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Iran has made a key announcement revealing shocking details behind the tragic downing of Ukraine International Airlines Flight 752 shortly after it took off from Tehran Imam Khomeini International Airport on January 8. All 176 passengers and crew were killed when it exploded in the sky after direct missile impact. 

Recall that the Islamic Republic and the US were on the brink of war over the US assassination by drone of IRGC Quds Force chief Qassem Soleimani in Baghdad days prior, and that two surface-to-air missiles took out the passenger aircraft, mistaking it for an inbound American attack. 

After six Iranians were arrested in June over the accidental shoot down, with no details or identification given, Tehran officials announced Saturday that it was ultimately triggered by human error related to monitoring defensive radar. Personnel “forgot” to make a crucial radar adjustment after resetting the defensive system, Iran’s Civil Aviation Organization (CAO) said.

Bloomberg writes of the new findings: 

An Iranian air defense unit that “forgot” to adjust its radar system triggered a chain of communication and human errors that led to the deadly downing of a Ukrainian passenger jet in January, according to a report from Iran’s Civil Aviation Organization.

The report further underscored that it was an isolated but devastating error that did not pass through the chain of command.

“The operator of the air defense system launched a missile at what it had detected as a hostile target without response from the command center,” CAO said its report, which also detailed that authorities were not informed before the launch.

The two missiles were fired about 30 seconds apart, targeting what ground units thought was a cruise missile. Data from the passenger airline’s black box is not expected to be decoded starting until July 20.

At the time Iran was fully expecting to come under attack given soaring tensions with the US in neighboring Iran and stated threats with warnings of “red lines” out of the Trump administration. 

Authored by Eric Peters, CIO of One River Asset Management

“We’re not close to knowing how this election goes down,” said the CIO, Nov 3rd just 114 days away. “Trump’s hope to rely on a robust recovery took a major blow this week,” he continued, the nation hitting successive daily record infections, economic activity slowing. “And that leaves two darker options; a domestic civil conflict and/or a Chinese conflict.”

The only thing uniting Americans is a belief that China is an adversary. Now Bannon says we’re building a case that Covid was caused by a lab leak. “Trump just chose to double down on a culture war.”

“Will civil conflict rise to a level where it justifies a powerful military intervention to restore order?” asked the same CIO. “Will this allow Trump to position himself as civil society’s defender and paint Biden as an anarchy advocate?” he asked.

“My instinct is yes, but only if the images of chaos are so bad that they shake suburbanites to their core,” he said. “If that fails, there’s always China, perhaps those cards can be played together.” And in the distance, Biden laid low, playing a cautious hand, his teleprompters compensating for cognitive decline.

“So if those are the obvious cards, what are the others?” continued the CIO. “Throw Pence under the bus for failing to deal with Covid-19 and replace him with Nikki Haley?” The Indian-American former South Carolina governor, UN Ambassador, would be America’s first female VP and a credible 2024 presidential candidate.

“Beyond that there are wildcards like Kanye and his latest stunt. Nefarious stuff like voter suppression. The left could overplay its hand and somehow blow itself up, but it’s hard to paint Biden as a revolutionary.”

PredictIt.com allows you to bet on politics. It’s imperfect, inefficient, but tradeable. The probability of Dems winning the presidency trade at 64%. Dem’s odds of winning the key four states Trump won in 2016 by less than 2% of the vote (and Obama won in 2012) are as follows: Florida 62% probability of Dems winning presidency, Pennsylvania 71%, Wisconsin 71%, and Michigan 76%. The odds of Dems winning a clean sweep (presidency, senate, house) is 56%. And the odds of Kanye West running for president spiked to 47% on July 4th and are now 22%.

House Speaker Nancy Pelosi (D-Calif.) suggested on Saturday that the House may introduce a bill to limit presidential pardon power following President Donald Trump’s decision to commute the sentence of his longtime associate and former adviser Roger Stone.

Pelosi, along with many of her Democrat colleagues, excoriated the president for providing clemency for Stone, who was scheduled to report to prison next Tuesday. The top Democrat leader called the decision “an act of staggering corruption,” while vowing Congress would take steps to prevent similar actions in the future.

“Legislation is needed to ensure that no President can pardon or commute the sentence of an individual who is engaged in a cover-up campaign to shield that President from criminal prosecution,” Pelosi said in her statement.

Stone, 67, was sentenced on Feb. 20 to three years and four months in prison. He was convicted in November 2019 on all seven counts he was charged with in relation to an investigation into Russia’s interference in the 2016 election, including obstruction, witness tampering, and making false statements to Congress.

The political consultant and lobbyist had recently escalated his bid to delay the start of his prison sentence by filing an emergency request asking the appeals court to push back the date of his self-surrender. He argued that his age and undisclosed medical issues would leave him vulnerable in the prison system amid the CCP (Chinese Communist Party) virus pandemic.

The appeals court rejected Stone’s request saying that Stone is “not legally eligible for further postponement of his reporting date” under the law he was requesting his delay.

“Because Stone has failed to show, as a matter of law, that he is eligible for release under Section 3145(c), the motion must be denied,” the judges wrote (pdf).

The ruling was quickly mooted as Trump signed an Executive Grant of Clemency commuting Stone’s sentence later in the day. The White House said in a statement that Stone was “a victim of the Russia Hoax” that had been perpetuated for years by “the Left and its allies in the media” in efforts to undermine the Trump Presidency.

“The collusion delusion spawned endless and farcical investigations, conducted at great taxpayer expense, looking for evidence that did not exist,” the statement said.

When the prosecutors from the Special Counsel’s office was aware that the investigations would not bear fruit, the prosecutors then turned to investigate wrongdoing against associates of Trump, the White House claims.

“These charges were the product of recklessness borne of frustration and malice. This is why the out-of-control Mueller prosecutors, desperate for splashy headlines to compensate for a failed investigation, set their sights on Mr. Stone,” the statement said.

Then-special counsel Robert Mueller spent about two years investigating allegations of Russian interference in the 2016 presidential elections. His report concluded that while Russia did attempt to interfere in the election, there was no evidence to establish that any members of the Trump campaign “conspired or coordinated” with Russia ahead of the election.

Trump defended his decision to grant clemency to Stone in a statement on Saturday, saying that the 67-year-old was targeted in “an illegal Witch Hunt that never should have taken place.”

