Category: zerohedge

Amid reports that Bill Gates’ investment fund sent another $2 billion+ to Melinda Gates in the form of stock transfers following $1.8 billion in shares reportedly transferred earlier this week, TMZ is once again the leading source for news from within the Gates camp. Most recently, it reported that Melinda Gates rented Calivigny Island in Grenada for $132,000 a night. The plan was for Melinda and the kids, as well as their significant others, to come to the island. Everyone in the family would be there…except Bill Gates.

According to TMZ, there was a lot of acrimony following the split and pretty much everyone took Melinda’s side. The family is reportedly “very angry with Bill”.

The Bill and Melinda divorce has been a done deal for months, TMZ has learned, and they had a plan to announce it back in March … a plan that included renting a remote, private island where the entire family — with one BIG exception — could avoid the media once the announcement was made … sources with direct knowledge tell TMZ.

Our sources say Melinda Gates rented Calivigny Island in Grenada … yes, she rented the entire island for $132,000 a night. The plan was for Melinda and the kids, as well as their significant others, to come to the island — everyone except Bill. We’re told everyone in the family already knew Bill and Melinda were divorcing. There was a considerable amount of acrimony associated with the split and we’re told virtually everyone in the family took Melinda’s side. Another way of putting it … we’re told they were very angry at Bill, and that’s why he wasn’t invited.

The reason for going to the island … so no one from the media could reach them and ask about the split when it was announced during their stay.

But, there was a problem … lawyers for both Bill and Melinda were trying to hash out a divorce settlement and there were still outstanding issues that couldn’t be resolved at the time of the trip. We’re told Melinda decided to go anyway … well, with everyone BUT Bill.

Melinda reportedly wanted to go to the island so no one from the media could reach her and ask about the split when it was announced during their stay. She even defied pleas from her lawyers, who were working on a settlement with her husband, saying she needed to stick around to provide her input.

TMZ also reported that the Gates’ split has been a long time coming. The pair were on the cusp of announcing the news back in March, but it was delayed for some unknown reason.

Looking ahead, as the world awaits more information about the terms of their split, the NYT speculated in a reported published yesterday, “who gets Xanadu 2.0?” the Gates Family Mansion, valued upwards of $130MM.

The home was built in what has been described as the result of a fraught collaboration between Bill and Melinda. It’s also where the couple raised their three children – Jennifer, 25, Rory, 21, and Phoebe, 18 – some of whom may still live at home.

For months, we have been watching ARK Funds closely, noting on more than one occasion that Cathie Wood’s “investing” style of selling big tech names to add speculative illiquid names to her flagship ARKK ETF had caught our eye. Now, we’re watching even closer.

That’s because ARKK is “in the midst of its worst stretch since 2018”, according to Bloomberg, as the NASDAQ teeters back and forth, trying to decide how to react to what appears to be the end of an 18 month gamma squeeze, coupled with the widely accepted consensus that significant inflation is on its way. 

Key components in Wood’s flagship ARKK fund – names like Twilio, Zoom and Roku, have all bucked a larger trend in the NASDAQ as it tried to rally for the first time this week, Bloomberg notes. That may not bode well for Wood when the NASDAQ eventually turns red again.

As one trader simply noted…

This is beyond ugly – $ARKK pic.twitter.com/PqBoY5g6cG

— Andrew Fisher (@acpandy) May 6, 2021

The bucking of the NASDAQ trend appears to mark the decoupling between real rates and riskier tech names. As real rates fell over the last week, NASDAQ names have not responded in the manner with which they had over the last 18 months, where stooping real rates would put a bid under risky names.

The change could be due to rising concerns about inflation. Matt Miskin, co-chief investment strategist at John Hancock Investment Management, told Bloomberg: “Even though the bond market is suggesting that tech should be doing better, commodities are what the equity market is listening to and that is causing less of a bid for technology. Commodities are whispering in the ear of the equity market and saying inflation is coming.”

This could fare terribly for Cathie Wood’s strategy, which has outperformed for years on the relationship between real rates and risky tech names.

