Shutdown Leaves No Money for FBI Snitches and Drug Buys: Reason Roundup

Snitches get no pay during shutdown. The partial government shutdown hasn’t just hurt airport security theater. The drug war is suffering too: FBI agents are complaining that they don’t even the funds to pay snitches or to buy drugs in undercover stings.

These complaints come up in a 72-page FBI Agents Association report in which anonymous agents talk about the shutdown’s effect on FBI operations. It has “stripped the department of the ability to buy drugs for narcotics busts and pay confidential informants,” notes NBC News. “Not being able to pay confidential human sources risks losing them and the information they provide forever,” one agent says.

Another complains that agents had to take a brief break from “using government funds to purchase narcotics or firearms from gang members,” while a third is upset that there’s no money to “conduct controlled narcotics purchases.” Yet another’s lament:

[W]e are going to be unable to conduct any controlled purchases of illicit drugs because the FBI and our partner…have no evidence purchase funds available.

Throughout the report, agents object to a lack of funds for paying “confidential human sources” and for fighting the war on drugs. The shutdown is also apparently affecting the FBI’s ability to give overtime pay to state and local cops working with them on drug and prostitution stings. In addition, the agency seems to be running out of tires and DNA tests:

And at least one agent complains about not being able to protect oil and gas industry representatives:

The Senate is supposed to vote today on two separate shutdown-ending measures—one backed by Republicans, one backed by Democrats, and neither is expected to pass.

FREE MINDS

New York state prisons are indefinitely holding post-release prisoners because there’s not enough room in supportive housing facilities. Now lawyers for six men have filed a federal lawsuit “to force Gov. Andrew M. Cuomo to address a shortage of housing for people with serious mental illnesses who need help adjusting to life outside prison walls,” The New York Times reports.

Read the complaint here.

FREE MARKETS

Major layoffs are happening at BuzzFeed, Verizon, and Gannett. BuzzFeed is set to lay off 15 percent of its staff—about 220 employees. The news was reported by The Wall Street Journal yesterday and later confirmed by BuzzFeed CEO Jonah Peretti. The company saw double digit growth in 2018 but still failed to meet revenue targets.

Yesterday also saw an announcement from Verizon that its media division—which includes HuffPost, Yahoo, and AOL—will cut 7 percent of its employees. And Gannett is laying off newspaper staff around the country.

QUICK HITS

  • From The Hill: “A panel of federal judges this week ordered Virginia to adopt new state legislative district lines that are likely to significantly aid Democratic efforts to reclaim control of the House of Delegates.”
  • Lessons from a lifetime of gender policing.
  • Cato’s Juan Carlos Hidalgo parses the situation in Venezuela, where Juan Guaido declared himself interim president Wednesday and rival president Nicolas Maduro told U.S. diplomatic personnel they had 72 hours to get out.
  • Kamala Harris talked criminal justice on The Rachel Maddow Show last night:

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“I Forgive Him”: Nathan Phillips Says Covington Students Need “Sensitivity Training” After “Coached, Insincere” Interview

Even if the full-length video showing Native American activist Nathan Phillips and a hate group known as the Black Hebrew Israelites blatantly confronting and harassing the Nick Sandmann and his fellow students from Covington High School during last week’s March for Life played on a 24-hour loop on every cable news channel in the country, NBC News would probably still insist that Sandmann was somehow at fault, and that Phillips, who has since been exposed for lying about his service in Vietnam, was the victim of racially motivated harassment.

And so it is that during a segment on Thursday’s Today Show, the network once again lent a microphone to Philips, who used his time to scold Sandmann and his fellow Covington Catholic students while insisting that they undergo “some kind of sensitivity training.” Phillips added that, though their behavior “upset” him, he would like to “forgive” Sandmann and his peers.

After attending a “traditional prayer ceremony”, Philips said he “woke up with all kinds of good feelings in my heart” and that this had softened his anger toward the Covington kids.

In terms of Phillips’ impression about the kids’ statement, Phillips said he felt it seemed “coached and written up for him”…and that it displayed an “insincerity” and a “lack of responsibility”

Asked if Phillips felt he was owed an apology, he accused the teenagers of racism toward Native American tribes. “If there’s an apology there would be an apology for his own behavior to other people besides me…I’d be way down in the list.”

