The Trial Of Citizen Trump Would Raise Serious Constitutional Questions

The Trial Of Citizen Trump Would Raise Serious Constitutional Questions

Authored by Jonathan Turley,

Below is my column in USA Today on the upcoming Senate trial of President Donald Trump. The Hill recently ran my second column on why the best defense of Trump could be no defense — to skip the Senate trial and force a threshold vote on the constitutionality of the trial of an ex-president. Here is my column:

With the second impeachment of President Donald Trump, the Congress is set for one of the most bizarre moments in constitutional history: the removal of someone who has already left office. The retroactive removal would be a testament to the timeliness of rage. While it is not without precedent, it is without logic.

The planned impeachment trial of Donald Trump after he leaves office would be our own version of the Cadaver Synod.  In 897, Pope Stephen VI and his supporters continued to seethe over the action of Pope Formosus, who not only died in 896 but was followed by another pope, Boniface VI.  After the brief rule of Boniface VI, Pope Stephen set about to even some scores. He pulled Formosus out of his tomb, propped him up in court, and convicted him of variety of violations of canon law. Formosus was then taken out, three fingers cut off, and eventually thrown in the Tiber River.

While some may be looking longingly at the Potomac for their own Cadaver Synod, Speaker Nancy Pelosi and other Democrats have stated that their primary interest is in the possible disqualification of Trump from holding future federal office. Disqualification however is an optional penalty that follows a conviction and removal. It may be added to the primary purpose of removal referenced in the Constitution. The Trump trial would convert this supplemental punishment into the primary purpose of the trial.

This did happen before but that precedent is only slightly better than the Cadaver Synod. That case involved William Belknap who served as Secretary of War to President Ulysses S. Grant. Belknap resigned after allegations of corruption — just shortly before a House vote of impeachment. The Senate held a trial but acquitted him. Twenty nine of 66 voting senators disagreed in a threshold motion that Belknap was  “amenable to trial by impeachment . . . notwithstanding his resignation.”

In fairness to the Democrats, I have long rejected the argument that there comes a point when it is too late to impeach a president while he is in office. As I said in both the Clinton and Trump impeachment hearings, the House is under a duty to impeach if it believes that a president has committed a high crime and misdemeanor. If that occurred on the last day of a term, it would still be warranted.

My objection to this second impeachment was that it proceeded without any deliberation of the traditional impeachment process. It was a snap impeachment, which is to the Constitution what Snapchat is to conversations. It reduces the process to a raw, brief and partisan vote. This could have been avoided. A hearing could have been held in a day to allow the language of the article to be amended and the implications of the impeachment considered. It would also have allowed for a formal demand for a response from the president.

Instead, the impeachment was pushed through on a partisan muscle vote with only ten Republicans supporting the single article. It was an ironic moment. In the last Trump impeachment, I chastised the Democrats for pushing through an impeachment on the slimmest record and the shortest time frame of any presidential impeachment. They insisted that there was no time for witnesses before the House Judiciary hearing, but later waited weeks to submit the articles to the Senate. Now they have outdone that record with an impeachment with no traditional record in a matter of a couple of days. The Senate will not sit until January 19th and any trial would likely occur after January 20th.

I have long wrestled with the notion of a retroactive impeachment trial. I can see the value of establishing that a president was not just accused but convicted of unconstitutional acts. There is also the value of disqualification of such an individual from future office. However, what was an intriguing academic puzzle is now a pressing constitutional concern.

The impeachment trial of a private citizen raises a host of constitutional and practical problems. For example, a president can rely on publicly-funded lawyers like the White House Counsel and can assert presidential privileges. After leaving office, an ex-president would not only pay for his own defense, but he will lose the ability to make privilege determinations. Indeed, many such assertions would be subject to the review of his successor, Joe Biden. It would be like Pope Stephen making determinations on critical evidence of Pope Formosus after pulling him out of the crypt.

The main issue however would be whether this is really an impeachment trial, as opposed to some curious constitutional post-mortem on a passed presidency. That question could face Supreme Court Chief Justice John Roberts if he has summoned for this role. A chief justice does not simply show up at anything deemed an impeachment trial. He must make an independent judgment over his carrying out a constitutional function.  Even if he rules that this is a valid trial, that ruling could be rejected by the Senate in a motion to dismiss the article. In the Clinton impeachment, Democrats demanded such a threshold vote before a trial. Of course, since there is no president to try for impeachment, the Senate may not even ask Roberts to preside — a telling departure that only undermines the trial as a whole.

This impeachment should end with the Trump administration. I do not fault those who view the president’s conduct as impeachable. The speech was reckless and wrong. My primary objection was to the use of a snap impeachment and the language of the article of impeachment. That is now part of Trump’s presidential legacy. The question is now what will be the troubling constitutional legacy left by the Senate in the trial of an ex-president.

In my view, a retroactive removal vote would combine with the use of a snap impeachment to fundamentally altering the role of impeachment in the United States. It would take a rush to judgment and turn it into a parade of constitutional horribles. Any party could retroactively impeach or remove a former president for the purpose of disqualifying him from office. Thus, if a party feared a one-term president’s possible run, they could hold use impeachment to eliminate the political threat. With the snap impeachment, it would be worse than creating a type of “no confidence vote” under our Constitution. After a non confidence vote in the United Kingdom, a former prime minister can still run again for office.

A conviction would also not bring the closure as many may hope. Such disqualification would be one of the few impeachment issues that could be challenged in court. Trump would have standing to sue for his right to run again and he could well win. He would then be more popular than ever with many citizens eager to defy the Washington establishment. There is another path. The Senate could end the trial with a threshold vote and let history and the voters be the final judge of Donald J. Trump.

Tyler Durden
Sun, 01/17/2021 – 17:50

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Further Rejoinder on Why the First Amendment Does not Constrain Impeachment and Removal of Presidents

First Amendment

In their latest post on the subject of impeachment and the First Amendment, Josh Blackman and Seth Tillman somewhat belatedly acknowledge the Supreme Court’s longstanding jurisprudence on the free speech rights of government employees. As numerous critics of their earlier posts have pointed out (e.g.—Jonathan Adler, Andrew Koppelman, and myself), the First Amendment  does not protect senior government employees in policy-making positions from being removed from their positions. Indeed, such officials get fired because of their speech on a regular basis—including by Donald Trump himself!

