How To Turn A Corporate Credit Crisis Into A Currency Crisis

How To Turn A Corporate Credit Crisis Into A Currency Crisis

Tyler Durden

Fri, 09/04/2020 – 14:55

Authored by MN Gordon via EconomicPrism.com,

Surely, Thursday’s stock market selloff didn’t catch you by surprise…now did it?  Why would it?  After going nearly straight up for the last five months, it’s only natural for there to be a pullback.

This was particularly true for technology stocks.  They’d reached such dizzying heights it was just a matter of time before the thin air got to them.  And get to them it did.  Some of the mania’s favorites, like Apple, Tesla, and Nvida, fainted in unison…dropping 8 percent, 9 percent, and 9.3 percent, respectively.

A company called PagerDuty garnered the honor of the day’s biggest loser.  The San Francisco based company, which operates in the cloud, made a graceful 25.8 percent swan dive from its heavenly realm.

So, what should you do about it?  Should you buy the dip?

As far as we can tell, there’s currently no fundamental reason to buy stocks.  But like a pair of Yeezy sneakers or avocado toast, if buying expensive stocks makes you happy…go for it.  Just realize, we are in the midst of a reckoning.  A great catastrophe is upon us.  What’s more, stocks should be the least of your concern.

Where to begin?

U.S. gross domestic product (GDP) dropped below $20 trillion during second quarter.  But while the economy has slumped, government debt has spiked.  The U.S. national debt’s now over $26.7 trillion.  Of this, the federal debt held by the pubic amounts to over $20.5 trillion.

This is significant for several reasons.  First, the gap between national debt and GDP is widening.  Second, the federal debt held by the public has eclipsed 100 percent of GDP.  This unsettling factoid was presented in a report released this week by the Congressional Budget Office.

To be fair, the CBO report says federal debt held by the public will hit 98 percent of GDP in 2020.  By our back of the napkin calculations, the 100 percent mark was notched in June.  But that’s beside the point.

For the point is, debt ratios near or above 100 percent of GDP severely encumber economic growth.  And if debt’s hampering economic growth, then how can the economy grow its way out of its massive debt?  Quite frankly, it can’t.

Silly Putty

Remember, federal government debt’s just one slice of the overall debt pie.  There’s also corporate debt, consumer debt, and state and local government debt.  Alas, these debt slices are all near or at record levels.

For example, U.S. corporations, following the lead of Uncle Sam, now owe a record $10.5 trillion to creditors, either in the form of bonds or loans.  This pile of debt is over half of U.S. GDP.  Like the national debt, corporate debt has also outpaced economic growth.

According to a new BofA Global Research report, corporate debt of $10.5 trillion represents a 30-fold increase from a half-century ago.  Yet, over the past 50 years, U.S. GDP has only increased about 20-fold.  Can corporate debt, in relation to the economy, continue in this fashion?

Well, not if the economy and financial system were supported by sound money.  If this were the case, interest rates would have spiked and debt levels would have collapsed long ago.  But what we have is the opposite of sound money.  Rather, we have debt based fake money (i.e. government fiat) where the supply can be pulled and stretched out like Silly Putty.

Of course, the Federal Reserve takes an active role in stretching the money supply.  In doing so, the Fed promotes debt levels that would have otherwise been impossible.  By stretching the money supply, the Fed also promotes malinvestment into business activities that would have otherwise been unprofitable.

Since the early 1980s, for instance, the Fed has generally nudged interest rates lower and lower.  Each time, as borrowing costs fall, U.S. companies issue a flood of fresh debt.  Cheaper and cheaper credit has the effect of papering over the poor decisions of corporate managers.  The ultimate debt load grows, but the short term debt burden is lightened.

How to Turn a Corporate Credit Crisis into a Currency Crisis

The mechanics of persistently falling yields (as yields move inversely to price) over several decades have also acted to inflate a massive bond bubble.  The demand for corporate bonds come from a variety of sources.  These mainly include foreign investors, investment funds (i.e. mutual funds, ETFs, and closed end funds), life insurance companies, and pension funds.

Yet, now, with corporate debt levels greater than half of GDP, the quality of corporate bonds appears to be slipping.  Roughly $7.2 trillion of the $10.5 trillion in corporate debt is investment-grade, meaning of a credit rating of AAA to BBB.  However, about half of the investment-grade corporate debt, or $3.6 trillion, falls within the BBB credit-ratings category, just one notch above junk.

