The Indonesian island of Sulawesi just can’t catch a break.
On Friday, a massive 7.5 magnitude earthquake rocked the Indonesian island, triggering a massive tsunami that wiped out buildings along the coastline and in the island’s capital city of Palu. At last count, the casualties had climbed above 1,300. But as if the island hadn’t suffered enough, its Soputan volcano erupted on Wednesday after months of heightened seismic activity.
The eruption sent an ash column as high as 4,000 meters into the air. Those plumes are now migrating north and northwest, while geologists have warned that another eruption could follow and assigned the volcano an alert level III, according to RT.
Gunung Soputan, Kab.Minahasa Tenggara Provinsi Sulut meletus setinggi 4.000 meter, 3/10/2018 pukul 08.47 WITA. Kolom abu dgn tekanan kuat teramati berwarna kelabu hingga coklat dgn intensitas tebal condong ke arah barat & barat laut. Status level 3 (Waspada) & radius Aman 4 Km. pic.twitter.com/NCTYHb9aNc
People living within 4 miles of the volcano’s summit are being advised to avoid the area due to potential threats of lava flow and dangers from the ash clouds. Locals who chose to stay in the vicinity of Soputan are being instructed to wear face masks to cover their nose and mouth to avoid respiratory problems.
A volcano has just erupted on Indonesia’s Sulawesi, just days after an earthquake and tsunami devastated areas on the western side of the island.
Mount Soputan, in North Sulawesi erupted about an hour ago. pic.twitter.com/O8jQMkHBoP
No casualties have been reported from the eruption, and no property has been damaged. The volcano has continued to spew emissions while the Volcano Observatory Notice for Aviation has, meanwhile, updated its color code to Orange by the Ministry of Energy and Mineral Resources.
Terjadi erupsi G. Soputan, Sulawesi Utara dengan ketinggian kolom abu 3000-4000 meter, mengarah ke arah Barat-Barat Laut. Zona bahaya radius 4km, dan sektoral arah barar-barat daya 6.5km. pic.twitter.com/x4swF8pS7I
The National Agency for Disaster Countermeasures, which is still struggling with the deadly consequences of last week’s earthquake, said respirators are being provided to people living near the volcano who are at risk of breathing in a toxic smog spewing from the volcano. BNPB continues to monitor the situation as emergency crews were mobilized to provide respirators to the affected communities. Meanwhile, Sam Ratulangi International Airport in Manado City has continued to operate normally.
After referring to Dr. Christine Blasey Ford’s testimony before the Senate Judiciary Committee last week, President Trump has apparently changed his mind (perhaps because he senses that Democrats will continue to do everything in their power to delay a confirmation vote on Judge Brett Kavanaugh for as long as possible). And at a rally in Mississippi Tuesday night, Trump pointed out several inconsistencies in Ford’s story about what transpired that summer night in 1982 in his characteristically animated fashion…
WATCH: President Trump mocks Dr. Christine Blasey Ford, who has accused Trump’s Supreme Court pick Judge Kavanaugh of sexual misconduct, during rally in Mississippi. https://t.co/pZfWN8IFMVpic.twitter.com/81YEs8oXr5
But despite the fact that his remarks were relatively measured (by Trump standards), the media swiftly condemned the president for his comments, claiming that he “mercilessly mocked” a survivor of sexual assault. Adding his voice to the chorus of outrage, Arizona Senator Jeff Flake chimed in during an interview with “Today” Wednesday morning, decrying the president’s “appalling” remarks” and insisting that “it’s just not right” and that “there is no time and place” for comments like that.
The senator then dodged a question about whether he felt that Judge Brett Kavanaugh was truthful during last week’s testimony.
While this dodge might suggest otherwise, Flake is still undecided as to whether he will ultimately vote for Judge Brett Kavanaugh to be confirmed. But even though Flake is preparing to retire from the Senate, there’s still pressure for him to fall in line. Because why risk jeopardizing that high-paying lobbyist job that’s coming his way once his term ends?
Debates over the merits of lifetime appointments for Supreme Court justices are literally older than the Supreme Court itself.
Alexander Hamilton tackled the question in Federalist 79, contrasting the lack of any limits on Supreme Court justices’ tenure with the rules for judges in New York State, which at that time forbade anyone over age 60 from serving on the bench. Hamilton ultimately dismissed worries about judges becoming unable to discharge their duties in advanced age—”The deliberating and comparing faculties generally preserve their strength much beyond that period in men who survive it”—and concluded that those worried about a “superannuated bench” have an “imaginary fear.”
