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In the aftermath of the recent Congressional Kangaroo Court in which Mark Zuckerberg had to explain to various House Reps and Senators why 85% of them were recipients of Facebook’s generous donations,  the company has been forced to inject some more transparency into its operations, and open the books, so to say, and this morning, for the first time, Facebook published its enforcement numbers for the first time, three weeks after the company published the internal guidelines its uses to enforce its Community Standards.

The first report of its kind, covers Facebook’s enforcement efforts between October 2017 to March 2018, and covers six areas:

• graphic violence,
• adult nudity and sexual activity,
• terrorist propaganda,
• hate speech,
• spam,
• fake accounts.

As part of today’s disclosure, Facebook’s numbers show i) How much content people saw that violates FB standards; ii) How much content was removed; and iii) How much content was detected proactively using technology — before people who use Facebook reported it.

Facebook also reported that 85% of U.S. law enforcement data requests from July to December 2017 produced some data, when the company received 32,742 total requests on 53,625 users/accounts in 2H 2017.

So, as part of its effort in showing the public “how much bad stuff is out there” here is what Facebook reported:

• We took down 837 million pieces of spam in Q1 2018 — nearly 100% of which we found and flagged before anyone reported it; and
• The key to fighting spam is taking down the fake accounts that spread it. In Q1, we disabled about 583 million fake accounts — most of which were disabled within minutes of registration. This is in addition to the millions of fake account attempts we prevent daily from ever registering with Facebook. Overall, we estimate that around 3 to 4% of the active Facebook accounts on the site during this time period were still fake.
• We took down 21 million pieces of adult nudity and sexual activity in Q1 2018 — 96% of which was found and flagged by our technology before it was reported. Overall, we estimate that out of every 10,000 pieces of content viewed on Facebook, 7 to 9 views were of content that violated our adult nudity and pornography standards.
• For graphic violence, we took down or applied warning labels to about 3.5 million pieces of violent content in Q1 2018 — 86% of which was identified by our technology before it was reported to Facebook.

But the most problematic category for Facebook remains hate speech, where the company admits that “our technology still doesn’t work that well and so it needs to be checked by our review teams.”

And since “hate speech” means whatever one decide it should mean, it is here that wholesale censorship will take place, in the form of blanket muting or the more subtle “shadow banning” which Facebook has repeatedly used in the past to ban conservatives.

Here Facebook reveals that “We removed 2.5 million pieces of hate speech in Q1 2018 — 38% of which was flagged by our technology.“

This means that 62% of the “hate speech” that Facebook took down was the result of complaints by outside readers who found the content of said “hate speech” unpleasant or disagreeable and demanded it be taken down. One wonders, as we proceed down this road, how long until every new piece of content is flagged as “hate speech” and is eventually taken down leading to a feed that is totally devoid of any intellectual opposition; one also wonders how much it will cost Facebook to hire the thousands of arbiters who decide subjectively just what is “hate speech.”

Finally, in the spirit of openness, we hope Facebook will reveal examples of what it classified as “hate speech” which it then removed, especially in light of growing complaints that Facebook has become nothing more than a 1st Amendment filter of non-liberal opinions. That said, we won’t be holding our breath.

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Authored by Audrey Conklin, originally posted at The Daily Caller,

For the year I worked at Starbucks, my manager made it very clear to all the partners at our location that the store’s two bathrooms were for paying customers only. (Starbucks calls its employees “partners” because they get an annual share in the company stock, among other reasons).

Like many other Starbucks stores, we set a four-digit code on the bathroom locks so they couldn’t be accessed by just anybody. Paying customers had to ask for the code. And it changed every couple of weeks, so even regular customers had to ask. But there were good reasons behind this mandatory system that has recently been changed to allow non-paying customers to use Starbucks bathrooms, too.

First, the store I worked at was the third busiest in the entire city of Boston, located next door to Mass General Hospital, two large hotels, a train station and a residential neighborhood. The street was also home to many homeless people who slept beneath store awnings and private doorways in early hours of the morning when we opened.

In Boston, it’s illegal to offer shelter to people abusing substances. The Department of Housing and Community Development (DHCD) and Emergency Assistance (EA) are legally allowed to perform drug tests on those they believe to be under the influence of drugs or alcohol at shelters. Therefore, those who do have alcoholism problems or drug addictions often make the conscious choice to pitch up outside in public areas.

There were regular vagabonds who walked into our store wanting a cup of water, a warmer (or cooler) climate and to use the bathroom. Of course, bathrooms were off limits to everyone but paying customers. And when the homeless loitered in our store and refused to leave, our friends at the fire department or police station down the road would help us escort them out.