To their credit, Blackman and Tillman acknowledge this, and do not claim that high-level government officials have any general constitutional right against being removed for their speech. But they claim that presidents are different from appointed officials because the latter are subordinates of the president, while the president himself has no superiors, except for the voters during an election year:

Senior appointed policy-making executive branch officers are removable by the President. If they lose the confidence of the President, for whatever reason, even for otherwise lawful speech, he can remove them. Absent constitutionally valid congressional tenure protections, these positions are at will….

The President’s relationship to his subordinate executive branch officers is one of a superior to inferiors. The President is elected; the senior officers are appointed. The President can nominate his senior officers. He can direct them. Generally, he can remove them at will….

By contrast, the President is not a cabinet member, who works for a superior—other than the People who act through elections. Nor is the President a GS-15 who can be disciplined for speaking at a political rally. Treating the President as an appointed officer or a civil servant would eliminate the President’s ability to act like a politician and party leader.

Blackmand Tillman go on to argue that Congress is not the president’s “superior” and therefore doesn’t have the power to remove presidents for their speech, in the way that the president himself can remove his own high-ranking executive branch subordinates.

The problem with the Blackman-Tillman theory is that they overlook the reality that one branch of government can remove members of another even if they are not otherwise the superiors of the latter. The whole point of impeachment is to give Congress the power to remove legislative and judicial officials who abuse their power, commit crimes, or otherwise create a menace to the political system. Congress can also, if it wishes, bar such officials from holding office in the future.

While, as Blackman and Tillman note, “the people” are the ultimate superiors of the president, they also cannot remove the president between elections, even if he severely abuses his power, and they also cannot sanction him for crimes and abuses perpetrated during the “lame duck” period after an election (as in the case of Trump). Impeachment is intended to fill this gap in the constitutional structure. To put it in Blackman and Tillman’s terms, Congress is indeed the president’s superior for the limited purpose of removing him and barring him from future office-holding in response to certain types of illegal or abusive activity on his part. That is perfectly consistent with their not being his superior in various other ways.

As I pointed out in my first post in this exchange, exempting the president from impeachment for speech acts that are protected from criminal and civil sanctions under the First Amendment would have absurd and dangerous consequences. Nothing in the text, original meaning, and history of the clauses of the Constitution governing impeachment creates such an exception to the impeachment power.

The Blackman-Tillman approach would also have the dubious consequence of enabling Congress to impeach lower-level officials for various kinds of speech, but barring them from impeaching the president when he engages in the exact same conduct; this, despite the fact that the impeachment standard for both is actually the same: they can all be impeached, removed, and barred from office-holding in the future if they commit “high crimes and misdemeanors.”

As for the argument that impeachment for speech acts would create a dangerous slippery slope preventing the president from functioning as a politician and party leader, I preemptively addressed it here:

[S]lippery slope fears about impeachment are misplaced. If anything, there is much more reason to fear that presidents who richly deserve to be removed will get away with serious abuses of power.

The biggest reason why we need not worry much about frivolous impeachment and removal is that removal requires a two-thirds supermajority in the Senate, as well as a majority in the House of Representatives to impeach. The former is almost always impossible to achieve unless many senators from the president’s own party vote to convict him….

Ultimately, the real danger we face is not that too many good presidents will be removed from power unfairly, but that too many grave abuses of power will go unpunished and undeterred. I am not optimistic that impeachment alone can solve this problem. The supermajority requirement that prevents frivolous impeachment also prevents it in all too many cases where it is amply justified.  But the threat of impeachment for abuse of power can at least help at the margin.

 

Finally, Blackman and Tillman again cite the president of some senators raising the First Amendment as a defense for President Andrew Johnson during his impeachment trial in 1868. I am happy to rest on the points I made against that argument in my previous post in this exchange. For those interested, that post also contains links to the earlier posts in our debate, as well as commentary by others.

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The Armed March That Wasn’t

megaphoneman

I was standing outside the state capitol in Harrisburg, Pennsylvania, where gun-toting defenders of President Donald Trump were supposedly going to start marching at noon. I could see cops, I could see National Guardsmen, and I could see dozens and dozens of reporters, but actual protesters were scarce. I did spot a fellow in a Gadsden Flag facemask and a woman whose shirt displayed a slogan about rebellion against tyranny, and as they passed behind me I heard him crack a joke: “I should walk up to the photographers here and say, ‘Excuse me, can you direct me to the armed insurrection?'”

In the wake of the recent riot at the U.S. Capitol, a widely circulated flier had called for armed marches at every state capitol on January 17. That sounded pretty dubious—all 50 states? even the most solidly blue ones?—but it seemed plausible that someone would show up somewhere, and of the capitol cities that I can reach within 90 minutes I figured Harrisburg was the most likely to attract a crowd. The day before, working from a list of upcoming protests that a security firm had been circulating, I had gone to a demo in Westminster, Maryland; it had turned out to be a liberal protest, and not a particularly big or rowdy one. Now I was in Harrisburg, and the first actual protesters to show up were, again, some liberals: A local activist named Gene Stilp and one or two assistants had shown up with a cardboard statue of Donald Trump, which they make a show of toppling for a crowd of photographers.

I did, before that, run into a guy named Eddie with a bunch of “Biden Is Not My President” t-shirts that he’d been hoping to hawk to the marchers. Another t-shirt salesman, who had driven down from Pittsburgh, said he’d been under the impression that this was going to be a Second Amendment march, not a stop-the-steal march. (He might do better tomorrow in Richmond, Virginia, where he plans to set up shop among the gun-rights activists in town for Lobby Day.) A bona fide pro-Trump protester did eventually show up, with a “Fraud 2020” sweatshirt and a megaphone. The general sentiment in his circles, he said, was that the military was going to be out on the street today and that the area was therefore best avoided. But he had decided to head over anyway and represent the That-election-was-probably-stolen-and-did-you-know-that-antifa-infiltrated-the-crowd-at-the-U.S.-Capitol? perspective.

This sparseness did not seem to be unusual: From Salem, Oregon, to Nashville, Tennessee, reports were rolling in of not-quite-demonstrations where the journalists outnumbered the demonstrators. Even the larger protests—like the one in Columbus, Ohio, which the Statehouse News Bureau described as “odd but peaceful”—didn’t see to have drawn more than a few dozen marchers. And the protesters weren’t all playing to type either: In Salem, where a handful of folks from the anti-government boogaloo movement had showed up, one brought a sign that said “Fuck Trump” as well as “Fuck Biden.”

