with its array of militant religious maniac armies, is just a proxy action for the tag-teams of the USA/Israel versus Russia/Iran. If so, the US has not been very clear or honest about it. Anyway, it has hardly been demonstrated that Russia is all that comfortable with Iran extending its influence to the Mediterranean Sea. I would take Russia’s presence in Syria as an attempt to block, or at least moderate, Iran’s influence there — which is one of the arguments for a US/Russia partnership in cleaning up the mess there.

That possible outcome has been hugely compromised by the RussiaRussiaRussia hysteria engineered by the neocon warhawks of the US permanent bureaucracy (a.k.a. the Deep State). The latest ploy by these players is the overcooked story of Vladimir Putin personally moving to poison the Russian/British double agent Skripal (and daughter) in Salisbury, UK. Given the extremely lethal nature of the supposed poison, Novichok, and the method supposedly used (smearing it on the Skripal doorknob), it’s hard to believe that the Skripals were able to walk to the park bench where they collapsed, nor that other persons ranging from the police to the medical examiners didn’t come into contact with the substance and fall ill. But this is the sort of cockamamie melodrama that it has come down to on our side of the gameboard.

The other part of the story worth considering is this: Syria, like other new-ish nations of the Middle East, was able to hugely increase its population in the post-WW2 era due to oil wealth (now all but gone in Syria), and other perqs of modernity like cheap grains for feeding all the newcomers.

Dwindling oil revenue and severe drought (arguably induced by climate change) that caused crop failures commenced in 2006. So Syria became a workshop study in population overshoot and resource scarcity — problems that are sure to spread around other regions of the world in the years ahead. Nature’s way of correcting those imbalances is very ugly, and easily mistaken for mere politics.

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Assuring that a second retaliation by China in the escalating trade war is just a matter of days if not hours, moments ago the US Trade Representative released a list of Chinese product subject to 25% tariffs as part of Trump’s Section 301 crackdown on Beijing Intellectual Property abuses, focusing on high tech products.

The list covers about 1,300 tariff lines, or 44 pages, the USTR said, referring to a system of codes used to categorize products. It added that the value of the list is approximately $50 billion in terms of estimated annual trade value for calendar year 2018, a level which is “appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China’s harmful acts, policies, and practices.”

Some example of are shown below:

The list of products included in the USTR list, lines up with technologies China identified in its “Made in China 2025” strategy, White House trade adviser Peter Navarro told Bloomberg Television on March 28.

“China, in my view, brazenly has released this China 2025 plan that basically told the rest of the world, ‘We’re going to dominate every single emerging industry of the future, and therefore your economies aren’t going to have a future,”’ Navarro said. “It’s artificial intelligence, robotics, quantum computing.”

As a reminder, “Made in China 2025” was announced in 2015, and highlighted 10 sectors for support on the way to China becoming an advanced manufacturing power: Information technology, high-end machinery and robotics, aerospace, marine equipment and ships, advanced rail transport, new-energy vehicles, electric power, agricultural machinery, new materials, and bio-medical. China alsohas a separate development strategy for artificial intelligence, published in 2017.

While both investors and businesses have been awaiting details of Trump’s plan to place tariffs on $50 billion in Chinese goods, nobody was looking forward to the list more than China itself. As we reported this morning, China’s US Ambassador said that Beijing is preparing aggressive counter-measures of the “same proportion, scale and intensity” once the Trump administration imposes further tariffs on Chinese goods.

USTR Robert Lighthizer had until April 6 to publish a list of proposed products. There’s now a 60-day period when the public can provide feedback and the government holds hearings on the tariffs.

Back on March 22, Trump said that the tariffs were aimed at penalizing Beijing for what the U.S. alleges to be theft of American companies’ intellectual property.

While China already imposed tariffs in response to Trump’s actions on metal imports (under Section 232), it has repeatedly threatened additional retaliation if Trump unveils the list of Section 301 tariffs, something the Administration did on Tuesday afternoon.

U.S. retailers have voiced concerns tariffs (and an escalating trade war) may eat into consumer products such as shoes and clothing, hitting companies including Walmart Inc. and Target Corp.

On Monday, various PMI indices suggested that fears of tariffs are leading to a drop in confidence about the economy, and early inflationary pressures as producers begin to stockpile core products.

The full list of products that fall under the purview of Section 301 tariffs is below (link).

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Over the weekend, we first reported that in the first quarter, the pain for David Einhorn’s Greenlight Capital reached unbearable proportions, as the iconic hedge fund manager lost 14%, one of the worst quarters in the fund’s history; paradoxically, as a result of Einhorn’s “bubble basket” which is a short basket consisting of high PE tech names, Einhorn should have had a great quarter as a result of the recent clubbing of the sector. Instead, the opposite happened.