But in what was perhaps the most staggeringly incorrect assertion from the interview, Phillips continued to insist that he heard the teens chanting “build that wall” despite recordings from the event proving that this didn’t happen.

Since NBC had asked Sandmann the same question, they also asked Phillips if he feels he should have walked away…to which Phillips replied that he was trying to walk away.

Phillips also admitted that the claims about his service in Vietnam was incorrect, clarifying that he only served in the reserves. “I’ve never stepped foot in South Vietnam.”

Shortly after the interview with Sandmann aired on NBC on Wednesday, video surfaced of Phillips and a group of Native American protesters interrupting a vigil mass at the Basilica of the National Shrine of the Immaculate Conception in Washington – the country’s largest Catholic Church – to demand that the church take action to punish the boys, and also that it provide “reparations” for Native American people.

When the protesters attempted to enter the building, security personnel shut them out, according to the Daily Caller.

After being introduced to the crowd of protesters as “Uncle Nate”, Phillips read prepared remarks to the crowd:

We demand that the students of Covington Catholic High School be reprimanded – not just by the school officials as seniors, but by their upcoming universities.

We demand the Catholic Church hold themselves responsible for the hundred-plus years of genocide that our indigenous people have endured – and still persist through – by [implementing] the following: with reparations of land and restorations to the indigenous peoples in the U.S. and across the world.

We demand that the Catholic Church revoke the papal bulls related to the doctrine of discovery, which laid the foundation for religious prejudice and the dehumanization of indigenous peoples.

The list of demands is met with loud howls and shouts of approval from the crowd.

Friday will mark one week since the incident took place. And by the looks of it, the mainstream media’s obsession with the Covington students hasn’t run its course just yet.

via ZeroHedge News http://bit.ly/2T69zhm Tyler Durden

Charts Both Bulls & Bears Should Consider

Authored by Lance Roberts via RealInvestmentAdvice.com,

There has been a litany of articles written recently discussing how the stock market is set for a continued bull rally and that last year’s 20% decline was just an anomaly. The are some primary points that are common threads among each of these articles which are:  1) interest rates are low, 2) corporate profitability is high, and; 3) the Fed continues to put a floor under stocks, and 4) there is no recession in sight. Each of these arguments, while currently accurate, are based primarily on artificial influences and conjecture.

  • Interest rates are low because real economic growth remains weak.

  • Profitability is high due to accounting gimmicks and share repurchases.

  • The Fed is verbally putting a floor under stocks but continues to extract liquidity from the market, and;

  • “There is no recession in sight” argument have been famous last words historically.

While the promise of a continued bull market is very enticing it is important to remember that all markets ultimately complete a “full cycle.” Therefore, if your portfolio, and ultimately your retirement, is dependent upon the thesis of an indefinite bull market, you should at least consider the following charts.

*  *  *

It is often stated that valuations are still cheap based on forward estimates. However, as I noted on Tuesday, forward estimates are always flawed, overly estimated, and repeatedly lead to poor outcomes over time (buy high/sell low) Therefore, trailing reported earnings is truly the only measure one should use.

The chart below shows Dr. Robert Shiller’s cyclically adjusted P/E ratio combined with Tobin’s Q-Ratio. Both measures of valuations simply show that markets are not cheap which historically lead to lower future returns.

  • Shiller’s PE Ratio – is calculated by taking the current price of the market and dividend it by the average of 10-years of reported earnings.

  • Tobin’s Q Ratio – is calculated as the market value of a company divided by the replacement value of the firm’s assets.) 

Most people dismiss valuations because of their inefficiency in dictating market turns. I understand.

However, valuations are NOT, and have never been, a market timing indicator. They are simply a “road map” to future returns.

On a much shorter time-frame, a look at the price of the market as compared to corporate profits give us a better clue. Currently, with the market is trading substantially above the level of corporate profits, any weakness in profit growth (which is heavily tied to economic growth) will foster a reversion in price.

