Fed’s QE Unwind Marches Forward Relentlessly

Authored by Wolf Richter via WolfStreet.com,

During the sell-off, it ignored the whiners on Wall Street.

The fifth month of the QE-Unwind came to a completion with the release this afternoon of the Fed’s balance sheet for the week ending February 28. The QE-Unwind is progressing like clockwork. Even during the sell-off in early February, the QE-Unwind never missed a beat.

During QE, the Fed acquired Treasury securities and mortgage-backed securities (MBS) guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. During the QE-Unwind, the Fed is shedding those securities. According to its plan, announced last September, the Fed would reduce its holdings of Treasuries and MBS by no more than:

  • $10 billion a month in Q3 2017.
  • $20 billion a month in Q1 2018
  • $30 billion a month in Q2 2018
  • $40 billion a month in Q3 2018
  • $50 billion a month in Q4 2018 and continue at this pace.

This would shrink the balance of Treasuries and MBS by up to $420 billion in 2018, by up to an additional $600 billion in 2019 and every year going forward until the Fed decides that the balance sheet has been “normalized” enough — or until something big breaks.

For February, the plan called for shedding up to $20 billion in securities: $12 billion in Treasuries and $8 billion in MBS.

The easy part first: Treasury Securities

On its January 31 balance sheet, the Fed had $2,436 billion of Treasuries; on today’s balance sheet, $2,424 billion: a $12 billion drop for February. On target! In total, since the beginning of the QE Unwind, the balance of Treasuries has dropped by $42 billion, to hit the lowest level since August 6, 2014:

In the chart above, the stair-step down movement is a result of the mechanics with which the Fed sheds securities. It does not sell Treauries but allows them to “roll off” when they mature: mid-month and at the end of the month. On February 15, $16.6 billion in Treasuries on the Fed’s balance sheet matured; on February 28, $32.1 billion matured.

In total, $48.7 billion in Treasuries matured. The Fed replaced $36.7 billion of them with new Treasuries via the special arrangement it has with the Treasury Department. This cuts out the middlemen on Wall Street. So these $36.7 billion in securities were “rolled over.”

But the Fed did not replace the remaining $12 billion of Treasuries that matured. Instead, the Treasury Department redeemed them at face value (paid the Fed for them). In the jargon, these securities were allowed to “roll off.” The blue arrow in the chart above shows this February move.

MBS are a jagged animal.

For February, the plan calls for allowing $8 billion in MBS to roll off. So how did it go?

Residential MBS differ from regular bonds. The MBS holder receives principal payments continuously as the underlying mortgages are paid down or paid off, and the principal shrinks until the maturity date, when the remainder is paid off. To keep the MBS balance steady, the New York Fed’s Open Market Operations (OMO) continually buys MBS. Settlement occurs two to three months later.

This timing difference causes large weekly fluctuations in MBS on the Fed’s balance sheet. It also delays the day when MBS that have been allowed to “roll off” actually disappear from the balance sheet [I explained this in greater detail a month ago here].

As a result, to determine if the QE Unwind is taking place with MBS, we’re looking for lower highs and lower lows on a very jagged line. Also today’s movements reflect MBS that rolled off two to three months ago, so November and December, when about $4 billion in MBS were supposed to roll off per month.

The chart below shows that jagged line. Note the lower highs and lower lows over the past few months. Given the delay of two to three months, the first roll-offs would have shown up in early December at the earliest. At the low in early November, the Fed held $1,770.1 billion in MBS. On today’s balance sheet, also the low point in the chart, the Fed shows $1,759.9 billion. From low to low, the balance dropped by $10.2 billion, reflecting trades in November and December:

And the overall balance sheet?

Total assets on the Fed’s balance sheet dropped from $4,460 billion at the outset of the QE Unwind in early October to $4,393 billion on today’s balance sheet, the lowest since July 9, 2014. A $67-billion drop:

The balance sheet shows the effects not only of QE but also of the Fed’s other roles that impact its assets and liabilities. The most significant among these roles is that the Fed is also the official bank of the US government. And the Treasury Department’s huge and volatile cash balances are kept on deposit at the Fed. The Fed also holds “Foreign Official Deposits” by other central banks and government entities. But these activities have nothing to do with QE or the QE-Unwind.