More than two centuries later, there is still no limit on how long Supreme Court justices may serve. That makes the Court an outlier not just among global democracies but within the United States. Most states have mandatory retirement ages for judges (usually at age 70 or 75), and some require sitting judges to face the voters at predetermined intervals for up-or-down retention elections.
Many of the arguments in favor of placing limits on judges’ tenure are the same as they were in Hamilton’s day: concerns about the mental fortitude of elderly jurists, or of a Supreme Court that grows out of touch with the nation whose laws it reviews. Unlike in Hamilton’s time, though, it is hardly uncommon for judges to remain on the bench well past age 60. Indeed, the average age of the eight current Supreme Court justices is over 67 years. Justice Ruth Bader Ginsberg, who is 85, says she wants to remain on the court until she is 90.
But the acrimonious fight over whether Judge Brett Kavanaugh should be given one of those lifetime appointments has introduced a new angle to this age-old debate. Term limits “would make the current system fairer—and tone down the intensity of the confirmation process,” David Leonhardt opined in the The New York Times last month. It would also impart other benefits, he added: removing aging judges from the high court, for example, and giving the Senate a predicable schedule for handling its advice-and-consent duties.
Since we’re facing the prospect of a Supreme Court with a solidly conservative majority for the foreseeable future, it’s probably not surprising that term limits are generating new interest on the left. Ezra Klein has already drawn a link between Kavanaugh’s contentious confirmation process and reality of a lifetime appointment. His Vox colleague Lee Drutman has been more explicit, writing in June that “it’s time for term limits for Supreme Court justices.”
“If justices were staggered in their terms, everyone in Washington would know they’d have another opportunity to change the Court again soon enough,” he wrote. “This regularity could also move toward more of a norm of fair play.”
The most well-formed plan for term limits comes from Fix The Court, a nonpartisan group interested in making the Supreme Court more open and accountable. (They also favor TV coverage of oral arguments and making judges file annual financial disclosures.) Fix The Court favors fixed 18-year terms, allowing every president to nominate a justice in the first and third year of each term.
If 18-year term limits had been imposed in the past, the current makeup of the Supreme Court would change only slightly. Right now there are four justices nominated by Democratic presidents and four (soon to be five) nominated by Republicans. Using Fix The Court’s system, the current court would have a 5–4 Republican slant, with President Donald Trump getting ready to replace one of President George W. Bush’s picks next year.
This arrangement, the group says, would solve “key problems with the court that have led to the extreme partisanship and harmful polarization we see today.”
This appeal to civility is one that might find a receptive audience after the rancorous Kavanaugh hearings. Would term limits (or age limits), and the predictability they provide to the presidents and senators responsible for choosing and confirming Supreme Court justices, save us?
Probably not. Would the stakes really be that much lower if Kavanaugh were in the running for an 18-year term on the court? With everything else being equal—in other words, with the current conservative-liberal split and the potential fate of abortion law hanging on the outcome—the promise that Kavanaugh would merely sit on the bench until 2036 would probably not bring Democrats down from the barricades, nor would it make Republicans any less likely to push for his confirmation.
Orin Kerr, a law professor at USC Gould and a contributor to the Volokh Conspiracy blog (which Reason publishes), is similarly skeptical—though as we’ll see, he favors term limits for other reasons. “It would still be one politician doing the nominating and 100 politicians doing the advising and consenting,” he says. “It’s an inherently political process.”
The politicization of the Supreme Court is worrying, but fixing it is a larger project than merely setting fixed terms for justices. As Sen. Ben Sasse (R–Neb.) observed during the early stages of the Kavanaugh confirmation process, the heightened role of the Supreme Court has as much to do with the failings of the other branches of government as it does with anything inherent to the court itself.
“When we don’t do a lot of big actual political debating here, we transfer it to the Supreme Court, and that’s why the Supreme Court is increasingly a substitute political battleground in America,” said Sasse. “It is not healthy.”
Even if judicial term limits aren’t a bulwark against a hyper-partisan environment that’s increasingly spilling over into the Supreme Court, the idea is worth considering for other reasons.
For one, people seem to like it. A Morning Consult/Politicopoll conducted in July—just after Justice Anthony Kennedy announced his retirement—found that 61 percent of voters favored term limits for Supreme Court justices, including majorities of Democrats, Republicans, and independents.
For another, it would openly acknowledge something everyone already knows: that control of the Supreme Court is a reward for electoral success.
The Founders intended lifetime Supreme Court appointments to buffer the justices from political interests, but it’s clear now—if it wasn’t already when Republicans held a vacant seat on the court open for the final year of President Barack Obama’s term—that both sides view Supreme Court appointments as the spoils that come from controlling other branches of government.