Another way to look at the excess over time is by examining the inflation-adjusted S&P 500 index as compared to real profits. Note that previous extensions of price above profits have generally not ended well when profit growth reversed.

We recently proved this point by looking at the RIA Economic Composite Index as compared to the annual rate of change of the market. Not surprisingly, markets tend to perform poorly during weakening economic environments.

Another way to look at the issue of profits as it relates to the market is shown below. When we measure the cumulative change in the S&P 500 index as compared to the level of profits we find again that when investors pay more than $1 for a $1 worth of profits there is an eventual mean reversion.

The correlation is clearer when looking at the market versus the ratio of corporate profits to GDP. (Again, since corporate profits are ultimately a function of economic growth, the correlation is not unexpected.) With investors paying more today than at any point in history, the next mean reversion will be a humbling event.

Another argument made lately to support the bullish meme is that retail investors all jumped out of the market. The chart below shows the percentage of stocks, bonds and cash owned by individual investors according to the American Association of Individual Investor’s survey.  As you can see, equity ownership did indeed drop from the second highest level on record. However, while many are suggesting this is “bullish,” it is worth noting that historically sharp downturns have also denoted the start of bigger declines and bear markets.

As we have noted previously, investors have been leveraging up portfolios to chase the market. The issue with margin debt is NOT the increasing levels of it. Rising leverage provides buying power to continue to push stocks higher. The issue of margin debt is when it reverses. Just as margin debt increases the rise of stock prices, the reverse is also true.

The chart below shows the history of margin debt levels versus the 12-month moving average. Over the last decade, when the 12-month moving average was violated it has previously been met with Central Bank interventions. Currently, the Fed still remains on a path of reducing accommodative policy and liquidity is being slowly drained. The decline in margin debt is an additional removal of liquidity which has previously supported higher asset prices.

As a money manager, we are currently long the stock market albeit at reduced levels currently. The reality is that I must maintain exposure or potentially suffer career risk. However, my job is not only to make money for my clients, but also to preserve their gains, and investment capital, as much as possible.

The bullish case is based on expectations that current trends from the last decade will continue indefinitely, such as:

  1. Profit margins will only grow and never mean revert.

  2. Yields will remain stable at low levels.

  3. Fed rate hikes and yield curve inversions no longer matter

  4. Weakness in housing, autos, and other credit sensitive ares will not impact domestic growth.

  5. $1 Trillion+ deficits won’t slow the economy.

  6. Inflationary pressures will remain forever muted.

  7. Political turmoil will not roil markets or inhibit consumer confidence.

  8. U.S. dollar won’t appreciate to higher levels

  9. The U.S. economy can remain indefinitely decoupled from the rest of world.

  10. Trade wars and tariffs are a non-event.

  11. Corporations will continue to be the predominant purchasers of U.S. stocks.

  12. Liquidity will remain plentiful

  13. The Central Bank “put” will remain in place forever.

  14. This time is different.

Understanding these bullish arguments is important. But more importantly is the understanding that many of these beliefs have already begun to deteriorate and are substantially increasing the risk to investors and their capital. The markets will not rise indefinitely, and the eventual mean reversion will be more destructive than most realize.

Unfortunately, since most individuals only consider the “bull case,” as it creates confirmation bias for their “greed” emotion, they never see the “train coming.”

Hopefully, these charts will give you some food for thought. 

via ZeroHedge News http://bit.ly/2FYCcsX Tyler Durden

Euro Tumbles After Draghi Warns Risks “Have Moved” To The Downside

As warned first thing this morning, “There’s A Good Chance Draghi Sends The Euro Slumping“, and sure enough Draghi did just that when during his press conference, the ECB head made a small but material adjustment to his introductory statement as follows:

“The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”

As a reminder, in Draghi’s last statement, the central banker said “the balance of risks is moving to the downside” confirming not only that the European economy is now on the verge of contraction, but that this chart, showing that the Eurozone is now effectively in a recession…

… has not been lost on the ECB.