A stagnating economy resulting in a deluge of BBB downgrades by credit-rating firms could overwhelm the much smaller junk-bond market.  We suspect, as the long-term consequences of government lockdown orders work their way through the economy, the credit ratings of many companies will suffer.

Of course, a determined Fed can take it upon itself to turn a giant mess into a fatal disaster.  That is, the Fed can turn a corporate credit crisis into a currency crisis.

If you recall, the CARES Act pushed the Fed into the corporate debt buying business for the first time ever.  In late-June and early-July, the Fed bought the bonds of some of the world’s largest corporations.  Companies like Toyota, AT&T, Apple, Verizon, GE, Ford, Microsoft, GM, CVS Health, and many, many, more.

We suspect this was merely a warm up.  A trial run.  When the time comes, the Fed will stretch the money supply like Silly Putty in an attempt to backstop the $10.5 trillion corporate bond market.  The value of the dollar will be eroded in kind.

via ZeroHedge News https://ift.tt/3hZukaZ Tyler Durden

Tesla Director Nets $5 Million After Cashing In Stock Options This Week

Tesla Director Nets $5 Million After Cashing In Stock Options This Week

Tyler Durden

Fri, 09/04/2020 – 14:35

It turns out that Ballie Gifford isn’t the only one unloading shares of Tesla near all-time highs. And if you keep asking yourself why Tesla’s Board of Directors doesn’t seem to weigh in much on Elon’s (or the company’s) behavior, we might have your answer.

It was disclosed late Wednesday night that Tesla Board member Kathleen Wilson-Thompson exercised an option to buy 12,500 shares at $44.95 and then turned around and sold them immediately at more than 10x that price.

After selling at an average weighted price of about $451.48, according to MarketWatch, the sale likely netted Thompson slightly over a cool $5 million. 

Kathleen Wilson-Thompson

Wilson-Thompson hasn’t even been with the company for 2 years yet; she has only been on the board since December 2018. In 2019, her total compensation from Tesla was $7.36 million.

Recall, on the same day that Wilson-Thompson sold, we noted that Ballie Gifford, the company’s largest outside shareholder, had trimmed its stake in the company citing portfolio weighting restrictions. 

For now, both sellers seemed to have great timing. Tesla is well off its $502 all time high ($2510 pre-split) and is slated to open trading on Friday around $380 per share (about $1900 pre-split).

Tesla has shed more than $100 billion in market cap after Wilson-Thompson and Gifford’s selling.

via ZeroHedge News https://ift.tt/3i0Uha5 Tyler Durden

Hispanic Parents Want More Choices for School

School supplies

Hispanic parents, like other parents, have concerns about sending their kids back to school. According to a poll by Latino Decisions, a firm founded by a Biden campaign operative, 59 percent of Hispanic households are “very concerned” that their kids could be exposed to the coronavirus at school; 52 percent expect to have technical troubles with online learning, 34 percent do not have access to high-speed Wi-Fi, and 36 percent “do not have anyone who can stay home” to supervise their children’s online classes.

Although the data points to real difficulties for Hispanic families, the firm’s proposed solution amounts to the usual big-government formulas that can exacerbate problems instead of solving them. Angela Gutierrez, an analyst at Latino Decisions, writes that the survey shows the need for more federal and state school funding, “so that students and teachers can make the most out of teaching and learning in this unique situation.”

Just as higher health care spending per capita has not always translated into a better response to the pandemic, higher spending in education does not necessarily mean better results. According to the Reason Foundation’s Corey D’Angelis, the U.S. spends $15,424 per child in the school system every year. Injecting more money into centralized school bureaucracies won’t do much in itself to help working Hispanic parents who can’t watch over their kids as they learn from home, or who can’t afford the technological costs of remote schooling. But funding the families directly and letting them choose the schools their children attend could be a game changer.

Private and charter schools have adapted better to distance learning during the pandemic than their district-run counterparts, the data suggests. A survey by Ipsos Public Affairs found that, in terms of the introduction of new content, parent satisfaction, and weekly contact with teachers, private and charter schools proved far nimbler in adjusting to the new reality than the public sector. According to a Common Sense Media poll, 66 percent of privately educated children had “connected with their teacher once a day or more” versus only 31 percent of public school attendees. 