In Harrisburg, the biggest story was all the reporters looking for a story. If you had opinions you wanted to get into the news, this was your golden opportunity. The man in the Fraud 2020 sweatshirt held court for a while, answering reporters’ questions through his megaphone. A black guy berated the cops guarding the capitol building, then announced to everyone present that the real white supremacists were those officers on the other side of the barricade. And the dude in the Gadsden Flag mask wound up holding a little press conference on the Capitol steps. This gradually revealed that—as is often the case at protests, left or right—his politics weren’t as predictable as you might have guessed: He thought Trump on balance had been a good president, but he had also supported impreachment over the Ukraine scandal.

While he was talking, the wind nearly blew the barricade over, to the crowd’s amusement. “Can you arrest God?” someone asked. I’m not completely sure, but I think even one of the cops might have laughed.

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Further Rejoinder on Why the First Amendment Does not Constrain Impeachment and Removal of Presidents

First Amendment

In their latest post on the subject of impeachment and the First Amendment, Josh Blackman and Seth Tillman somewhat belatedly acknowledge the Supreme Court’s longstanding jurisprudence on the free speech rights of government employees. As numerous critics of their earlier posts have pointed out (e.g.—Jonathan Adler, Andrew Koppelman, and myself), the First Amendment  does not protect senior government employees in policy-making positions from being removed from their positions. Indeed, such officials get fired because of their speech on a regular basis—including by Donald Trump himself!

To their credit, Blackman and Tillman acknowledge this, and do not claim that high-level government officials have any general constitutional right against being removed for their speech. But they claim that presidents are different from appointed officials because the latter are subordinates of the president, while the president himself has no superiors, except for the voters during an election year:

Senior appointed policy-making executive branch officers are removable by the President. If they lose the confidence of the President, for whatever reason, even for otherwise lawful speech, he can remove them. Absent constitutionally valid congressional tenure protections, these positions are at will….

The President’s relationship to his subordinate executive branch officers is one of a superior to inferiors. The President is elected; the senior officers are appointed. The President can nominate his senior officers. He can direct them. Generally, he can remove them at will….

By contrast, the President is not a cabinet member, who works for a superior—other than the People who act through elections. Nor is the President a GS-15 who can be disciplined for speaking at a political rally. Treating the President as an appointed officer or a civil servant would eliminate the President’s ability to act like a politician and party leader.

Blackmand Tillman go on to argue that Congress is not the president’s “superior” and therefore doesn’t have the power to remove presidents for their speech, in the way that the president himself can remove his own high-ranking executive branch subordinates.

The problem with the Blackman-Tillman theory is that they overlook the reality that one branch of government can remove members of another even if they are not otherwise the superiors of the latter. The whole point of impeachment is to give Congress the power to remove legislative and judicial officials who abuse their power, commit crimes, or otherwise create a menace to the political system. Congress can also, if it wishes, bar such officials from holding office in the future.

While, as Blackman and Tillman note, “the people” are the ultimate superiors of the president, they also cannot remove the president between elections, even if he severely abuses his power, and they also cannot sanction him for crimes and abuses perpetrated during the “lame duck” period after an election (as in the case of Trump). Impeachment is intended to fill this gap in the constitutional structure. To put it in Blackman and Tillman’s terms, Congress is indeed the president’s superior for the limited purpose of removing him and barring him from future office-holding in response to certain types of illegal or abusive activity on his part. That is perfectly consistent with their not being his superior in various other ways.

As I pointed out in my first post in this exchange, exempting the president from impeachment for speech acts that are protected from criminal and civil sanctions under the First Amendment would have absurd and dangerous consequences. Nothing in the text, original meaning, and history of the clauses of the Constitution governing impeachment creates such an exception to the impeachment power.

The Blackman-Tillman approach would also have the dubious consequence of enabling Congress to impeach lower-level officials for various kinds of speech, but barring them from impeaching the president when he engages in the exact same conduct; this, despite the fact that the impeachment standard for both is actually the same: they can all be impeached, removed, and barred from office-holding in the future if they commit “high crimes and misdemeanors.”

As for the argument that impeachment for speech acts would create a dangerous slippery slope preventing the president from functioning as a politician and party leader, I preemptively addressed it here:

[S]lippery slope fears about impeachment are misplaced. If anything, there is much more reason to fear that presidents who richly deserve to be removed will get away with serious abuses of power.

The biggest reason why we need not worry much about frivolous impeachment and removal is that removal requires a two-thirds supermajority in the Senate, as well as a majority in the House of Representatives to impeach. The former is almost always impossible to achieve unless many senators from the president’s own party vote to convict him….

Ultimately, the real danger we face is not that too many good presidents will be removed from power unfairly, but that too many grave abuses of power will go unpunished and undeterred. I am not optimistic that impeachment alone can solve this problem. The supermajority requirement that prevents frivolous impeachment also prevents it in all too many cases where it is amply justified.  But the threat of impeachment for abuse of power can at least help at the margin.

 

Finally, Blackman and Tillman again cite the president of some senators raising the First Amendment as a defense for President Andrew Johnson during his impeachment trial in 1868. I am happy to rest on the points I made against that argument in my previous post in this exchange. For those interested, that post also contains links to the earlier posts in our debate, as well as commentary by others.

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via IFTTT

The Armed March That Wasn’t

megaphoneman

I was standing outside the state capitol in Harrisburg, Pennsylvania, where gun-toting defenders of President Donald Trump were supposedly going to start marching at noon. I could see cops, I could see National Guardsmen, and I could see dozens and dozens of reporters, but actual protesters were scarce. I did spot a fellow in a Gadsden Flag facemask and a woman whose shirt displayed a slogan about rebellion against tyranny, and as they passed behind me I heard him crack a joke: “I should walk up to the photographers here and say, ‘Excuse me, can you direct me to the armed insurrection?'”

In the wake of the recent riot at the U.S. Capitol, a widely circulated flier had called for armed marches at every state capitol on January 17. That sounded pretty dubious—all 50 states? even the most solidly blue ones?—but it seemed plausible that someone would show up somewhere, and of the capitol cities that I can reach within 90 minutes I figured Harrisburg was the most likely to attract a crowd. The day before, working from a list of upcoming protests that a security firm had been circulating, I had gone to a demo in Westminster, Maryland; it had turned out to be a liberal protest, and not a particularly big or rowdy one. Now I was in Harrisburg, and the first actual protesters to show up were, again, some liberals: A local activist named Gene Stilp and one or two assistants had shown up with a cardboard statue of Donald Trump, which they make a show of toppling for a crowd of photographers.