In kneejerk response to this confirmation that the Eurozone economy is going from bad to worse, the EURUSD slumped to session lows, dropping as low as 1.1307 as previewed earlier, before rebounding modestly back to 1.1320…

… while Bunds extended gains, with March Bund futures rising 70 ticks to touch a new contract high at 165.27. As for stocks, with European bond curves pancaking once again, the banks slumped, dragging the broader market lower:

  • STOXX BANK INDEX PARES GAINS, TURNS NEGATIVE AS DRAGHI SPEAKS
  • STOXX 600 PARES GAINS, TURNS FLAT AS EURO-ZONE BANKS DROP

There was another reason banks are sliding: as Draghi announced during the presser, the ECB had addressed TLTROs – one of the big questions for today’s press conference – but no decision had been made. This lack of clarity has put new pressure on Italian bonds, which are seen as one of the likely beneficiaries of a new round of operations, as a result the Italy-Germany spread has moved modestly wider.

On the bright side, BTP futures are holding on to gains on the day and 10Y Italian yields have continued a foray in the past week below the 200-DMA as domestic political risk appears to have simmered down for the moment.

So with risks “having moved” to the downside, and the ECB no longer doing QE, what is Draghi’s recommendation?

  • DRAGHI URGES GOVERNMENTS TO RAISE LONGER-TERM GROWTH POTENTIAL

How would they do that? Why by boosting deficit spending and sending their debt surging. Which is great… if only Brussles didn’t recently crucify Italy for trying to do just that.

via ZeroHedge News http://bit.ly/2S42S1P Tyler Durden

Futures Slide After Ross Warns US, China “Miles And Miles” Apart On Trade

There appears to be some fresh confusion in the Trump administration, because shortly after a barrage of press reports – and statements by Larry Kudlow – suggested that the US and China were making good progress in their trade negotiations, moments ago Wilbur Ross appeared on CNBC and poured cold water on optimism, saying that the US and China remain “miles and miles” away from a trade resolution.

  • ROSS: U.S., CHINA `MILES AND MILES’ AWAY FROM TRADE RESOLUTION
  • ROSS: LARGE CHINA DELEGATION COMING NEXT WEEK TO TALK TRADE

Ross then tried to walk back some of this pessimism…

  • ROSS SAYS `FAIR CHANCE’ U.S., CHINA ARRIVE AT TRADE DEAL

… but it appears that he failed as the market response to this fresh dose of pessimism was instant, with the USDJPY slumping and US equity futures hit, and dropping to overnight session lows.

And now we wait to see if Larry Kudlow will emerge on CNBC 30 minutes before the close to deny everything that Ross said just to provide a modest boost to markets.

via ZeroHedge News http://bit.ly/2ROaNBh Tyler Durden

Watch Live: Mario Draghi Explain How A Hawkish ECB Will Rescue EU’s Collapsing Economy

With the core of Europe contracting (PMIs<50 for France and Germany), and the ECB’s policy statement unchanged from its relatively hawkish end of QE, all eyes will be on Mario Draghi’s press conference as he attempts to jawbone some hope back into markets.

As we detailed earlier, in the first ECB policy meeting after the central bank concluded its QE program on December 31 (which however has not crippled demand and the bid for Spanish, Italian and Portuguese this January hit an all time high), there were no surprises at least in the official statement, which kept rates unchanged and as before, the central bank said it would keep rates “at their present levels at least through the summer of 2019.” The ECB also reoeated that it will reinvest principal payments from maturing securities “for an extended period of time past the date when it starts raising the key ECB interest rates.”

As expected, the market barely responded with the EUR unchanged as this statement was a carbon copy of the last ECB announcement.

The press release is below:

At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Regarding non-standard monetary policy measures, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

During Draghi’s press conference, there are three key questions facing Draghi and the Council.

  • have the balance of risks tilted to the downside? (DB believes they have).

  • will the ECB commit to replacing TLTRO2? (DB believes that there will be a replacement to avoid a potentially disorderly deleveraging, with confirmation by the March meeting at the latest).

  • is there a consensus building around a technical or one-off depo rate hike to support the banking system? Although Draghi has hinted at such, the minutes lacked any evidence that the Council is discussing the idea. But that’s not to say that the topic won’t be brought up again in the Q&A.

