The most interesting thing about Marianne Williamson’s presidential campaign may be that it did about as well as you’d ordinarily expect a Marianne Williamson campaign to do. The self-help writer and spiritual leader, who suspended her New Age quest for the Democratic nomination on Friday, made a splash in the press and the meme factories by sounding so different from the other candidates. But her poll numbers never climbed above the low single digits, and now she has withdrawn before the voting begins. Apparently, the Oprah constituency isn’t enough to win a major party’s presidential nod this year. Maybe Oprah herself could do it, but not a regular Oprah guest.
That should not be surprising. Major political parties do not usually hand their national tickets to celebrity candidates who don’t have any elected experience. But one of them did just that last time around, and the guy they picked then got elected president. And that experience has thrust some traumatized analysts into a state of epistemic nihilism, as though they can’t entirely rule out the possibility that the Democrats will nominate an AI and the Republicans will nominate Bernie Sanders.
Relax, folks. We’re just few weeks from the Iowa caucuses now, and the two leading contenders for the Democratic nomination are exactly what standard political wisdom would lead you to expect: (a) the guy who was vice president the last time the party held the White House, and (b) the guy who finished second in the last nomination contest. And the candidate with the best shot at coming from behind to beat them is a well-known senator who’s spent years building a constituency.
Granted, one of those two frontrunners is a self-proclaimed socialist who isn’t technically a member of the party; and yes, there’s also a boy mayor from the Midwest in the mix. But that’s not very far beyond the standard levels of political weirdness. It certainly isn’t as strange as a Marianne Williamson presidency. That’ll have to wait another four years.
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“Do Not Kill Your Protesters” – Trump Warns Iran As Crackdown On Growing Protests Begins
Protests in Iran have spread for a second consecutive day after student-led demonstrations and clashes with police at a Tehran university Saturday saw crowds chanting “death to liars!” and “Khamenei] resign, resign!” They are demanding that Iran’s leaders, including Ayatollah Khamenei step down over their initially concealing the truth about the accidental Ukrainian airline shoot down, which killed all 176 people on board.
The initial hundreds or possibly thousands strong gatherings in Tehran spread to other cities amid a broad heightened security response which the day prior saw authorities briefly detain the British ambassador, reports Reuters; however, the size still pales in comparison to the tens of thousands which took to the streets in November, and more recently the some two million which took to the streets in support of slain IRGC Quds chief Qasem Soleimani during his funeral.
Riot police have been deployed to the University of Tehran campus after fresh protests there, with reports of tear gas and after the previous day opposition social media accounts advanced unconfirmed claims that live fire was being used. On this point, President Trump had an early Sunday message for the Islamic Republic’s leaders and security forces:
To the leaders of Iran – DO NOT KILL YOUR PROTESTERS. Thousands have already been killed or imprisoned by you, and the World is watching. More importantly, the USA is watching. Turn your internet back on and let reporters roam free! Stop the killing of your great Iranian people!
But it also appears that some counter-protests have begun in Tehran, as The Guardiannotes that “Pro-regime protesters also gathered outside the UK embassy calling for its closure after the British ambassador to Iran was briefly detained on Saturday evening after leaving the site of a demonstration.”
Upon the very start of the new protests over the airline downing, Trump on Saturday issued a series of tweets in English and Farsi voicing support for what was as that moment a mere hundreds in the streets, crowds which appear to have since grown.
“To the brave, long-suffering people of Iran: I’ve stood with you since the beginning of my Presidency, and my Administration will continue to stand with you,” he tweeted. “There can not be another massacre of peaceful protesters, nor an internet shutdown. The world is watching.”
Given we appear possibly set for a November repeat, which saw hundreds killed at the hands of Iranian security according to most international reports and human rights organizations (though the US claimed at the time the dubious number of up to 1,000), local security forces aren’t taking any chances.
At the height of the Iranian establishment anti Americanism, Tehran Beheshti university’s students refused walking over the US and Israel flag while participating in #IranProtests . They all grew up to hate the two countries but seems like the revolutionary ideology is failed. pic.twitter.com/ABQY3GzWMo
Iranian security forces stepped up patrols in Tehran, seeking to quell further anti-government protests after the regime admitted downing a Ukrainian passenger jet, triggering anger on the streets and global outrage.
Videos on social media, which couldn’t immediately be verified by Bloomberg, showed motorcycle-mounted security forces in green camouflage and anti-riot body armor stationed on the city’s Valiasr square on Sunday morning. There was also a heavy police presence outside Tehran university.
Meanwhile, in an interview with CBS’ Face the Nation, Defense Secretary Mark Esper said he doesn’t expect more retaliatory missile strikes out of Iran.
The US State Department is poised to make much of these initial weekend student protests, though it’s as yet unclear if they will gain in momentum.