This has also led to $785 million in outflows for ARKK over the last 6 days, according to Bloomberg. Hedge funds, during the same time, have cut their exposure to technology to the lowest since December, the report notes. High flying names like PLUG and XPEN fell 9% and 6.4% respectively on Thursday, after sizeable surges throughout all of 2020. PLUG, for example, gained 973% over the course of last year. 

Dan Suzuki, Richard Bernstein Advisors LLC’s deputy chief investment officer, said: “With the data continuing to suggest a faster than expected recovery, the recovery/reflation trade is winning and expensive growth becomes a source of funds. The rising inflation expectations indicate that people’s confidence in the reflation trade is picking up.”

And we literally just noted – moments ago – that prime brokers had begun to slash leverage as a result of the Archegos blowup. As momentum charged higher last year, riding a sea of liquidity, every stock market ‘guru’ bought the junkiest junk…

Source: Bloomberg

…with the most leverage.

As a result, hedge fund leverage – both gross and net – hit record highs in late April, according to Goldman’s Prime Brokerage. And that has now prompted prime brokers to slash available leverage for their hedge fund clients:

…managers of small hedge funds who lack the negotiating clout of trading whales are grousing. For the little guy especially, the saga will make it harder to borrow money from banks to finance bets.

While specific measures will vary by bank and client – and in many cases are still being ironed out – the talks and tensions point to greater pressure on clients to reveal their biggest wagers, stricter margin limits on those positions, more frequent collateral adjustments and more rigorous audits. The deliberations were described by executives close to prime brokerage desks and money managers.

At its most extreme, Credit Suisse, which was the hardest hit among Archegos’ primes, drastically adjusted risk tolerances and practices, slashing lending to hedge funds by a third.

And so the analogues to Bill Hwang are tough to not notice. In April, we pointed out the tie between Hwang, who had recently blown up, and Wood, noting that Wood could also be on the precipice of her own “Jesus Take The Wheel” style moment. We knew at the time that Bill Hwang was a mentor to Cathie Wood and that both investors had a penchant for bringing religion into their investing methodology, as we noted in a report we published earlier in April. 

In that report, we shone light as to how close Wood and Hwang were in the investing world. A Bloomberg report released in April said Hwang was “on the same trajectory” as Wood. For example, in 2016, Hwang was invited to a weekend retreat put on by Princeton Theological Seminary that was set up to “connect Christians in finance”. The Saturday keynote dinner that weekend featured Wood, who was then a startup manager and and an adviser to the ministry.

After then, Hwang became an investor in Wood’s firms, and “Archegos and ARK collaborated on industry research,” the report noted. Hwang was/is “a backer” of Wood’s. Wood, like Hwang, holds Bible study meetings in her office. 

And Wood’s risk management – like Hwang’s – might eventually be called into question. About a month prior, in March, we also noted when ARK Funds filed to allow for larger concentrations in names, including overseas ADRs.

ARK funds filed an amendment to its prospectuses for its ETFs in March, making some little recognized changes that were caught by @syouth1 on Twitter at the time.

First screencap shows language that was removed re ownership of ADRs, warrants, etc. (in red). Second shows language removed re limits on investing 30%+ of assets in a single firm and investing in 20+% of firm’s shares (also encircled in red). Source: https://t.co/yDVAHJTf6Y pic.twitter.com/ZJUlRSxQ5n

— Jeffrey Ptak (@syouth1) March 26, 2021

As the tweet noted, the ARK SEC filing did several things. First, on a perfunctory note, it specified risks related to investing in SPACs, noting that they are “subject to a variety of risks beyond those associated with other equity securities”. 

But then the filing got very interesting – language was removed that allowed ARK funds to take even larger concentrations in names – in addition to over-the-counter traded ADRs, which are notoriously riskier products than normal equity. 

The amendment removed ARK’s limit to invest 10% of its total assets in any active fund in ADRs that are traded over-the-counter. 

The amended prospectus also removed language that formerly limited ARK to investing no more than 30% of a fund’s total assets into securities issued by a single company.