In part, this divide reveals how private sector innovators had advanced in distance learning long before the pandemic arose. For example, institutions such as cyber charter schools already had years of experience in delivering a fully online education to students. This is an ideal option for parents who might prefer online learning yet struggle with its financial or technological components. As the Commonwealth Institute’s Marc LeBlond writes in the case of Pennsylvania, the state’s 15 cyber charter schools “provide all the required equipment for learning, plus a stipend for broadband internet access.” And, contrary to the claim that such assistance requires more funding, charter schools in Pennsylvania receive 27 percent less per pupil on average than district-run schools.

The main obstacle to increased enrollment in cyber charter schools is not a lack of funding or insufficient demand from families. It is lobbying by teachers unions intent on using their political clout to avoid competition. This has been true not just in Pennsylvania but in California, North Carolina, Alaska, and Oregon, where 1,600 students were prevented in March from enrolling in a cyber charter school. 

And families who do want their children to continue their educations in person? In several states with large Hispanic communities—California, Florida, Illinois—powerful teachers unions have opposed reopening schools in many districts. Sometimes that is linked to other items on the union agenda, as when the pressure group Demand Safe Schools calls for a “massive infusion of federal money to support the reopening” and a “moratorium on new charter and voucher programs and standardized testing.”

Yet school choice programs are just what many Hispanic families need if they are to send their kids to good private or charter schools while brick-and-mortar academies remain closed. They could even ease fears about the coronavirus, since parents could choose schools with smaller class sizes and more stringent health measures.

Latino Decisions has identified some of the challenges that Hispanic families must overcome in these difficult times. But the solution is not to strengthen the centralized bureaucracies that run traditional public schools. Sen. Rand Paul (R–Ky.) has a better idea: the SCHOOL Act, which would “allow federal funds for K-12 education to follow the eligible child, learning in person or remotely, to the school of their choice.” That would go a long way toward giving Hispanic parents—and all parents—true power over their children’s future.

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Hispanic Parents Want More Choices for School

School supplies

Hispanic parents, like other parents, have concerns about sending their kids back to school. According to a poll by Latino Decisions, a firm founded by a Biden campaign operative, 59 percent of Hispanic households are “very concerned” that their kids could be exposed to the coronavirus at school; 52 percent expect to have technical troubles with online learning, 34 percent do not have access to high-speed Wi-Fi, and 36 percent “do not have anyone who can stay home” to supervise their children’s online classes.

Although the data points to real difficulties for Hispanic families, the firm’s proposed solution amounts to the usual big-government formulas that can exacerbate problems instead of solving them. Angela Gutierrez, an analyst at Latino Decisions, writes that the survey shows the need for more federal and state school funding, “so that students and teachers can make the most out of teaching and learning in this unique situation.”

Just as higher health care spending per capita has not always translated into a better response to the pandemic, higher spending in education does not necessarily mean better results. According to the Reason Foundation’s Corey D’Angelis, the U.S. spends $15,424 per child in the school system every year. Injecting more money into centralized school bureaucracies won’t do much in itself to help working Hispanic parents who can’t watch over their kids as they learn from home, or who can’t afford the technological costs of remote schooling. But funding the families directly and letting them choose the schools their children attend could be a game changer.

Private and charter schools have adapted better to distance learning during the pandemic than their district-run counterparts, the data suggests. A survey by Ipsos Public Affairs found that, in terms of the introduction of new content, parent satisfaction, and weekly contact with teachers, private and charter schools proved far nimbler in adjusting to the new reality than the public sector. According to a Common Sense Media poll, 66 percent of privately educated children had “connected with their teacher once a day or more” versus only 31 percent of public school attendees. 

In part, this divide reveals how private sector innovators had advanced in distance learning long before the pandemic arose. For example, institutions such as cyber charter schools already had years of experience in delivering a fully online education to students. This is an ideal option for parents who might prefer online learning yet struggle with its financial or technological components. As the Commonwealth Institute’s Marc LeBlond writes in the case of Pennsylvania, the state’s 15 cyber charter schools “provide all the required equipment for learning, plus a stipend for broadband internet access.” And, contrary to the claim that such assistance requires more funding, charter schools in Pennsylvania receive 27 percent less per pupil on average than district-run schools.

The main obstacle to increased enrollment in cyber charter schools is not a lack of funding or insufficient demand from families. It is lobbying by teachers unions intent on using their political clout to avoid competition. This has been true not just in Pennsylvania but in California, North Carolina, Alaska, and Oregon, where 1,600 students were prevented in March from enrolling in a cyber charter school. 