If the high court is going to be politicized anyway, it makes sense to have those seats be democratically accountable.
“If the Supreme Court is going to have an ideological direction—which, for better or worse, history suggests it will—it is better to have that direction hinge on a more democratically accountable basis than the health of one or two octogenarians,” says Kerr.
Imposing term limits would require a constitutional amendment, which may be an impossibly heavy lift. It’s also not clear how the transition would work: Which current justice gets the boot first? And it’s not difficult to envision stumbling blocks once the system was up and running. Fix The Court’s proposal would have presidents nominating judges in the first and third years of each term, but there’s no mechanism to stop, say, a Republican-controlled Senate from refusing to have a vote on a Democratic president’s third-year nominee and holding the seat open.
There would be unintended consequences too. Knowing that the winner of a presidential election will get two Supreme Court nominees could change the behavior of voters and candidates, possibly making presidential contests even higher-stakes affairs than they are now, when winning carries only the possibility of influencing the makeup of the court.
In all likelihood, nothing will change. We will continue to muddle through with the same broken process. Term limits, or the lack thereof, will not fix the underlying problems plaguing all aspects of the Kavanaugh confirmation process.
It may be that the questions about how long a judge should serve are as impossible to answer today as they were in 1788 when Hamilton was writing about them.
“The result, except in the case of insanity,” he concluded in Federalist 79, “must for the most part be arbitrary.”
Markit US Services PMI droppedto 53.5 – lowest since January (better than expected 53.0 and flash 52.9)
ISM US Services explodes to 61.6 – the highest since August 1997
Markit US Manufacturing roseto 55.6 – highest since May
ISM US Manufacturing dropped to 59.8 – lowest since July
WTF!
Despite the drop in US Services PMI to 8 month lows, they report the pace of job growth at its fastest since June 2014 and prices charged surged to a record high.
ISM Services exploded to its highest since 1997 (2nd highest on record) as Bloomberg notes the reading topped all estimates in Bloomberg’s survey of economists, underscoring continued strength at service companies amid solid consumer demand underpinned by tax cuts and plentiful jobs. While ISM’s headline non-factory index dates to 2008, unofficial calculations based on earlier readings of components show the index is the highest since reaching 62 in August 1997.
The record employment reading is a positive signal before the official U.S. jobs report Friday.
Gauge of new orders advanced to 61.6 from 60.4
Measure of export orders rose to a five-month high of 61 while import gauge increased to 55, matching highest since early 2017
Gauge of supplier deliveries advanced to 57 and prices paid rose to 64.2, both at four-month high
“Service sector business growth has eased considerably since peaking back in May, but remains relatively solid. Some of the slowdown can be traced to capacity constraints, with new business once again rising at a steeper rate than firms were able to boost output.
“Firms are hiring in increasing numbers to expand capacity, with the employment index from the manufacturing and services surveys rising to a level indicative of a further non-farm payroll rise in excess of 200,000.
“However, despite the increase in employment, many companies are clearly still struggling to meet demand, with strong inflows of new business causing backlogs of work to accumulate across the economy at one of the fastest rates seen since 2014.
“The combination of reduced spare capacity and robust domestic demand is driving prices charged for goods and services higher at a rate not seen since the global financial crisis.”
Wiliamson conclude:
“Combined with the manufacturing results, the September survey adds to signs that the pace of economic growth cooled to the lowest since January but continued to run close to a 3% annualised rate over the third quarter as a whole.
Just hours after President Trump implicitly threatened Saudi Arabia with a withdrawal of military protection (a threat that was possibly inspired by OPEC+ ignoring Trump’s demands to raise production at its Algiers meeting last month) Russian President Vladimir Putin said out loud what many oil traders have been thinking: That the recent run up in oil prices is Trump’s own fault.
During a speech at the Energy Week conference in Moscow, Putin said higher prices are “to some extent the result of the US administration” and its decision to reimpose sanctions on Iran (which will take effect next month) as well as its sanctions against Venezuela – not to mention the disastrous US military intervention in Libya, which was masterminded by Trump’s erstwhile political rival, Hillary Clinton. Before Trump decided to withdraw from the Iran deal, OPEC and other major exporters (including Russia) had more or less pushed the global market back into balance after several years of oversupply. Putin also said he believes a “good range” for oil prices would be between $65 and $75 a barrel and that Russia has the capacity to ramp up production by 200,000-300,000 barrels a day (and according to media reports, Russia is indeed planning to ramp up production through the end of the year).