There have been suggestions that the Fed “backed off” or “reversed” the QE-Unwind during the recent sell-off to prop up the markets. This was deducted from a single bounce in the overall balance sheet in week ending February 14. But this bounce was just part of the typical ups and downs and perfectly within range.

I have to disappoint these folks: based on what has happened in February with the Fed’s Treasury securities and MBS – the only two accounts that matter for the QE Unwind: The Fed didn’t miss a beat. The QE-Unwind proceeded as planned throughout the sell-off. And I expect this to continue.

This Fed isn’t going to try to bail out every whiner on Wall Street. It has been clear about that. It won’t take Wall-Street whining seriously until credit starts freezing up – and the credit markets are far away from that.

The housing market shudders. Could it be the new tax law and sky-high home prices? Read…  I Didn’t Think it Would Go This Fast: Mortgage Rates Blamed for 3-Year Low in Pending Home Sales

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Justice Department “Reviewing” Actions Of “Gang Lookout” Oakland Mayor

In the latest sign that Trump’s Department of Justice isn’t about to let “sanctuary cities” off he hook, the  LA Times reported Friday that the agency is reviewing the actions of Oakland Mayor Libby Schaaf, who last weekend alerted residents in advance of an Immigration and Customs Enforcement raid in Northern California.

“I think it’s outrageous that a mayor would circumvent federal authorities and certainly put them in danger by making a move such as that,” White House Press Secretary Sarah Huckabee Sanders told reporters.

She said Schaaf’s actions were under “review” but would not be more specific.

Schaaf has defended her statement, saying she felt it was her duty to warn residents of the ICE action.

Oakland, like many California cities, has declared itself a sanctuary for those here illegally, and officials there have vowed to fight President Trump’s immigration crackdown.

She has won praise from other officials in California. But the Trump administration has rebuked her.

The burgeoning feud between ICE and the mayor of Oakland intensified Friday when the head of the agency accused Mayor Libby Schaff of helping more than 800 violent and dangerous undocumented immigrants avoid capture during a series of raids conducted over the weekend.

The investigation wasn’t Speaking on “Fox and Friends” earlier this week, Homan accused Schaff of recklessly abetting criminals, saying her warning helped an estimated 800 “criminal aliens” avoid capture.

Meanwhile, James Schwab, a spokesman for ICE in San Francisco – a field office that spans 49 counties from Bakersfield to the Oregon border. They include someone convicted of carrying a loaded firearm and selling drugs, and another suspected of transporting cocaine and having sex with a minor, he said.

Immigration detainers lodged against them have been “repeatedly ignored,” Schwab said. “Instead they have been released back into the community to potentially reoffend.”

He also said federal authorities were examining her actions. During the three days of raids, the agency arrested about 150 people – half of whom had criminal records.

As we pointed out earlier this week, Homan accused Schaaf of putting politics above public safety, saying her decision to warn Oakland residents about this weekends raids was “no better than a gang lookout yelling police when a police cruiser comes to the neighborhood except she did it to entire community of the this is beyond the pale.”

Schaaf told the LA Times that she stands by her decision…

“My statement on Saturday was meant to give all residents time to learn their rights and know their legal options,” Schaaf said Tuesday in a statement. “It was my intention that one mother, or one father, would use the information to help keep their family together.

Some activists argued tat the mayor’s actions had unintended consequences, while others leapt to her defense.

“The main reaction that people have had has been fear, unfortunately,” said Eleni Wolfe, immigration program director at Centro Legal de la Raza, an Oakland-based advocacy group, in an interview earlier this week. “It’s terrifying to hear about the potential of increased enforcement action, and unfortunately that’s the main message that they heard.”

However, despite the controversy, we doubt this will be the last example of a “sanctuary city” mayor refusing to cooperate with federal law enforcement. In fact, their defiance recently prompted Trump to wearily declare that he might remove all federal immigration enforcement officials from “sanctuary states” like California, saying of the situation: “It’s a disgrace.”

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Florida Lobbyist Says There’s No Data on Opioid Trafficking Laws. There Is. Reason Published It.

