Rapper Meek Mill (real name: Robert Rihmeek Williams) has successfully ended a 12-year legal fight in Philadelphia that shined a national spotlight on serious problems with America’s probation system.
Mill, who is now 32 years old, was arrested as a 19-year-old for drug and gun charges. A police officer claimed Mill pointed a gun at him. Mill denied the charges but pleaded guilty and served eight months in prison. Then he was put on probation for five years, and that’s when his life somehow managed to get worse. The judge overseeing Mill’s probation, Genece Brinkley, seemed to have an ax to grind with Mill, frequently lecturing him, extending his probation, and then ultimately threatening him with prison time for a scuffle in an airport with paparazzi (the charges were dropped) and an absurd arrest for popping a wheeling on his dirtbike in Manhattan while not wearing a helmet.
Brinkley sentenced him to two to four years in prison, and he served another five months before higher courts in Pennsylvania intervened and removed Brinkley from the case. Furthermore, as investigators went back to examine the initial arrest they discovered that the cop responsible was later fired from the police department for lying and theft. Another officer on the scene said that Mill was not brandishing the gun at the officer, but attempting to discard it.
In July, Mill was granted a new trial for those initial charges. Yesterday he resolved the case by pleading to a misdemeanor charge of carrying a gun in public. There will be no additional punishment. No more jail time and, just as significantly, no more probation. After he left court Tuesday he thanked his many supporters:
#Breaking: "Meek freed, I'm not on probation" @MeekMill thanks supporters after final court hearing where he pleaded guilty to possessing a firearm without a license from his initial arrest in 2007. Tuesday's plea ends the rapper's 12 year legal battle. https://t.co/CMUG5zZ3nJpic.twitter.com/YCyexQkUrV
It may be the end of Mill’s legal troubles, but it’s not the end of his criminal justice activism. Mill’s fame as a rapper helped highlight a chronic problem that persists in many places around the country and doesn’t get nearly enough attention: Probation, rather than being a tool to justify shorter jail sentences by monitoring people after release, has become a form of punishment of its own, subjecting people to the capricious whims of judges and probation officers looking for reasons to send them back to jail. Long probation terms (like Mill’s) do not prevent mass incarceration but actually fuel it, in addition to saddling poor people with extensive fines and court fees they have to pay if they want to stay free.
Mill, along with his friend Michael Rubin, co-owner of the Philadelphia 76ers, launched Reform Alliance, an organization devoted to trying to fund reforms to probation and parole laws to make them less oppressive. They’re among several criminal reform groups pushing for Pennsylvania to pass legislation that would set caps on how long a person may be on probation and forbid courts from extending somebody’s probation as punishment for being unable to pay fines or fees. He said yesterday he would continue his efforts:
It’s important that we now channel our energy into helping the millions that are unjustly trapped in our criminal justice system. #Justice4Millions#Reform
One day after the US sold 2Y Treasurys at a yield that was higher than the market yield on 10Y paper, i.e., the 2s10s yield curve inverted, for the first time since the financial crisis, the Treasury sold $41 billion in 5 Year paper, and if yesterday’s 2Y auction was a small tail, today’s 5Y auction was remarkably strong because despite the lowest yield since October 2016, at 1.365%, the demand was so acute the auction stopped 1 basis point through the When Issued of 1.375%.
The strong metric continued with the bid to cover, which rebounded from 2.26 to 2.48, the highest since August 2018, and well above the 6 auction average of 2.36. Meanwhile, the internals were sterling as well, with Indirects taking down 59.7%, a jump from last month’s 53.4%, the highest since April and above the recent average of 57.7%, leaving Directs with 18.7%, above the 17.8% six auction average, and finally Dealers left holding just 21.6%, the lowest since February.
Overall, a very strong auction, with the market surprised by just how impressive demand was, in turn sending 10Y yields sliding from 1.465% before the auction some 2bps lower after, to 1.446% after, with the 30Y enjoying a similar rally, and also hitting stocks which today are trading inversely to Tsys.
via ZeroHedge News https://ift.tt/32bi7aS Tyler Durden
Tom Steyer, billionaire Trump-impeachment-pusher, has spent a stunning $12 million on digital and television ads in only six weeks – more than any other Democratic presidential candidate has spent all year – to drive his agenda for getting money out of politics.
“I am the outsider in this race,” Mr. Steyer said in an interview.