Today, in a letter to investor, he confirmed the deplorable performance and explained what happened.

In a nutshell, it was not only an abysmal quarter, but one in which the billionaire fund manager still can’t figure out what exactly went wrong. As Einhorn writes in the investor letter, “in our history, we’ve had five other quarters with a greater than 5% loss. In four of those, there were clear world or market events that provided a simple explanation, and in one, a few positions in our portfolio went wrong at the same time. This period has not been like any of these.“

Instead, as Einhorn notes, there were “no events or individual positions” that stood out; instead the fund’s “losses were broad throughout the portfolio, but generally shallow. We had nine positions (six longs and three shorts) that each cost more than 0.5% and only one (Micron Technology) that generated a gain of over 0.5%, despite our portfolio having a decent earnings season.”

It appears that what did go wrong, is that both Greenlight’s longs and short lost money. But where it gets truly vexing, is that Einhorn’s long positions lost money despite posting positive earnings, while his shorts climbed despite earnings. One possible explanation: every other hedge fund has the same positions on, and since there are no incremental marginal buyers or sellers left, the only thing that matters is positioning, and specifically unwinds.

Analyzing his portfolio, Einhorn said his 20 biggest long positions fell 5.6%, and his 20 largest shorts fell 5.5%:

While there is some asymmetry in the longs versus shorts, the reaction to earnings announcements generally made sense. On the one day when investors received actual information about companies, more often than not the market prices followed the reported results. The problem was… all the other days. For the quarter as a whole, the longs that met or exceeded expectations wound up losing 4%, and those that missed fell 17%. The story on the shorts was even worse. Shorts that exceeded expectations finished the quarter up 19% and stunningly, the shorts that missed expectations also finished up 5%.

The results are summarized in the table below.

So how is it possible that one gets all the earnings directionally right and still loses money across the board? Well, Einhorn has no idea, or as he puts it: “It is difficult to fully explain what caused the results above.“

As an example, General Motors (GM) entered the year with consensus EPS estimates of $6.30, $5.80 and $5.75 for 2017, 2018 and 2019, respectively, and the stock at $40.99 had an undemanding price to earnings multiple of 7x. GM reported actual 2017 EPS of $6.62, guided 2018 to be similar, and forecast that 2019 earnings should be even better. The stock advanced 6% on the day of the earnings release, before rolling over and falling 18% from its peak to the end of the’ quarter.

The confusion continued:

GM’s fundamentals appear favorable. Employment is strong, tax cuts are helping GM’s customers, used car values are performing well versus expectations and industry scrappage rates are increasing. GM has lean inventory and a product line-up that is gaining share with pricing power. We just don’t see what the market may be saying, and we believe that GM is more likely to exceed near and intermediate-term forecasts than to disappoint. Also, the company plans to return about 10% of its market capitalization to shareholders in dividends and buybacks in 2018. Time will tell whether the market is correctly sniffing out incrementally tougher prospects for GM to justify the multiple compression.

What about the bubble baket? While several tech names that Einhorn has been betting against, including Netflix and Amazon, have sold off in recent weeks, the moves did little to help his portfolio, and his fund fell a net 1.9% in March.

As we reported last month, speaking on a conference call, Einhorn said that his hedge fund was experiencing its worst underperformance ever; it was about to get evern worse. As Bloomberg notes, and as its LPs know all too well, Greenlight has posted lackluster returns in recent years as markets, especially for growth stocks, have risen while the hedge fund has stuck to its value-investing strategy.

Looking forward, Einhorn remains optimistic:

We believe our investment theses remain intact. Despite recent results, our portfolio should perform well over time. To some extent, this quarter’s result stems from the continued extreme outperformance of growth over value. The Russell 1000 Pure Growth Index followed a 38% 2017 advance with another 7% climb through the end of March. The Russell 1000 Pure Value Index has declined over 3% year-to-date, retracing most of its 2017 gain of 4%.

Some other notable updates from the letter: Greenlight sold its stake in Chemours at more than four times what it paid for the shares in 2015. The hedge fund also exited the German energy company Uniper SE making a profit of more than 100% since the purchase in 2016.

Einhorn also said he covered two shorts he put on in 2016, Hexagon AB and United Rentals Inc., both at a loss. Overall, he had an average net long exposure of 29 percent.