Over the objections of law enforcement, the Florida legislature is considering several bills that would roll back some of the state’s notoriously tough sentencing laws and shed more light on the inner workings of its criminal justice system.

One of those bills, S.B. 694, would create a so-called “safety valve” that would allow judges to depart from the state’s mandatory minimum sentencing guidelines for drug trafficking offenses.

“Florida has some of the strictest sentencing laws in the country,” says Florida state Sen. Jeff Brandes, who introduced the bill. “It has about 96,000 people in its prison system, and about a third are there for nonviolent offenses. What we’ve found is that while crime in general has fallen, Florida’s prison population has been relatively static, largely because of mandatory minimum sentences and enhanced drug crimes.”

The bill is awaiting a floor vote in the state senate, likely to happen next week, but it has little to no chance of passing the Florida House. Instead, the criminal justice advocates are pinning their hope on a major transparency bill that would require much more data collection and reporting on how the criminal justice system operates. That bill passed the Florida House last week and has broader bipartisan support.

Brandes has attached a version of that legislation to another of his criminal justice bills. That bill would also increase pretrial risk assessments in county courts and raise the state’s felony theft threshold from $300—tied with four other states for the second-lowest in the country—to $1,000.

Brandes says the goal of the data bill is to create “what we think will be the gold standard for data in the country” and alleviate some of the dysfunction and ambiguity that has plagued the Florida criminal justice system for decades.

“We’re trying to look at in a much deeper way what’s going on in our criminal justice system,” he says. “We don’t even have a common definition for recidivism in the state. We have a law that says you have to serve 85 percent of your sentence, but if you ask the prosecutors, the Department of Corrections and the governor’s office what 85 percent means, you get three different answers.”

Despite its low probability of passing, the safety valve bill has still garnered fierce opposition. Barney Bishop, a Florida lobbyist who works on behalf of law enforcement and prosecutor groups, railed against the bill at a Florida Senate subcommittee hearing last month.

“Senators, you can put lipstick on a pig, I don’t care what you call it, but you ain’t helping people that have problems and addiction,” Bishop said. “You’re helping drug traffickers.”

Bishop also said that supporters of the bill would not be able to present any numbers to back up their claims that Florida’s drug trafficking laws were being punitively enforced against addicts and small-time dealers.

“The one thing you’re not going to hear is any data,” Bishop also said. “You’re not going to hear any data about how many people this impacts. You’re not going about how many people have been wrongly sent down the river to prison. You know why? Because there is no data.”

There is data.

As Reason detailed in an investigation last year, Florida’s opioid trafficking laws, far from being used to prosecute major traffickers, are most often used by prosecutors to hammer low-level offenders with the threat of huge sentences:

Of the more than 2,300 Florida inmates serving time for opioid trafficking, the overwhelming majority—63 percent—have never been to prison before. Another 20 percent were previously incarcerated, but for a drug or property crime only. Just 17 percent had been previously incarcerated for a violent offense. Some 435 are over the age of 50, which is the age prisoners are defined as elderly in Florida. Of those, 53 percent have never been to prison before, and 26 percent have been imprisoned previously for a drug or property crime only.

Florida’s passed new mandatory minimums, passed in the late 1990s, partially in response to the rising opioid crisis, and were intended to crack down on major drug traffickers. However, the threshold weights to trigger a mandatory minimum sentence for trafficking painkillers were so low that a single bottle of pills was enough to land an offender in jail for up to 25 years.

One of those inmates is Cynthia Powell. Powell was 40 years old in 2002, when she was set up by a police informant who had been begging her to sell some of her prescription pills. Powell was arrested after selling a bottle of painkillers and muscle relaxers to an undercover officer. She was sentenced to 25 mandatory years in prison.

“That’s the status quo, and I think over the years people have become convinced that the status quo is not tenable.” says Greg Newburn, director of state policy at Families Against Mandatory Minimums (FAMM), an advocacy group that supports the bill. “One of the ways it can be improved is by expanding judicial discretion in these trafficking cases, so that a judge can take a look at all the relevant circumstances and decide: Is this the type of major trafficker that was anticipated by the statute, or is this an exception that should be taken into consideration?”

The safety valve only applies in cases where the defendant is not part of a continuing criminal enterprise, did not use a weapon, and the crime did not result in harm or death to another person.