The issue was more than just cleanliness or comfort for paying customers; the main reason we weren’t allowed to let the homeless use our bathrooms was because my manager had seen multiple instances in which homeless people had gone into the bathrooms before the codes were put into place, or when they waited outside long enough for a customer to walk out and catch the door before it closed, and then locked themselves inside for so long that we had to call the fire department.

Substance abusers – often homeless – have ruined bathroom opportunities for everyone; businesses cannot take the chance. Those homeless people who take advantage of bathrooms in busy coffee shops and the like use the facilities to do drugs, drink, sleep and sometimes worse.

There were times when I had to give desperate-looking strangers the awkward line, “Our bathroom is for paying customers only.” There were also times, however, when a woman would rush into the store in tourist gear and ask if her child could use the bathroom in broken English and I would break the rules and give her the code. But I wouldn’t give the code to a suspicious-looking person, and by suspicious-looking I mean lacking general manners, the ability to walk in a straight line and cleanliness.

When it comes to making a decision of trust, it should go without saying that some people look more trustworthy than others. The old rules encouraged partners to deny non-paying customers access to the bathroom, regardless of race or ethnicity.

The bathroom policy changed as a continuation of attempts by Starbucks to save its reputation when, last month, a store manager at a Philadelphia branch denied two black men access to the bathroom because they hadn’t purchased anything. When the men waited around afterward for their friend, the manager made a rather impulsive decision — that many blame on her unconscious racial bias — to call the police. When the police arrived at the scene, a bystander recorded the civil encounter in which the police arrest the two men for loitering.

The video went viral quickly. On the surface, it seems to have reached millions of viewers because so many people relate to the issue of micro- and macro-aggressions like this one, but if you look closely, the video went viral because it’s actually ridiculous. Blame it on the manager’s racial bias if you want — I don’t know the reason why she decided to call the police — but I believe the video went viral because things like this actually don’t happen that often and people become fascinated and angry in the rare event that such events do happen.

When the news reached Starbucks CEO Kevin Johnson, he came out with this public statement: “The video shot by customers is very hard to watch and the actions in it are not representative of our Starbucks Mission and Values. Creating an environment that is both safe and welcoming for everyone is paramount for every store.”

The statement continues: “Regretfully, our practices and training led to a bad outcome — the basis for the call to the Philadelphia police department was wrong. Our store manager never intended for these men to be arrested and this should never have escalated as it did.”

And yet the situation did escalate and continues to escalate further, largely due to public outcry, which leads us to my second point.

After the incident, Starbucks announced that it would close over 8,000 of its stores on May 28, 2018, so its partners could participate in implicit bias training, which most agree isn’t a real solution to the issue at stake. Rather, it was a public display of Starbucks making active plans to address a problem instead of just issuing an apology.

Weeks after the bias training announcement, Starbucks chairman Howard Schultz announced on May 11 that Starbucks changed its bathroom policy so that store restroom facilities are now open to “all.” But Schultz made it clear that Starbucks does not “want to become a public bathroom.” Instead, the company is “going to make the right decision 100 percent of the time and give people the key, because we don’t want anyone at Starbucks to feel as if we are not giving access to you to the bathroom because you are less than.”

In this case, Schultz is using “100 percent of the time” as a euphemism for “public bathroom,” because, of course, Starbucks does not want to become known as the public restroom place — not among its $7 lattés, prepackaged protein bistro boxes and ceramic thermoses.

It’s not about compassion for people who need to use a bathroom. Starbucks will always apologize profusely in response to events like this one to avoid lawsuits and an overall unpopular reputation among the millennial masses who invest so much in their business. Unfortunately, this heavy complacency can only make the occasional social issues that arise next to its name more difficult from here on. The next time Starbucks goes under fire, it will be because someone was denied access to a bathroom.

And with that, we come to my third and final point that bathrooms should be something of a luxury at places like Starbucks for paying customers and employees only. Water, plumbing, electricity and general maintenance do not come at a small price. And Starbucks isn’t paying that price. Its customers are.

Customers are not only paying for the coffee; they are paying for the heat and air conditioning, tables, accessible WiFi and bathrooms. Partners are paid to keep the place clean and comfortable for customers who spend literal hours studying, working, and holding meetings in the store. It seems like a fair trade to me.

It doesn’t seem like a fair trade to me, however, if I pay $5 for my drink and then have to wait in line with a bunch of random tourists who just walked in wanting to use the single-family bathroom without buying anything. It also doesn’t seem like a fair trade if I’m paid to clean a bathroom that has been used for the wrong reasons by people who don’t care about the fact that it’s my job to clean up after them.