“You can see the Iranian people are standing up and asserting their rights, their aspirations for a better government – a different regime,” he said of the weekend protests, also echoing prior similar statements from Pompeo.
Jan 12, Tehran, #Iran
Students of Alame Tabatabaie University chant against the regime’s state-run TV for deceiving the public for the past 3 days saying that flight #PS572 crashed due to “technical reasons”.
“Our state-run TV is our disgrace”, they chant. #IranProtestspic.twitter.com/BqjPQxk4w0
Should the momentum of the protests carry into this coming week, Iran’s leadership will likely brace for the worst given Trump is publicly backing anti-regime demonstrations, and the proverbial gloves of the security forces will be coming off.
The most interesting thing about Marianne Williamson’s presidential campaign may be that it did about as well as you’d ordinarily expect a Marianne Williamson campaign to do. The self-help writer and spiritual leader, who suspended her New Age quest for the Democratic nomination on Friday, made a splash in the press and the meme factories by sounding so different from the other candidates. But her poll numbers never climbed above the low single digits, and now she has withdrawn before the voting begins. Apparently, the Oprah constituency isn’t enough to win a major party’s presidential nod this year. Maybe Oprah herself could do it, but not a mere Oprah guest.
That should not be surprising. Major political parties do not usually hand their national tickets to celebrity candidates who don’t have any elected experience. But one of them did just that last time around, and the guy they picked then got elected president. And that experience has thrust some traumatized analysts into a state of epistemic nihilism, as though they can’t entirely rule out the possibility that the Democrats will nominate an AI and the Republicans will nominate Bernie Sanders.
Relax, folks. We’re just few weeks from the Iowa caucuses now, and the two leading contenders for the Democratic nomination are exactly what standard political wisdom would lead you to expect: (a) the guy who was vice president the last time the party held the White House, and (b) the guy who finished second in the last nomination contest. And the candidate with the best shot at coming from behind to beat them is a well-known senator who’s spent years building a constituency.
Granted, one of those two frontrunners is a self-proclaimed socialist who isn’t technically a member of the party; and yes, there’s also a boy mayor from the Midwest in the mix. But that’s not very far beyond the standard levels of political weirdness. It certainly isn’t as strange as a Marianne Williamson presidency. That’ll have to wait another four years.
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When you sit down with your portfolio management team, and the first comment made is “this is nuts,” it’s probably time to think about your overall portfolio risk. On Friday, that was how the investment committee both started and ended – “this is nuts.”
We have been discussing the overbought, extended, and complacent market over the last couple of weeks, but on Friday, I tweeted out a couple of charts that illustrated the excess.
The first chart was comparing the Nasdaq to the S&P 500 index. Both are banded by 2-standard deviations bands of the 200-WEEK moving average. there are a couple of things which should jump out immediately:
The near-vertical price acceleration in the markets has been a historical hallmark of late-stage cycle advances, also known as a “melt up” phase.
When markets get more than 2-standard deviations above their long-term moving average, reversions to the mean have tended to follow shortly after that.
Currently, both of those conditions exist in the chart above. However, if it were only price acceleration, we would just be mildly concerned. However, investor complacency has also reached more extreme levels with PUT/CALL ratio now hitting historically high levels. (The put/call ratio is the ratio of “put options” being bought on the S&P 500 (theoretically to hedge risk) versus the number of “call” options purchased to “lever up” risk.)
Lastly, all of our indicators from momentum to relative strength are all suggesting risk substantially outweighs reward currently.
While none of this means the market will “crash,” it does suggest the risk/reward ratio is not in favor of the bulls short-term.
However, we are mindful that in the short-term, the market is currently obsessed with the Fed’s monetary interventions (the topic of this week’s MacroView), which are supportive of the markets currently. However, as my friend and colleague Doug Kass summed noted this week:
“It is growing increasingly clear to me that global stock markets are in the process of making a speculative move (driven by global liquidity) that may even compare to the advances that culminated in the seminal market tops in the Fall of 1987 and in the Spring of 2000.
As today’s trading day comes to a close, it is apparent that, like the 1997 Long Boom paradigm expressed in a column in Wired Magazine during the dot.com bubble –– the current market is similarly viewed as in its own, new liquidity-based paradigm.
No longer is the market hostage to the real economy or sales and profit growth – stuff I have spent four decades analyzing. Instead, liquidity is seen as an overriding influence, actually it has become the sine quo non.
As such, historical valuations become increasingly irrelevant, and price momentum is the lodestar.“
He is right.
Currently, almost every single valuation metric is at historic extremes, yet investors continue to take on increasing levels of risk due to nothing more than “F.O.M.O – Fear Of Missing Out.”