Another bill introduced in the Florida Senate, S.B. 570, would reduce the size of the state’s drug-free school zones from 1,000 feet to 250 feet.

A December Reason investigation showed how Tennessee’s 1,000-foot drug-free school zone laws covered wide swaths of urban areas in enhanced sentencing zones that were rarely, if ever, used to prosecute drug sales to minor. Rather, the zones were used to give prosecutors leverage over low-level drug offenders who were unfortunate enough to stumble into or live inside them.

And there is the issue of who is getting punished: Reason’s investigation showed wide racial disparities in who received drug free school zone sentences in Tennessee. Studies have found similar results in several other states, including Florida, where, of the 2,300 inmates serving time for drug-free zone offenses, eight out of 10 are black, according to local outlet News4 Jax.

Such zones exist in various iterations in all 50 states and the District of Columbia.

“With one week left in its legislative session, Florida has the opportunity to pass a few very modest sentencing reforms that a number of conservative states enacted years ago,” says Lauren Krisai, senior policy analyst at the Justice Action Network and former Reason Foundation staffer. “Hopefully Florida lawmakers will do the right thing and pass a bill that includes both sentencing reform and data transparency next week. At this point, it’s pretty difficult to understand what they’re waiting for.”

In the meantime, Florida’s increasingly old and infirm prison population is costing the state roughly $2.5 billion a year.

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Dianne Feinstein Touts Research Claiming the Assault Weapon Ban Reduced Mass Shootings

After an AR-15 rifle was used to murder 17 people at a high school in Florida, politicians have been eager to consider a new ban on the AR-15 and similar weapons.

Some of the research they’re relying on comes from Louis Klarevas, author of the book Rampage Nation: Securing America from Mass Shootings. Sen. Dianne Feinstein (D-Calif.) showed President Donald Trump a chart derived from Klarevas’ work this week when leaders gathered to think about how to restrict our Second Amendment rights. The chart purported to show the effectiveness of the 1994–2004 ban on the sale and manufacture of such weapons in reducing “gun massacres.”

Prior to this, no one even on the pro-gun-control side ever thought that ban had much effect on anything at all, mostly because of the vanishingly small amount of times such weapons are ever used to harm another human being. As Jon Stokes ably explains at the Los Angeles Times, Klarevas and Feinstein are able to insist that the ban produced “a remarkable 37% decline in mass shooting fatalities” only by ignoring the fact that both before or after the ban, such weapons are hardly used to kill anyone. “Klarevas and his allies are taking an apparent drop in fatalities from what are mostly handgun shootings (again, pre-ban as well as post) and attributing this lowered body count to the 1994 legislation,” Stokes explains.

Klarevas also cherry-picked to get an apparently impressive result from the assault weapon ban by adopting an unusual definition of “mass shooting.” If he had “chosen the most widely accepted threshold for categorizing a shooting as a ‘mass shooting’—four fatalities, as opposed to Klarevas’ higher threshold of six—the 1994 to 2004 drop in fatalities disappears entirely. Had Klarevas chosen a ‘mass shooting’ threshold of five fatalities instead of six, then the dramatic pause he notes in mass shootings between 1994 to 1999 would disappear too.”

As I explained in my Reason feature “You Know Less Than You Think About Guns,” the available data about gun laws often involve whole numbers too small for social science to bring to bear anything like accurate or reproducible knowledge. This is especially true when it involves the sort of rifles that can be used for mass shootings but in reality hardly ever are. (They are certainly not necessary for high-casualty shooting events. In the highest-fatality campus shooting, at Virginia Tech in 2007, the killer used pistols.)

In Klarevas’ graph, Stokes explains, “five mass shootings…took place with ‘assault weapons’ in the decade before the ban, and three…took place during its tenure. These numbers are far too small for any sort of statistical inference, especially if you’re trying to build a case for banning tens of millions of legally owned rifles.”

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Nomura: What Is Happening Is The Fed Unloading Their “Short Vol Position”

Two months ago, we detailed what the current Fed Chair (then a mere mortal) Jay Powell said during the October 23-24, 2012 FOMC meeting – just one month after the Fed announced QE3, as exposed by recently released FOMC transcripts:

I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.