And families who do want their children to continue their educations in person? In several states with large Hispanic communities—California, Florida, Illinois—powerful teachers unions have opposed reopening schools in many districts. Sometimes that is linked to other items on the union agenda, as when the pressure group Demand Safe Schools calls for a “massive infusion of federal money to support the reopening” and a “moratorium on new charter and voucher programs and standardized testing.”

Yet school choice programs are just what many Hispanic families need if they are to send their kids to good private or charter schools while brick-and-mortar academies remain closed. They could even ease fears about the coronavirus, since parents could choose schools with smaller class sizes and more stringent health measures.

Latino Decisions has identified some of the challenges that Hispanic families must overcome in these difficult times. But the solution is not to strengthen the centralized bureaucracies that run traditional public schools. Sen. Rand Paul (R–Ky.) has a better idea: the SCHOOL Act, which would “allow federal funds for K-12 education to follow the eligible child, learning in person or remotely, to the school of their choice.” That would go a long way toward giving Hispanic parents—and all parents—true power over their children’s future.

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Bill Clinton Claims Trump Will “Sandbag” Himself Inside White House If He Loses

Bill Clinton Claims Trump Will “Sandbag” Himself Inside White House If He Loses

Tyler Durden

Fri, 09/04/2020 – 14:15

Authored by Steve Watson via Summit News,

Bill Clinton mocked President Trump Wednesday, declaring that the incumbent will lose the election and then sandbag himself within the White House, refusing to leave.

Appearing in an interview with two time election loser Hillary Clinton who proclaimed that Trump will “cheat” and “sneak” to try to win the election, the former President imagined what Trump would do if Biden wins.

Host April Ryan suggested that inauguration Day coverage might consist of a “split-screen” with Biden being sworn in, while on the other screen “the military going in” to forcibly remove Trump from the White House.

“I was just thinking he probably won’t even come to Biden’s inauguration,” Bubba interjected.

“He’ll be stacking sandbags in front of the White House,” Clinton added.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

A post shared by April D. Ryan (@adr1600) on

The pair later argued that while they and the Democrats want people to feel ‘welcome’ in America, even if they politically disagree with them, while Trump “needs you, us, to be unwelcome, to not be part of his America. Because he can’t live without somebody to badmouth.”

“Then he’d have to get up every morning and decide to go to work and figure out what to do. And that’s boring,” Bill Clinton noted.

“All he knows how to do is be a reality TV star and that’s what he’s going to continue to do,” Hillary bitterly chimed in.

Declaring that  Trump “is a clear and present danger to our freedoms, our liberties, [and] our unity,” Hillary said people need to vote for Biden as if their “lives and livelihoods depend on it.”

Trump himself took aim at Speaker Nancy Pelosi Thursday, after she was caught sneaking into a salon earlier in the week.

In-person hair salon visits are still not allowed in San Francisco, unless you are a Democratic politician, apparently.

via ZeroHedge News https://ift.tt/355NEQ5 Tyler Durden

Central Banks Are Buying $1.4 Billion In Assets Every Hour: 20 Stunning Facts About The “Market”

Central Banks Are Buying $1.4 Billion In Assets Every Hour: 20 Stunning Facts About The “Market”

Tyler Durden

Fri, 09/04/2020 – 14:00

Once upon a time, there was a market. Unfortunately, over the past decade, and especially since March it has mutated into a centrally-planned “market” political tool where according to the latest Thundering Herd report from BofA’s Michael Hartnett, central banks now purchase a ridiculous $1.4 billion in assets every hour (since the all too convenient March covid lockdowns) just to keep the entire “wealth effect” edifice from crashing down. It also explains why since the March lockdown, the Nasdaq has been rising at a rate of $1.6 billion per hour, almost as if every dollar the Fed inject goes right into tech company market caps.

And speaking of the Nasdaq in general, Hartnett writes that FAAMG stocks are now trading 41% above their 200dma (or were until the SoftBank trade blew up), compared to 55% > 200dma in March 2000.

At the same time, EM tech/discretionary now makes up more than half of the EM index…

… with China alone comprising 42% of the EM index.

Finally, on the back of gargantuan liquidity injections by central banks, the S&P500 is now approaching 3630, which as we noted last Friday, would make this the Greatest Of All Time rally if the S&P were to hit the bogey ahead of the election, and in the process flipping bears into bulls just as stocks enter unprecedented historical territory.