Another “rule” removed was language preventing ARK from investing in more than 20% of a company’s total outstanding shares.

The amendments portended ARK piling further into concentrated, high-risk names that dominated their respective funds, we noted at the time.

Now, it could be time to pay the piper. As we wrote in April:

Obviously, if a pin is finally going to prick the NASDAQ gamma bubble that has blown up over the last 12 months, the higher Wood’s concentration in speculative names, the more spectacular a crash would be for ARK funds.

Crypto markets just took a decent tumble as two headlines hit the wires at similar times.

1. First we saw comments from the Biden administration that it would likely follow former President Trump’s China investment ban policy.

2. Then, SEC Chairman Gary Gensler told the House Financial Services committee that congress should consider regulating crypto exchanges.

Most traders are pointing to the latter as the driver of the crypto drop but the timing suggests other factors involved…

Source: Bloomberg

Interestingly, as the CBOE broke, the drop in crypto stopped.

Putting the moves in context, Bitcoin dropped around $1500…

Source: Bloomberg

And Ethereum dropped $200 after tagging a new record high above $3600

Source: Bloomberg

Appearing before the House Financial Services Committee on Thursday, newly anointed SEC Chairman Gary Gensler suggested that Congress should consider regulating cryptocurrency exchanges.

“It’d be good to consider whether to bring investor protection to the crypto exchanges,” Gensler told Rep. Patrick McHenry.

“And I think if that were the case—because right now the exchanges trading in these crypto assets do not have a regulatory framework, either at the SEC or our sister agency, the Commodity Futures Trading Commission—that could instill greater confidence,” he said.

“Right now, there’s not a market regulator around these crypto exchanges and thus there’s really no protection around fraud or manipulation.”

Nothing to be too concerned about in crypto-land and far less aggressive than Yellen’s statements.

The Biden administration doesn’t seem to be sold on using the Defense Production Act to spur production of semiconductors domestically, according to a senior administration official that spoke to Reuters this week.

“The short-term outlook is challenging,” they commented, when asked about invoking the law. Moving semis to automakers “would result in fewer chips for others,” they said. This would transfer the negative impact of the shortage to consumer electronics, from automakers.

The idea of using the 1950 law to force companies to produce semiconductors for national security reasons was brought to the attention of the White House by automakers who have seen their production interrupted by the supply chain seizure. 

Even “many auto industry officials” have said privately that they do not think invoking the act would be likely. Another person close to the Biden administration commented: “This is the worst nightmare if you’re a supply chain manager. As a nation, it’s terrible.”

The administration is in the midst of a 100 day review, and then plans to figure out ways to “incentivize and encourage production at home and surge capacity.”

Chad Bown, a senior fellow at the Peterson Institute for International Economics, simply said: “There’s no quick fix.”

Recall, yesterday we reported that Taiwan Semiconductor was going to try and address the domestic production issue by building “several more” chipmaking facilities in Arizona, beyond one it already has planned.

Days prior, we wrote an article that highlighted how Intel had pointed out the lack of semi chip production in the U.S., amidst estimates that the shortage could last well into 2022.

Commerce Secretary Gina Raimondo called for a “major increase” in U.S. production capacity of semiconductors this week. On Tuesday, she commented: “Right now we make 0% of leading-edge chips in the United States. That’s a problem. We ought to be making 30%, because that matches our demand. So, we will promise to work hard every day, and in the short term also see if we can have more chips available so the automakers can reopen their factories.”

The chip crisis has hit the auto industry so hard that it has forced rental car companies – already under immense pressure from ride sharing companies – to buy up used cars at auction to fulfill their inventory needs, Bloomberg also noted this week. 

Maryann Keller, an independent consultant who used to be on the board of Dollar Thrifty Automotive Group, commented: “You would never go into auction to buy routine sedans and SUVs. These are special circumstances. There is a shortage of cars.” We noted last month how these special circumstances have driven up the price of used cars. 

Last week, Ford was the latest auto manufacturer to slash its expectations for full year production as a result of the shortage.