And then the punchline:

[W]hen it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position.

Ah yes, unloading the Fed’s “short volatility position”.

Fed’s VIX trading aside, here is perhaps the most fascinating part of Powell’s speech, one which contains some truly unprecedented – for a future Fed chairman – admissions:

I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.

Almost?

“And I think there is a pretty good chance that you could have quite a dynamic response in the market. “

And now, as Nomura’s Charlie McElligott explains, that is where we find ourselves in this market noting that this week’s volatility (think downside pressure) was much-more than a “tariff trade” in stocks, as we have noted.

McElligott details that this move was also about an escalation of buy-side risk management in a “new era” of volatility, as global central banks – led by the Fed – are now committed to trying to de-leverage investors from the perverse risk-taking incentives that they have built into the market through their GFC-response.

Without question, the USD reversed its earlier squeeze and traded meaningfully lower again on the Trump “protectionist” concerns “actualizing” was real and continued overnight… and BELIEVE ME, any potential for a “301 tariff” (intellectual property) “trade war” escalation (Trump stated this morning on Twitter – “trade wars are good, and easy to win.”) into the consumer electronics space would cause SERIOUS pressure in the ultra-overweighted Tech sector, instance… and with it, US stocks would get smoked, as Tech is 25% of SPX nowadays.

Recent weeks since the “idiosyncratic” equity vol spike (which without question was rooted in a number of “real” macro inputs), fund risk-management of exposure / leverage has looked pretty “ textbook” in the sense of the “buy-the-dip” era where “taking down net (exposure)” during market selloffs has killed your performance on the “V-shaped” snapback recoveries.  So instead, you rotate your length into a “liquidity” focus.

Let’s use the equity hedge fund space as an example, where with the exception of the most extreme “risk-down” days, clients have by-and-large rotated into their “highest conviction” / “core” mega cap names due-to their LIQUIDITY (stuff you can “get out of when you need to”), while reducing exposure to names and trades that screens the wrong way from a risk manager’s perspective—illiquid / high implied- and realized- volatility / small cap / high beta stuff.

Thursday however saw that trend reverse with actual and significant “gross-down” style de-risking – meaning accounts selling-down their favorite longs (in this case, “crowded” large-cap names in the most popular “momentum” sectors (Industrials, Financials, Tech and Healthcare make up 64% of the overall S&P weighting which have become the aforementioned “hiding place”), while at the same time covering shorts / underweights in the “worst” risk-manager stuff (illiquid and volatile) – as such, the S&P’s five worst sector performers YTD (IRONICALLY, the what used to be considered the “defensives”- / “bond-proxy”- / “low volatility” sectors: REITS, Energy, Telco, Utes, Consumer Staples) just so happened to be the S&P’s five best-performing sectors on the session yesterday.  A similar expression, illiquid and high-beta small cap (IWM) outperformed the liquid and lower-vol large cap (SPY) by ~120bps yesterday—the third-largest “small over large” outperformance of the past year, on account of this “pure” de-risk.

Futures flows were just massive yday, which again speaks to a purging of recent exposure-grabbing.  Seriously… look at the amount of net $ S&P futures that asset-managers have added over the last 12 years in SPX (while also noting that leveraged-funds recently turned NET POSITIVE in an vehicle that they traditionally are “short” in as a portfolio hedge!):

Source: Nomura

And seriously – look at the  net $ EM exposure-grab through futures for BOTH asset-managers AND leveraged-funds since the start of 2016:

Source: Nomura

THIS is the “new normal,” as “lazy longs” are no longer a “thing”... index, asset-class, or single-name – because the entire post-crisis period built upon the edifice of “low nominals, flat curves, and suppressed volatility” in order to incentivize investor moves out onto the risk-curve to create a wealth effect from financial asset inflation is in the process of being unwound. You simply have to trade much more dynamically now.

THE END OF ‘LAZY LONGS,’ AS HIGH-SHARPE RATIO TRADES COME UNGLUED:Look-back to start of ’17 shows the 20d rolling-return of “high sharpe-ratio” equities trades melting-down, as “low vol / high return” trades are “no more.”

Source: Bloomberg

Yesterday’s trade was further representation of institutional investors evolving their risk-management approach in the “new normal” of volatility.