As Doug goes on to note:
“We live in unusual times – in which central bankers have adopted policy unlike any point in history. Near-zero interest rates around the world have become commonplace and are accepted with little thought given to the adverse consequences. Forgetting history, central bankers seem to have no idea that they have created another monster again – just as they did in 1999.
Meanwhile, corporate profits are lower (year over year), and the rate of global GDP growth remains below the historic trendline – as it takes more and more debt to deliver a unit of production.
The climb in stocks will likely end badly as it is not supported by the fundamental (social, economic, political and geopolitical) backdrop and, increasingly, classical valuation metrics have moved to the highest percentiles in history (enterprise value/EBIT, price to sales, market capitalizations to GDP, etc.)
Yes, “this is nuts,” which is why we took profits out of portfolios on Friday.
3300 To 3500, And Back Again
In July of 2019, we laid out our prognostication the S&P 500 could reach 3300 amid a market melt-up though the end of the year. On Friday, the market touched 3280, which, as they say, is “close enough for Jazz.”
However, with the Federal Reserve having “turned on the liquidity taps,” it is entirely possible the markets could continue their upward momentum towards 3500.
The potential “fly in the ointment” is if the economic, employment, and profit data fail to recover as anticipated. With 2020 earnings estimates already cut markedly heading into the year, further downward revisions will likely begin to weigh on investor sentiment.
Friday’s employment report was weak and exposed the anomaly caused by the autoworkers strike in the blockbuster November report. CEO and CFO confidence remain very suppressed currently, and if their views don’t start to improve markedly in the short-term we are likely to start seeing much weaker employment reports.
While the markets could certainly see a push higher in the short-term from the Fed’s ongoing liquidity injections, the gains for 2020 could very well be front-loaded for investors.
Taking profits and reducing risks now may lead to a short-term underperformance in portfolios, but you will likely appreciate the reduced volatility if, and when, the current optimism fades.
US Expels Saudi Servicemen Over Extremist Ties And Pedophilia In Wake Of Pensacola Shooting
Over a dozen Saudi trainees stationed at US military installations will be expelled from the country following an investigation stemming from a deadly December shooting at a Navy base in Pensacola, Florida, according to CNN.
While the expelled students aren’t accused of aiding 21-year-old Saudi Air Force second lieutenant Mohammed Saeed Alshamrani – who murdered three US sailors and injured 12 after watching mass shooting videos the night before with three friends who filmed the attack the next day – several of them were found to have ties to extremist movements and/or were in possession of child pornography.
About a dozen Saudi trainees at the Pensacola base had been confined to their quarters as the FBI investigated the shooting as a potential terror attack, and the Pentagon initiated a review of all Saudi military trainees in the country, numbering around 850 students.
The Justice Department is expected to conclude that the Pensacola shooting was in fact an act of terrorism, according to a US official.
No co-conspirators have been charged as part of the investigation, and the Saudi government has pledged its full support. –CNN
According to the New York Times, Alshamrani and his three friends visited New York City with his three friends in the days leading up to the shooting – visiting several museums and Rockefeller Center.
His rampage spanned two floors in a classroom, according to Sheriff David Morgan of Escambia Country. Two deputies were injured in the shooting. The Saudi trainee used a locally bought Glock 45 9mm handgun with an extended magazine, and was carrying between four and six more magazines.
The New Electric Hummer Makes Tesla’s Cybertruck Look Like A Kid’s Tonka Toy
General Motors has finally decided to bring back the Hummer: millennial style.
The Detroit automaker is going to be buying Super Bowl airtime to debut the Hummer as an all-electric pickup, carrying on the model’s lineage that was discontinued about a decade ago. GM has even signed LeBron James to appear in the commercial, which will air on February 2, according to CNBC.
The vehicle is going to be sold under the GMC brand, instead of its own standalone brand. It is expected to go on sale by late 2021 or early 2022 and will likely be a direct competitor to Tesla’s Cybertruck, should the Cybertruck actually wind up being manufactured at some point.
And the Hummer looks badass.
Making the Hummer name – which used to be synonymous with gas guzzling – an EV was a big step. Karl Brauer, executive publisher of Cox Automotive called it a “perfect marriage”.
The move comes at a time when pickups and SUVs continue to dominate in popularity with American auto buyers, despite the overall industry recession.
Brauer continued: “What automaker on the planet wouldn’t love to have the Hummer brand in its portfolio right now. There’s no indication they shouldn’t do this and every indication they should.”
We’re guessing the Hummer will resonate with a demographic that Tesla’s Cybertruck fails to. As one social media post points out:
Cybertruck:
• nerdy
• probably plays D&D
• got beat up for lunch money in middle school
Electric Hummer:
• powerful
• beloved by The Terminator
• beats up other countries for oil https://t.co/dFAzk3tIST
The previous Hummer design from a decade ago included a short-lived pickup design, but the brand drew criticism and was ultimately discontinued as a part of GM’s bankruptcy in 2009 as gas prices surged and the model’s design developed a bad reputation as polluting the planet.