Two weeks prior to Ford’s report, we wrote about how the chip shortage was becoming a self-fulfilling prophecy, due to a shortage of chipmaking equipment. In the days leading up to that report, we wrote that Taiwan Semiconductor was also warning that the global chip shortage may extend into next year.

In early April, we wrote that U.S. exporters of semiconductor chipmaking tools were struggling to get licenses to sell to China. The U.S. government had been dragging its feet in approving licenses for companies to sell chipmaking equipment to Chinese semi company SMIC, we noted at the time.

For the past few months, one of the reasons why investors had bid up some of the Chinese mega caps is the hope that Joe Biden would undo some of the various investment bans rolled out by the Trump administration as part of ongoing trade war between the US and China. Well, that particular thesis just got hammered after a Bloomberg report that despite Biden’s (both Joe and Hunter) notoriously close ties to Beijing, his administration is “likely to maintain pressure on China by preserving limits on U.S. investments in certain Chinese companies imposed under former President Donald Trump” bucking attempts from Wall Street to ease the restrictions.

Bloomberg cited “six people familiar with the matter said” although discussions on Trump’s investment bans targeting companies linked to China’s military, which included three of the country’s biggest telecommunications firms, are still ongoing and no decision has been made.

Biden, who has been trying to restore some of the ties that had gotten frayed during the previous admin but without appearing appeasing, has been navigating a fraught relationship with Beijing, as tensions flare over issues ranging from trade to human rights to military postures in the South China Sea.

The investment blacklist, which Trump announced in November when he issued a ban on US purchases or sales of securities in Chinese firms with links to China’s military, touched off a new conflict, prompting China to threaten possible legal action against global firms that followed the U.S. ban. In January, Trump amended the order so that it banned altogether any Americans from holding securities of blacklisted Chinese firms from November 11th, 2021, rather than just additional purchases.

Some of the biggest losers from Trump’s executive order have been Wall Street firms, who have urged Biden to completely roll back the investment ban, Bloomberg reported citing four people in the industry.

Following the announcement, the New York Stock Exchange said it would delist three large Chinese telecom companies, only to reverse that decision amid confusion over the scope of the ban. The exchange reinstated its plan after pressure from then-Treasury Secretary Steven Mnuchin.

To clarify, in January Mnuchin’s Treasury Department issued a statement naming China Mobile, China Telecom and China Unicom Hong Kong Ltd. as the companies that must be delisted.

“The global financial institutions that deal with these Chinese military company securities are stymied,” said John Smith, a former top sanctions official at the Treasury Department and now a partner at law firm Morrison & Forrester. “All the trading that would normally be done by the biggest global institutions around has stopped because they are deathly afraid of violating U.S. sanctions.”

OFAC has put out limited guidance on how big banks employing thousands of Americans who must comply with the investment ban can conduct business that spans across global trade, Smith said.

Unless Trump’s ban is reversed, US investors have a year to exit companies once they appear on the blacklist. For the companies that appeared on the original list last year, investors have until May 27 to wind down new transactions and until Nov. 11 to fully divest.

Biden’s posture should not come as a surprise: Treasury Secretary Janet Yellen and her team have indicated a continuation of the Trump administration’s tough stance on China.

“It is critical that we use Treasury’s tools to hold China accountable for actions they take that are not consistent with international law and that put our national security at risk,” Wally Adeyemo, deputy Treasury secretary, said in February during his Senate confirmation hearing. Part of that is to take “a critical look at how Chinese firms may be using our financial system to do just that.”

And yet, judging by the market response, the Bloomberg report was a surprise because some of the biggest Chinese ADRs including BABA, TCEHY and JD all droped in unison, disappointed that Beijing does not hold more sway (for now) over the US president.

Given that rates have stopped soaring and earnings have been red-hot, many have questioned why growthy stocks have dramatically underperformed recently.

Source: Bloomberg

We may have found the answer… and it’s a major problem for those hoping to buy-the-dip.

As momentum charged higher last year, riding a sea of liquidity, every stock market ‘guru’ bought the junkiest junk…

Source: Bloomberg

…with the most leverage.