“It is the other side that are criminals, including Biden and Obama, who spied on my campaign—AND GOT CAUGHT!” the president wrote.

The president’s power of executive clemency is granted by the U.S. Constitution and allows him to pardon sentences for federal criminal convictions or grant clemency in the form of commutation, amnesty, remission, and reprieve, except in cases of impeachment. A presidential pardon sets aside the punishment for a federal conviction, while a commutation of a sentence could reduce a sentence either totally or partially without wiping out the felony convictions.

Presidential pardons have long been a subject of debate and presidents using this power in the past have attracted criticism and accusations of misconduct. President Gerald Ford’s controversial decision, for example, to pardon former President Richard Nixon for involvement in the Watergate scandal was not popular at the time and resulted in allegations that Ford had made a secret deal for Nixon’s resignation.

Similarly, the 140 pardons and 36 commutations issued by President Bill Clinton during his final hours in office triggered a criminal investigation.

[ZH: As a reminder, Barack Obama ended his presidency having granted clemency to more people convicted of federal crimes than any chief executive in 64 years…]

[ZH: And Democrat Presidents have dominated the league tables for most clemencies issued…]

Congress has previously made attempts to amend the presidential pardon power in an effort to prevent self-serving pardons. Some proposals include limiting the pardon power during a lame-duck period, and allowing Congress to vote by resolution to disapprove the granting of a pardon within 180 days of its issue, according to legal scholars (pdf).

More recently, Rep. Adam Schiff (D-Calif.) introduced the Abuse of the Pardon Prevention bill in 2019 to prevent presidents from “abusing the pardon power for their own personal benefit or to obstruct justice.”

Schiff’s proposed bill requires the attorney general to submit material of an investigation related to any individual who is pardoned, if the individual was convicted on a charge that arose from an investigation in which the president or a member his or her family is the target, subject, or witness.

A bill that limits the presidential power of clemency is expected to face an uphill battle given that Republicans hold a majority in the Senate.

[ZH: Additionally, as Jonathan Turley wrote, there is lots to criticize in this move without pretending it was a pristine power besmirched by a rogue president. Indeed, Trump should have left the decision to a successor or, at a minimum, to the attorney general. But compared to the other presidents, this commutation is not even a distant contender for “the most corrupt and cronyistic act” of clemency.]

One by one the world’s legendary deflationists are taking one look at the following chart of the global money supply (as shown most recently by DB’s Jim Reid) and after seeing the clear determination of central banks to spark a global inflationary conflagration, are quietly (and not so quietly) capitulating.

One month ago it was SocGen’s Albert Edwards, who after calling for a deflationary Ice Age for over two decades, finally threw in the towel and conceded that “we are transitioning from The Ice Age to The Great Melt” as “massive monetary stimulus is combining with frenzied fiscal pump-priming in an attempt to paper over the current slump.”

At roughly the same time, “the world’s most bearish hedge fund manager“, Horseman Global’s Russell Clark reached a similar conclusion writing that “all the reasons that made me believe in deflation for nearly 10 years, do not really exist anymore. China looks okay to me, and potentially very good. Commodity supply is getting cut at a rate I have never seen before. The US dollar is strong but will likely weaken from here. And it is clear to me Western governments will only ever attempt fiscal austerity as a last resort, not a first. The conditions for both good and bad inflation are now in place.“

And now, it is the turn of another iconic deflationist, Russell Napier, who in the latest Solid Ground article on his Electronic Research Interchange (ERIC) writes that “we are living through another deflation shock but [he] believes that by 2021 inflation will be at or near 4%.”

Why the historic shift in monetary perceptions? Because similar to Albert Edwards’ conclusion that MMT, i.e., Helicopter Money, is a gamechanger, Napier writes that “what has just happened is that the control of the supply of money has permanently left the hands of central bankers – the silent revolution.” As a result, “the supply of money will now be set, for the foreseeable future, by democratically elected politicians seeking re-election.” His conclusion: “it is time to embrace the silent revolution and the return of inflation long before such permanency is confirmed.“

What does this mean for asset prices? According to Napier, “a trading opportunity does now exist in European equities in particular. With the impact of bank credit guarantees not yet fully positively impacting broad money growth, we can expect Eurozone broad money growth to go even higher. Eurozone M3 is already growing at 8.9% year on year and in just a few months will likely exceed its peak of 2007.”

An even more dramatic picture emerges in the US (see top chart), where Napier highlights the surge in M2 which is now the biggest since the Great Depression:

In short, money creation is shifting away from central banks and is being handed off to governments. And that, in a word, will have catastrophic consequences:

This explosion in money supply will eventually have an impact on interest rates with Napier’s best guess is that “ten year bond yields will have to be forced to settle between 2% and 3%. This level comes from working backwards from the highest rate of inflation that governments might dare target to bring escalating debt-to-GDP ratios under control. At levels of annual inflation above 6% there is a growing risk that the velocity of money could shift markedly higher and the prospects of controlling inflation thus reduce.”

The take home here, is that Napier expects inflation to approach 4% by 2020 with velocity of money troughing soon and then surging to 1.4x.

Does the coming surge in inflation mean buy stocks hand over fist? Yes… and no: as Napier explains, “at this stage it is probably best to hold equities as the market begins to discount the silent revolution and, with a lag, inflation itself begins to rise. Should you hold them for the entire journey to 4%? The Solid Ground is skeptical that the rise in equities will last for the duration of inflation’s journey to 4%.“

But what if rates are simply capped a la Japan or the US ca. 1943, with the help of Yield Curve Control? Surely such a disconnect between the yield curve and inflation expectations would be beneficial for stocks? Here, too, Napier pours cold water:

… at some stage in the reflation the government will have to move to cap yields in the knowledge that it is probably too risky to allow inflation to rise above 6%. Many investors seem to believe that this combination of a capped yield curve and rising inflation will be positive for equity prices. That will depend upon what savings institutions are selling in order to fund their compelled purchases of government debt. The most likely asset for liquidation will be equities and, as yields are to be capped possibly for decades, that liquidation could be prolonged.

Needless to say this is clearly at odds with prevailing convention wisdom that yield curve control would “unleash a mindblowing stock rally.” And incidentally Napier seems to agree with this, at least in the short-term:

Time will tell whether that is a good or a bad guess but for now inflation is low, long-term inflation expectations are ridiculously low and equities will benefit from the change in inflationary expectations that are still before us.