The Hummer is expected to lead the way in a surge of new electric pickups to hit the market in coming years from companies like Ford and Rivian.
Global oil markets will remain well supplied this year, with a possible overhang of some 1 million bpd, the head of the International Energy Agency, Fatih Bitol, told Reuters.
“Non-OPEC production is very strong. We still expect production coming from, not just United States, but also Norway, Canada, Guyana, among other countries,” Birol said, adding
“Therefore, I can tell you that the markets are, in my view, very well supplied with oil, and as a result of that, we see prices remain at $65 a barrel.”
Norway is about to experience a sharp jump in oil production in the next four years, a new forecast from its Petroleum Directorate has shown. After a steady decline over several years, production is set for a 43-percent increase between 2019 and 2024, the NPD said, reaching 2.02 million bpd in 2024. This will be thanks to the start of production at the Johan Sverdrup offshore field along with several smaller fields.
In Guyana, Exxon has just begun production from the Liza-1 well. Daily output from the deepwater field should reach 120,000 bpd before the end of 2020. Exxon is also building a second production vessel that should raise the total to 220,000 bpd.
In Canada, meanwhile, oil production is also set to grow despite a government-imposed curtailment aimed at supporting prices. The curtailment was relaxed twice in 2019 and it only concerns large producers, allowing smaller ones to pump as much as they can sell. Based on this, the Canadian Conference Board recently forecast oil production in the country will be growing at 4.2 percent annually between this year and 2024.
Demand growth, however, will be slow, according to Birol.
“We are expecting a demand growth of slightly higher than 1 million barrels per day,” the top IEA man told Reuters.
This means that except sudden spikes in prices due to geopolitical factors or possible production outages in a major producer, oil prices this year will remain largely range-bound.
Macron Abandons Plan To Raise Retirement Age As Rock-Throwing Protesters Get Tear-Gassed
French President Emmanuel Macron has scrapped plans to raise the retirement age from 62 to 64, as tens of thousands of anti-government activists – many donning yellow vests – returned to the streets of Paris and elsewhere on Saturday to protest the proposed pension reforms, according to the New York Times.
The mood was militant, and the more violent demonstrators once again clashed with the police, even as they sowed a trail of damage through eastern Paris. A bank branch was sacked, and bus shelters smashed and fires set. Unions said 150,000 protesters were in the streets of Paris on Saturday. –NYT
Saturday’s demonstrations included exchanges between rock-throwing protesters and the police, who used tear gas, water cannons and other crowd control measures as the day wore on. At one point a building was set on fire.
The government of France plays a major role in retirement pensions – both providing and guaranteeing funds and overseeing the entire system.
The bid to boost the retirement age infuriated moderate unions Macron relies on, despite his insistence that French citizens need to work longer in order to keep the pension system – which may be facing a $19 billion deficit – financially sound.
In a Saturday letter from Prime Minister Edouard Philippe, the Macron administration said that it would “withdraw” the new age limit, and postpone major decisions on how to keep the system solvent until it can better assess the situation “between now and the end of April.”
Macron described it as a “constructive compromise,” which French union CFDT applauded. The CGT union called the measure “a smokescreen,” however, which protesters agreed with as they took to the streets on Saturday.
Des nouvelles de la liberté de la presse.
Tout à l’heure place de la république, je filmais par terre des traces de sang d’un manifestant frappé par la police plus tôt.
Right-wing French politician Marine Le Pen called the Macron administration’s move a “dishonest” negotiating tactic.
“You introduce something that’s unacceptable, and then you withdraw it,” she said, adding “Nothing justifies this reform.”
Mr. Macron has insisted that his retirement plan represents a fair, rational response to the new world of work, where careers are interrupted and French citizens no longer stay in the same job for life.
The plan would replace the current system of 42 different pension regimes, most tailored to match individual professions, with a single, points-based system that will be the same for everybody. Workers would accumulate points, then cash them in at the end. Bus drivers in Toulouse would get the same retirement benefits as those in Paris — not now the case, as the Paris system has some of the country’s most generous benefits. –NYT
As the New York Times notes, “the government’s concession is unlikely to end either the strike or the demonstrations,” as “The more militant unions — and the ones most heavily represented in the railways and the Paris subway — are demanding that Mr. Macron abandon his entire reform plan.”
“We’ve got to continue to mobilize, until they pull the whole plan, pure and simple,” said French Parliamentarian Eric Coquerel from the far-left France Unbowed Party.