In fact, hedge fund leverage – both gross and net – hit record highs in late April, according to Goldman’s Prime Brokerage.

And that’s a problem going forward, because, as Bloomberg reports, across the entire street, amid fallout from the Archegos debacle, Prime Brokers are slashing available leverage for their hedge fund clients.

…managers of small hedge funds who lack the negotiating clout of trading whales are grousing. For the little guy especially, the saga will make it harder to borrow money from banks to finance bets.

While specific measures will vary by bank and client – and in many cases are still being ironed out – the talks and tensions point to greater pressure on clients to reveal their biggest wagers, stricter margin limits on those positions, more frequent collateral adjustments and more rigorous audits. The deliberations were described by executives close to prime brokerage desks and money managers.

At its most extreme, Credit Suisse, which was the hardest hit among Archegos’ primes, drastically adjusted risk tolerances and practices, slashing lending to hedge funds by a third.

“There will be more calories expended, both in terms of those desks doing due diligence in the market as well as in some cases they may outright ask clients about that,” Mike Edwards, deputy chief investment officer at Weiss Multi-Strategy Advisers, a $3 billion hedge fund.

Previously, it was “not a requirement at most places that you would disclose to a swap counterparty that you have the same position on at multiple places.”

While smaller money managers have always generally faced more-onerous terms on trades, Bloomberg warns that the Archegos blowup is going to make that situation all the worse, two veteran managers atop smaller firms said. Deeper due diligence costs prime brokerages time and money.

Fewer mid-sized prime brokerages will offer as much margin or the breaks on trading terms that were available just months ago. The money managers worry that they face a more take-it-or-leave-it environment than interest in doing business.

And the riskiest, most-levered members of the stock market (and the small/medium sized hedge funds who trade around this junk) will feel the pain the most as deleveraging forces unwinds and kill any momentum that remained.

As Larry McDonald warned in his latest Bear Traps Report, Archegos may be the catalyst that triggers a deleveraging cycle.

Bull markets never, EVER die of valuation old age, its the leverage blow-up which triggers the deleveraging and takes the madness out of the crowd. Just look at the ARK ETFs, the marginal – over the top buyer is taking the sword as we speak.

Every hedge fund compliance officer across the Street is now in search of the next Archegos, and they have as much trust in their prime broker as the lovely Maryilyn Monroe had in the playboy that was JFK.

Marshall Wace co-founder Paul Marshall raged over how Archegos caught prime brokers by surprise using opaque swaps.

“The prime brokers have paid the price for extending so much risk,” he wrote last month, chiding them for not asking enough questions. “PBs will improve.”

President Joe Biden is once again taking to the teleprompter to update the public on the American Jobs Plan (as employers struggle to fill vacancies because workers would rather sit home collecting enhanced unemployment benefits).

Watch live:

And since it’s 5PM somewhere, those playing along with their favorite libation can make an afternoon of things:

Take one shot every time Biden says “Inequity” , “Fair share” or “Come on, man!”

Take two shots every time Biden enters whisper mode.

Godspeed to your liver.

In typical procyclical fashion, after a year of clamping down on new credit card, mortgage and commercial loan issuance in the aftermath of the covid pandemic, US commercial banks have released the spigots to full blast, and almost a year after we wrote that “It’s Now Virtually Impossible To Get A Bank Loan As Lending Standards Soar“, we can now saw that it is virtually impossible not to get a loan or a mortgage.

According to the Fed’s latest April senior loan officer survey released earlier this week, banks took a machete to their lending standards across the board for C&I, mortgage, credit card and auto loans (with the exception of CRE loans for construction and land development purposes). At the same time, and coinciding with the latest burst in inflation, loan demand strengthened for almost all categories according to the April survey, including small C&I, CRE, mortgage, credit card and auto loans, while large/medium C&I loan demand weakened a touch as banks cited lower M&A financing needs and borrowers having shifted to other bank or non-bank sources as the key reasons.