“President Trump has said he thinks the oil price is too high. Well, probably to some extend he’s right, but we are absolutely OK with it at $65 to $75 per barrel to ensure the efficient operation of oil companies and ensure investment,” Putin said Wednesday during an address to delegates at the Russia Energy Week forum in Moscow.
“But let’s be frank, such oil prices are to some extent the result of the U.S. administration. I’m talking about sanctions against Iran, about political problems in Venezuela and just looking at what’s happening in Libya.”
Trump has criticized OPEC for agreeing to cut production at its meeting in Vienna nearly two years ago, and has since urged Saudi King Salman to push prices lower. Later in his speech, Putin vowed that Russia would complete the Nord Stream 2 gas pipeline to Germany on its own even if EU partners are forced to abandon the project due to US sanctions.
* * *
Here’s a roundup of BBG headlines from Putin’s speech:
PUTIN: IT WOULD BE BETTER IF TRUMP DIDN’T INTERVENE TO TRY TO MANAGE OIL MARKETS
Amazon hiking its minimum wage to $15 per hour – a “feel good” story that was praised by everybody and that even brought enemies like Donald Trump and Bernie Sanders together – appears to be nothing more than another self-serving ploy by the world’s largest online retailer to not only bolster its staff for the holiday season, but to prevent potential part-time holiday laborers from going to the competition.
According to the Wall Street Journal, companies like Kohl’s and JCPenney had started to do their holiday and seasonal hiring months before they usually do this year in anticipation of record sales – and record competition. The needs of these retail companies, including online retailers like Amazon and its direct competitors, have grown substantially: Target for instance, is hiring 20% more workers than last year and is looking to bring on 120,000 total seasonal workers.
Amazon’s new wages will take effect on November 1 – just in time for the holiday season– as Target and Walmart have failed to keep up with Amazon’s pay floor. Target offers its employees $12 per hour, while Walmart recently bumped its minimum wage up to $11 per hour. For those looking to take on additional work this season, that makes the decision to work in Amazon’s warehouse a very simple one.
James Bohnaker, a director at IHS Markit, told the Journal: “Brick and mortar retailers need quality employees to differentiate themselves from purely online shopping. If consumers can’t find helpful staff at stores or, worse, a shortage of staff makes in-store shopping a nightmare, brick and mortar retailers can expect to lose traffic.”
So while the world stops to praise Amazon for its altruism, its important to remember that this is simply yet another masterful PR trick by Jeff Bezos: garnering tons of free publicity and praise for doing the “right thing”, while at the same time preparing his company for a record-breaking holiday season and doing what Amazon does best: hurting the competition.
Democrats demands that the FBI expand its probe into allegations of sexual misconduct levied against Trump SCOTUS nominee Brett Kavanaugh to include interviews with roughly two dozen witnesses have predictably fallen on deaf ears. Fox News reported Wednesday morning that after interviewing Kav accuser Deborah Ramirez and a smattering of friends of both Kavanaugh and his accusers, the bureau could end its expanded background-check probe as early as Wednesday afternoon.
Once the report – which the White House and Senate Judiciary Committee are under no obligation to release to the public (though we imagine it’ll leak as soon as a Democratic member of the Senate Judiciary can get their hands on a copy) – has been filed, the Senate could move forward with a cloture vote and other procedural steps that could set the GOP up to call for a vote as soon as Saturday, five days after the start of the Supreme Court’s fall term.
To be sure, it’s still much too early to speculate that Kavanaugh has a lock on the nomination. Democrats have done practically everything in their power to stall his nomination, and will likely play every card that they have to try and delay it past the Nov. 6 midterm election (though, assuming they did lose the Senate, Republicans would still have the lame duck period to push through a confirmation). And there’s still the question of whether Jeff Flake, Lisa Murkowski and Susan Collins will all fall in line – assuming unanimous Democratic opposition, Republicans can only afford to lose one vote.
GOP Majority Leader Mitch McConnell blasted the Democrats during a Monday floor speech:
“If you listen carefully, Mr. President, you can practically hear the sounds of the Democrats moving the goalposts,” McConnell said. He added later: “Their goalposts keep shifting. But their goal hasn’t moved an inch. Not an inch.
“Do these actions suggest this has ever been about finding the truth?” McConnell asked. “Anybody believe that?”