Boris and the Conservatives won the General Election with a very good majority. In truth, opposition parties stood little chance of success against the Tory strategists, who controlled the narrative despite a hostile media. At the centre of their slick operation was Dominic Cummings, who masterminded the Brexit leave vote, winning the referendum against all the betting in 2016. It was Cummings who arranged for the Tory Remainers to fall on their swords, which by removing the whip reduced the Tory ranks, making them appear vulnerable enough for the opposition parties to tear up the requirement for a supermajority and vote for a general election.
It was straight out of Sun Tzu’s playbook: “All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.” The way the Remainers were removed was both brutal and public. On September 3, fifteen of them went for a meeting in Downing Street, obviously convinced, with Johnson only having a parliamentary majority of one, that they were in a very strong position to negotiate either for a second referendum or Brexit in name only. Dismissing them, Cummings was blunt to the point of rudeness: “I don’t know who any of you are.” And they left with nothing.
Observers at the time saw this as suicidal, but Cummings appears to have known what he was doing. The hapless rebels had no coherent plan other than to threaten, and their bluff was called. Better, it seems that Cummings concluded, to purge the parliamentary party of serial rebels than to be beholden to them.
Much has been written about how the election victory was won. About the focus groups, about listening to Labour voters. About the “Get Brexit Done” slogan. But Sun Tzu Cummings also encouraged Labour to hang themselves. The Tories kicked off addressing the number one concern of ordinary people, tackling crime. Then came the NHS — more nurses and hospitals. This was a carefully set trap, getting the Marxists in Labour to outbid the Tories on spending to patently ridiculous levels. Having set down that route, they added nationalising water, trains, and broadband. Everyone then knew that Labour promises were not only a joke, but downright dangerous. The Conservatives’ promises were just deliverable, particularly since they were prepared to sacrifice an earlier promise to cut corporation tax.
What Now?
Obviously, Britain will leave the EU on or before January 31 next. All of 2020 subsequently is set to be taken up in trade negotiations with the EU, which will not be extended. The first post-Brexit negotiation of note will be over fisheries policies and the right of access to British waters for EU fishing vessels, due to be agreed by July 1 and implemented after the transition period.
The hope initially expressed by establishment figures in both Westminster and Brussels was that with a thumping majority the Conservatives would soften their Brexit demands, because it is no longer beholden to the ERG, an alliance of free marketeers in the Conservative parliamentary party. This being the case, it was argued, British demands for a return to total sovereignty over British fishing waters could be compromised in the context of wider negotiations. This is what always happens in Brussels, and the establishment on both sides assumes the British will continue to play that game. But the Remainers have not been paying attention: the way in which the Conservative rebels were dealt with is the new negotiating philosophy.
Far from taking the opportunity of a large Conservative majority to soften their stance in negotiations, all the indications (for those who bother to look rather than just assume) are that the British will take a firmer negotiating stance. If the EU tries to blackmail the UK over fisheries — France being an obvious instigator given her powerful fishing lobby, and Spain over Gibraltar, which has nothing to do with fisheries — the British will be prepared to walk away from negotiations, because at that point, the Political Declaration will be breeched, not by the British, but by the EU.
In truth, the negotiating power has shifted firmly to Britain from the EU. Brussels will be dealing with a new anti-establishment administration, unsympathetic toward the Brussels bureaucratic administration and determined to free the UK from as much of it as possible. The Brits are now focused, and Sun Tzu strategically clever with it.
Dominic Cummings possesses an exceptional intellect. His tutor in ancient history at Oxford, Robin Lane-Fox, reckoned him to be altogether in a different league to Boris Johnson. But Johnson is no slouch, either, and with backgrounds in the classics the two work well together. Other notable brains are Jacob Rees-Mogg, Sajid Javid, Michael Gove, Dominic Raab, and Priti Patel. Collectively, the leading lights in the Johnson cabinet stand head and shoulders intellectually above any other cabinet seen for a long time.
The ERG, whose members are drawn from the pool of Conservative MPs that favors a free market approach over statist intervention, has enjoyed a substantial influx of members from the new parliamentary intake. A definite shift towards free market, one-nation conservatism has taken place. This is not what an arrogant establishment readily understands or wants. In the corridors of Westminster, establishment figures will now have an added concern: the threat to their bureaucratic power and even their jobs. They are used to a Downing Street whose time horizon is never more than a few days. It will now actively plan for the future.
The New Political and Economic Philosophies
Leading members of the new cabinet are philosophically free traders, whose politics favour lower government intervention and lower taxes, fostering entrepreneurial ambition and encouraging wealth creation. A smaller government focused on outcomes will be a lesser burden on productive society and also provide the means of affording the best public services on a cost-effective basis. We have heard similar intentions before from incoming Conservatives, but this time there is a greater determination for it to be delivered, and with Cummings in charge of the special advisers (Spads), it is perhaps more likely to succeed.