Both buy- and sell- side desks are trying to understand “risk-sizing” and volatility-allocation with this reintroduction of honest-to-goodness price-movement, after the past 5+ years of trading behavior which required negligible concern and created tremendous complacency and incentivized “negative convexity”- / “short vol”- / “leveraged-carry”- strategy proliferation, as central banks and investor thirst for yield facilitated the massively vol suppressing “debt for buybacks” binge.  Now, with rates forced-higher by central bank normalization and inflation “escape velocity,” tightening financial conditions are driving higher cross-asset vols as the term-premium is reset higher.

Circling back to where we started, the “full reset” of the “Fed Put” concept from new Chair Powell is occurring AND very importantly investors are being forced to derisk and deleverage into this “new normal” vol world that we find ourselves in.

McElligott concludes by pointing out that the Fed Put isn’t gone…but it certainly has been “struck lower,” and the market is looking for the price in light of this recently wobble in the collective risk-psyche.

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Here Is The Clip Of The Protester Dragged Out From Mnuchin’s UCLA Speech

A member of the audience was removed by police for disrupting a speech by Treasury Secretary Steven Mnuchin at the University of California, Los Angeles on Monday.

Mnuchin visited UCLA’s Burkle Center for International Relations Monday and had initially agreed to allow the university to post video and a podcast of his lecture, but changed his mind following the speech.

The conversation was moderated by journalist Kari Ryssdal and the topics covered included sanctions, the Trump tax plan and the current economic outlook. The lecture was attended by roughly 200 people, many of whom did not agree with the secretary’s positions, hissing and at points, interrupting his remarks.

Mnuchin decided to engage some of the protesters, asking why they were hissing, and he paused when interrupted. ABC7 was in the room when two protesters were escorted out by armed police officers.

Mnuchin said during the speech that he felt “an obligation to try to do things that would help people and help the economy and particularly the middle class.”  He also discussed the Trump tax cuts passed late last year, when a woman in the crowd shouted that the Trump administration is punishing “black and brown people in the inner cities.”

As she was forcibly removed by police, another attendee shouted “This tax bill is going after people who are vulnerable. This is politics of cruelty. This is politics of fascism.”

UCLA complied with Mnuchin’s request and refused to release the clip: on Tuesday, Peggy McInerny, director of communications for the Burkle Center, released a statement to the media explaining why the public would not be receiving video of the lecture.

“I am sorry to write that we just received word that Secretary Mnuchin has retracted his permission for the Burkle Center to post its video and podcast of yesterday’s event on its website, so we are unable to share either recording with you. This was an unexpected development and I apologize,” said McInerny.

A treasury spokeswoman pushed back when asked by the New York Times whether Mnuchin was being transparent about deciding not to allow the university to release the video. The spokeswoman told the paper, “The event was open to the media and a transcript was published. He believes healthy debate is critical to ensuring the right policies that do the most good are advanced.”

Of course, it didn’t take long for the video to leak, and a copy of the incident was uploaded Thursday:

“Secretary Mnuchin has participated as a guest in previous events held by the UCLA Burkle Center and welcomed the chance to speak and discuss important economic issues,” a Treasury spokeswoman said in a Friday statement to The Hill. “The event was open to the media and a transcript was published. He believes healthy debate is critical to ensuring the right policies that do the most good are advanced.”

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U.S. Trade Partners Promise Retaliation for Trump Tariffs, Israel and Poland Spar Over Proposed Speech Law, and the World’s Last Male White Rhino is Gravely Ill: P.M. Links

  • U.S. trade partners promise retaliation over Trump’s possible steel tariffs.
  • Poland and Israel in tense talks over proposed law that would make it a crime to blame Poland for the holocaust.
  • British PM reveals detailed Brexit proposal.
  • Georgia punishes Delta Air Lines for crossing the NRA, scraps tax exemption.
  • The world’s last male northern white rhino is gravely ill

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Have We Reached Peak Gun Rights? New at Reason

Gun storeHistory could very well record that in the modern era, the Second Amendment received its most generous reading in 2010 when the U.S. Supreme Court decided its last major case, and that gun rights have been declining ever since.