While the credibility of each of Kavanaugh’s three accusers has been called into question in recent days (most recently, a longtime boyfriend of Dr. Christine Blasey Ford, who testified before the Senate Judiciary Committee last week, revealed that Ford may have possibly perjured herself while other suspicious allegations have arisen relating to Ford’s involvement with hypnosis therapy used to “create artificial memories”). Furthermore, Kavanaugh’s third named accuser, Julie Swetnick, has been outed as a mentally unstable, pathologically attention-seeking, individual who may have lied in a sworn affidavit. In light of this, and multiple inconsistencies and gaps in Ford’s testimony highlighted by prosecutor Rachel Mitchell, who said Ford’s testimony wouldn’t be sufficient to bring charges or even justify a search warrant, Democrats have shifted toward focusing on whether Kavanaugh lied under oath by saying he never “blacked out” – something that, conveniently, only Kavanaugh could ever know for certain.
In response to these complaints, Senate Judiciary Committee Chairman Chuck Grassley accused Democrats of meddling int he process.
“The FBI conducts background investigations in accordance with the agency’s standard operating procedures, and it has done so six previous times for Judge Kavanaugh,” Grassley wrote. “I’m confident that the FBI agents tasked with this responsibility will not succumb to public political pressure or politicians telling the agency how to do its job. Respectfully, the career public servants and professionals at the FBI know what they’re doing and how best to conduct a background investigation.”
Meanwhile, Swetnick attorney Michael Avenatti (who also famously represented Stormy Daniels) is claiming that he has found another Kavanaugh accuser whom he claimed would be able and willing to speak with the FBI on Wednesday.
Yet another accuser has come forward (see sworn stmt below). She is prepared to meet with the FBI today and disclose multiple facts and witnesses. pic.twitter.com/eNsCAau6no
Of course, given his past behavior, those claims should be highly suspect. In fact, Avenatti is still complaining about the FBI’s decision to exclude his client from the probe, even going so far as to harass a staffer on the Judiciary Committee.
On Tuesday, Mike Davis, who works as the nominations counsel for Grassley, reportedly told Avenatti: “We have already reviewed your client’s allegations. We focus on credible allegations. Please stop emailing me.”
However, Avenatti should be careful what he wishes for. Given that his client likely committed perjury by lying in her affidavit, if the FBI does decide to pay her a visit, they might be coming not to interview her, but to slap the cuffs on.
Trump says we must start “getting tough” on media rape reports. Last night, to loud laughter and applause, President Donald Trump mocked testimony from Christine Blasey Ford about her alleged assault by Judge Brett Kavanaugh. “I had one beer. Well, do you think it was—nope, it was one beer,” said Trump, imitating Ford, at a Tuesday night rally in Southhaven, Mississippi.
“How did you get home? I don’t remember,” Trump continued. “How’d you get there? I don’t remember. Where is the place? I don’t remember. How many years ago was it? I don’t know. I don’t know. I don’t know. What neighborhood was it in? I don’t know. Where’s the house? I don’t know. Upstairs, downstairs: Where was it? I don’t know—but I had one beer. That’s the only thing I remember.”
That Trump’s impulse is to mock Ford should (alas) surprise no one. But the politics of it are still astoundingly bad. Last week, Trump said Ford had been a “very credible” witness. He has for days been asserting that the FBI investigation into claims against Kavanaugh would be legitimate and thorough.
Openly mocking the same claims and saying they’re perpetuated by “evil people” doesn’t exactly inspire confidence that this is true.
The president went on to conjure a melodrama in which hardworking “IBM or General Motors” employees will be facing down a gauntlet of fake rape claims if we don’t take a stand now by putting Kavanaugh on the Supreme Court ASAP. “Mom, a terrible thing just happened,” said Trump, taking on the part of this innocent young man:
A person who I’ve never met said that I did things that were horrible, and they’re firing me from my job, mom, I don’t know what to do, mom, what do I do? What do I do?
Trump warned the women in the audience to “think of your son. Think of your husband. I’ve had so many false accusations.”
This, of course, set Trump off on the media and how sad it is that he can’t us sue us more. America has the “worst libel laws anywhere in the world,” he said. It’s a “damn sad situation. And we better start as a country getting smart and getting tough. We shouldn’t let those cameras back there tell us how to live our lives.”
In other Kavanaugh-related news:
Sen. Jeff Flake told an Atlantic Festival panel this morning that Kavanaugh had been “sharp and partisan” during his Senate testimony. “We can’t have that on the court,” he said.
A letter obtained by Fox News from an ex-boyfriend of Ford’s claims she lied about various things during her testimony.
A letter obtained by The New York Times was allegedly written by Kavanaugh in high school. In the June 1983 letter, someone who signs off “FFFFF, Bart” makes plans for an upcoming beach week in Ocean City, Maryland, and describes himself and his friends as “loud, obnoxious drugs with prolific pukers among us.”