He described Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont as “part of the establishment” and asked whether the front-runner in the polls, former Vice President Joseph R. Biden Jr., really understood what this moment called for.
“The question really is for anybody running, including Vice President Biden, are you aware of how much has to change?”
However, after proclaiming “our democracy has been purchased” as he spends $325,000 a day for ads, it appears the softly-spoken former hedge fund investor will, thanks to the DNC’s complicated (and some might say biased) rules, miss out on appearing at the next Democratic Presidential Candidate Debate.
The third round of debates (to be held on Sept 11th), doubled the qualifying threshold of the last two, requiring candidates reach 2% in 4 DNC-approved polls and draw 130,000 unique donors — including 400 donors in 20 different states.
Today is the final day to make the cut and it appears that Steyer is among those unable to qualify.
Gabbard has polled at 2% or more in two polls sponsored by the two largest newspapers in two early primary states, but the DNC — through its mysteriously incoherent selection process — has determined that these surveys do not count toward her debate eligibility. Without these exclusions, Gabbard would have already qualified. She has polled at 2% or more in two polls officially deemed “qualifying,” and surpassed the 130,000 donor threshold on Aug. 2. While the latter metric would seem more indicative of “grassroots support” — a formerly obscure Hawaii congresswoman has managed to secure more than 160,000 individual contributions from all 50 states, according to the latest figures from her campaign — the DNC has declared that it will prioritize polling over donors. In polls with a sample size of just a few hundred people, this means excluding candidates based on what can literally amount to rounding errors: A poll that places a candidate at 1.4% could be considered non-qualifying, but a poll that places a candidate at 1.5% is considered qualifying. Pinning such massive decisions for the trajectory of a campaign on insignificant fractional differences seems wildly arbitrary.
Take also Gabbard’s performance in polls conducted by YouGov. One such poll published July 21, sponsored by CBS, placed Gabbard at 2% in New Hampshire and therefore counts toward her qualifying total. But Gabbard has polled at 2% or more in five additional YouGov polls — except those polls are sponsored by The Economist, not CBS. Needless to say, The Economist is not a “sponsoring organization,” per the whims of the DNC. It may be one of the most vaunted news organizations in the world, and YouGov may be a “qualified” polling firm in other contexts, but the DNC has chosen to exclude The Economist’s results for reasons that appear less and less defensible.
Then there’s the larger issue of how exactly the DNC is gauging grassroots enthusiasm, which was ostensibly supposed to be the principle governing the debate-qualifying process in the first place. Gabbard was the most Googled candidate twice in a row after each previous debate, which at a minimum should indicate that there is substantial interest in her campaign. It’s an imperfect metric — Google searches and other online criteria could be subject to manipulation — but then again, the other metrics are also noticeably imperfect. There is no reason why the DNC could not incorporate a range of factors in determining which candidates voters are entitled to hear from on a national stage. For what it’s worth, she also tends to generate anomalously large interest on YouTube and social media, having gained the second-most Twitter followers of any candidate after the most recent debate in July. Again, these are imperfect metrics, but the entire debate-qualifying process is based on imperfect metrics.
Gabbard has a unique foreign-policy-centric message that is distinct from every other candidate, and she has managed to convert a shoestring campaign operation into a sizable public profile. (She is currently in Indonesia on a two-week National Guard training mission, therefore missing a crucial juncture of the campaign.) Other candidates poised for exclusion might also have a reasonable claim to entry — Marianne Williamson passed the 130,000 donor threshold this week — but the most egregious case is clearly Gabbard.
If only out of self-interest, the DNC might want to ponder whether alienating her supporters is a tactically wise move, considering how deeply suspicious many already are of the DNC’s behind-the-scenes role — memories of a “rigged” primary in 2016 are still fresh.
In its December 2018 “framework” for the debates, the DNC declared: “Given the fluid nature of the presidential nominating process, the DNC will continuously assess the state of the race and make adjustments to this process as appropriate.”
Now would likely be an “appropriate” time for such a reassessment.
We are sure Kamala will be pleased.
via ZeroHedge News https://ift.tt/2MHS5rR Tyler Durden
Rapper Meek Mill (real name: Robert Rihmeek Williams) has successfully ended a 12-year legal fight in Philadelphia that shined a national spotlight on serious problems with America’s probation system.