Here are the details, starting with C&I and CRE loans:

Net 15.1% and 12.9% of banks said they loosened lending standards for large/medium and small C&I loans in the April survey, respectively, after net 5.5% and 11.4% of banks reported tightening lending standards in the prior January survey. As a result, lending standards for C&I loans are now the easiest they have been in years. Meanwhile, the share reporting tighter standards for CRE loans declined to 2.5% in April from 25.4% in January (the CRE value reported is the average for the three separate questions on loans for construction and land development (tighter standards), loans secured by nonfarm nonresidential structures (unchanged standards), and loans secured by multifamily residential structures (looser standards).

On the other hand, a net 6.9% of banks reported weaker demand for large/median C&I loans in the April survey, while net 2.9% and 5.3% of banks reported stronger demand for small C&I and CRE loans, respectively. This follows net 11.1%, 17.6% and 14.2% of banks reporting weaker demand for large/median C&I, small C&I and CRE loans in the prior January survey, respectively (Figure 9).

Mortgages

With the US housing market a bubbly, frothy mess the likes of which have not been seen since the 2006 housing bubble, banks did their part to make it even frothier, and a net 6.3% and 19.0% of banks reported looser lending standards for GSE-eligible and QM-jumbo mortgages in April, respectively, up from net 3.2% and 1.7% in the prior January survey. As shown in the chart below, this is on par with the loosest resi mortgage credit standards since before the financial crisis! Not surprisingly as Americans scrambled to lever up and buy a house (or 2nd, or 3rd) the net share of banks reporting stronger demand increased to 12.7% and 19.7% in April from 6.5% and 6.6% in January, respectively.

Consumer Loans

The credit spigots were also pushed to 11 in consumer loans, where the net share of banks reporting looser lending standards increased to 27.1% and 17.5% in April from 12.8% and 7.0% in January for credit card and auto loans, respectively. As shown below, credit card standards have not been this loose since around the time records began in 1991, while auto loans are similarly among the loosest on record. This means that anyone that can fog a mirror is now eligible for a credit card!

And here is a chart looking at just the record loose print in credit card standards:

And with the economy overheating and prices soaring, it will also hardly be a surprise that a net 2.1% and 10.3% of banks reported stronger demand for credit card and auto loans in April, respectively, following net 2.2% of banks reporting stronger credit card demand and net 12.3% reporting weaker auto loan demand in January.

Finally, the April survey asked special questions on changes in lending standards compared with pre-pandemic levels. For C&I loans, large banks reported tightening lending policies for most firms, except to large IG firms for which they eased credit policies on net, thereby ensuring that the big can get even bigger and take over the market share of all those millions of small and medium home businesses that failed in the past 12 months.

But what we find most remarkable is that after a year of often draconian lending standards when most Americans desperately needed access to cash during the post-covid crash period, it is only now that virtually anyone who applies for a credit card, car or commercial loan, or a mortgage, will get one. This is problematic because with prices soaring, Americans will now have the liberty of charging purchases for goods and services at any price point, making sharply higher prices “sticky”, and allowing companies to believe they can get away with charging much higher prices indefinitely, when in reality the hangover will come as soon as the first few sets of credit card bills are mailed.

By then, however, lumber will cost more than gold and inflation – real inflation not the grotesque CPI or PCE measure – will be in the double digits. In other words, after a burst of credit-card fueled spending during the summer and fall, when Biden’s trillions in stimulus will also still percolate within the economy, we now expect the US consumer to hit a brick wall some time in the late fall or winter at which point the US economy will go right into free fall unless yet another “crisis” emerges allowing the Biden administration to extend the Universal Basic Income experiment for another 3-6 months until it eventually becomes permament.

 

Mohamed Nasheed, former President of Maldives and the current Speaker of Parliament, was injured in a bomb blast near his home on Thursday, according to The Indian Express. 

“Following an explosion… Speaker of Parliament President Mohamed Nasheed has sustained injuries and is currently receiving treatment at ADK Hospital,” the local police statement said. 

Reuters said, “Images from state TV channel PSM showed security services securing the scene of the incident in the capital Male. A foreign tourist was also injured, the channel reported.”