FREE MINDS
Freelance journalist @ZachWritesStuff was charged with contempt of court and arrested after he recorded part of a high-profile murder trial, in violation of the judge’s order that limits recording to a media pool. https://t.co/0W4CwzaOzSpic.twitter.com/w9KE96VrCd
— U.S. Press Freedom Tracker (@uspresstracker) October 2, 2018
FREE MARKETS
Trump’s real-estate empire was built on tax-dodging, according to a new report from The NewYorkTimes. Trump “has long sold himself as a self-made billionaire, but a Times investigation found that he received at least $413 million in today’s dollars from his father’s real estate empire, much of it through tax dodges in the 1990s,” the paper reports.
It’s good to have some confirmation of those long-held suspicions that Trump’s self-made-man schtick is dubious. But it would be nice to see a few less stop letting people pass down wealth through these “loopholes” takes and a few more tales calling for a lower tax burden on us all.
One of many takeaways from the big Trump/Tax scoop is that rich people can illegally avoid taxes on gifts & if they’re caught, there’s no punishment, they just pay what they owed originally. Asking for friend: can, um, other people do this on normal taxes? https://t.co/XcH6laEmsQ
The FBI raided the e-cigarette company Juul and seized documents.
The International Court of Justice says the U.S. government needs to repeal some sanctions on Iran.
Around half of women and 36 percent of men will get dementia or Parkinson’s or have a stroke within their lives, according to a new study in the Journal of Neurology, Neurosurgery, and Psychiatry.
D.C. repeals a measure requiring a $15-per-hour minimum wage for tipped employees.
Should a “killer so impaired he no longer recalls the crime” still face execution?
It took a few hours for the White House to regroup and respond to the New York Times’ massive, 15,000 word expose on shady tax dealings within the Trump family, some of which were allegedly “outright fraudulent.”
As a reminder, late on Tuesday the NYT accused President Trump of participating in “questionable” and “dubious” tax strategies “including instances of outright fraud” that greatly increased the fortune he received from his parents and allowed him to accrue millions of dollars in additional wealth from his father’s real estate empire “much of it through tax dodges in the 1990s.”
The practices allowed Trump and his siblings to gain more than $1 billion from their parents while paying a fraction of what they should have owed in gift and estate taxes, according to the Times.
Then, late on Tuesday the White House posted this response to the explosive allegations:
“Fred Trump has been gone for nearly twenty years and it’s sad to witness this misleading attack against the Trump family by the failing New York Times.
Many decades ago the IRS reviewed and signed off on these transactions.
The New York Times’ and other media outlets’ credibility with the American people is at an all time low because they are consumed with attacking the president and his family 24/7 instead of reporting the news.
The truth is the market is at an all-time high, unemployment is at a fifty year low, taxes for families and businesses have been cut, wages are up, farmers and workers are empowered from better trade deals, and America’s military is stronger than ever, yet the New York Times can rarely find anything positive about the President and has tremendous record of success to report.
Perhaps another apology from the New York Times, like the one they had to issue after they got the 2016 election so embarrassingly wrong, is in order.”
Now, moments ago, Trump personally responded to his media nemesis, and in a tweet said that “the Failing New York Times did something I have never seen done before. They used the concept of “time value of money” in doing a very old, boring and often told hit piece on me. Added up, this means that 97% of their stories on me are bad. Never recovered from bad election call!”
The Failing New York Times did something I have never seen done before. They used the concept of “time value of money” in doing a very old, boring and often told hit piece on me. Added up, this means that 97% of their stories on me are bad. Never recovered from bad election call!
While Trump’s anger is understandable, some immediately noted that Trump did not deny the story, nor did he threaten with litigation.
Meanwhile, the New York State Tax officials promptly announced that they are investigating the allegations detailed in the exhaustive tax investigation, adding to Trump’s various domestic headaches ahead of the midterms, where the main one may be the fact that the Mueller probe is reportedly nearing its potentially explosive conclusion in the coming days.
Investor preferences shift between active and passive investing in a cyclical manner. Periods where the market has a strong tailwind of momentum behind it tend to attract a greater demand for passive strategies especially when that momentum carries on for a prolonged period of time. Alternatively, periods of market turbulence tend to swing sentiment back to active investing as a means of avoiding the risk of large losses. In the most recent bullish cycle the combination of market direction and the availability of index-friendly instruments like exchange-traded funds (ETFs) have resulted in an unprecedented shift towards passive strategies and securities.