These are just a handful of the most jarring statistics compiled by the Bank of America Chief Equity Strategist which we repost below.

  1. $1.41BN: Central bank asset purchases every hour since COVID-19 March lockdowns
  2. $1.6BN: Nasdaq 100 market cap gain every hour since COVID-19 March lockdowns
  3. 34 days: Equity bear market in 2020 shortest ever
  4. $2000: gold best performing asset class in 2020, first year since 2010
  5. 50%: annualized return from 30-year US Treasury this year
  6. 100 years: corporate bonds hit 100-year highs versus commodities April 20
  7. 100 years: US stocks almost at 100-year highs versus US government bonds
  8. 59%: US equities as share of MSCI global equity index (ACM) at all-time high
  9. 42%: Chinese equities as share of Emerging Markets at all-time high
  10. 21%: gain in global stocks (ACWI ex. US) required to match 2007 high
  11. 25%: market cap of FAANG as % US stocks, of US stocks, record concentration
  12. $9.3TN: market cap of US tech sector entire > market cap of Europe’s stock market
  13. 24x: trailing PE ratio of S&P500, surpassed only Dec 21 (25x) & Jun 99 (30x)
  14. 1.7%: dividend yield on 5&P500 now same as 5-year breakeven inflation rate
  15. 2021: global consensus forecasts for 2021…GDP 5.1%, EP5 29.0%…up big
  16. 2021: global consensus forecasts for 2021…CPI 1.3%, bond yield 0.5%…unchanged
  17. $258Tn: size of global debt at record high, 2.3x of global GDP
  18. $212Tn: value of global bonds & equities, an all-time high, 2.3x global GDP
  19. $14tn: value of global negatively yielding bonds
  20. 40%: Bank of Japan owns 40% of JGB market; Fed owns 14% of Treasury market

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Huge Discrepancies Cast Doubt On the Better Than Expected Jobs Report

Huge Discrepancies Cast Doubt On the Better Than Expected Jobs Report

Tyler Durden

Fri, 09/04/2020 – 13:45

Authored by Mike Shedlock via MishTalk,

The BLS says the unemployment rate fell from 10.2% to 8.4%. Other BLS data casts doubt on the number.

Unemployment Rate Calculation

The unemployment rate is calculated by dividing the number of unemployed by the civilian labor force.

Unemployment Rate = 13.550 million / 160.838 million = 8.42% 

Note that the reported headline jobs number today (+1.4 million) has nothing to do with anything. That is the establishment report number. 

The number of employed (+3.756 million) does play into the calculation, but indirectly, as the labor force denominator.

Labor Force vs Employment

Note that employment rose by 3.756 million but the Labor Force only rose by 968,000. The impact of this discrepancy actually boosts the unemployment rate, but only by a tiny amount.

It’s the numerator that matters. The numerator should match continuing claims. It doesn’t.

Continuing Claims

The BLS reference week is the week that contains the 13th of the month. That is the week of August 9-15. 

Major Discrepancy 

  • Continued claims for the week ending August 15 was 14.492 million as per the BLS.

  • Yet, the BLS also says the number of unemployed for that week was 13.550 million.

Minimum Number

14.492 million is the extreme lower bound we should see for the number of unemployed. 

Why?

State claims only include those eligible for state unemployment insurance. 

Missing From Continued Claims Number

  1. Gig workers

  2. Self-employed

  3. Those who have not worked long enough to qualify for state benefit requirements

  4. Those who have maxed out the number of weeks the states allow

Primary PUA Claims

Pandemic Assistance

Primary PUA claims for the reference week were 13.57 million, an increase of 2.6 Million. 

PUA picks up all 4 categories missing from Continued Claims. But it also picks up some number of part-time workers.

But at least some of those 13.57 million did not work at all. 

For the sake of argument, assume a mere 3.0 million of these workers did not work at all.

Unemployment Calculation

Unemployment Rate = (14.942 Million + 3.0 Million) / 160.838 Labor Force = 11.16%

Other Discrepancies 

I discussed other discrepancies in my Jobs report earlier today.

Part-Time Jobs

Part-Time Reporting Silliness

  • The net of voluntary vs involuntary part-time work is -33,000.

  • Total part-time work rose by 991,000

Don’t try to make sense of those numbers as they never add up. I list them as reported.