While we can only guess at his true understanding of the benefits of free markets over socialism, Johnson has dropped a few clues that he has some knowledge of the economic issues involved. He quoted Bastiat’s broken window fallacy in an article for the Daily Telegraph on September 15, 2017, which only a genuine free trader who has discarded Keynesian intervention will understand. Equally encouraging was his remark at a private function in June 2018, when he said “F[…] business,” which was aimed at business lobbyists, otherwise known as crony capitalists seeking preference over everyone else.
These hopes are usually buried by the reality of government. But there is some hope that over the course of this parliament and next the UK will gradually free the economy from overbearing government intervention. While also being an advocate for the private sector, Cummings has a managerial approach. From his writings, we know he is a believer in the use of soft power to enhance a nation’s prospects. He quotes Thucydides, who described Athens as the school for Greece, with his ambition for Britain to be the school for the world. In other words, Britain will need to foster and develop the highest levels of education, technological know-how, and entrepreneurial opportunity if it is to progress as a nation relative to the powers of tomorrow such as China and India.
Having grabbed the reins of government, Cummings intends to finance his objectives by slashing bureaucracy and centralising political power in the hands of a few key players. Thence his intention that the cabinet be substantially reduced from the current thirty-three members.
What appears to be absent, if only because the subject has not yet arisen, is an understanding of money, the relationship between budgets, trade balances, savers, and the credit cycle. Generally, politicians delegate monetary matters to the central bank. This government will be no different. But the current governor of the Bank of England is due to retire at the end of January, a date that may be shifted because it now coincides with Brexit. We can be sure the necessary qualification for a candidate will be acceptability to the world of central banking — in other words, another inflationist.
Sajid Javid, chancellor of the exchequer, says he intends to borrow to finance infrastructure spending while keeping a tight rein on current spending. Every incoming finance minister says something similar, betraying a Keynesian approach to the relationship between government and the wider economy. Besides ignoring Bastiat’s parable on broken windows, any increase in government borrowing not met by an increase in savers’ savings is inflationary. If Javid truly believes he can separate current from investment spending and therefore follow sound money policies, he fails to understand economics at its most basic level. Doubtless Cummings would sweep this concern to one side on the basis that investment in infrastructure, particularly for northern constituencies, is necessary to convert regional voters fully from Labour to Conservative and secure office for the whole decade. And in time, it would be covered by funds released through more effective administration.
The Establishment Is Due for an Enormous Shake-Up
To understand in a little more detail what the Johnson administration plans to do, we need to take a step back. Over much of 2019, Boris Johnson, Jacob Rees-Mogg, and a few others were actively planning to oust Mrs. May and replace her with Johnson. In its early stages, the plans had little support in the parliamentary party, though Boris was wildly popular with grassroots Conservatives. But when Mrs. May was forced to defer Brexit until after the EU elections in May, Nigel Farage swept the board in those elections with his Brexit Party, and it was clear that the Conservatives, without a firm Brexit commitment, would be wiped out in Westminster. Mrs. May was forced to resign, Johnson’s campaign gathered momentum, and he became prime minister in July.
Three days before becoming prime minister, Johnson invited Cummings and his original Vote Leave team to work again with him to deliver Brexit. Cummings was appointed a special adviser to the prime minister and is now the chief Spad, controlling all ministerial Spads across government. As a former senior civil servant put it, “Mr. Cummings told all Whitehall’s Spads that he was now effectively their line manager, rather than their Secretaries [sic] of State.” It is no exaggeration to say that Cummings now exercises more control over the permanent civil service than any permanent secretary, as well as a high degree of control over elected politicians appointed as ministers.
With Johnson’s support, Cummings has plans for radically reforming the establishment. In a lecture given at the Institute for Public Policy Research in 2014, he said his wish list would include rule changes to enable ministers based in the House of Lords to be questioned in the House of Commons. He believed the cabinet should be shrunk from some thirty ministers to six or seven. When he was Michael Gove’s Spad of education, he wanted to push through reforms to ensure that less money was spent on process and more on objectives, but he lacked the power for wholesale reform. He ensured so far as he was able that spending was on improvements to the education system instead of ministerial flights of fancy, from which Gove, to his credit, was generally free. Cummings’s strategic success at education is now planned to be extended throughout all ministerial departments, and the money saved should be considerable, enough to meet spending objectives and provide tax cuts in due course.
The problem with the civil service is that during the Blair years it became overly bureaucratic. Tony Blair’s government paid enormous sums to management consultants to advise and implement improvements. Unfortunately, payments to consultants became linked to the length of time they spent on contracts, time which was extended by introducing detailed and procedure-heavy checks and balances on every aspect of government spending. The practice extended to contracts given to the private sector, forcing enormous bureaucracy onto projects such as HS2 (the high-speed rail link from London to the North), which, before any track has been laid, is already due to run substantially over budget. A simple task which should cost something in the low hundreds becomes thousands.