I did, before that, run into a guy named Eddie with a bunch of “Biden Is Not My President” t-shirts that he’d been hoping to hawk to the marchers. Another t-shirt salesman, who had driven down from Pittsburgh, said he’d been under the impression that this was going to be a Second Amendment march, not a stop-the-steal march. (He might do better tomorrow in Richmond, Virginia, where he plans to set up shop among the gun-rights activists in town for Lobby Day.) A bona fide pro-Trump protester did eventually show up, with a “Fraud 2020” sweatshirt and a megaphone. The general sentiment in his circles, he said, was that the military was going to be out on the street today and that the area was therefore best avoided. But he had decided to head over anyway and represent the That-election-was-probably-stolen-and-did-you-know-that-antifa-infiltrated-the-crowd-at-the-U.S.-Capitol? perspective.

This sparseness did not seem to be unusual: From Salem, Oregon, to Nashville, Tennessee, reports were rolling in of not-quite-demonstrations where the journalists outnumbered the demonstrators. Even the larger protests—like the one in Columbus, Ohio, which the Statehouse News Bureau described as “odd but peaceful”—didn’t see to have drawn more than a few dozen marchers. And the protesters weren’t all playing to type either: In Salem, where a handful of folks from the anti-government boogaloo movement had showed up, one brought a sign that said “Fuck Trump” as well as “Fuck Biden.”

In Harrisburg, the biggest story was all the reporters looking for a story. If you had opinions you wanted to get into the news, this was your golden opportunity. The man in the Fraud 2020 sweatshirt held court for a while, answering reporters’ questions through his megaphone. A black guy berated the cops guarding the capitol building, then announced to everyone present that the real white supremacists were those officers on the other side of the barricade. And the dude in the Gadsden Flag mask wound up holding a little press conference on the Capitol steps. This gradually revealed that—as is often the case at protests, left or right—his politics weren’t as predictable as you might have guessed: He thought Trump on balance had been a good president, but he had also supported impreachment over the Ukraine scandal.

While he was talking, the wind nearly blew the barricade over, to the crowd’s amusement. “Can you arrest God?” someone asked. I’m not completely sure, but I think even one of the cops might have laughed.

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Incoming $1400 “Stimmy” Checks Could Push The S&P Over 4,000

Incoming $1400 “Stimmy” Checks Could Push The S&P Over 4,000

There’s no doubt that the $600 stimulus checks that went out earlier this month put a charge into the market. Will the coming $1,400 checks push the market even higher? We think so.

We believe that another round of stimulus – at more than 2x the amount of the previous round – is an obvious catalyst that will move the market higher once again. We noted as such on January 13 when we posted to Twitter that the top 3 banks were “probably right” in suggesting calendar spreads because stimulus would pave the path for the S&P to breach 4,000.

This question was also explored by Bloomberg on Sunday morning, who arrived at a similar conclusion. Noting that the recent $600 checks caused option trading to explode and penny stock volume to skyrocket, the report points out that people “can’t help notice how tiny traders with money to spend keep turning up in the vicinity of almost every market spectacle these days”.

Then, the obvious question becomes: where does that extra money come from? 

Brrr…

Peter Cecchini, founder and chief strategist of AlphaOmega Advisors LLC, commented: “If the additional $1,400 goes to the same income levels it did before, we are highly likely to see additional speculation in stocks, which could continue to inflate an already-existing bubble. If it goes to people with below-average incomes, speculation will be less likely.”

Data suggests that people who got a stimulus check, across all income groups, traded 30% more in the first 10 days of January than at the start of December. Those who earn less than $75,000 per year saw a 53% jump in their trading, Bloomberg wrote.

And the coming $1,400 will hit bank accounts during a “full-blow market mania”. Speculation is rampant not just in risky asset classes like cryptocurrencies, but in penny stocks, dubious startup companies and cash burning entities across all exchanges in the U.S. – we are at peak euphoria. In fact, the options market saw its second busiest day ever for bullish equity calls this week and penny stock volume is up 6x from last year.

Retail stocks, as we have noted many times on Zero Hedge, are blowing away hedge fund favorites and the S&P 500 index:

And while people certainly need the stimulus to help offset rising costs and job losses, many will instead divert their checks to the market. 

23-year-old Ava Frankel of Boston, who works in the financial services sector, said: “I told my friends, if you’re going to spend your stimulus check on shoes, you might as well just put it in Robinhood instead. The $600 check was just something extra I didn’t need so I just threw it in the stock market.”

Frankel put her entire $600 check in to a SPAC that is reportedly in talks with Lucid Motors and says she would consider doing the same with the next check she gets. “I would love to see a pullback in the tech sector because I would like to add to my positions in the tech names,” she also said. 

Chris O’Keefe of Logan Capital Management concluded: “If there is a bubble being created within the financial markets, to some degree, those checks do add to it because I think they’re going to chase performance. It used to be you added money to the economy and people went out and bought things — cars and furniture — now it seems to amplify what’s going on in the financial markets.”

Or, in other words:

 

Tyler Durden
Sun, 01/17/2021 – 17:25

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Ice Cream From China Contaminated With COVID: Officials

Ice Cream From China Contaminated With COVID: Officials

Authored by Jack Phillips via The Epoch Times,

Officials in a Chinese municipality said that three samples of ice cream tested positive for the CCP virus, and thousands of boxes were confiscated, according to state-run media.

Storage of the ice cream, produced by Tianjin Daqiaodao Food Co., was sealed after samples sent by the firm to a local disease control center last week tested positive for the virus.

Officials said that the company’s more than 1,662 workers were placed under quarantine due to the CCP (Chinese Communist Party) virus—also known as the novel coronavirus that causes COVID-19.

Authorities in Tianjin said the company produced more than 4,836 boxes of COVID-contaminated ice cream, according to state media. Hundreds of boxes of ice cream entered the market.

The Tianjin Municipality is located in northeastern China and borders Hebei Province and Beijing.

According to reports in October 2020, CCP authorities had detected and isolated the virus on the outer packaging of frozen cod during efforts to trace the virus in an outbreak in Qingdao.

Officials’ claims about the virus being found in frozen food could be a tactic to blame other countries for COVID-19 cases in the country. In November, regime authorities said that allegedly COVID-contaminated food was imported from other countries in what some experts said was an attempt to blame those countries for the outbreak.

State media reports over the weekend said the raw material used to produce the ice cream came from Ukraine and New Zealand.

The ice cream development comes as CCP authorities relocated about 20,000 people in Shijiazhuang, the capital of Hebei Province, to other areas for quarantine several days ago. The outbreak, according to officials, also spread to Qiqihar—one of the largest cities in northern China in Heilongjiang Province.

The new wave of the COVID-19 outbreak in Shijiazhuang was concentrated in Zengcun township of Gaocheng district, and has spread to other parts of China.