I would say that I hope store managers will continue to use their best judgment with their backs turned to Starbucks’ new bathroom policy to decide who should and should not have access to their bathrooms, but that would probably result in another viral video, national outrage, and more policy changes.

So I’ll just leave it at this: The bathroom policy should have never been altered.

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Consumers, who are already being squeezed by rising interest rates (even as the return on their cash deposits remains anchored near zero), are facing another potential constraint on their already limited purchasing power. And that constraint is  rising gasoline prices, which, as we pointed out last month, could erode the stimulative impact of President Trump’s tax plan as rising prices sop up what little money the middle class is saving.

As prices rise and banks scramble to update their forecasts, the Wall Street Journal has become the latest publication to sound the alarm over what is, in our view, one of the biggest threats facing the US economy in the ninth year of its post-crisis expansion. 

In its story warning about $3 a gallon oil (of course, we’re already seeing $4 a gallon in parts of California and other high-tax states), WSJ cited Morgan Stanley’s latest projection that rising gas prices could wipe out about a third of the annual take-home pay generated by the tax cuts.

Rising fuel costs can also feed inflation and pressure interest rates. Even though the Federal Reserve typically looks past volatile energy prices in the short term, higher energy costs help shape consumer confidence. And with the central bank poised to be more active this year, rising energy costs pose an additional risk to the economy.

Morgan Stanley estimates that if gas averages $2.96 this year, it would take an annualized $38 billion from spending elsewhere, an upward revision from the bank’s $20 billion estimate in January. That would wipe out about a third of the additional take-home pay coming from tax cuts this year, the analysts said.

…

Patrick DeHaan, petroleum analyst at GasBuddy”Three dollars is like a small fence. You can get through it, you can get over it,” said Patrick DeHaan, petroleum analyst at GasBuddy, a fuel-tracking app. “But $4 is like the electric fence in Jurassic Park. There’s no getting over that.”

Of course, MS’s take appears downright pollyannaish when compared with a Brookings Center report that we highlighted last month.

The left-of-center think tank, which of course has every reason to hope that the next recession will materialize on President Trump’s watch, projected that consumers would soon spend about half of the money saved from tax cuts on fuel costs.

And in a report published in April, Deutsche Bank illustrated how rising fuel costs will disproportionately squeeze the most vulnerable among us – a cohort of consumers who already shoulder an outsize share of the country’s household debt.

The FT put it another way…

As the chart above shows, middle-income families – aka the engine of consumption – will be the hardest hit by rising gas prices.

Indeed, small business owners in California, where gas prices are the fifth highest in the nation thanks to taxes and stringent emissions standards, say they’ve seen their energy bills shoot higher in the past few months. Car salesmen say consumers are asking more questions about mileage, according to WSJ.

Robert Lozano, a car salesman in Los Angeles where some gas prices are already above $4, said the dealership’s gas bill has climbed from about $9,000 to about $12,000 a month recently.

Customers are inquiring more about electric vehicles, he said.

“It’s more in the consumer’s mind as to what the most efficient vehicle is.”

With oil already at $70 a barrel, early indicators imply that the summer driving season could see an unusually large spike in demand for gas…

…As the number of Americans intending to take vacations in the next six months climbs to its highest level in decades.

Heightened vacation intentions suggest the number of vehicle miles driven will also climb (because people tend to travel greater distances when they go on vacation). As the chart below shows, fluctuations in miles driven – a close proxy for gas demand – are quickly reflected in prices at the pump.

While the US’s increasing prominence in the oil-export market could soften some of the economic blow as the energy business booms, other large business from airlines to shipping companies would feel the pinch at a time when costs are already rising.

But some economists say the growing importance of energy to the U.S. economy could blunt some of the impact from rising oil prices.

The country has become a more prominent supplier of crude oil and fuel. Domestic production has reached record weekly levels of 10.7 million barrels per day and a lot of it is being exported.

[…]

“People don’t understand how we could double crude oil production” and see higher gas prices, said Tom Kloza, global head of energy analysis at the Oil Price Information Service. “The answer lies in the balance of payment. We are an exporting power right now.”

[…]

Airlines and shipping companies will also be paying more for jet fuel and diesel – costs that may be passed along to consumers. Even companies such as Whirlpool Corp. have noted that higher oil prices have boosted the cost of materials.

Refiner Valero Energy Corp. said it wouldn’t expect consumer demand to drop off until oil prices are at $80 to $100.