Watch live at 0830ET

via ZeroHedge News http://bit.ly/2RaEjMr Tyler Durden

Russia Warns US Intervention In Venezuela Would Have “Catastrophic Consequences”

Russia has dismissed the political crisis engulfing Venezuela as an attempted coup while expressing concern over the role external states and the potential for foreign military intervention, calling Juan Guaido’s move to declare himself president illegal.

Kremlin Spokesman Dmitry Peskov said Thursday, “We are very concerned by statements that don’t rule out some kind of external intervention,” as cited by Bloomberg. “We consider such intervention unacceptable,” Peskov added while describing the internal unrest spilling into the streets after the catalyst of Monday’s failed military revolt of 27 officers in an opposition neighborhood of Caracas an “attempt to usurp power”.

Prior meeting at the Novo-Ogaryovo state residence outside Moscow on December 5, 2018. Image source: AFP

This follows President Trump’s declaration that the US would only recognize the unelected head of the opposition-held National Assembly as “the President of the Venezuelan National Assembly, Juan Guaido, as the Interim President of Venezuela.” A senior Trump administration official followed by saying “all options are on the table”.

The Russian Foreign Ministry said further in website statement that Washington’s joining a growing list of a bout a dozen other countries to recognize Guaido “is aimed at deepening the split in Venezuelan society, increasing the conflict on the streets, sharply destabilizing the internal political system and further escalation of the conflict.” And in words eerily similar to the brief international exchange of words over prior US action in places like Libya and Syria the ministry said that external armed intervention would be “fraught with catastrophic consequences.”

The foreign ministry further described that the situation “has reached a dangerous point” and called on the international community to engage in diplomacy and mediation between the Maduro government and opposition. 

And separately, a senior Russian official on Thursday warned the Trump administration against what he called the “catastrophic scenario” of military intervention in the region.  “We warn against this,” Russia’s deputy foreign minister, Sergei Ryabkov, said in an interview with International Affairs magazine, as cited in USA Today. “We believe that this would be a catastrophic scenario that would shake the foundations of the development model we see in the Latin American region.”

Wednesday clashes with police, image via Rafael Hernández

In early December of last year President Nicholas Maduro visited Moscow to meet with President Vladimir Putin at a time when tensions with both countries and Washington were soaring. The leaders discussed Russia’s offering to throw cash-strapped Venezuela a multi-billion dollar life-line despite Caracas in the past being unable to pay its debts.  During that trip, Maduro had called Russia a “brother country” with which Venezuela had “raised the flag for the creation of a multipolar and multicentric world.”

This meeting was followed by Russia briefly deploying two nuclear-capable “Blackjack” bombers to Venezuela as part of a joint training exercise meant to underscore the two countries’ growing military relations. 

Meanwhile Russia is not the only country to express fear of external meddling and an “illegal” coup attempt, but predictably Syria, Turkey, and China have also declared intentions to stick by Maduro while voicing that the Venezuelan people alone should decide their fate. 

via ZeroHedge News http://bit.ly/2FVyErn Tyler Durden

Be Careful What You Wish for on the Minimum Wage: New at Reason

In a recent New York Times column, Ginia Bellafante made the case for a $33 minimum wage in the Big Apple. While in her estimation, the $15 minimum wage that went into effect in New York City on Jan. 1 is a step in the right direction, she argues that it’s not enough if the goal is to enable a single parent with two school-age children there to meet his or her expenses. With that objective in mind, $33 an hour is necessary.

It certainly is an expensive city to live in, and some residents do endure difficult lives with little money to spend, though, as Veronique de Rugy points out, the notion of their financial hardships going away if only the government were to set a higher minimum wage is the equivalent of assuming away the laws of economics and the real world.

View this article.

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Countries Are Beginning To Stockpile Gold

Authored by Lawrence Thomas via GoldTelegraph.com,

The Bank of China had increased its gold reserves from 1842.6 tons to 1,852 tons in December 2018. This increase represents the first major purchase of gold by the Bank of China since 2016. And there appears to be a purpose for the renewed interest in gold.