The Epoch Times learned on Jan. 11 that after many residents in Zengcun were sent to quarantine sites, nearly 20,000 people who had remained were urgently notified by local authorities to be transferred to quarantine centers in remote areas.

And leaked government documents obtained by The Epoch Times showed that officials in Hebei are anticipating a surge in CCP virus cases and are making preparations to curb its spread.

Chinese officials in Heilongjiang Province on Jan. 14 told all 38 million residents to self-quarantine at home, although they didn’t say for how long.

Tyler Durden
Sun, 01/17/2021 – 17:00

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Luke Gromen: The Fed Has No Good Options Right Now As Yields Rise And Deficits Explode

Luke Gromen: The Fed Has No Good Options Right Now As Yields Rise And Deficits Explode

One of the biggest questions right now, especially as yields climb as Joe Biden promises trillions of dollars in additional COVID-19-inspired stimulus spending, is when the Fed and the Treasury, soon to be run by Janet Yellen, will conspire to stop the rise in yields and stave off another eruption of market chaos. With US deficits rising thanks to COVID, and the Fed reviving QE thanks to COVID, the global dollar-based financial system is in trouble, if for no other reason than that Europe, Japan and China are spending so much more domestically, they won’t have as much left over to spend on buying Treasury bonds to finance the US deficit and build up their foreign-exchange reserves.

One of the biggest questions right now, especially as yields climb as Joe Biden promises trillions of dollars in additional COVID-19-inspired stimulus spending, is what’s going on with Treasury yields, and why hasn’t the US dollar strengthened like it’s “supposed to do” (according to the textbook). But in reality, situations can be a lot more complicated than one might expect.

With US deficits rising thanks to COVID, and the Fed reviving QE thanks to COVID, the global dollar-based financial system is in trouble, if for no other reason than that the global economy is slowing (meaning Europe, Japan and China won’t have as much left over to pour back into Treasuries).

And with countries like Russia moving unprecedented amounts of their foreign exchange reserves into gold, like Russia, which now holds more gold in its central bank reserves than at any point in its modern history, there’s a real mutiny against the dollar that’s driving the pace of de-dollarization.

During the latest MacroVoices interview with Luke Gromen, a macro analyst who founded his own shop back in 2014, the longtime macro analyst shared his long-term outlook for the dollar, gold and Treasuries, and how global central banks will drive macro market dynamics during the post-COVID era.

At one point early on during the interview, Gromen said “[w]hat’s been interesting to me in this whole process is that the dollar hasn’t responded to these yield increases at all. And I think Louis Gave said it best a couple of weeks ago in an interview, he said when I see a nation who has rising yields and a falling currency, alarm bells go off. That’s a symptom of a balance of payments problem.”

Using Occam’s Razor, it’s clear: the reason the dollar is sinking is because the puppeteers who run the economy Jerome Powell and the rest of the Fed’s board of governors need it to sink so the US brings more dollars back in trade.

And I think that’s a way – from the yield increases, which I think the Occam’s razor explanation for why yields are rising, particularly post-election, is on expectation of the stimulus.

I think the reason behind the reason is that the reason we need the stimulus is because the US has a balance of payments problem in the aftermath of COVID. When you look at the hole that was blown in the US fiscal budget after COVID, it really looks, to our eyes, irrecoverable without some massive stimulus or a big devaluation in the dollar or something of that sort.

As Gromen reminds us, central banks started pulling back on QE back in 2014 when the Fed said it would start tapering its asset purchases.  But even before COVID struck, purchases started trending higher. 

The discussion then circles back to “deficits don’t matter…until they do.”

Erik: Now, a phrase that I’ve heard you use a lot before, Luke, is deficits don’t matter until they do. The implication being that, at some point, if you no longer have the position of prominence that the US has enjoyed, with the rest of the world buying up its debt, all of a sudden the game is different.

But, on the other hand, you can spend pretty much an unlimited amount of money if the Fed just buys all the Treasuries and you don’t have to depend on outside investors for that.

How do you see this increased spending, lots and lots of stimulus planned, a growing political sentiment around MMT to say let’s just spend whatever we need to, we can always print the money to buy the bonds if necessary?

How long does that game go on until deficits do matter?

Luke: I think they’ve started to matter already. I think they started to matter in 3Q14 when global central banks stopped buying Treasuries on net.

If you look at what they have bought from 3Q14 to present on net, they have not added any Treasury bonds on net to their FX reserves, which I think that is really the kickoff of when they started to matter.

There have been on this front a couple of interesting op-eds in the Wall Street Journal in the last month, one by former Goldman CEO and Treasury Secretary Hank Paulson, one by former Fed governor Kevin Warsh last week.

And both of them I think are really important op-eds because they both suggest that the Fed and the US government have a problem, which is that the US needs to refinance (call it) $7 to $8 trillion net this year.

So, what does this mean for yields and the dollar?

Readers can listen to the full interview below, courtesy of MacroVoices:

Tyler Durden
Sun, 01/17/2021 – 16:35

via ZeroHedge News https://ift.tt/3il2FlA Tyler Durden

The Illusion Of Freedom

The Illusion Of Freedom

Authored by Jim Quinn via The Burning Platform blog,

“The illusion of freedom will continue as long as it’s profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way and you will see the brick wall at the back of the theater.” – Frank Zappa

“The choice for mankind lies between freedom and happiness and for the great bulk of mankind, happiness is better.” ― George Orwell, 1984

The quote from Frank Zappa has truly come to fruition during the first two weeks of 2021. We have been living in a Surveillance State since the introduction of the Patriot Act in 2001 (Biden has boasted that he wrote the bill years before). Until Snowden and Assange revealed the depth and depravity of this un-Constitutional intrusion into our lives only the Deep State cabal knew the truth.

Most Americans ignored these revelations, as they continued to be distracted and entertained by their iGadgets and new social media platforms like Facebook, Twitter, Instagram, Youtube and others. These social media companies parlayed people’s narcissist need for affirmation, likes and followers into multi-billion-dollar conglomerates with near monopolistic control over the distribution of news, opinions, and on-line communication of the masses.

They have gathered personal data on hundreds of millions, used that data to create an addiction to their platforms, created algorithms to maximize their monetization of you, and colluded with government surveillance agencies to spy on you. The illusion of free speech provided by these Silicon Valley billionaires was extremely profitable for the last couple decades, so now with virtually total control of internet communication, these left-wing oligarchs have conspired with the Deep State traitors, the Democrat party, and the Davos crowd to pull back the curtain and reveal the brick wall at the back of the theater.