But demand is only one factor driving up oil prices. Supply issues have also weighed on oil traders’ minds. Traders pushed oil prices higher as the US pulled out of the Iran deal as some worried that it could impact global supplies (though, as we’ve pointed out, there are plenty of other buyers waiting to step in and buy Iranian crude). Even if the Iranian crude trade isn’t impacted by sanctions, plummeting production capacity in Venezuela could ultimately have a bigger impact on global supply.

Conflicts in other oil producing regions could also impact supplies, pushing prices higher.

Last week, Bank of America became the first Wall Street bank to call $100/bbl for Brent crude (at the time, it was trading around $77/bbl) in 2019. That could send prices to highs not seen since 2008. Other banks have been scrambling to raise their forecasts as well. 

With the Fed changing its language in its latest policy statement to reflect rising inflation expectations, rising oil prices could also inspire the Fed to hike interest rates more quickly for fear that the economy might overheat. That could result in four – or perhaps five – rate hikes this year.

The resulting effect would be like economic kudzu strangling the buying power of consumers and possibly forcing a long-overdue debt reckoning as millennials, who are already drowning in debt, are forced to put off home ownership and family formation until they’re in their late 30s or even their 40s.

 

 

 

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In the biggest quarterly shocker out of the Harvard Endowment, which one year ago surprised Wall Street when it revealed that its biggest investment was junk bonds, yesterday we showed that the investing fund representing the world’s most prestigious university had concluded there was no better investment than FAANG stocks, or specifically Apple, Microsoft and Google, as just these three stocks representing 72% of Harvard’s long equity portfolio.

So if the smartest guys in the room have decided that the best place to park their cash is a trio of the world’s three most valuable, and expensive, “growth” stocks, what is left for the rest of Wall Street? Clearly not much, because according to the latest monthly Fund Manager Survey conducted by BofA which polls a total of 223 panellists with $643BN in  AUM, for the 4th consecutive month the #1 “most crowded trade” is long FAANG+BAT (for 29% of respondents)…

… with #2 short Treasuries (17%), #3 short the USD (17%), followed by long corporate bonds and #long EM assets. The last one will be especially painful today.

So with all of Wall Street knowing that all of Wall Street is long the same trade – carrying with it the risk of a sharp, sudden unwind should conditions change – what is it that is keeping Wall Street in said trade? The answer is simple: the confidence that central banks will step in and bail traders out. Which is also why the top “tail risk” in May is a hawkish policy mistake by the Fed or ECB, replacing “trade war” as the top fear of the prior 2 months, and “reverting’ to the fears from late 2017.

But while fears of central banks killing the party are back to the forefront, the risk that Trump could say a word out of place remains, as Trade War is close behind in #2 spot with a new participants emerging in spot #3: “Geopolitics cause $100 Oil.“

In light of this extreme positioning – and fears – what is the best contrarian trade according to BofA? Short banks and long utilities, driven by lower bond yields.

More on the latest fund manager shortly, in a detailed follow up.

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Despite yesterday’s slow drift lower off the early gains, The Dow’s 8th win a row and the “best May since 2005” was heralded as proof that all the world’s problems are behind us and it’s plain-sailing from here to new record highs.

However, as former FX trader and fund manager Richard Breslow warned “I keep visualizing oblivious fun-seekers in danger of getting way out over their skis.”

And judging by today’s price action – they were…

Stocks down, gold down, bonds down, the dollar is spiking along with VIX…

But, as Bloomberg reports, there are a lot more problems looming…

Emerging markets aren’t heavy, they’re setting up to implode…

Ten-year Treasury yields aren’t struggling with what to do around this distracting 3% level. They’ve broken back above the, this time, really “psychologically” critical barrier and are coiling for a now inevitable move higher. Do not pass go, do not collect your coupon payment.

The dollar is no longer trying to hold on to recent gains, it’s going to run everything else over. And equities are preparing for a renewed bout of illness from geopolitical risk and trade wars. The price action notwithstanding.

All or none of this could come to pass. But it is a collection of trades du jour that one needs to make sure can hang together. And whether their purveyors will be willing to stick with them, even without instant gratification, remains to be seen. It isn’t the green or red on your screens that should inform your mood. It’s actually meant to work the other way around.

The first thing I’d ask is how much is positions versus view. Both matter, but the former has taken on a significance that can have a lasting, even if not ultimately dispositive, effect on asset prices. Washouts used to take hours or maybe days to be cleared. Now they can last weeks. Or seconds. Made all the worse by the enormous and often blind accumulation of yield grabs.