To clarify the difference between the two investment approaches, active investing seeks to outperform the market by beating a benchmark such as the Dow Jones Industrial Average or the Barclays Aggregate bond index. Passive investing on the other hand pursues a strategy that mimics a benchmark index and attempts to replicate its performance. It is a contrast that has been effectively described by Ed Easterling of Crestmont Research as rowing (active) versus sailing (passive). Active investors are engaged in constant evaluation of companies and their fundamentals as means of finding value investment opportunities while passive investors are at the grace (or mercy) of the winds of the market wherever they may blow.
The graph below highlights the underperformance of active strategies versus the S&P 500 index in past years which further explains the growing popularity of passive investing.
This article is primarily focused on fixed-income passive investing, however, many of the issues brought up in this article can be applied to most asset class ETFs and securities that allow ease of passive investing.
How Passive Investing Works
The mechanics of passive investing in the stock market are straight-forward. Select an equity index to which you would like to gain exposure, for example the S&P 500 or the MSCI China Index, and then buy the stocks in the proper amounts that are tracked in that index to replicate the performance. Done manually this can be a complex and cumbersome exercise especially when trying to replicate the index of a less-liquid market. As the market moves and the value of the securities underlying the index change, one must rebalance their holdings to remain aligned with the index. For a deeper understanding of the many factors that make replicating an index diffiuclut please read our article The Myths of Stocks for the Long Run Part V.
The advent of index mutual funds and more recently exchange-traded funds handle the complexities of multiple holdings, weightings, and rebalancing allowing an investor to simply pay a small fee, buy a ticker and essentially own an index. An investor’s ability to obtain general equity exposure or to build a portfolio with customized exposures has never been easier with the proliferation of ETFs.
To offer some perspective about just how many ETFs are available, consider there are 38 ETFs available that are focused on U.S. energy stocks and over 132 ETF’s hold Exxon Mobil (XOM) shares. Looking abroad to less liquid markets, one would find ten U.S. incorporated funds holding Indian stocks. The simplicity and customizability currently offered in the market is quite powerful.
Bond Exposure
Traditionally, investors gained exposure to bonds through individual debt securities offered by brokers. Unlike stocks, the availability of most bonds, not including U.S. Treasuries, is dependent upon the inventory held by one’s broker or their ability to source a bond from another broker. As such, finding a specific bond is more challenging and comes at a higher cost for an individual investor than buying an individual stock. A similar problem can emerge in the event an investor wants to sell a specific bond. This problem results in an indirect fee called the bid/offer spread and on occasion can cost the investor multiple percentage points.
There are other considerations related to the dynamics of buying individual bonds versus acquiring bond exposure through a fund. These issue are well-articulated by Lance Roberts.
The advent of index mutual funds and ETFs relieves much of the frustration and high costs of buying and selling specific bonds.
The protocol described in selecting equity funds above is similar for bonds in that one can identify investment preferences in various major bond categories quite easily. The primary categories include:
Treasuries securities
Mortgage-backed securities, asset-backed securities and collateralized debt obligations
Agency bonds
Municipal bonds
Investment Grade corporate bonds
High yield corporate bonds
Emerging market bonds
Developed nations sovereign bonds
It is relatively easy, through these funds, to quickly gain exposure that tracks an index covering any variety of these options and specific sub-catagories of these options.
Not As Advertised
The flexibility and customizability offered through the world of index mutual funds and ETFs is remarkable. As such, there is a natural inclination by investors to assume that one will get precisely what has been advertised by these funds. However, confidence in that idea is easily challenged. Much of what has been developed over the past several years, especially with many ETFs, remains untested. The following are concerns investors should be aware of:
Tracking Error: ETF exposures to certain markets might not be precisely what the investor receives. For example, it has been documented that an investor who wishes to invest in an ETF for the equity market in Spain actually gets exposure to a variety of companies that although domiciled in Spain, produce most of their revenue outside that country. In that instance, and many others like it, an investor would not get the exposure to Spain he or she expects and may indeed be very disappointed in the ETFs tracking of the index for Spain.
Optimization: The structure of index funds and ETFs are such that in many cases the fund managers are only able to establish positions in the underlying stocks or bonds of the indexes they track with some imprecision. This means they will use creative means of gaining desirable exposures and then gradually, if possible, reposition over time in order to more closely track the index. This tends to be a much bigger problem for bond funds. Since full replication of a bond index is generally not possible, bond funds rely on “optimizing” the portfolio in order to most effectively replicate the index.
Bond offerings, like stocks, are finite so if the size of a fund grows as a percentage of the underlying index constituents, it will increasingly face the constraint of replicating the index and effectively mimicking index performance. Optimization is imperfect so the ETF will suffer performance drift from the target index. Unfortanately, the flaws of replicating are often exagerated during periods of market stress when investors expectations are the highest.