While there is much more in the full report below, here are his conclusion:

And so, without further ado, here is Russell Napier and his latest ERI-C note:

Equities & The Rise of Inflation: How Much Inflation Before Repression? (07/07/20)

In 1Q 2009 The Solid Ground called for the bottom of the bear market in equities and then went on to recommend that investors should hold US equities until inflation reached around 4.0%. This proved to be good advice for those who followed it but unfortunately your analyst was not one of them! By 2011 The Solid Ground saw problems ahead for the global banking system in boosting credit growth and thus, with the likelihood that broad money growth would remain anemic, inflation would decline and deflation was likely. Inflation did peak just below 4% in 2011 and by early 2015 the US was indeed reporting mild deflation. The problem was that the journey of inflation from close to 4% back to just below zero was not negative for US equities. Only in the latter period of that journey, when inflation went below 1% and corporate earnings declined, did the S&P500 index decline. The original advice from mid-2009 – hold US equities until inflation nears 4%, even if you think it will subside from that level back towards zero – was the best advice. Now we are living through another deflation shock but The Solid Ground believes that by 2021 inflation will be at or near 4%. Can your analyst take his own advice this time and learn to stop worrying and love the early reflation?

In the 4Q 2019 report (Inflation, Disinflation & Deflation: Their Impact on Equities & Problems for Europe) The Solid Ground revisited the advice from mid-2009 and concluded that those who believed in rising inflation should buy European equities. While that quarterly report forecast a deflation shock, it was clear that European equities would be a major beneficiary of rising inflation if that forecast proved to be wrong. Since the publication of the 4Q report we have had a deflation shock, with probably some expected deflation to come, and equity prices and inflation break-evens on Indexed Linked Bonds (ILBs) have moved sharply lower. If European financial markets were pricing in prolonged low inflation in December 2019, they are pricing in even lower inflation now. So if The Solid Ground is correct in expecting inflation, even in the Eurozone, to near 4% by next year, there must be an opportunity to profit from a rise in European equity prices?

A trading opportunity does now exist in European equities in particular. With the impact of bank credit guarantees not yet fully positively impacting broad money growth, we can expect Eurozone broad money growth to go even higher. Eurozone M3 is already growing at 8.9% year on year and in just a few months will likely exceed its peak of 2007. Most investors your analyst has spoken to in the past few weeks then expect bank loan growth and money supply growth to subside, as emergency lending ends, and this brief surge in broad money growth to become an historical aberration with almost no impact on inflation. While that is possible, The Solid Ground believes it is not probable as politicians fully recognize the possibilities of commercial bank balance sheet control and launch a series of new initiatives, probably focused on guarantees on loans for green initiatives. The more the duration of this guaranteed lending extends, the more investors will come to realize that there is nothing temporary regarding governments use of commercial banks balance sheets to create credit and in the process to create money. Already the Spanish government’s bank credit guarantee programme has been extended from EUR100bn to EUR150bn. While cautious investors will want to wait to see the permanency in the bank credit guarantee policy, your analyst suggests it is time to embrace the silent revolution and the return of inflation long before such permanency is confirmed.

It is now probable that deflation will be reported across the developed world. It might also be somewhat irrelevant for investors. If The Solid Ground is correct what has just happened is that the control of the supply of money has permanently left the hands of central bankers – the silent revolution. The supply of money will now be set, for the foreseeable future, by democratically elected politicians seeking re-election. Imagine two economies, identical in every way, except that in one an independent central banker seeks to control the supply of money while in another a democratically elected government directly determines the supply of money through commercial bank balance sheet control. Would these two economies have the same level of long-term interest rates? The Solid Ground’s answer to that question is that they would not and it is because they would not that long-term interest rates should now rise – even if the near term outlook is for deflation. The 2Q 2020 report (The Birth of the Age of Inflation: Why It Is Now and What to Own) shows just how governments have seized control of money creation and thus your analyst believes that financial markets will soon be pricing in this silent revolution long before the inevitable inflation, governments so crave, has actually been created.

So at this stage it is probably best to hold equities as the market begins to discount the silent revolution and, with a lag, inflation itself begins to rise. Should you hold them for the entire journey to 4%? The Solid Ground is skeptical that the rise in equities will last for the duration of inflation’s journey to 4%. The key reason for that skepticism is that it seems highly unlikely that governments will accept the likely long-term interest rates that would probably follow if inflation reached 4%. With total debt-to-GDP ratios just below record highs before the COVID-19 crisis, they are now spiraling even higher – in both the government and private sectors. These record high debt levels risk crushing any reflation if the cost of interest rises dramatically in any recovery. The Solid Ground has long forecast that no such rise in interest rates will be permitted — see Capital Management in An Age of Repression: A Handbook (3Q 2016). So when might government action begin to stop such a rise in interest rates and what does it mean for equity prices?

Judging what level of long-term interest rates will be deemed unacceptable by policy makers is one of the most difficult calls in investment. It is probable that policy makers do not currently know the answer to that question themselves. They might not know the answer until there are negative economic impacts from higher long-term interest rates and only then might repressive action be triggered. Your analyst’s best guess is that ten year bond yields will have to be forced to settle between 2% and 3%. This level comes from working backwards from the highest rate of inflation that governments might dare target to bring escalating debt-to-GDP ratios under control. At levels of annual inflation above 6% there is a growing risk that the velocity of money could shift markedly higher and the prospects of controlling inflation thus reduce. Perhaps some governments might flirt with higher levels and of course there is always the risk of over-shooting any economic target, whether of a government or a central banker. However if we conclude that governments will not want to risk inflation rising above 6%, what level of long-term interest rates would they need to pull off a successful financial repression? Perhaps they could allow long-term interest rates to reach 3% but as the success of a repression is based primarily upon the gap between inflation and interest rates, any smaller gap might just slow the process of inflating away debts by too much. These are very clearly back of an envelope calculations but they suggest that even if inflation is permitted to rise as high as 6%, investors should expect aggressive moves to repress long-term interest rates once they are even as low as 2% to 3%. Allowing interest rates to rise to higher levels risks too slow a de-leveraging or a need for a rate of inflation that is too destabilizing.