How many “investors” in Turkish lira or Argentine pesos really had any business carrying this risk? Is today’s caning of the lira from President Erdogan’s latest, and not groundbreaking, comments or because the much rumored “surprise” rate hike wasn’t forthcoming? This is not meant to argue Turkey isn’t in an economic mess. But you can’t actually make an informed decision without knowing the back story.

Contagion across the asset class can have as much to do with portfolio damage control as any real causal relationship. I shudder when I think of all the inquiries about getting into frontier markets. Last week we were still being told that emerging market economies are in great shape to withstand higher global rates. Not true, but never mind. Today, there is “underlying vulnerability” galore.

But why just pick on EM? European government bonds have spent the last two days behaving exactly the same way. So many people relying on Super Mario to buy their inventory. And then along came Francois Villeroy. And yet, peripheral spreads remain bid.

In equities, that asset we all love to hate, a big leap is being made from a risk-off sentiment to the fact that they trade pretty well. Aren’t they supposed to do something bad before being sent to the penalty box? Frankly, I’d rather sell the S&P 500 on a break below 2700 than here. Especially, because the canaries are getting a bit long in the tooth. I’ll tell you what: watch the Shanghai Composite against resistance at 3200 if you want an early warning sign.

As for the dollar, just remember that we’re back to square one on the year. It neither went to zero nor has it flown. Look at it right now and forget what happened during a very trying first part of the year. It too could be back here from stale positions that no longer were working.

Maybe we’re getting closer to a point where not everyone will have the same positions and we can get back to having fun.

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One of the catalyst cited by traders for yesterday’s late swoon in the market, was the unexpected news that Gartman had turned bullish again saying in his latest letter that “we’ve no choice but to err quietly bullish of shares generally.”

Gartman: “we’ve no choice but to err quietly bullish of shares generally.”

— zerohedge (@zerohedge) May 14, 2018

It probably did not take Gartman long to realize that his current trade recos are mutually conflicting: on one hand bullish stocks, on the other, pretending to still be short the 10Y, even though he was clearly stopped out on payrolls Friday when the 10Y dropped below his stop loss of 2.92%…

… a combination which as today’s market has shown means one or the other has to give – quiet simply, it is no longer possible to have stocks, yields, the dollar and oil all rising at the same time.

So one day after his latest flip-flop, what does the man who two months ago made a “watershed” call for a secular market top, think will happen next? Well, good news to the bears: he thinks that “this weakness shall not last long.”

STOCKS, IN GLOBAL TERMS, HAVE FINALLY FALLEN A BIT as seven of the ten markets comprising our International Index have fallen and as three have risen. None, however, have moved  by anywhere near 1%, save for the market in Hong Kong where shares were down 0.9%; however, after the massive run to the upside that shares in Hong Kong have enjoyed over the course of the past week and one half as the Hang Seng has risen from 29,925 on the 4th of  May to yesterday’s “closing” high of 31,515, or an increase of 5.3%, some correction… some consolidation… some profit taking it certainly to be expected.

The same… or very nearly the same… can be said of the US market where the S&P made its low of 2,630 on the 3rd  of May and made its way to 2,730 as of last evening, or an increase of 3.8%; it is become a bit overbought and some consolidation is not only to be expected, it is perhaps almost mandatory.

Finally, to “prove” the near universality of the recent global strength in the equities markets, the markets in Europe collectively made their low on the 3rd of May also and have risen 1.8% over that same interval of time. Thus, this has indeed been a “collective,” well established bullish run in broad global terms and so a reasonably broad, “collective” consolidation is almost de rigueur.

What shall be the catalyst for this correction? The fact that the yield on the US ten-year treasury security is back  above 3.00% shall be sufficient news to account for a bit of weakness. Too, the fact that commodity prices are rising and that inflationary pressures are making themselves known shall account for some of that weakness. Further, the uncertainty that a joint 5Star/Lega government installed in Rome shall account for some of the weakness in European shares. Further, still we can point to the confusion in Southeast Asia and the change in government in Malaysia as a reason for a correction, and further still, we can point to the problems in Venezuela and Argentina as yet another reason.

Finally, we note that the CNN Fear & Greed Index, which has fallen to single-digits several weeks ago marking a very serious over-sold level and which has since then risen to 54 as of last night’s close, has gone from inordinately low levels back to neutrality and is itself due for some consolidation… perhaps even a bit of correction.

In other words, there are reasons a ‘plenty from which a bit of international equity market weakness can and shall develop. Likely, this weakness shall not last long

Did the multi-decade bear market just start?

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