Mill, who is now 32 years old, was arrested as a 19-year-old for drug and gun charges. A police officer claimed Mill pointed a gun at him. Mill denied the charges but pleaded guilty and served eight months in prison. Then he was put on probation for five years, and that’s when his life somehow managed to get worse. The judge overseeing Mill’s probation, Genece Brinkley, seemed to have an ax to grind with Mill, frequently lecturing him, extending his probation, and then ultimately threatening him with prison time for a scuffle in an airport with paparazzi (the charges were dropped) and an absurd arrest for popping a wheeling on his dirtbike in Manhattan while not wearing a helmet.
Brinkley sentenced him to two to four years in prison, and he served another five months before higher courts in Pennsylvania intervened and removed Brinkley from the case. Furthermore, as investigators went back to examine the initial arrest they discovered that the cop responsible was later fired from the police department for lying and theft. Another officer on the scene said that Mill was not brandishing the gun at the officer, but attempting to discard it.
In July, Mill was granted a new trial for those initial charges. Yesterday he resolved the case by pleading to a misdemeanor charge of carrying a gun in public. There will be no additional punishment. No more jail time and, just as significantly, no more probation. After he left court Tuesday he thanked his many supporters:
#Breaking: "Meek freed, I'm not on probation" @MeekMill thanks supporters after final court hearing where he pleaded guilty to possessing a firearm without a license from his initial arrest in 2007. Tuesday's plea ends the rapper's 12 year legal battle. https://t.co/CMUG5zZ3nJpic.twitter.com/YCyexQkUrV
It may be the end of Mill’s legal troubles, but it’s not the end of his criminal justice activism. Mill’s fame as a rapper helped highlight a chronic problem that persists in many places around the country and doesn’t get nearly enough attention: Probation, rather than being a tool to justify shorter jail sentences by monitoring people after release, has become a form of punishment of its own, subjecting people to the capricious whims of judges and probation officers looking for reasons to send them back to jail. Long probation terms (like Mill’s) do not prevent mass incarceration but actually fuel it, in addition to saddling poor people with extensive fines and court fees they have to pay if they want to stay free.
Mill, along with his friend Michael Rubin, co-owner of the Philadelphia 76ers, launched Reform Alliance, an organization devoted to trying to fund reforms to probation and parole laws to make them less oppressive. They’re among several criminal reform groups pushing for Pennsylvania to pass legislation that would set caps on how long a person may be on probation and forbid courts from extending somebody’s probation as punishment for being unable to pay fines or fees. He said yesterday he would continue his efforts:
It’s important that we now channel our energy into helping the millions that are unjustly trapped in our criminal justice system. #Justice4Millions#Reform
When 14-year-old Ixcell Perez’s leukemia relapsed earlier this year, her doctor in Mexico told her and her mother, Dalia Perez, to head to the United States to seek treatment. It would be her only hope of survival.
Ixcell is a U.S. citizen, born in Raleigh, North Carolina. Her mother is a Mexican national. In 2010, both moved to Mexico.
According to ABC News, four months ago, after traveling four days by bus from Tapachula, Chiapas, the mother and daughter arrived at the southern border, where immigration agents at the Tijuana checkpoint reportedly locked them in a cold room with only a mat on the floor. The agents did not return until 3 p.m. the following afternoon, when they took them back to Mexico.
For reasons that remain unclear, Dalia Perez was denied entry to the United States. According to The News & Observer, Ixcell’s brother, who is also a U.S. citizen, later met her at the border, and the two traveled to the brother’s home in Raleigh. She was then admitted to Duke Cancer Center for treatment.
Her mother remains in Mexico, denied entry to the U.S. while her daughter undergoes a grueling treatment plan. “She has a life-threatening illness that requires numerous hospitalizations, clinic visits and painful procedures,” stated her doctor, oncologist Michael D. Deel, in a letter to border authorities. “The physical and emotional aspects of receiving therapy for leukemia are too much for any child to endure without the support of close family members.”
The local community in North Carolina has rallied behind the family. Two churches have teamed up to send cards and games as well as bilingual visitors to the hospital to keep Ixcell company. Rep. David Price (D–N.C.) wrote his own letter in support of the Perez family, reminding U.S. Customs and Border Protection that the mother “is not seeking asylum and wishes only to care for her daughter while she receives cancer treatment.” Solidarity Now, an immigration advocacy group, has also helped to publicize the family’s story.