In the last newsletter (The Silent Revolution: How To Inflate Away Debt… With More Debt) The Solid Ground explained why central bankers would not be able to control long-term interest rates in a world of rising inflation expectations. Such a cap on interest rates would only be possible by forcing savings institutions to buy government debt at the targeted yields. So at some stage in the reflation the government will have to move to cap yields in the knowledge that it is probably too risky to allow inflation to rise above 6%. Many investors seem to believe that this combination of a capped yield curve and rising inflation will be positive for equity prices. That will depend upon what savings institutions are selling in order to fund their compelled purchases of government debt. The most likely asset for liquidation will be equities and, as yields are to be capped possibly for decades, that liquidation could be prolonged.

The conclusion from all of the above is that equities will benefit on the road to higher inflation. That will occur even if deflation happens first as markets begin to discount the impact from the shift in the powers of money creation from central bankers to governments. However the move to cap interest rates between 2% and 3% may well come before inflation hits 4%. As one would normally expect long-term interest rates to be above the rate of inflation, a forced purchase of government bonds by savings institutions is likely before inflation reaches 4%. If the move to force savings institutions to cap yields occurs before inflation reaches 4%, then the mass liquidation of equity portfolios by those institutions also begins before inflation hits 4%. That does not suggest that equity prices can rise ever higher into the financial repression and the liquidation may be met by high equity issuance in a period when non-bank debt availability will be significantly curtailed (see The Silent Revolution: How To Inflate Away Debt… With More Debt).

Is your analyst guilty of once again ignoring his own advice? Perhaps, but tactically the advice is the same. Equities can be held as long as the markets continue to discount higher rates of inflation and only when the move to the forced purchase of government debt securities is likely is that upward movement in equities likely to end. We cannot be sure when that will be but should receive some warning on the timing as higher longer term interest rates begin to impinge on the economic recovery. Your analyst, seeing this move as part of a much longer financial repression, would be surprised if long-term interest rates were allowed to rise above the 2% to 3% level, given the implications for the acceptable rate of inflation. Time will tell whether that is a good or a bad guess but for now inflation is low, long-term inflation expectations are ridiculously low and equities will benefit from the change in inflationary expectations that are still before us.

Authored by Peter Earle via The American Institute for Economic Research,

As data accrues on both a national and state-by-state basis, the parameters of COVID-19’s lethality is firming up. Two new papers from Dr. John Ioannidis point to the growing shortfall between apocalyptic pandemic predictions and the vastly more destructive policies implemented in observance of them.

The first, entitled “Population-level COVID-19 mortality risk for non-elderly individuals overall and for non-elderly individuals without underlying diseases in pandemic epicenters” offers more evidence supporting the assertion that the government reaction to the virus has been vastly overwrought. 

Using data from 11 European countries, 12 US states, and Canada, Ioannidis and his team show that the infection rate is much higher than previously thought, which suggests that both the incidence of asymptomatic and mildly symptomatic cases is higher than thought, and the fatality rate much lower than previously estimated. 

As regards the age of victims,

People [under] 65 years old have very small risks of COVID-19 death even in pandemic epicenters and deaths for people [under] 65 years without underlying predisposing conditions are remarkably uncommon. Strategies focusing specifically on protecting high-risk elderly individuals should be considered in managing the pandemic. 

In the other paper, “Forecasting for COVID-19 has failed,” Ioanndis and co-authors take aim at the reasons for which the predictions were so incredibly inaccurate. Early predictions included that New York needed up to 140,000 hospital beds for stricken COVID-19 victims; the total number of individuals hospitalized was 18,569. In California on March 17th, 2020, it was predicted that “at least 1.2 million people over the age of 18 [would] need hospitalization from the disease,” which would require 50,000 additional hospital beds. In fact, “COVID-19 patients [ultimately] occupied fewer than two in 10 beds.” On March 27th 2020, Vice Provost for Global Initiatives at the University of Pennsylvania, Ezekiel Emanuel’s prediction of 100,000,000 COVID-19 cases in the United States in the four subsequent weeks — slightly less than one in three of all Americans — has since been taken down.

Divination, accurate or not, is harmless in and of itself: that’s obvious. But when made by scientific dignitaries, in particular in the process of informing politicians amid crisis circumstances, it often leads to knee jerk reactions at all levels. The causative factors cited are, or should be, well known to economists: they include use of poor data or the wrong use of high quality data; improper or incorrect assumptions; wrongful estimates of sensitivity; wrongly interpreted past results or evidence; problems of dimensionality; and groupthink/bandwagon effects.

From a high level, epidemiological forecasts failed for the very reason that econometric predictions often flounder: the uncritical importation of modeling techniques from physics or applied mathematics into social science realms. This should not be especially revelatory. In “The Counter-revolution of Science” (1956), F. A. Hayek noted the pernicious effects of applying rigidly quantitative concepts where human action is at work, attributing them to “an ambition to imitate science in its methods rather than its spirit.”

Using Ioannidis’ guidelines, a subset of the elements which lead to predictive failures in epidemiology can not only be examined, but analogized directly with economic and econometric counterparts.

Data Problems

The issue of data quality and application in economics is one which arose from the growing quantification of the social sciences. Data which is either erroneously recorded, speciously accurate, or completely fabricated has been a problem of legendary proportions in econometrics and in the crafting of economic policy.

Although first identified as a serious issue 70 years ago (less than three years after the publication of this pivotal work), the mathematization of economics has proceeded apace with virtually no embracing of Oskar Morgenstern’s cautions. (While not waxing conspiratorially, it bears mentioning that low-quality data can be as much a political tool as a source of imprecision in both epidemiology and economics.) 

Similarly, there is growing evidence that some COVID-19 related data has been problematic: erroneous or miscalculated. Where testing is concerned, even a 1% error in the tens of millions of coronavirus tests being conducted would amount to hundreds of thousands of misdiagnoses, with the knock-on effects that such results give rise to. 

Erroneous Assumptions

Untenable and oversimplifying assumptions in economic formulations are often defended as pragmatic or unavoidable. These are problematic even when methodologies are appropriate, the data sound, and the calculations correct: 

Many [epidemiological] models assume homogeneity, i.e.all people having equal chances of mixing with each other and infecting each other. This is an untenable assumption and in reality, tremendous heterogeneity of exposures and mixing is likely to be the norm. Unless this heterogeneity is recognized, estimates of the proportion of people eventually infected before reaching her immunity can be markedly inflated.  