Underlying Liquidity: Another related issue that arises with bond funds is that of establishing daily market value. The market price of some bonds held in a fund, especially those that are investing in less liquid markets, may not be readily available. If a bond fund holds securities that are illiquid, meaning they do not trade very often, then a realistic current price may be difficult to obtain. Many fixed income ETFs hold thousands of securities some of which do not trade daily or even weekly. This means that pricing is dependent upon estimates of the value on those bonds. These estimates of value may be derived from a third-party pricing service, surveys of bond market trading desks and internally generated models. Mis-pricing of securities is a known problem and one not typically considered until the fund is forced to sell. If the fund receives an inordinate number of redemption requests, what happens if they have bonds that do not trade very often but are nevertheless required to liquidate based upon investor requests? It is likely the sale price could vary, and sometimes significantly, from the last assumed price. Again this is most likely to occur at the wrong time for investors.
These concerns have not yet emerged as a deterent in the new age of passive investing popularity. We have only seen slight glimpses of what may be ahead in terms of challenges for the passive investor but it is fair to say this could be a major problem.
Investors naturally assume they will be able to exit as easily as they entered these funds and at the stated value seen on their statements or trading screens. In a calm market the concerns are minor but there are serious questions about that reality should a wave of selling hit bond ETFs all at once.
Although somewhat unique in its characteristics and certainly not a bond ETF, the recent debacle related to the inverse VIX ETF, XIV, seems to foreshadow some of the issues highlighted here. The graph below shows the price of XIV over the last two years. Investors unaware of how the NAV for XIV was calculated were certainly in for quite the shock.
Data Courtesy Bloomberg
Risk Analysis – The Benefit of Stress Testing
Given the importance of the issue of liquidity and what may transpire in an adverse scenario, we decided to look at the performance of a few ETFs and their related indices through the financial crisis as an indication of what a possible “worst-case” scenario might hold. In doing so, we acknowledge no two historical events are the same but the analysis seems important to consider.
From peak to trough, between April and November 2008, the Barclays Corporate Investment Grade index fell -10.8%. At the same time the LQD ETF which tracks that index fell -12.2%. The Barclays High Yield index fell -32.3%. In the same time frame the two high yield ETF alternatives, HYG and JNK, fell -29.8% and -34.5% respectively.
Today, these funds and others like them are much larger than they were in 2008. Furthermore, Bloomberg recently reported that many corporate debt funds are reaching further down the credit and liquidity spectrum in efforts to boost returns and some are even replacing high yield bond exposure with equities. As Lisa Abramowicz put it, “While this is somewhat concerning, it’s also logical. Fund managers don’t see any imminent risks on the horizon that could shake markets, and clients will penalize lower returns.”
The remarkable thing about this observation is that paying too high a price for an asset is in itself an imminent risk. One could convincingly argue that point as the most basic definition of risk. Nonetheless, it does indeed offer an accurate profile of the current character of the market. Unlike actively managed funds where the manager evaluates individual securities, there is no price discovery mechanism for index funds and ETF’s as their only consideration is whether or not they received a dollar to invest.
Summary
According to Benjamin Graham, this approach to putting money to work in the market defines the term speculation as it does not apply “thorough analysis” nor does it “promise safety of principal and an adequate return.” Although sympathetic to the idea that it is different this time as profit margins do indeed remain unusually high, the more defining characteristic is the means companies are using to sustain those profits. It is what has been referred to as corporate self-cannibalism as debt is ever accumulated as a means of buying back shares or paying dividends. The eventuality is credit downgrades and self-destruction.
Data Courtesy St Louis Federal Reserve
The cyclical nature of passive and active investing will continue to play out and that which is wildly popular today will eventually turn unpopular. The hidden risks embedded in passive vehicles will emerge and those who so enjoyed the cheap grace of effortless and exceptional market gains will end up begging yet again for mercy amid the markets’ unforgiving justice.
Debates over the merits of lifetime appointments for Supreme Court justices are literally older than the Supreme Court itself.
If 18-year term limits had been imposed in the past, the current makeup of the Supreme Court would change only slightly. Right now there are four justices nominated by Democratic presidents and four (soon to be five) nominated by Republicans. Using Fix The Court’s system, the current court would have a 5–4 Republican slant, with President Donald Trump getting ready to replace one of President George W. Bush’s picks next year.
Trump says we must start “getting tough” on media rape reports. Last night, to loud laughter and applause, President Donald Trump mocked testimony from Christine Blasey Ford about her alleged assault by Judge Brett Kavanaugh. “I had one beer. Well, do you think it was—nope, it was one beer,” 