As Cummings put it in his speech to the Progressive Policy think tank in November 2014, employment policy in the civil service encourages failure. There is very little incentive to reduce regulation, and no incentive to save money, because the treasury is primarily interested in power over the system. Cummings says that civil servants are overpaid for what they are meant to do, are interested in process and empire building, and never take the blame for things that go wrong, which happens more often than not.
If Cummings gets his way (and he is the most powerful operator in the new administration) the civil service will see substantial change, leading to less bureaucratic waste and better decision-making. The all-encompassing power of the treasury will be broken. After Brexit, we can also expect a radically slimmed-down cabinet, giving greater control at the centre of government, but at the same time power is likely to be devolved from the Westminster establishment to the regions. Electoral reform will follow, with a planned reduction in Westminster seats from 650 to 600, favouring the Conservatives, and the Fixed-Term Parliament Act rescinded. Reform of the House of Lords, particularly given their Brexit-blocking tactics, seems likely to be on the agenda as well.
The establishment has lost and will be heavily punished. The influence and cost of bureaucracy will be curtailed, and the costs released will be apportioned between final objectives (police, nurses, hospitals, etc.) and cuts in taxation. The objective is to reverse the current Pareto Principle at play in which it seems 80 percent is spent on process while 20 percent is spent on final objectives. If it can be achieved, the prospects for Britain relative to other nations in the EU, which are bound by their bureaucracy, will improve greatly.
Public Investment Policy
Despite senior ministers being free traders at heart, government plans for intervention will increase its role in the economy. The closest parallel is probably China, whose government gives private individuals and their businesses a framework of five-year plans within which to develop. Instead of five-year plans, the UK government works to an electoral cycle of five years with no certainty of continuation. The first priority will be to deliver infrastructure and regional government hubs to the North, with particular emphasis on newly converted constituencies to ensure future loyalty.
Transport, better broadband, and mobile signals are on the agenda. State support for research will allow technology hubs to devolve beyond the London-Oxford-Cambridge triangle, beefing up the northern universities. Cummings is known to favour copying the US’s Advanced Projects Research Agency, designed to develop military technology, with a British equivalent pursuing a wider commercial objective.
Johnson is also a keen proponent of free ports, where goods can be moved in and out without paying customs duties. Alternatively, businesses working within a designated free port area benefit from duty-free imports and from a cluster effect through the attraction of other businesses. Free ports, which include airports, are a simple way to target local development.
A Credit Crisis Is Due during Trade Negotiations
Although the Johnson/Cummings plans hold much promise, there is an exogenous factor likely to threaten them. The global credit cycle appears to be on the turn, and with it will come a systemic crisis.
There are signs (for example, the repo crisis in New York and mounting problems in eurozone banks) that the periodic credit crisis that always follows a period of credit expansion is imminent. If it breaks out before January 31, the government will undoubtedly face pressure to put Brexit on hold. The civil servants in the treasury and the Bank of England in particular will almost certainly try to persuade the government to extend the implementation period and even reverse Brexit, but with Johnson and Cummings in charge, it is unlikely to be delayed. Following Brexit, however, Britain may still be faced with contractual obligations to the EU in the event of an EU banking crisis during the negotiating period. There can be little doubt that it would be an enormous mess, likely to undermine the course of planned government spending.
The blame game will then commence. With Britain having established that you can, after all, leave Hotel California, the political adhesion that binds EU member states together will almost certainly be weakened by economic reality. A rational expectation would be that mounting problems would encourage a more realistic EU policy regarding Brexit and trade negotiations. But the relationship between the EU’s panjandrums and reality is barely tangential, so it would be sensible to expect talks to break down in these circumstances.
Therefore, in the event of a global or European credit crisis taking place, a so-called no-deal Brexit becomes an increased possibility. But this is unlikely to worry the new Conservative government, which is inclined towards free trade anyway. It’s just good politics to have someone else to blame.
[T]he Utah Tax Commission is considering recalling the license plate after complaints this week on social media.
“We’re not sure how it got through,” said Tammy Kikuchi, spokeswoman for the commission, which oversees the Utah Division of Motor Vehicles. “We’re really quite surprised.” … [O]fficials are reviewing the plate for compliance with provisions in state law that forbid vanity plates that “may carry connotations offensive to good taste and decency or that may be misleading” and express “contempt, ridicule or superiority of a race, religion, deity, ethnic heritage or political affiliation.”
“I don’t know why it was approved in 2015,” [Kikuchi] said, adding: “The current DMV director was not the director then.”