In a video recorded by Solidarity Now, Ixcell told the camera through tears that she was not prepared to go through this ordeal without the support of her mother. “I want her here to come take care of me,” she said. “Because I need her.”
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When 14-year-old Ixcell Perez’s leukemia relapsed earlier this year, her doctor in Mexico told her and her mother, Dalia Perez, to head to the United States to seek treatment. It would be her only hope of survival.
Ixcell is a U.S. citizen, born in Raleigh, North Carolina. Her mother is a Mexican national. In 2010, both moved to Mexico.
According to ABC News, four months ago, after traveling four days by bus from Tapachula, Chiapas, the mother and daughter arrived at the southern border, where immigration agents at the Tijuana checkpoint reportedly locked them in a cold room with only a mat on the floor. The agents did not return until 3 p.m. the following afternoon, when they took them back to Mexico.
For reasons that remain unclear, Dalia Perez was denied entry to the United States. According to The News & Observer, Ixcell’s brother, who is also a U.S. citizen, later met her at the border, and the two traveled to the brother’s home in Raleigh. She was then admitted to Duke Cancer Center for treatment.
Her mother remains in Mexico, denied entry to the U.S. while her daughter undergoes a grueling treatment plan. “She has a life-threatening illness that requires numerous hospitalizations, clinic visits and painful procedures,” stated her doctor, oncologist Michael D. Deel, in a letter to border authorities. “The physical and emotional aspects of receiving therapy for leukemia are too much for any child to endure without the support of close family members.”
The local community in North Carolina has rallied behind the family. Two churches have teamed up to send cards and games as well as bilingual visitors to the hospital to keep Ixcell company. Rep. David Price (D–N.C.) wrote his own letter in support of the Perez family, reminding U.S. Customs and Border Protection that the mother “is not seeking asylum and wishes only to care for her daughter while she receives cancer treatment.” Solidarity Now, an immigration advocacy group, has also helped to publicize the family’s story.
In a video recorded by Solidarity Now, Ixcell told the camera through tears that she was not prepared to go through this ordeal without the support of her mother. “I want her here to come take care of me,” she said. “Because I need her.”
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Republican students favor the motto on money much more than Democrat students
A survey of 1,001 college students from across the nation has found that nearly half believe the motto “In God We Trust” should be removed from U.S. currency.
The online poll was conducted Aug. 22 to Aug. 23 exclusively for The College Fix by College Pulse, an online survey and analytics company focused on college students.
The question asked:
“Do you believe the motto ‘In God We Trust’ should remain on U.S. currency or should it be removed?”
Of the 1,001 students who took the survey, 53 percent said it should remain and 45 percent said it should be removed. (Some students declined to answer.)
“We live in a secular nation, not a theocracy. Best to remove,” responded one Clemson University student in the comments section of the survey.
“Don’t put it on any $ going forward, but the cost to remove bills from circulation would be crazy, so let it remain on already printed currency,” added another student from CU Boulder.
Some students who favored it offered countering opinions.
“It’s one of the US’s mottos, and all countries put their motto on their currency, so it’s fine so long as it’s a motto,” wrote a student from the University of Alabama.
Another from UMass Amherst stated:
“I don’t think it needs to be removed, but it should be a lower case g — ‘god.’ I think that’s a much more open saying that fits with a freedom of religion.”
According to the U.S. Department of the Treasury, the motto was first placed on United States coins due to an increase in religious sentiment during the Civil War, and that “since 1938, all United States coins bear the inscription.” It first appeared on paper money in 1957 on the one-dollar silver certificate, then gradually grew to all denominations. “In God we trust” is also America’s national motto.
In Aug. 2018, a federal appeals court ruled that “In God We Trust” on U.S. currency is constitutional, “citing its longstanding use and saying it was not coercive,” Reutersreported. More recently, in June, the U.S. Supreme Court rejected hearing an appeal of that ruling sought by the atheists who originated the case.
Meanwhile, it appears college students are nearly evenly divided on the issue, but a breakdown of the data shows Republican students favor the motto on money much more than Democrat students.
Two-thirds of Democrat respondents are in favor of removing the motto, while only 6 percent of Republican respondents said it should go.
As for how students responded by race, black students who took the poll showed the most support for keeping it at 69 percent in favor, followed by Asian students at 57 percent, white students at 51 percent, and Hispanic/Latino students at 50 percent.