#Maldives Foreign Minister strongly condemns the attack on #MohamedNasheed. Says “Cowardly attacks like these have no place in our society. My thoughts and prayers are with President Nasheed and others injured in this attack, as well as their families”#BreakingNews pic.twitter.com/V3HDoqZSoe

— Newshub.lk (@Newshub_lk) May 6, 2021

Maldives’ foreign minister Abdulla Shahid, a member of Nasheed’s Maldivian Democratic Party, condemn the attack in a tweet. 

I strongly, wholeheartedly condemn the attack aimed at my fmr running mate & predecessor @MohamedNasheed. The propagation of hate in Maldivian politics must end, & we must find ways to unite & work together, rather than divide. My prayers are with him, the SPG, & their families.

— Mohamed Waheed (@DrWaheedH) May 6, 2021

Ahmed Mahloof, Minister of Youth and Community Empowerment in the Maldives, told Express the incident was reported at 8:30 pm local time. 

“He was about to leave his home. The explosion happened while he was walking towards his car. It is a narrow street where he lives so he had to walk a few meters to reach the car. It was reportedly a motorbike that exploded. His bodyguards accompanied him, and one of them was also injured,” he said.

“I am deeply worried. An act of terrorism… I am sure this government will take strict action against perpetrators,” Mahloof added.

Update (1300ET): Shortly after Arizona’s top elections officer raised concerns about the Maricopa County election audit process, the Biden Department of Justice piled on, expressing concern about ballot security and potential voter intimidation.

The justice department just became weaponized against an audit approved by the state senate. This is about to become a huge deal. The Dems realize that this will destroy political capital. Those of us with understanding of stats and math already know the election was a sham. https://t.co/OjIE9ynGVq

— Ed ☯️ The Obsolete Man (@DowdEdward) May 6, 2021

As AP reports, in a letter to GOP Senate President Karen Fann, the head of the Justice Department’s Civil Rights Division said the Senate’s farming out of 2.1 million ballots from the state’s most populous county to a contractor may run afoul of federal law requiring ballots to remain in the control of elections officials for 22 months.

And Principal Deputy Assistant Attorney General Pamela S. Karlan said that the Senate contractor’s plans to directly contact voters could amount to illegal voter intimidation.

“Past experience with similar investigative efforts around the country has raised concerns that they can be directed at minority voters, which potentially can implicate the anti-intimidation prohibitions of the Voting Rights Act,” Karlan wrote.

“Such investigative efforts can have a significant intimidating effect on qualified voters that can deter them from seeking to vote in the future.”

So, Democrats play the race-card again?

“We are very concerned that the auditors are engaged in ongoing and imminent violations of federal voting and election laws,” said the letter sent by the Brennan Center for Justice, the Leadership Conference and Protect Democracy.

Why are they so worried? They already told America there was no fraud?

*  *  *

As The Epoch Times’ Mimi Nguyen Ly detailed earlier, Arizona’s top elections officer Katie Hobbs on Wednesday alleged multiple points of concern regarding the forensic audit of the 2020 presidential election currently underway in Maricopa County.

In a letter (pdf) to former Secretary of State Ken Bennett, a Republican who is the state Senate’s liaison for the audit, Hobbs outlined 13 points of concern over how the audit is being run. This included seven points of concern over counting procedures that the state Senate and audit contractor Cyber Ninjas disclosed, as well as six points of concern over what her observers saw at the audit site.

Under terms of a lawsuit settlement filed on Wednesday, defendants Bennett, Arizona Senate President Karen Fann, and the lead auditor, Florida-based Cyber Ninjas have 48 hours to respond to Hobbs’ concerns. If the concerns are not addressed, Hobbs could take them back to court for breach of contract.

The audit began on April 23 and continues at Arizona Veterans Memorial Coliseum in Phoenix, a venue the auditors have booked and secured until May 14.

Hobbs, a Democrat, alleged that the procedures governing the audit do not ensure accuracy, security, and transparency.