Epidemiologically, the homogeneity oversight is seen at its starkest and most tragically in comparing the outcome of insufficiently protecting the most vulnerable populations while simultaneously closing schools and excoriating teenagers/college students — among the least affected groups — for their social inclinations.   

Sensitivity of Estimates

Determining how an independent variable or groups of independent variables affect dependent variables is the focus of sensitivity analysis. Depending upon the regression (or other operation) being performed, and in particular the presence of exponents, a small error in independent factors can lead to huge variances in outcomes. (This is one of the characteristics of a chaotic system: the so-called butterfly effect refers to systems where ultimate outcomes or states show a tremendous degree of sensitivity to initial conditions.) 

There are techniques which can be used to determine where, when, and to what degree estimates have a disproportionate impact on the outcome of simulations or calculations, whether that comes in the form of wildly overblown or unrealistically diminished outcomes. Often, though, sensitivity is seen not in models, but in the real world events they are designed to approximate. 

Ioannidis cited the “inherent impossibility” of fixing such models, as the ubiquity of models employing “exponentiated variables [lead to] small errors [that] result in major deviations from reality.” Morgenstern evinced similar concerns in 1950 regarding the curve-fitting propensities of the new wave of economic practice; here in production functions, but the criticism is certainly extendable:

Consider, for example, the important problem of whether linear or nonlinear production functions should be considered in economic models. Non-linearity is a great complication and is, therefore, best avoided as much as possible. True non-linearity in the strict mathematical sense is avoided in physics as far as possible. Even quantum mechanics is treated as linear on a higher level. Many apparently nonlinear phenomena, upon closer investigation, can well be treated as linear . . . The distinction is largely a matter of the precision of measurement, which is exactly where the weakness is strongest in economics. It is astonishing that economists seem to hesitate far less to introduce non-linearity than physical scientists, where the tradition of mathematical exploration is so much older and the experience with observation and measurement so much firmer.

I would not deign to correct such a luminary as Dr. Morgenstern, but I would add that the weakness is not strongest in economics alone, but in all undertakings which quantitatively rigidify human action, whether individual or en masse. 

Poor past evidence on effects of available interventions

Unbeknownst to the vast majority of people who are or will suffer from the effects of the lockdowns, the “flatten-the-curve” efforts were informed by information from the Spanish Flu of 1918. Thus data of impeachable quality, from a pandemic event which occurred over one century ago, involving a different pathogen — as a major world war was ending, and when living conditions, longevity, the state of medical science, the tenor of social interactions, and countless other variables were immeasurably different — were applied to sculpt the government response to the outbreak of the novel coronavirus. 

 Ioannidis and his co-authors comment that “[w]hile some interventions . . . are likely to have beneficial effects, assuming huge benefits is incongruent with the past (weak) evidence and should be avoided. Large benefits may be feasible from precise, focused measures.” 

The idea that a single (or even a small handful) of studies might be used to buttress indefensible arguments or to support questionable plans is occasionally seen in economic policymaking as well.

Dimensionality

“Almost all models that had a prominent role in [pandemic] decision-making,” Ioannidis continues, “focused on COVID-19 outcomes, often just a single outcome or a few outcomes (e.g., deaths or hospital needs). Models prime for decision making need to take into account the impact on multiple fronts (e.g. other aspects of healthcare, other diseases, dimensions of the economy, etc.).” Some remedies to this include interdisciplinary scrutiny of model outcomes and a look at past implementations in the face of pandemics — including those to which there was no response at all. 

While dimensionality as a specific problem afflicts economic modeling as well, general comments in this regard closely echo the battered-but-unmoved screeds against one of the earliest fixtures of economic education: ceteris paribus, by which one considers causal or empirical relations while holding other influences equal. While a useful tool for educational purposes, when it creeps into crafting policies the results can be costly. 

(At times, the ceteris paribus approach is defended by econometricians who liken it to the practice of ignoring air resistance in gravity experiments. It’s a shamefully underhanded argument that immingles physical with social science phenomena.)

Groupthink and Bandwagon Effects

Ioannidis cites groupthink among epidemiologists as a source of forecasting error. When a doomsday prediction is made — especially by celebrity scientists — the act of introducing a more mitigating prognosis may bring substantial risk to one’s career, and thus be suppressed. Alternately, the published or broadcast results of thought leaders may be a form of anchoring. As Ioannidis and his team write,

Models can be tuned to get desirable results and predictions, e.g. by changing the input of what are deemed to be the plausible values for key variables. This is true for models that depend upon theory and speculation, but even data-driven forecasting can do the same, depending upon how the modeling is performed. In the presence of strong groupthink and bandwagon effects, modelers may consciously fit their predictions to what the dominant thinking and expectations are – or they may be forced to do so. 

The economics profession is certainly not immune to this. It manifests in several ways, one of which is mainstream economists’ unwillingness to admit their errors (as the continued use of flawed models or bad data attests to). Many economists instinctively do not criticize theory or practices within their institution or school of thought owing to political expediency. The highly ‘siloed’ nature of journals and conferences attests to it, as do the veritable echo chambers in social media. This is not merely a personal observation; it and its effects have been cited elsewhere. Here, in no less prominent a place as the International Monetary Fund:  

Analytical weaknesses were at the core of some of the IMF’s most evident shortcomings in surveillance … [as a result of] … the tendency among homogeneous, cohesive groups to consider issues only within a certain paradigm and not challenge its basic premises.

Cognitive and confirmation biases are noted as well. 

The Media Amplifier

Farcical predictions, whether owing to one or all of the above elements, would nevertheless be innocuous if limited to circulating among small groups of scientists or within the rarified pages of peer-reviewed journals. But whether viewed as a vital democratic institution, a propagandistic organ of political parties, or somewhere in between, it’s far from a conspiracy theory to note that the dominant media outlets are massive businesses which fundamentally compete for revenue on the basis of attention. As with politicians, the loudest and scariest messages and interpretations garner the most attention and have the added perk of defensibility in the name of “vigilance.” 

And in the same manner in which tremendously negative predictions permit self-aggrandizing assessments of policy outcomes — such as in Neil Ferguson’s claim that the lockdowns saved lives — doomy economic projections are almost always associated with unprovably optimal outcomes. 