They began moving the tables and chairs with the manufactured global pandemic for the Chinese bio-weapon lab virus in March. The psychopaths, who wield the real power, have no concern for humanity. They seized upon this “crisis” to implement a plan to remove Trump through using Covid as an excuse to roll-out a mail-in ballot scheme (supplemented with Dominion voting machine rigging) to commit just enough fraudulent votes to throw the election to basement Biden, a senile bumbling clown who drew tens of tens to his massive rallies.

The social media autocrats gave the first inklings of extinguishing the illusion of freedom as they needed to ramp up the fear and panic from a flu with a 99.7% survival rate, so they began censoring doctors and other dissenters who dared to question the approved narrative of a deadly pandemic requiring mass lockdowns, small business closures (not Wal-Mart or Target) and mandatory masking.

When the effectiveness of Hydroxychloquine + zinc + zpack and Ivermectin were scorned, ridiculed and censored by the social media titans, you knew they were in cahoots with Gates, Fauci and Big Pharma to generate billions in profits rather than save lives. Despite unequivocal proof lockdowns and masks do nothing to stop the spread of a flu that has negligible impact on people under 70, the corporate mainstream media and social media companies promoted falsehoods and censored the truth.

They needed to destroy the economy to remove Trump. The scenery was taken down when the media conglomerates colluded to completely bury the Hunter Biden laptop story and the proof of influence peddling by the Biden crime family with China, Ukraine and Russia, and the Big guy – creepy, sleepy Joe taking his 10% cut. Anyone presenting the facts of these criminal activities was immediately banned, including the NY Post and dozens of other real journalists.

The curtain was inched back on the night of the election and in the weeks thereafter, when their master plan of fraudulent mail-in votes was failing and they needed to stop the counting in all swing states to manufacture more votes to put the senile kid groper over the top. The Silicon Valley authoritarian censorship police went into overdrive, suppressing documented proof of mass fraud, covering up video evidence and hundreds of written affidavits documenting fraud, banning dissenters from their platforms, promoting the false narrative of the fairest election ever, shadow banning opposing viewpoints, placing warnings on the accounts of anyone who presented facts about election fraud, and deleting tweets and Facebook posts of the president.

Biden should have been moving back to his basement, where DOCTOR Jill Biden could feed him oatmeal and wipe the drool off his chin, waiting for dementia to finally consume one of the most corrupt politicians in the history of this country. But instead, on January 20, he will be propped up on stage to be sworn in as president, until his handlers decide to use the 25th Amendment and install the new BJ in Chief – Kamala. The Trojan horse has entered the gates.

The curtain has been torn down and the tables and chairs tossed aside in the last week, as the social media tyrants have shown their true colors and the four-year collusion cavalcade has reached its illusory climax, with a solid brick wall blocking the exits.

The enemies of the people (aka billionaire oligarchs, Silicon Valley conspirators, corporate fake news media, traitorous Deep State spooks, and corrupt politicians) took advantage of Trump’s failure to comprehend the risk of drawing a few hundred thousand of his most inflamed devotees into Washington on the same day Congress was meeting to confirm the electoral college vote counts, by infiltrating the rally with ANTIFA operatives. Their intent was to paint Trump followers as dangerous domestic terrorists, and the narrative has been propagandized unceasingly by the left.

Trump delivered the standard speech he gave many times during the campaign and specifically told his followers to “peacefully” protest at the Capitol to let our representatives know how they felt about the fraudulent election steal which took place on November 4. There is absolutely nothing he said or did during that speech which can possibly construed as a call for mob violence. He urged the crowd to make their voices heard by the corrupt corporate bought politicians meeting to confirm the stolen election.

Based upon the hundreds of videos documenting the supposed “insurrectionist” attack mob, it is clear most of the idiots were let into the Capitol by the police, there were numerous ANTIFA thugs creating havoc, none of the insurrectionists had guns, taking selfies, and posing in congressional offices for Facebook posts was the main accomplishment, and one unarmed woman was shot to death by a policeman after being urged to go through a window by BLM leader John Sullivan.

There were a few hundred thousand Trump supporters at the rally and maybe a few hundred who meandered into the Capitol building, broke a few windows, took selfies with policemen, and had five hundred or so corrupt politicians pissing their pants because their constituents are angry about asinine lockdowns and stealing an election through blatant fraud.

Nothing was burned, there was 99% less violence than any BLM “peaceful protest” over the summer, and the only things looted were Pelosi’s podium and her laptop. She’s probably angry because it had nude selfies, she sent to Fartman Swalwell and Cryin Chuck. This was a perfect setup by those wielding the true power in this country to destroy Trump and brand his 75 million followers with a Scarlet T. They never let an opportunity like this go to waste. AOC and the rest of her squad took to social media to describe the terror of almost dying in this armed insurrection without arms. Maybe they thought they might be gored to death by this paid actor goofball.

Every moment since January 6 has been used by the Big Tech/Big Gov/Big Corp oligarchy to promote the fake news “insurrection” against a government that absconds with your money at gunpoint, uses the U.S. Constitution like toilet paper, is spending future generations into unpayable debt servitude, has as much vision as Ray Charles and the morality of a $2 whore. I apologize to all $2 whores, who at least provide a service. The compliant media mouthpieces were given the script to propagandize the terms “insurrection”, “sedition”, “coup”, and “armed rebellion” for the last two weeks, beating it to death like a clubbed seal.

The Big Lie method is being used by the Goebbels/Bernays acolytes at CNN, MSNBC, and even Fox, as they perpetuate the falsehood of an armed rebellion, when absolutely no one used firearms as they were ushered into the Capitol by police. They have unleashed the rabid dogs in a blatant search and destroy mission to decapitate Trump and force his supporters into submission by threat of job loss, pariah social status, and inability to freely associate with other like-minded individuals on social platforms.

As this second impeachment farce plays out, and the nation is engrossed and entertained by bloviating cretins disguised as elected representatives, spewing white supremacy gibberish, confirming Mencken’s belief those we elect prove voters are as moronic as the imbeciles they elect, the real economy remains in a government mandated depression, foodbanks are overwhelmed, small businesses continue to be purposely destroyed by despot governors, while Big Corp and Big Tech prosper, thrive and vacuum up more wealth.

Nancy Pelosi and her team of diverse mouth breather swamp scum have now impeached Trump for a phone call about the truthful accusation that Joe Biden used undue influence to have a Ukrainian prosecutor investigating Hunter Biden’s blatant peddling of Biden influence for millions, and now for the incitement of an insurrection by giving a speech in which he told a crowd to peacefully protest an election racked by online computer vote switching schemes and counterfeit mail-in ballot fraud.