I think canceling the plate would violate the First Amendment:
[1.] Vanity plate contents are private speech, not government speech. Though Walker v. Sons of Confederate Veterans held that license plate designs are government speech, and the government can generally pick and choose which ones are allowed, vanity plates convey the owner’s own views. Courts are split on the matter, with a recent Maryland high court decision and a federal district court decision in Kentucky taking the view I articulate here, and an Indiana Supreme Court decision taking the opposite view. To quote the Maryland court’s analysis:
In [Walker v. Texas Div., Sons of Confederate Veterans (2015)], the U.S. Supreme Court determined that a Texas-issued specialty license plate displaying a Confederate flag constituted speech by the government, not speech by the Texas Division of the Sons of Confederate Veterans, the organization that sought the plate design…. The First Amendment protects, however, private speech on government property, with some limitations.
In the present case, … a message on a vanity plate … is private speech. Applying the Supreme Court’s first analytical factor [from Walker], historical usage, although license plates in general function historically as government IDs for vehicles, vanity plates display additionally “a personalized message with intrinsic meaning (sometimes clear, sometimes abstruse) that is independent of mere identification and specific to the owner.” The unique, personalized messages communicated via vanity plates contrast with the generic, depersonalized speech conveyed by a specialty plate: “[m]any Maryland vehicles display identical specialty plates; only the registration numbers, which on a specialty plate have no intrinsic meaning and carry no message, will vary.”
Additionally, private citizens, not the State of Maryland, create and submit prospective vanity plate messages. “So, historically, vehicle owners have used vanity plates to communicate their own personal messages and the State has not used vanity plates to communicate any message at all. Unlike the license plate slogans that States use ‘to urge action, to promote tourism, and to tout local industries[,]’ vanity plates are personal to the vehicle owner, and are perceived as such.”
Turning to the factor of audience perception, “[t]he personal nature of a vanity plate message makes it unlikely that members of the public, upon seeing the vanity plate, will think the message comes from the State.” Unlike the specialty plates at issue in Walker, vanity plates bear unique, personalized, user-created messages that cannot be attributed reasonably to the government.
The fact that this kind of speech takes place on government property—a license plate—is not transformative in this context of private speech into government speech. Indeed, the Supreme Court’s public forum doctrine … exists only because of the need to analyze government restrictions of private speech that takes place on government property. Nor does the juxtaposition of private speech on government property transform the public perception of the speaker’s identity….
Considering the third factor of the government speech analysis, … the [government’s] statutory and regulatory authority to deny or rescind a vanity plate based on the content of its message does not rise to the level of “such tight control that the personalized messages become government speech.” Maryland does not exercise “direct control” over the “alphanumeric pattern” displayed on vanity plates in the same or similar way that Texas controlled specialty plates. In Texas, the State had “sole control” over the content of a specialty plate. With respect to vanity plates in Maryland, “vehicle owners, not the State, create the proposed messages and apply for them.” Although the MVA retains discretion to deny a prospective vanity message, its authority to recall vanity plates issued erroneously suggests that the MVA’s control over vanity plates does not rise to the rigorous level required to transmogrify its regulatory approach into government speech.
Contrarily, a recent ruling by the Indiana Supreme Court held that vanity plates constitute government speech because “[l]icense plates have long been used for government purposes” such as vehicle identification, their messages are perceived to be communicated on behalf of the State, and the State “‘maintains direct control'” over the messages they display…. [W]e reject the [Indiana] court’s reasoning because vanity plates represent more than an extension by degree of the government speech found on regular license plates and specialty plates. Vanity plates are, instead, fundamentally different in kind from the aforementioned plate formats. Maryland has not communicated historically to the public with vanity messages. Observers of vanity plates understand reasonably that the messages come from vehicle owners. Moreover, the MVA does not exercise control over vanity plate messages to the extent that Walker informs us Texas controlled specialty plates.
[2.] Under the First Amendment precedents, the vanity plate program is either a so-called “nonpublic forum” or a “limited public forum,” so the government has some power to restrict speech there—but only in a viewpoint-based and reasonable way.
[3.] Matal v. Tam (the Slants case) held that excluding speech that “disparage[s] … or bring[s] … into contemp[t] or disrepute” any “persons, living or dead”—including speech perceived as racist—is viewpoint-based. Likewise, excluding speech that expresses “contempt, ridicule or superiority of a race, religion, deity, ethnic heritage or political affiliation” is viewpoint-based (even if one concludes that urging the deporting of illegal aliens is based on “race” or “ethnic heritage,” rather than based on their being illegally present in the U.S.). And once we conclude that the personalized license plate program involves private speech rather than government speech (see item 1 above), such viewpoint discrimination is unconstitutional.
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