Under sexual orientation, the breakdown showed that 69 percent of students who identify as LGBTQIA+ are in favor of removing the motto, while only 38 percent of straight students are.
Asked to weigh in on the results, UNC Wilmington criminology Professor Mike Adams, a Christian involved in an apologetics training program called Summit Ministries, said the results do not surprise him.
“Nor does it alarm me as I have been painfully aware of the profound constitutional ignorance of young people for many years,” Adams told The College Fix on Tuesday. “They take the phrase ‘separation of church and state’ literally and out of context because they think it is in our constitution, which they have not read.”
“There is no reason why the phrase should not be on our currency,” the professor added. “It does not establish a religion. Capitalism is impossible in a society without morals. Absolute morality is impossible without God. Hence, the phrase should stay regardless of any objections leveled by constitutionally illiterate secularists.”
And Corey Miller, president of the nationwide campus ministry Ratio Christi, told The Fix:
“While I’m not surprised, I’m saddened. A generation or two has lost touch with its heritage. For all the talk of equality in America, few realize that it is the theistic foundations that ground it. In our ‘progressive’ removal of God, we should beware of what follows.”
* * *
About the poll: The initial sample was drawn from College Pulse’s Undergraduate Student Panel that includes over 240,000 verified students representing more than 800 different colleges and universities in all 50 states. Panel members are recruited by a number of methods to help ensure diversity in the panel population, including web advertising, permission-based email campaigns, and partnerships with university organizations.
To reduce the effects of any non-response bias, a post-stratification adjustment was applied based on demographic distributions from the 2017 Current Population Survey (CPS). The post-stratification weight rebalanced the sample based on the following benchmarks: age, race and ethnicity, and gender. The sample weighting was accomplished using an iterative proportional fitting (IFP) process that simultaneously balances the distributions of all variables. Weights were trimmed to prevent individual interviews from having too much influence on the final results.
The margin of error for this survey is ±3.5%. Margins of error are typically calculated on probability-based samples and are not technically correct for nonprobability online samples. We supply them here to provide a general assessment of error ranges that may be associated with the data.
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As the Trump DOJ attempts to sift through exactly what the Obama administration was pulling during the 2016 US election, Attorney General William Barr and his team of investigators are pursuing the following information, according to RealClear Investigations‘ Paul Sperry.
Agendas for former CIA chief John Brennan’s secret interagency task force meetings on alleged Trump-Russia collusion in the spring, summer and fall of 2016, which he sent in envelopes to FBI Director James Comey, Attorney General Loretta Lynch, and National Security Adviser Susan Rice.
A series of papers that task force, known as the “fusion cell,” drafted for the White House.
A classified August 2016 document Brennan hand-delivered in a sealed envelope to Obama containing information from someone Brennan described as “a critical informant close to Putin.” The informant is believed to have beeen a Russian source recycled from a largely debunked dossier compiled by ex-British agent Christopher Steele for the Hillary Clinton campaign.
An email exchange from December 2016 between Brennan and Comey in which Brennan is said to have argued for using the Steele dossier in early drafts of the task force’s January 2017 intelligence assessment, which spread the narrative that Vladimir Putin personally ordered a hacking operation to harm Hillary Clinton’s election chances against Donald Trump.
All drafts of the Russia intelligence assessment, or ICA, along with classified footnotes revealing the sourcing behind it.
Confidential source reports, known as FD-1023s, summarizing briefings between FBI agents and the informants and assets they jointly handled with the CIA, including Christopher Steele, Felix Sater, Azra Turk, and ex-Cambridge professor Stefan Halper, who apparently lured Trump campaign advisers George Papadopoulos and Carter Page overseas, where he secretly tape-recorded them.
Transcripts of conversations Halper recorded prior to July 31, 2016, in which Papadopoulos allegedly “denies any illegal conspiracy between the Trump campaign and Russia,” according to Florida Republican Rep. Matt Gaetz.
Copies of all FBI, CIA and State Department records related to Joseph Mifsud, the mysterious Maltese professor whose statements regarding Papadopoulos allegedly triggered the original Russia-collusion probe.
Diplomatic cables between Australia and the U.S. that mention former Australian diplomat Alexander Downer’s tip to the FBI that Papadopoulos allegedly bragged about Mifsud telling him the Russians had dirt on Hillary Clinton.