While the U.S. Federal Reserve Bank has attempted to keep gold prices low in an effort to preserve world dominance of the U.S. dollar, other countries have taken advantage by accumulating more precious metal at bargain prices.

China isn’t the only country bullish on gold. For the first time in years, both Poland and Hungary have amassed gold in 2018, and other central banks are following suit.

Many global central banks have been hoarding gold for more than a decade. Prior to the abandonment of the gold standard, this was common practice. The Federal Reserve or the Bank of England and other central banks were in the business of buying and selling gold and adding to their reserves. Gold was directly connected to the value of a currency. Many countries tied their currency to the value of the U.S. dollar.

Under President Nixon, the gold standard ceased to exist in 1971. The value of global currency quickly became arbitrary, depending what a country’s central bank said it was worth. Countries began to sell off their gold and continued to do so up to the 2007 financial crisis. This turned the selling tide around as central banks once again slowly began to buy gold. The main reason for gold’s renewed popularity is that many countries want to escape the dominance of the U.S. dollar, which has been the leading global currency. Russia is actively attempting to divert its own economy from the U.S. economy (or dollar). The more gold countries such as China and Russia hold, the greater the threat to the U.S. dollar.

Russia has been adding to its gold reserves since 2005. During the first half of this year, Russia purchased 3.381 million ounces of gold. Turkey added 1.223 million ounces to its reserves. Both countries have broken their previous gold-buying record. With global relationships becoming murky, and trade wars as a real possibility, many central banks will likely continue to covet precious gold. This is quite a change from two decades ago when central banks were eager to rid themselves of gold. Now, they can’t buy enough of it.

The Federal Reserve, in its effort to boost the U.S. dollar, has deliberately kept the price of gold at artificial bargain levels. China, Russia, and other countries are taking advantage of the Federal Reserve’s policy by buying gold on the cheap. Global gold purchases in the first quarter of 2018 rose 42 percent from the prior year or $5 billion worth of the precious metal. This is an increase of 22 percent for the same period in 2017. Other central banks have been amassing gold at a far greater rate than the Federal Reserve, leaving it in a very precarious position as the U.S. dollar faces an increasing threat. Russia alone now has a gold reserve in excess of $78 billion, or 2,036 tons, making it one of the top gold-holding countries in the world. Only the U.S. has more reserve gold, 8,133 tons. China and Turkey are closing the gold reserve gap at a rapid rate. All three countries have also sold off large amounts of their U.S. national debts in 2018, limiting their exposure to the U.S. dollar.

The world is edging toward increasing instability and possibly financial chaos. U.S. investors are already divesting themselves of portions of their stock portfolio in preparation of potential losses.

In addition, some of President’s Trump’s policies, such as the aluminum and steel tariffs, has affected international trade. China has decreased its purchasing of products such as soybeans, weakening the price of soy and the income of American farmers.

Another area of concern is the Federal Reserve’s rise in interest rates. These interest hikes have increased the value of the U.S. dollar, but have increased the debt value of many emerging markets. This could lead to another monetary crisis in these emerging countries, who will have a harder time repaying their dollar debts, let alone the interest thereon.

Russia and China, but especially China, has been dumping U.S. debts onto the world market instead of buying more U.S. bonds. With the U.S. deficit at an all-time high, it is being deprived of critical income sources. Added to the recent tax cuts implemented by President Trump, the U.S. will be struggling to meet its social security and Medicare obligation in the years to come, and these will amount to trillions of dollars. Just when the U.S. needs revenues to most, it is losing crucial income from foreign bond purchases. It is likely that President Trump’s tariff strategy is forcing countries like China to act against the interest of the U.S. They are trying to get President Trump’s attention. By creating a shortage of U.S. dollars, the ripple effect will be global and severe.

A real crisis will occur when the Federal Reserve starts printing unlimited fiat dollars to pay off its debts, which will bring about unwanted inflation. It appears that as China and other countries are buying up gold to devalue the U.S. dollar, they know exactly what they are doing.

via ZeroHedge News http://bit.ly/2B1fk90 Tyler Durden