This prospect is as worrisome for anyone who takes an expansive view of the Second Amendment as it must be exhilarating for anti-gun advocates.

Since 2010, residents of California, New York, Massachusetts, Connecticut, Washington, Colorado, Oregon—and states with similarly minded legislatures—have found themselves slapped with new restrictions that did not exist eight years ago. The U.S. Supreme Court has done precisely nothing to stop this extra-constitutional adventurism. Declan McCullagh explains further.

View this article.

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Trump’s Impulsive Trade War Is Lousy Economics and Worrisome Politics

Huh. So it turns out when you elect an impulsive, anger-prone mercantilist who campaigned and won the presidency on a platform to stop “letting” America’s international trading partners get away with “murder,” he might impulsively launch a trade war without so much as properly consulting his own staff.

NBC News (among several other outlets) is reporting that the president’s plan was hatched on the fly, in part due to his anger about non-related scandals plaguing the White House:

Trump’s policy maneuver…was announced without any internal review by government lawyers or his own staff, according to a review of an internal White House document.

According to two officials, Trump’s decision to launch a potential trade war was born out of anger at other simmering issues and the result of a broken internal process that has failed to deliver him consensus views that represent the best advice of his team.

On Wednesday evening, the president became “unglued,” in the words of one official familiar with the president’s state of mind.

Congratulations, GOP! ||| Pool/ABACA/NewscomTrump’s proposed 10 percent aluminum tariff, as Eric Boehm laid out this morning, would inflict material damage on the robust domestic beverage industry, among several other sectors, as well as on each and every American who buys a product containing aluminum. (This Virginia Postrel piece from last November does a good job explaining how much.) The 25 percent tariff on steel, too, would be a self-inflicted economic injury. The Dow Jones Industrial Average dropped 420 points yesterday (1.7 percent) partly in response to the announcement, and finished today down an additional 71 after volatile trading. This Yahoo Finance headline sums things up well: “Economists pan Trump trade policy as ‘terrible,’ risks ending economic expansion.”

It is not new for a modern U.S. president to impose protectionist tariffs. Barack Obama did it with Chinese tires, costing American consumers an estimated $1.1 billion in return for preserving 1,200 jobs in the domestic tire industry. And as Steve Chapman has noted in these pages, “When George W. Bush imposed duties on foreign steel, experts concluded, he destroyed some 200,000 jobs in other sectors—exceeding the total employment of the American steel industry.”

Trump’s moves, coming on the heels of his recent tariffs on Chinese solar panels and imported washing machines, threaten to be far more ruinous, “the most significant set of U.S. import restrictions in nearly half a century,” Edward Alden concluded over at the Council on Foreign Relations. That’s in part due to the centrality of protectionism to both Trump’s presidential campaign and his lifelong economic worldview. He really, truly believes that “trade wars are good, and easy to win,” and that his commitment to this belief is part of why he won the presidency. That’s a potent combination.

So is Republican malleability on what used to be a bedrock conservative principle. As Ilya Somin has noted over at The Volokh Conspiracy, Trump has dramatically shifted Republican public opinion on trade. And some high-up GOP types have been all too happy to change their spots: Never forget that then-Republican Party Chair Reince Priebus drew applause from the stage of the Republican National Convention for crowing that “Donald Trump wants to bring jobs back from overseas and hold companies who want to send them abroad accountable.” With Democrats already tacking hard toward a Bernie Sanders-like approach on economic policy, tariff-reduction may be following deficit-reduction out the exit door of two-party politics.

The president has considerable latitude on trade policy, particularly when dressed up unconvincingly as “national security.” If Trump really wants his trade war, Trump will get his trade war, even if every member of Congress was to spontaneously agree with Sen. Ben Sasse (R-Neb.) that “No trade war has ever worked.” This was always a central objection to candidate Trump, one that many people who have long supported free trade found less persuasive than their antipathy toward his competitors.

Is there any possible silver lining to this lousy news? Probably not, but MSNBC’s Stephanie Ruhle (whose show I guest on frequently) has reported from sources that Trump may change his mind if the stock market continues to tank. So it’s possible that the president’s impulsiveness may yet save us from the president’s impulsiveness. That is what passes for economic policy hope in a Washington run by the Republican Party.

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