Queries former Obama National Security Adviser Susan Rice and U.N. Ambassador Samantha Power made to the NSA between January 2016 and January 2017 to unmask the identities of Trump figures caught up in upstream collections, or intercepts, of foreign nationals — including logs that remain under lock and key at an Obama Foundation storage site outside Chicago.
An Obama “interagency memorandum of understanding” signed by the FBI and CIA enabling outside contractors — including possibly Clinton campaign contractor Fusion GPS — to gain “improper access” (per a court opinion) to raw FISA data from November 2015 to April 2016.
Classified notes from late spring 2016 of Comey briefing White House officials on “the [Carter] Page information.”
At least four previously undisclosed, sealed Comey memos memorializing his conversations with Trump that are said to document the investigative steps taken by the FBI, as well as the codename and true name of a “confidential human source” — and evidence obtained from this source, including the identification of at least one Trump target.
Allegedly rejected FISA applications for warrants to spy on Page filed in June and July of 2016.
FISA applications to monitor Papadopoulos, former Trump national security adviser Michael Flynn, and former Trump campaign manager Paul Manafort in 2016 — in addition to all versions of the Page applications that were approved from October 2016 to June 2017, along with supporting materials.
All summaries of interviews the FBI conducted with Steele in 2016, known as FD-302s, as well as the unredacted 302 reports of the FBI’s dozen interviews with Justice official Bruce Ohr, who provided back-channel briefings from Steele after the FBI terminated him in November 2016.
FBI 302 reports summarizing 2016 meetings with Russian oligarch (and FBI informant) Oleg Deripaska, who reportedly scoffed at the idea that Trump colluded with Moscow when agents visited him in New York.
FBI 302s of agents’ Feb. 10, 2017, interview with Mifsud during which the Mueller Report says Mifsud lied to agents.
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Over the past few decades, the central banks, including the Federal Reserve (Fed), have relied increasingly on interest rates to help modify economic growth. Interest rate management is their tool of choice because it can be effective and because central banks regulate the supply of money, which directly effects the cost to borrow it. Lower interest rates incentivize borrowers to take on debt and consume while dis-incentivizing savings.
Regrettably, a growing consequence of favoring lower than normal interest rates for prolonged periods is that consumers, companies, and nations grow increasingly indebted as a percentage of their respective income. In many cases, consumption is pulled from the future to the present day. Accordingly, less consumption is needed in the future and a larger portion of income and wealth must be devoted to servicing the accumulated debt as opposed to productive ventures which would otherwise generate income to help pay off the debt.
Today, interest rates are at historically low levels around the globe. Interest rates are negative in Japan and throughout much of Europe. In this article, we expound on the themes laid out in Negative is the New Subprime, to discuss the mechanics of negative-yielding debt as well as the current mindset of investors that invest in negative-yielding debt.
Is invest the right word in describing an asset that when held to maturity guarantees a loss of capital?
Negative Yield Mechanics
Negative yields are not only bestowed upon sovereign debt, as investment grade and even some junk-rated debt in Europe now carry negative yields. Even stranger, Market Watch just wrote about a Danish bank offering consumers’ negative interest rate mortgages (LINK).
You might be thinking,
“Wow, I can take out a negative interest rate loan, receive payments every month or quarter and then pay back what was lent to me?”
That is not how it works, at least not yet.
Below are two examples that walk through the lender and borrower cash flows for negative-yielding debt.
Some of the bonds trading at negative yields were issued when yields were positive and therefore have coupon payments. For example, in August of 2018, Germany issued a 30 year bond with a coupon of 1.25%. The price of the bond is currently $143, making the yield to maturity -0.19%. Today, it will cost you $14,300 to buy $10,000 face value of the bond. Going forward, you will receive coupon payments of $125 a year and ultimately receive $10,000 in 2048. Over the next 29 years you will receive $3,625 in coupon payments but lose $4,300 in principal, hence the current negative yield to maturity.
Bonds issued with a zero coupon with negative yields are similar in concept but the mechanics are slightly different than our positive coupon example from above. Germany issued a ten-year bond which pays no coupon. Currently, the price is 106.76, meaning it will cost an investor $10,676 to buy $10,000 face value of the bond. Over the next ten years the investor will receive no coupon payments, and at the end of the term they will receive $10,000, resulting in a $676 loss. The lower the negative yield to maturity, the higher premium to par and the greater loss of principal at maturity.