An example of that is found in President Obama’s assertion that without the bailouts and Fed programs administered in the wake of the 2008 financial crisis, the world might have fallen into a “permanent recession.” (The idea that a “permanent recession” would have been a recession which simply lapsed into a new, permanent low level of economic activity went predictably unchallenged.) The best (and least common) unprovable counterfactuals are good guesses; the majority are deceptive. 

Where Economists can Help Epidemiologists

Having said all of that, the paper concludes with a redemptory note, commending the efforts of epidemiology teams and warning that it would be “horrifically retrograde if this [modeling] debate ushers in a return to an era where predictions, on which huge decisions are made, are kept under lock and key (e.g. by the government – as is the case in Australia).”

The mundanity of letting individuals or localities assess and act in concert with proprietary risk appetites must, on some level, be frustrating when compared with creating vast artificial populations of agents or using big data to sift through colossal data repositories. It would no doubt seem a massive waste of time to expend energy writing code and poring over results only to recommend that citizens exercise their best judgment. 

Simply building and running computational models is not, of course, harmful in and of itself: it is in the leap from output to implementation where hazards emerge. Here’s Hayek, again, in “The Counter-Revolution of Science” (1956):

The universal demand for conscious control or direction of social processes is one of the most characteristic features of our generation. It expresses perhaps more clearly than any of its other cliches the peculiar spirit of the age. That anything is not consciously directed as a whole is regarded as itself a blemish, a proof of its irrationality and of the need completely to replace it by a deliberately designed mechanism . . . The belief that processes which are consciously directed are necessarily superior to any spontaneous process is an unfounded superstition. It would be truer to say [as Whitehead did] that on the contrary “civilization advances by extending the number of important operations we can perform without thinking about them.”

Hysterical, wildly off-the-mark forecasts about COVID-19 will ultimately cause more harm than good, and find their origins in the same set of snags which regularly trip up econometric forecasts. In the epidemiological version, instead of predicting a new Great Depression, they brought an artificial depression, a growing spate of coercive masking initiatives, school closures, and the lockdowns — which quite possibly filled the powderkeg that was ignited by the killing of George Floyd. And that’s what we can see, directly in front of us: the ultimate cost of surgeries foregone, rising rates of drug abuse, alcoholism, and suicides, and other knock-on effects of the ridiculous government responses to the novel coronavirus outbreak will be unfolding for a generation. 

What can economists teach epidemiologists? When it comes to forecasting, humility is key and discretion is the better part of valor. If in a position of power or influence, don’t be afraid to bore politicians to death. Be aware, and remain aware, of the utter unpredictability of human action. And always, above all, remain mindful that the presence of even one human being (and more realistically, millions) introduces complexities which are difficult to predict and virtually impossible to simulate. 

Authored by Elias Marat via TheMindUnleashed.com,

With the pandemic continuing to sink its claws into the United States, economic conditions have also failed to improve for millions of people. As a result, nearly one-third U.S. households – representing 32 percent – have still not made their full housing payments for the month of July, according to a survey from online rental platform Apartment List.

And with public health experts warning people to continue to “Stay at Home,” the slogan is taking on a perverse new meaning as humanitarian disaster looms for some 28 million people in the U.S. who are facing eviction and homelessness in the immediate future.

About 19 percent of those surveyed were unable to make any housing payment in the first week of the month, while 13 percent paid a portion of their rent or mortgage.

The numbers represent the grim fact that for four months now, a “historically high” amount of U.S. households have been unable to pay their housing bill, either on time or in full. It also represents an increase from 30 percent in June and 31 percent in June.

According to Apartment List, those most likely to miss their payments were younger, low-income, or renters. Other experts warn that Black and Latino families face the highest risk of eviction. They also may be entering the start of a rapid and vicious cycle, the report suggests.

“Delayed payments in one month are a strong predictor for missed payments in the next,” Apartment List says. Indeed, 83 percent of households who paid the entirety of their May housing costs in a timely way did the same in June, but only 30 percent of households who were late in May did so in June.

As the economic crisis continues to spiral unabated, tens of millions of Americans continue to survive on unemployment while their economic stimulus checks have long been gone.

“The economic fallout from the pandemic does not appear on track for the quick V-shaped recovery that many had originally hoped for,” Apartment List notes.

And with unemployment benefits expiring while eviction bans and moratoriums that deferred rent payments are being lifted by local governments, experts and advocates are warning that we could see a tsunami of mass evictions across the country that exceeds anything ever seen.

Emily Benfer is the chair of the American Bar Association’s Task Force Committee on Eviction and co-creator of the COVID-19 Housing Policy Scorecard with the Eviction Lab at Princeton University. In an interview with CNBC, Benfer explained that the current public health crisis will soon see tens of millions of people losing their homes in the coming weeks.

“We have never seen this extent of eviction in such a truncated amount of time in our history,” she said. “We can expect this to increase dramatically in the coming weeks and months, especially as the limited support and intervention measures that are in place start to expire.”

“About 10 million people, over a period of years, were displaced from their homes following the foreclosure crisis in 2008,” she added.

“We’re looking at 20 million to 28 million people in this moment, between now and September, facing eviction.”

The reporter asked me why I’m so invested in preventing #eviction.

Because it would be unconscionable to let 20+ million adults & children fall into homelessness, debt & the associated harm, especially when we can prevent it.

Maybe the question should be, why isn’t everyone?

— Emily A. Benfer (@emilyabenfer) July 10, 2020

Legal aid groups and housing advocates are expecting an avalanche of cases as eviction moratoriums and rent deferral moratoriums have ended in quick succession. And across the country, there has been a 200 percent jump in calls to 211 call centers that refer people to social service providers, reports Yahoo! finance.

And as the moratoriums are lifted, county courts are facing hundreds, if not thousands of eviction cases flooding in – in Memphis, local county courts saw a backlog of 9,000 eviction cases when hearings resumed last month.

“In many ways, the wave has already begun. We need to work to stop it from becoming a tsunami and we’re running out of time,” said Diane Yentel, president of the National Low-Income Housing Coalition. “We’re seeing now a really frankly horrifying confluence of increasing evictions in states where new coronavirus cases are surging.” 