In both cases there was zero chance of Trump being convicted and in the current instance these feckless troglodytes spent a couple hours of vacuous race posturing before voting to impeach and would have to conduct a Senate trial after Trump has moved back to Florida. This is nothing but pure putrid politics in an attempt to make Republican politicians grovel and cower, while attempting to shame Trump voters into seclusion.

The cowardly RINOs showed their true colors by voting with Pelosi’s posse, led by neo-con establishment warmonger Liz Cheney. Within a week the FBI supposedly determined the “storming” (aka being let in by the police) of the Capital was coordinated and planned weeks before using Facebook groups and other social media means. That poses the question, how could Trump’s speech incite an insurrection that was already planned and being executed while he was still speaking? Is Facebook being shutdown for the good of the country?

For over a week the Big Tech/Big Media/Big Gov oligarchs jammed the insurrection bullshit down our throats with their pontificating and painting of all Trump supporters as white supremacists conducting an armed uprising against our “noble” government swamp creatures slithering around the halls of congress. The FBI has done their part by hyperventilating about “potential” armed protests in every state capital on January 20.  The FBI, along with CIA, DOJ, and military, have been in on the plot to unseat Trump before he took office, and they continue to do their part in the never-ending coup to discredit him and insure he can’t run again in 2024.

This is nothing but fearmongering to further discredit Trump supporters and force them to cancel themselves under the threat of being canceled by the woke leftist mob. The only armed attacks on state capitals would be planned, funded, and equipped by the FBI after convincing some dupe to go along with their plan, creating their needed false flag for gun confiscation or acting like they foiled their own plan at the last second to the accolades of the leftist media.

CNN and the rest of the fake news media, along with the mini-despots Dorsey, Zuckerberg, and Bezos, are doing their totalitarian censorship damnedest to bury the John Sullivan (BLM terrorist) and ANTIFA videos proving they provoked, initiated, and took part in the violence in the Capitol. CNN even interviewed this lowlife scumbag on air after the Capitol kerfuffle as if he was a journalist, rather than radical leftist criminal.

The First Amendment is so inconvenient for these tyrants and their communist cohorts – AOC and her squad of Maoists. Anyone not in agreement with their warped psychopathic narrative must be sent to re-education camps, and if that fails, to the gulag. This is the mindset of those now in control of all the levers of our government. Next, we will be segmented into districts and subjected to Hunger Games level subjugation and tyranny. They are not satisfied with beating Trump and his 75 million followers, they must re-educate and change them to achieve everlasting victory.

“We do not merely destroy our enemies; we change them.” ― George Orwell, 1984

The incomprehensibly cosmic degree of duplicitous hypocrisy from Pelosi, Schumer, their radical extremist brethren, and their lapdogs in the fake news media knows no bounds. As the terms “insurrection” and “armed revolt” are ejected from their pieholes like diarrhea after eating gas station sushi, these myopic deceitful weasels suffer from lack of self-awareness or willfully ignorant amnesia regarding the events of this past summer. CNN, MSNBC and the rest of the far-left media complex cheered on the riots, beatings of innocent bystanders, looting, burning of government buildings and police vehicles, assaults on police, destruction of small businesses, and skyrocketing murder rates, all in the name of social justice, because a couple felons and drug addicts died while resisting arrest.

The smarmy double standard applied when reporting actual violent uprisings by BLM and ANTIFA terrorists versus a Trump rally where 99% were peaceful and 1% were paid actors to incite violence, reveals the duplicity of these faux journalists. Trump always had them pegged perfectly with his “Fake News” moniker, and that accurate portrayal has driven them insane with rage to destroy him.

The Silicon Valley ministers of propaganda and censorship not only allowed these planned riots to be coordinated on their social platforms, but openly supported and encouraged the violence and mayhem. Burning downtown districts, police under siege, murder, and anarchy gripped dozens of Democrat run cities for months, but they were reported as fiery but mostly peaceful protests by the irresponsible media. Kamala and Hollywood elites bailed out killers and anarchists. Not a peep out of Pelosi, Schumer or basement Biden about insurrection, armed mobs, or violent revolt.

So, Twitter and Facebook allowed violent criminals to coordinate and carry out hundreds of uprisings and violent mob attacks attempting to overthrow the authorities in dozens of cities with zero consequences or moral outrage. Did Amazon shut down their servers? Normal law-abiding citizens of this country were provided a glimpse into a future controlled by Big Tech/Big Media/Big Democrat Gov and should have resisted this left-wing surge of anarchy. Instead they sat back and watched it on their boob tubes while passively accepting the lockdowns imposed by their governors. Now it is too late.

I realized the oligarchy no longer even feigned to believe in the rule of law or freedom of speech with the coordinated snuff film episode of Get Parler. This was a coordinated takedown of a website which was inconveniencing the Big Tech oligarchy of Twitter, Facebook, Google, Apple and Amazon. If ever a clearer example of anti-trust collusion was exhibited, this was it. But these amoral tyrants know they have sleepy Joe in their pocket because they went all in on the Hunter Biden laptop story suppression and pale face Zuckerberg “donated” $400 million towards helping swing state election officials commit fraud to guarantee a Biden victory.

The banning of Trump by Twitter and Facebook and the purge of those unwilling to go along with their Marxist ideological narrative caused hundreds of thousands to head for the exits towards Parler & Gab, where freedom of speech still existed. Freedom of speech is no longer allowed on Facebook, Twitter or Youtube.

As conservatives flocked towards Parler, the Big Tech oligarchs pulled back the curtain to reveal the brick wall. They all simultaneously began peddling the provably false narrative the dreadful “assault on freedom”, with no weapons, at the Capital was solely coordinated and planned on Parler. It is absolutely provable and factual that any planning was done using Facebook private groups.

Parler and Twitter are where keyboard warriors fight verbal battles to the death, wearing sweatpants and scratching their asses in their basement. It is a battle for likes and followers. No insurgency is plotted on these platforms. Parler was on the verge of stealing millions of former Twitter users after they gave Trump the boot. Parler’s app was the number one downloaded app in the Apple store and Google store. So, they removed it. But people could just get there from their website. So, Amazon shutdown their servers. Parler users are now staring at a brick wall.