For details please see Jobs Report Much Better Than Expected, But Is It Believable?

Methodology Change

On top of this mess is a BLS methodology change that artificially lowered the number of initial and continued claims starting yesterday.

For discussion, please see Unemployment Claims Improve But It’s a Manipulation Mirage.

I suppose it is possible for the claims revision to be correct, but that still does not account for all the gig etc. workers on Pandemic Assistance that are genuinely unemployed.

Conclusion – Garbage

My conclusion is today’s unemployment rate numbers are total garbage.

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Don’t Be Afraid: Hulu Comedy Woke Is Genuinely Funny

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Woke. Available Wednesday, September 9, on Hulu.

In a dreary age in which we’re battered on one side by authentic police mayhem and on the other by puerile PC paladins, Hulu’s new comedy series Woke is little short of a miracle. It manages to carefully and very funnily thread a needle through a political and social straitjacket.

Created by cartoonist-rapper-Michael-Jackson-impersonator Keith Knight and Barbershop screenwriter Marshall Todd, Woke is based (with a lot fewer hallucinations, I’m guessing; we’ll get to those in a minute) on Knight’s cartooning career.

His alter-ego is Keef Knight (Lamorne Morris, New Girl), who draws a strip called Toast and Butter for a dying and penniless local paper. But his life is looking up. “The last time you’re going to see broke Keef Knight,” he brags to his roommates as he heads off to sign a syndication deal that will launch him into big-league, big-money syndication.

Toast and Butter is, by Knight’s own description, “a comic strip about bored breakfast food,” and he resents complaints that it’s not politicized enough. “Why is it that people of color are always having to stand for something or say something in our work?” he snaps at one (black) editor. “You know, I’m just a cartoonist.”

That changes abruptly when Knight is manhandled by (white) cops who mistake him for a mugging suspect. The aftermath: Inanimate objects spring to life to talk to him. Bottles. Mailboxes. Trashcans. His own cartoons. A lot of them agree with the editor and want him to weaponize his artwork, though not all of them are channeling Van Jones. Advises a bottle from a convenience-store beer cooler: “Did you know malt liquor makes black people impervious to bullets?”

The litany of street wisdom starts to alert Knight to some things he hasn’t noticed, including that his new syndicate has noticeably lightened his skin in his publicity photo, and his (black) neighborhood barber has been replaced by (white) hipsters who charge 10 times as much but make everybody look like Russell Brand. One of Knight’s roommates makes a quick diagnosis: “This nigga woke!”

The problem is that Knight’s wokeness looks, to many people, more like craziness, particularly at his highly publicized appearance at a comic-book convention where, goaded on by mocking pens and pencils, he kickboxes with a big cardboard cutouts of himself and his characters even tries to eat them. Gifs of him screaming “Fuck toast and butter!” pop up all over the internet. Knight’s career is over before it’s begun. “You’re gonna be turning tricks in the hay for vegan sliders,” gleefully exclaims one of his hallucinations.

Knight the cartoonist’s dawning awareness of a racism he’s willfully ignored all his life is clearly the major thrust of Woke. But Knight the producer keeps his comedy from turning into a tirade by opening fire on any target of opportunity, particularly the affections of white liberals. One hires him to come to a cocktail party so her friends can speak to an actual black person, touch his hair, snap selfies with him and introduce themselves with the breathless proclamation that “I don’t think O.J. did it!”

Many of the comic balls are kept in the air by Knight’s roommates, the (black) horndog hustler Clovis (Chicago comic T. Murph) and (white) professional sperm donor Gunther (Blake Anderson, Workaholics), who’s also working to market cocaine as a powdered energy mix. Their sometimes goofball and sometimes cynical takes on Knight’s troubled new consciousness are flat-out hilarious. When Knight, inspired by his experience as a paid attraction at the cocktail party, draws a strip titled “Black People For Rent,” Clovis promptly puts it on T-shirts.

Knight is outraged. “Blackness should not be a commodity,” he insists. Shrugs Clovis: “It’s the original commodity.” The ability to find that kind of humor in 2020 makes me think we may survive it yet.