According to the COVID-19 Eviction Defense Project (CEDP), one in five of the 110 million Americans who rent their homes – over 20 million people – are at risk of eviction by the end of September. And these aren’t simply low-income families, but people who fell on rough times recently due to the shock of the pandemic, explains CEDP Co-Founder Zach Neumann – and the number is expected to dramatically jump when unemployment benefits run out at the end of the month.

“You have a lot of folks who had strong incomes, in a lot of cases high five-figure or low six-figure [salaries],” Neumann explained.

 “They didn’t have a lot of savings, lost their jobs or were furloughed, and there was not any severance attached to that, but had rents that were in line with the salaries they were earning. The client pool economically looks a lot different than it has in the past.”

In the meantime, the threat of homelessness has coincided with a dramatic spike in coronavirus infections across the U.S. South and the West, hitting struggling tenants disproportionately. And with states like Texas pausing reopening plans, evictions hearings are still proceeding – but on Zoom. As a result, tenants who lack access to technology are often robbed of their ability to flex their legal rights.

Housing advocates are urgently calling for nationwide protections in the form of a uniform eviction moratorium and federal aid through the Health and Economic Recovery Omnibus Emergency Solutions or HEROES Act and the Emergency Housing Protections and Relief Act of 2020. However, the Republican-controlled Senate is expected to block both measures.

Renters across the country are also forming tenant’s unions and demanding that rent be deferred indefinitely. Some tenants, such as the Acacia Apartments residents in Denver, Colorado, are already waging a rent strike – potentially showing the how people across the country who are struggling to keep a roof over their heads plan to keep fighting even in the face of their landlords’ eviction threats.

Update: Watch live

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A fire broke out Sunday on the USS Bonbomme Richard at US Naval San Diego, injuring several sailors according to authorities.

Developing story: A #fire broke out aboard US #Navy‘s #amphibious assault ship USS #BONHOMME RICHARD LHD6 Sunday morning 12 July around 1000 PDT while pierside at the San Diego #Naval Base. At least 3 fire alarms reported. Images gathered from various sources around the net pic.twitter.com/EzOjpHP6KT

— Chris Cavas (@CavasShips) July 12, 2020

Explosion with at least one injury at the USS Bonhomme Richard. #shipfire pic.twitter.com/HooWIRcjU4

— SDFD (@SDFD) July 12, 2020

A three-alarm fire was declared on the amphibious assault ship, reported at 8:51 a.m. according to local station CBS8, citing the San Diego Fire-Rescue department. As the fire progressed, the ship was reportedly evacuated.

More views of the #fire burning now on board US #Navy amphibious ship USS #BONHOMME RICHARD LHD6 at 32nd Street Naval Station in San Diego. Reports so far indicate 3 sailors, 1 SDFD fireman injured. At the moment the fire seems to be growing pic.twitter.com/icPblRJOEV

— Chris Cavas (@CavasShips) July 12, 2020

At least one sailor has been treated for smoke inhalation. Fire appears to have broken out in the hanger deck. pic.twitter.com/AbeH9UHq5J

— Sentinel (@StratSentinel) July 12, 2020

San Diego scanner: fire on USS Bonhomme Richard is getting worse, firefighters are “going defensive” and evacuating ship

— Steve Lookner (@lookner) July 12, 2020

Smoke could be seen from a distance as the fire burned. Meanwhile, just before 11 a.m. an explosion was reported resulting in at least one injury, according to the report. 

3RD Alarm fire on USS Bonhomme Richard (LHD-6) at Naval Base San Diego.

SDFD & Federal Fire have unified command for what sounds like a below deck fire, possibly in a hanger bay

Initial reports of an explosion & injuries.

As both a fireman & a sailor, thoughts with all aboard. pic.twitter.com/eDnLBYZ2SA

— Gregg Favre (@GreggFavre) July 12, 2020

Developing…

Despite the non-stop deluge of market-pumping vaccine trial press releases and leaks that seem to move futures even when the news is entirely procedural (ie when a new human trials get the green light to begin), we haven’t seen any coverage of a Russian vaccine trial that has reportedly become the first in the world to finish all clinical trials.

Vadim Tarasov, the director of the Institute for Translational Medicine and Biotechnology, told Sputnik that clinical trials of the world’s first coronavirus vaccine on volunteers at the Sechenov First Moscow State Medical University have been successfully completed.

“Sechenov University has successfully completed tests on volunteers of the world’s first vaccine against coronavirus,” Tarasov said.

The university began clinical trials of a vaccine produced by Russia’s Gamalei Institute of Epidemiology and Microbiology on June 18, meaning the university managed to distill the entire process trial process down to just 3 weeks.

As for the volunteers, the first group will be discharged Wednesday, while the second will be discharged July 20.

The story comes with a caveat. The trials were solely intended to show that the vaccine is safe for human consumption and use. Several trials for therapeutics and vaccines in the west have also completed at least some trials proving safety. According to Alexander Lukashev, the director of the Institute of Medical Parasitology, Tropical, and Vector-Borne Diseases at Sechenov University, the safety objective was successfully achieved.

“The safety of the vaccine has been confirmed. It corresponds to the safety of those vaccines that are currently on the market,” Lukashev told Sputnik.

Apparently the results were encouraging enough that a “vaccine development plan” is already being rolled out by the developer to mass produce the vaccine.

‘Never-Trump’ neoconservatives working to get Biden elected are planning to teach the president’s most ardent supporters a lesson in cancel culture.

Two groups, the Lincoln Project and Republican Voters Against Trump – described by the Washington Post as a “rebellion that began four years ago” – has “transformed in recent weeks into a potentially disruptive force in this year’s presidential race.”

Republican Voters Against Trump have collected hundreds of first-person testimonials from people claiming to be former Trump supporters, with which the group has begun running campaign ads in North Carolina, Arizona and online – and plans to spend $10 – $15 million in Pennsylvania, Michigan, Wisconsin and possibly Florida according to the report.

One of their ads will air on “Fox News Sunday” in North Carolina and Arizona and will spotlight 15 Republicans who cast their vote for Trump in 2016 but will now vote for Biden.

The Lincoln Project, meanwhile, is the brainchild of GOP strategists Rick “confederate cooler” Wilson, John Weaver, Steve Schmidt and former NH Republican Party Chair Jennifer Horn. The husband of Trump adviser Kellyanne Conway, George Conway, is also involved with the project.