I’m reminded of the theater scene in the Tarantino movie Inglorious Bastards. The Trump supporters are now all classified as white supremacist nazis, so not only are the exits blocked by a brick wall, but Dorsey, Zuck, Bezos, Gates, Soros, Pelosi, AOC and Schumer want to set the theater on fire and machine gun the crowd. The incessant painting of all Trump voters as white trash racists is meant to dehumanize them in preparation for the retribution from the left-wing authoritarian fascists. They will use all means necessary to destroy those who do not bend the knee. Your rights, freedoms and liberties are inconsequential to these psychopaths.

The illusion of freedom has dissipated faster than a Biden cogent thought, as Jack Dorsey was secretly recorded declaring the silencing of Trump was just the beginning, with the cancellation of anyone with a dissenting viewpoint to follow. They no longer even pretend to be neutral or accepting of different perspectives or opinions. They now feel unleashed and can attack their enemies like rabid rottweilers as their pliable puppet president owes his illegitimate assumption of power to their propaganda and censorship schemes.

Controlling the presidency, the house, the senate, most of the biggest states, traditional media, social media, FBI, CIA, DOJ, and most of the major cities, has emboldened these totalitarian Marxists to seize this country by the throat and force their treacherous agenda upon a passive, docile, willfully ignorant public. You may not know it, but you are at war, and you are losing.

Just as they used 9/11 as the excuse to implement the pre-written 300 page (Biden written) Patriot Act to fight the War on Terrorism, they will use this faux insurrection as the excuse to implement an already pre-written 20,000 page domestic terrorism law to be used against the millions of “white supremacist” Trump supporters. Within weeks of the 9/11 attack, the Patriot Act ushered in the surveillance state, unleashing unaccountable conspirators like Brennan and Clapper to implement un-Constitutional Orwellian measures, recording every electronic communication of every American.

Until Snowden and Assange revealed the unlawful and deceitful actions of these traitors, this was all done in secret. The patriotic whistleblowers are now treated as criminals. Their banishment as traitors tells you how far this country has degenerated into a totalitarian dystopia. The world has gone mad, but we need millions to rise up with the courage to tell the truth. It starts with yourself.

“Being in a minority, even in a minority of one, did not make you mad. There was truth and there was untruth, and if you clung to the truth even against the whole world, you were not mad.” ― George Orwell, 1984

Now that the Party has attained power through illicit means, they have no intention of ever relinquishing that power. They will solidify their control by overturning the filibuster in the senate, make Washington DC and Puerto Rico states, packing the Supreme Court with leftist judges, enacting MMT, centralizing control in the hands of the oligarchs and permanently installing their election fraud scheme in the necessary states. Big Tech will further crackdown and de-platform enemies of the state (aka conservatives and libertarians), while gladly providing their customers’ personal information to the state surveillance agencies, and either promoting the Party narrative or censoring the truth – for the good of the Party.

They will continue to use the China flu as a means to control the masses. Super mutant strains will be reported to keep the sheep docile and frightened. Masks will become a permanent fixture to dehumanize you and make you believe every stranger is a disease spreading parasite. They will require a vaccination passport to travel, attend sporting events, eat out, and work. The green new deal will be jammed down out throats at the point of a gun. Your guns will be outlawed and/or be made prohibitively expensive to buy or own.

These totalitarian Marxists have no interest in the betterment of humanity, the sanctity of the nuclear family, decency, common respect, community standards or the welfare of future generations. Our modern-day Room 101 doesn’t have rats ready to gnaw on your face, it has Covid-19 ready to attack your lungs and suffocate you. Orwell would be impressed by our current day Big Brothers (Gates, Zuckerberg, Bezos, Dorsey), as their means of control and fear is so much more efficient. Their revolution is about the acquisition of power for the sake of power. They have no qualms about being the boot stomping on your face forever. Know your enemy and subvertly start fighting now, or your fate will be sealed over the next decade.

“Now I will tell you the answer to my question. It is this. The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power, pure power. What pure power means you will understand presently. We are different from the oligarchies of the past in that we know what we are doing. All the others, even those who resembled ourselves, were cowards and hypocrites. The German Nazis and the Russian Communists came very close to us in their methods, but they never had the courage to recognize their own motives.

They pretended, perhaps they even believed, that they had seized power unwillingly and for a limited time, and that just around the corner there lay a paradise where human beings would be free and equal. We are not like that. We know that no one ever seizes power with the intention of relinquishing it. Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power. Now you begin to understand me.” ― George Orwell, 1984

*  *  *

The corrupt establishment will do anything to suppress sites like the Burning Platform from revealing the truth. The corporate media does this by demonetizing sites like mine by blackballing the site from advertising revenue. If you get value from this site, please keep it running with a donation.

Tyler Durden
Sun, 01/17/2021 – 16:10

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

ETFs And Passive Investing Have Wildly Distorted S&P 500 Valuations, Study Finds

ETFs And Passive Investing Have Wildly Distorted S&P 500 Valuations, Study Finds

Academics are starting to arrive at a conclusion we have been talking about for years: the influx of ETFs and passive investing in today’s market could be more trouble than its worth.

Many people currently believe that larger companies are in a bubble – and that small caps are the place to look in 2021. A new study supports this assertion. In fact, passive flows into the S&P 500 have “disproportionately pumped up prices of its largest members — paving the way for small companies in the benchmark to eventually outperform,” according to a new report from BNN

The report, which cites a team from Michigan State University, the London School of Economics and University of California Irvine, analyzed data from 2000 to 2019. It was authored by Hao Jiang, Dimitri Vayanos and Lu Zheng. 

The conclusion was that smaller members of the S&P 500 wind up becoming too cheap relative to the larger names. “Flows into funds tracking the S&P 500 index raise disproportionately the prices of large-capitalization stocks in the index relative to the prices of the index’s small stocks. The flows predict a high future return of the small-minus-large index portfolio,” the paper says. 

The study found that “noise traders” (passive investors) “tend to push up the price of fashionably big companies as they enter the S&P 500”. This causes those companies to have higher weightings, which creates a self-fulfilling prophecy when new passive traders enter the market. 

The paper notes: “When prices are distorted, weights of value-weighted indices are biased, and flows into index funds exacerbate the distortions.”

This obviously dictates that when there is reversion to the mean, smaller cap stocks will outperform. The study posits that the S&P 500 will eventually normalize. In fact, it suggests that a portfolio that goes long the smallest names in the S&P while shorting the larger names can return an average of 10% per year. 

“If index-related price distortions become more significant over time, they may boost the profitability of active investing strategies that exploit these distortions and ultimately slow the shift to passive investing,” the paper concludes. 

Tyler Durden
Sun, 01/17/2021 – 15:45

via ZeroHedge News https://ift.tt/3bOoF7a Tyler Durden