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8th-Grader Suspended for “Search[ing] for Inappropriate Topics,” Such as “Worst WWI Gun”

Just read an interesting Aug. 19, 2020 opinion of N.Y. State Education Department Interim Commissioner Betty A. Rosa (just posted on Westlaw), Appeal of N.R. N.R. was an eight-grade student who was suspended for a month because of what he searched for on his school-issued computer and the key legal analysis:

[Valley Central School District’s] letter charged that, on or about November 19, 2018, the student “searched for inappropriate topics” on his school-issued computer (the “Chromebook”). The notice of charges for the long-term suspension hearing identified the following searches, which the district alleged were inappropriate:

  • What temperature does gasoline freeze at Fahrenheit;
  • worst WWI gun;
  • I will kill every drug addict;
  • funniest ways to die;
  • what’s the sharpest knife;
  • nitroglycerin explosion;
  • is nitroglycerin really that unstable;
  • the fastest gun firing rate;
  • mother of all bomb explosion;
  • what is the sign that death is near;
  • is lidocaine legal; [and]
  • kill shot ….

In a written recommendation dated December 20, 2018, the hearing officer recommended that the student be found guilty of the “charged misconduct by making inappropriate searched on his school-issued Chromebook.”

[1.] I agree with petitioner insofar as the district was limited to charging the student with misconduct for the specific search terms identified in the notice. At the hearing, certain search terms were discussed which were not listed within the written notice, such as “claymore” and “biggest european sword.”

[2.] The district also implied at the hearing that the student violated district policy because some of his searches were unrelated to his schoolwork, rather than inherently inappropriate or violent in nature. The Commissioner has held that a district must be held to the language of the charges it chooses to pursue against a student. While it is unclear from the record if the hearing officer, superintendent, or respondent found the student guilty based upon any search terms that were not identified in the notice of charges, any such reliance would have been improper. Indeed, at the hearing, the middle school principal admitted as much when he indicated that the district chose not to charge the student with misconduct for certain search terms (e.g. “worst poker hand”) that were not related to the student’s academics.

[3.] Education Law §3214(3)(a) permits the suspension of “[a] pupil who is insubordinate or disorderly or violent or disruptive, or whose conduct otherwise endangers the safety, morals, health or welfare of others.” … I cannot find that [the student’s] searches violated either Education Law §3214 or the district policies identified in the notice of charges….

I agree with respondent that several of the terms for which the student searched—e.g. “the fastest gun firing rate,” “nitroglycerin explosion,” and “kill shot”—appeared violent on their face and warranted further investigation. At the hearing, however, the student testified as to his underlying reasons for conducting the searches, and none of these reasons were violent in nature. For example, the student testified that he searched for “kill shot” because he was looking for the lyrics to a popular song titled “killshot.”

Similarly, the student testified that he searched for “nitroglycerin explosion” because he wanted to understand how nitroglycerin can be used as a medication for heart conditions when it was also used as an explosive during the construction of the transcontinental railroad. Indeed, the student’s search history revealed that he had also searched for “what was nitroglycerin used for?” in close proximity to the “nitroglycerin explosion” search. The district notably did not submit any evidence to rebut the student’s testimony during the hearing. Thus, there is no evidence in the record establishing that the student posed an actual threat of violence or had any violent intent when conducting the internet searches listed in the notice of the charge.

Furthermore, the record reflects that the student conducted the “hard reset” search on November 2, 2018, prior to the date upon which he engaged in the other search terms to which respondent objects. Thus, it could not have been performed, as respondent implies, to conceal the student’s search history. Respondent did not otherwise explain how the “hard reset” search was improper, nor did it allege or prove that the search violated any district policy.

Moreover, respondent failed to prove by competent and substantial evidence that the mere act of searching for such terms—regardless of the student’s intent—endangered the safety, morals, health, or welfare of others. The student’s search history was only discovered after respondent decided to examine the student’s Chromebook for reasons unrelated to student discipline. Notably, there is no evidence that the student informed anyone of his internet searches or that anyone at the school would have been aware of the student’s search history if not for the district’s review of such search history. Nor is there any evidence in the record that any students or faculty members became aware of the student’s search history after the district’s review of the student’s Chromebook, except for those individuals involved in bringing the instant disciplinary charge against the student.

Thus, I find that the student’s conduct, which was unknown prior to its discovery and which would not foreseeably cause any disruption to school operations or activities, was not conduct for which the district could properly suspend the student under Education Law §3214(3)(a).

The analysis seems quite right to me. A school might be reasonable in doing some investigation based on such student searches, if it happens to learn about them—but not in simply suspending the student.

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