“I’m not sure what compelled you to oversee this audit, but I’d like to assume you took this role with the best of intentions,” she told Bennett in the letter.

“It is those intentions I appeal to now: either do it right, or don’t do it at all.”

The Arizona Democratic Party filed a last-minute lawsuit against state Senate leadership to try to stop the audit from going ahead but their bid to immediately halt it was rebuffed by a judge. The settlement means the case has concluded.

“The settlement in ADP v Fann requires the Senate to have procedures to protect our ballots, election equipment, and data. Today, I put the Senate on notice that security shortfalls remain and must be addressed under the agreement,” Hobbs said in a statement.

The official Twitter account for the audit, run by Bennet’s team, said late on Wednesday that Hobbs “continues to make baseless claimes [sic] about this forensic audit but has never led an election audit in her entire career.” 

The message declared, “The audit continues!”

The group furthermore encouraged Twitter users to retweet if they think audits are a state right. Another statement released later on Wednesday reads:

“Democrat [Secretary of State Katie Hobbs] who does not support election audits or transparency now wants the Federal Government to get involved in the Arizona Senate forensic audit. Arizona has the authority to conduct this audit without interference from the Feds!”

Bennett did not immediately respond to a request for comment over the contents of Hobbs’ letter.

He told the Arizona Capitol Times late Wednesday of Hobbs’ concerns, “I think that most of the things in her letter are completely unfounded. And the ones that have a little bit of legitimacy can be dealt with pretty easily.”

Bennett did not elaborate as to what concerns would fall into the latter category.

Real-time camera footage of Maricopa County’s large-scale audit of the 2020 election, Maricopa County, Ariz. (Screenshot/The Epoch Times)

Among the seven concerns based on the disclosed procedures, Hobbs alleged that there were “no procedures for hiring qualified, unbiased counters.” She noted that former State Representative Anthony Kern, a Republican, has been among the people counting the ballots in the audit.

Kern’s name is listed on the ballot “not only as a candidate for State Representative but as a Presidential Elector—the exact race for which he is counting,” Hobbs wrote, adding, “While these facts would be disqualifying in any professional recount or audit, unfortunately, there are additional reasons why Mr. Kern is not trustworthy to fulfill this role.”

Hobbs in her letter also took aim at a number of procedures that she said “appear better suited for chasing conspiracy theories than as a part of a professional audit,” which included using UV lights to search for watermarks, measuring the thickness of ballots, searching for folds in ballots, and looking at ballots under a microscope.

She said these measures are “completely unnecessary steps if the goal of the audit is to validate the election results.”

She also questioned how tally sheets from ballot counters would be added up, and noted that her office had “received no real explanation” over the matter “other than that an accounting firm will handle it later.”

“This is not transparency. Further, it appears that a single person enters the totals from the tally sheets into an electronic spreadsheet, leaving wide open the opportunity for error, inadvertent or otherwise,” she wrote. “At minimum, a bipartisan team of at least two individuals should aggregate the tally sheets or otherwise confirm that data is entered accurately for aggregation.”

In addition to concerns over the disclosed procedures, Hobbs alleged in her letter that observers from her office have seen a number of problems, which include inadequate physical security of ballots, unattended computers at the forensic analysis tables, constantly changing rules in the audit procedures since the beginning of the audit, and “frequent violations” of the procedures that do exist.

The Arizona Republican-led Senate previously hired four out-of-state firms to carry out the audit, which are Wake Technology Services, CyFIR, Digital Discovery, and Cyber Ninjas.

The state Senate has said that the “broad and detailed” audit “will validate every area of the voting process” and includes, but is not limited to, scanning all the ballots, a full hand recount, auditing the voter registration and votes cast, the vote counts, and the electronic voting system. This includes examining some 2.1 million ballots, as well as voting equipment that includes 385 tabulators.

Bennett told The Epoch Times on Monday that the audit may last longer than originally planned. An analysis of the equipment used in the 2020 election was completed over the weekend, but reviewing other materials will need more time, he said.

President Joe Biden was the first Democratic presidential nominee to win Maricopa County in decades.