We suspect that example two, the zero-coupon bond issued at a price above par, will be the issuance model going forward for negative yielding bonds.
Why?
At this point, after reviewing the cash flows on the German bonds, you are probably asking why an investor would make an investment in which they are almost guaranteed to lose money. There are two predominant reasons worth exploring.
Safety: Investors that store physical gold in a gold vault pay a fee for safe storage. Individuals with expensive jewelry or other keepsakes pay banks a fee to use their vaults. Custodians, such as Fidelity or Schwab, are paid fees for the safekeeping of our stocks and bonds.
Storing money, as a deposit in a bank, is a little different from the prior examples. While banks are a safer place to store money than a personal vault, mattress, or wallet, the fact is that deposits are loans to the bank. Banks traditionally pay depositors an interest rate so that they have funds they can lend to borrowers at higher rates than the rate incurred on the deposit.
With rates negative in Europe and Japan, their respective central banks have essentially made the storing of deposits with banks akin to the storage of gold, jewelry, and stocks – they are subject to a safe storage fee. Unfortunately, many people and corporations have no choice but to store their money in negative-yielding instruments and must lend money to a bank and pay a “storage fee.”
On a real return basis, in other words adjusted for inflation, whether an investor comes out ahead by lending in a negative interest rate environment, depends on changes to the cost of living during that time frame. Negative yielding bonds emphatically signal that Germany will be in a deflationary state over the next ten years. With global central bankers taking every possible step, legal and otherwise, to avoid deflation and generate inflation, betting on deflation via negative yielding instruments seems like a poor choice for investors.
Greater Fool Theory:Buying a zero-coupon bond for 101 today with the promise of receiving 100 is a bad investment. Period. Buying the same bond for 101 today and selling it for 102 tomorrow is a great investment. As yields continue to fall further into negative territory, the prices of bonds rise. While the buyer of a negative-yielding bond may not receive a coupon, they can still profit, and sometimes appreciably as yields decline.
This type of trade mindset falls under the greater fool theory. Per Wikipedia:
“In finance and economics, the greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price. In other words, one may pay a price that seems “foolishly” high because one may rationally have the expectation that the item can be resold to a “greater fool” later.”
More succinctly, someone buying a bond that guarantees a loss can profit if they can find someone even more willing to lose money.
Scenario Analysis
Let’s now do a little scenario analysis to understand the value proposition of holding a negative-yielding bond.
For all three examples we use a one year bond to keep the math simple. The hypothetical bond details are as follows:
Issue Date: 9/1/2019
Maturity Date: 9/1/2020
Coupon = 0%
Yield at Issuance: -1.0%
Price at Issuance: 101.00
Greater fool scenario: In this scenario, the bondholder buys the new issue bond at 101 and sells it a week later at 101.50. In this case, the investor makes a .495% return or almost 29% annualized.
Normalization: This next scenario assumes that yields return to somewhat normal levels and the holder sells the bond in six months.If the yield returns to zero in six months, the price of the bond would fall to 100. In this case, our investor, having paid 101.00, will lose 1% over the six month period or 2% annualized.
Hold to maturity: If the bond is held to maturity, the bondholder will be redeemed at par losing 1% as they are paid $100 at maturity on a bond they purchased for $101.
Summary
Writing and thinking about the absurdity of negative yields is taxing and unnatural. It forces us to contemplate basic financial concepts in ways that defy common sense and rational thought. This is not a pedantic white paper discussing hypothetical central bank magic tricks and sleight of hand; this is about something occurring in real-time.
Excessive monetary policy has been the crutch of growth for decades spurred by an intense desire to avoid and minimize otherwise healthy and routine economic corrections. It was fueled by the cult of personality which took over in the 1990s when Alan Greenspan was labeled “The Maestro”. He, Robert Rubin, and Lawrence Summers were christened “The Committee to Save the World” by Time magazine in February 1999. Greenspan was then the subject of a biography by famed Watergate journalist Bob Woodward infamously titled Maestro in 2000.
Under Greenspan and then Bernanke, Yellen and now Powell, rational monetary policy and acknowledgement of naturally occurring business cycles has taken a back seat to avoidance of these economic cycles at all cost.
As a result, central bankers around the world are trying to justify the inane logic of negative rates.
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