A White House insider anonymous told WaPo that the two endeavors, particularly the Lincoln Project, are “scam PACs” run by “beltway swamp creatures whose candidates can’t win.”

These are the same people who supported independent candidate and former (?) CIA operative Evan McMullin in 2016.

And now for the punchline – which is that the never-Trump cabal is planning to target lawmakers and media figures who support the president.

According to the Lincoln Project’s John Weaver, “dispatching Trump does not dispatch Trumpism,” citing Fox News‘s Tucker Carlson – the highest rated cable host in history, as well as Republican Sens. Tom Cotton (AK), Josh Hawle (MO) and others.

With growing ambitions, a hit list: After ‘dispatching’ President Trump, the pro-Democratic Lincoln Project hopes to ‘dispatch’ others: Tucker Carlson, Tom Cotton, Josh Hawley, more. ‘Our task won’t be finished when Joe Biden takes the oath of office.’ https://t.co/zs2zmG2x8Q pic.twitter.com/6BKKGzSiUc

— Byron York (@ByronYork) July 12, 2020

“The next battle will be making sure those from his ilk do not get the next Republican nomination,” said Weaver. “Our task won’t be finished when Joe Biden takes the oath of office.“

Authored by Charles Hugh Smith via OfTwoMinds blog,

The greater fools still partying in the first-class lounge are in denial that even the greatest, most technologically advanced ship can sink.

On April 14, 1912, the liner Titanic, considered unsinkable due to its watertight compartments and other features, struck a glancing blow against a massive iceberg on that moonless, weirdly calm night. In the early hours of April 15, the great ship broke in half and sank, ending the lives of the majority of its passengers and crew.

The usual analogy drawn between the Titanic and our financial meltdown stems from the initial complacency of the passengers after the collision. Some passengers went on deck to play with the ice scraped off the berg, while most returned to the festivities still working their magic as midnight approached.

The class structure of Edwardian Britain soon came into play, however; as the situation grew visibly threatening, the First Class passengers were herded into the few lifeboats while the steerage/Third Class passengers–many of them immigrants–were mostly kept below decks, sealing their doom.

But there are even more compelling analogies than initial complacency turning to panic. Consider this diagram of the great ship:

The large black rectangles on the lower deck represent the coal bunkers; they were located adjacent to the boilers which powered the engines. Though the ship only scraped against the iceberg, as Titanic explorer Robert Ballard explains, that was enough to pop rivets and open hull plates:

The glancing blow that ruptured the Titanic’s hull over a distance of roughly 250 feet (out of a full length of 882 feet) and admitted water into six of her compartments sealed her fate.

Considerable hullabaloo attended the attempt in the summer of 1996 to raise a piece of the hull from the debris field, but far more interesting was the ultrasound investigation of the area of the bow damaged by the iceberg. These images revealed six small tears or openings affecting the first six compartments. Just as we had surmised in 1986, the great gash was a myth and the actual openings into the ship seem to have been the result of rivets popping and hull plates separating.

This offers a very powerful analogy to the fatal damage inflicted on our financial system by an apparently “glancing blow” with the pandemic shutdown. Just as the Titanic was mortally wounded not by great tears in its hull but by the buckling of steel hull plates, so the U.S. (and thus global) financial system is sinking from similarly “glancing” blows.

The actual damage could have been contained–do you sense another analogy about to surface?– had the fifth watertight bulwark–shall we call it “the bulwark against systemic failure”?– extended a few decks higher. But inexplicably, this watertight barrier did not extend as high as the other watertight bulkheads.

Though the water gushing through a three-foot gash in the forward engine room was held back by the ship’s great pumps, as the bow sank lower then water seeped over the fifth watertight bulkhead and gushed into the boiler room, extinguishing the fires that powered the pumps.

This generated a feedback loop: the higher the water rose, the more boilers were extinguished and the less power was available to the pumps.

And so against all “rational odds,” the ship’s apparently minor structural design flaw led to its inevitable loss as the mighty pumps lost their battle against the rising water.

To all the “experts,” the risk of collision with an iceberg were considered low, while the risk of catastrophic damage were considered essentially zero. Hmm, does that remind you of our financial system circa September 2019, just as the great U.S. economy’s hull was buckling?

Now we have the Great Pumps of Federal Reserve money-printing and Stimulus, which in a close analogy are pumping trillions of dollars into the sinking U.S. economy. But just as the engines of the Titanic lost power as the water extinguished the boilers supplying steam to the engines, so the stimulus is only keeping the rising water temporarily at bay– it is not actually saving the “engines” of the economy from sputtering.

And what are those engines?

1. Debt, which must increase to fuel spending, income and thus taxes

2. Rising assets, which provide the basis for ever-more borrowing

3. Government borrowing, which enables government spending to keep rising without regard to actual tax revenues or the health of those being taxed

4. Rising employment as vast borrowing and spending creates new jobs

The ice-cold water is splashing into each of these engines. As assets fall then there is simply no foundation (collateral) to support more borrowing. As debt is paid down rather than expanded, then spending falls. As spending falls, so do revenues, profits and employment, all of which crimp tax revenues.

The last engine is government borrowing. To those still standing on the sloping deck, cheering the “good news” of Big Tech’s meteoric ascent to the heavens of bubble overvaluation, this seems like the engine which can never be extinguished. Through thick and thin the Federal government and the state and local governments (via muni bonds) have been able to borrow and spend stupendous sums seemingly without consequence.

The demise of this last great engine will surprise as many as the sinking of the Titanic did, but it is as inevitable as the sinking of the great ship. The pumps can only hold the water back for a while, but the Stimulus magic will expire sooner than anyone imagines.

As the government scrambles to find buyers for endless trillions in new U.S. bonds (and trillions more in new corporate debt, new mortgages, new consumer debt, student loans, new muni debt, etc.) then interest rates will rise and the great engine of ever-greater debt will hiss and sigh as the water rises and then go silent and cold.

The first-class passengers have already been ushered to their lifeboats. They’ve sold to the euphoric passengers buying Big Tech’s parabolic ascent and the greater fools still partying in the first-class lounge who are in denial that even the greatest, most technologically advanced ship can sink, taking everyone in denial down with it.

The sinking is not a possibility, it is an inevitability.

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