His full letter is below:

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Authored by Jeffrey Snider via Alhambra Investment Partners,

Japanese industrial production dropped sharply in January 2018, Japan’s Ministry of Economy, Trade, and Industry reported last month. Seasonally-adjusted, the IP index fell 6.8% month-over-month from December 2017. Since the country has very little mining sector to speak of, and Japan’s IP doesn’t include utility output, this was entirely manufacturing in nature (99.79% of the IP index is derived from the manufacturing sector).

Various reasons were given for the decline, as they always are, but more importantly it placed a great deal of importance on the February estimate. Was January a one-time aberration, or is there a looming break in trend?

The Ministry released estimates late last week that suggest the break might be more than a one-month transitory anomaly. Industrial Production rebounded in February, but only by 4.1%. That left the year-over-year change (not seasonally-adjusted) as +1.4%. It’s the lowest gain since October 2016, down substantially from what increasingly looks like a mid-2017 peak (+6.5%).

Like so many other economic accounts around the world, Japan’s IP statistic is often misunderstood or disingenuously deployed to sound off on the prospects of a turning point for Japan’s economy.

It was that way at the beginning of Abenomics in late 2012, when IP turned positive then, too. Between November 2012 (when the yen first started to fall) and January 2014, a period including the launch of QQE, Industrial Production rose 10.5% in those fourteen months.

Over the prior thirteen months, dating back to October 2011, IP had contracted by almost 8%.

The change in sign was widely hailed as strong evidence that Abenomics was working, and that ultimately it would prove decisive in Japan’s quarter century struggle with its economy.

If a weaker yen could so aggressively restart Japan Inc, what couldn’t the BoJ accomplish given enough time?

But by focusing on the plus signs, the degree of Japan’s difficulties was understated if not completely set aside.

Even at its peak in early 2014, Industrial Production was still 12% less than it was in February 2008. That 10.5% gain during QQE and early Abenomics wasn’t really all that significant, and in the wider historical context never really appeared to be.

Rather than learn from what is a clear repetition in pattern, these mistaken impressions and interpretations were repeated once more in 2016. QQE and Abenomics had worked, so it was claimed, it just took a couple of additional years for the results to show. Between January 2014 and May 2016, IP dropped another 7.4%. It was easily blamed on the VAT tax in increase in April 2014, though no one ever explains why those negative pressures would take almost two and a half years to be worked through.

Since that time, it is again up now 8% through February 2018 and the media celebrates how BoJ will like other central banks soon be talking rate hikes and exits. The mere appearance of positive numbers is in this convention sufficient proof for efficacy no matter how much time may be involved in either direction.

A more conditioned analysis, however, would note the timing of each inflection: middle 2016 to current = Reflation #3; late 2012 to middle 2014 = Reflation #2. There was, as everywhere else in the world, a similarly proportioned rebound up until 2011 (interrupted by the catastrophic earthquake and then the monetary destruction later that year).

In other words, for almost all of Japan’s post-crisis experience its IP statistic is contracting. The positives are far fewer than the negatives. They correspond easily with these obvious “reflation” episodes we find all over the world created by the abatement of destructive eurodollar impulses unleashed in intermittent fashion (nothing goes in a straight line).

Therefore, Industrial Production in Japan just may be the best “reflation” indicator there is anywhere in the world. If that is the case, and it’s hard to argue otherwise, a potential rollover in it starting in the middle of last year would be quite concerning as it stands starkly against both inflation hysteria and “globally synchronized growth.”

It also represents global economic shrinking and how this has been mischaracterized repeatedly over the last decade. There is no growth trajectory indicated anywhere in the industrial figures, an important description of the global economy rather than just Japan’s experience with its own “deflationary mindset.” Throughout all of it, IP swings from positive to negative and back again without ever moving out of that position; despite the passage of so much time even at these occasional peaks IP is always considerably below the prior 2008 peak.

Yet, despite three almost complete swings since then, every time it turns positive it is paraded around the world as irrefutable proof the Bank of Japan, therefore QQE, therefore technocratic central banking, is a complete and total success. The problem with that is not mere interpretation. These mistaken impressions, often offered intentionally, greatly diminish the urgency to actually do something about the greater economic problem (while at the same time clouding the economic situation in the first place).

And that problem is the Bank of Japan; Japan hasn’t spent the last three decades struggling with its economy so much as trying to deal with an over-aggressive central bank that is actually powerless to fix the problem (as they understand it). We can relate. This is how Japan’s single Lost Decade has turned to three, and how what was once believed to be a Japanese coincidence has become a global one (with the global economy working on its second lost decade).

An upturn is not unexpected, nor is it a recovery. The world desperately needs the latter, having experienced (three times) only the former. Japanese Industrial Production may be the best example of all of it.

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