Tag: finance

Authored by Sarah Cowgill via LibertyNation.com,

Couch surfers, basement dwellers, and welfare-system abusers are rejoicing at Rep. Alexandria Ocasio-Cortez’s (D-NY) latest harebrained scheme to rally votes for the progressive radical left. While her Green New Deal struggles on life support – surviving only by the prayers of Bernie Bros through the ether – AOC recently released her plan to equalize the nation.

It’s called the Just Society, and, according to the woman who allows no reality to contaminate her legislative dreams, it constitutes a “suite” of legislation – five bills and one resolution – that will “build a just society to protect our communities and uplift our neighbors.”

How noble.

The sweet “suite” looks a bit like a safe space where nobody wants to seek shelter:

• Recognizing Poverty Act

• Place to Prosper Act

• Mercy in Re-Entry Act

• Embrace Act

• Uplift Our Workers Act

• Ratify the UN Covenant on Economic, Social, & Cultural Rights

What do those things even mean? Pretty words that simply cannot camouflage the mind of a straight- up socialist.  AOC hopes to increase the national poverty baseline to those earning $38,000 a year, impose rent control coast to coast, place parolees on all welfare programs, and provide the entirety of American health and welfare services to illegal aliens whether they want them or not.

The AOC Way – To Third World Status

Let’s face a few facts on AOC’s latest fantasy: $38,000 a year is not a bad salary depending on where you live. For instance, the median home price in the city of Indianapolis, IN, is $102,000 while median income is $66,000. In San Francisco, CA, your mainstream single-family home is going to cost $1.36 million – but average income is only $96,265. See the problem? It’s not going to help the state of California to open the floodgates for the good people in Indiana who happily buy a home, feed and clothe families, while making less than $40,000 to hand out food stamps and health care. They simply don’t need it. But who is going to turn down all that free stuff?

Ah, rent control: Number two on the AOC-to-mess-with list. Calls for a nationwide – not select locations – mandate to limit increases by only 3% per year. Property owners have little incentive to rent to anyone – anywhere – only to be hobbled in making a profit.

Footing the bill for illegal aliens’ food stamps and health care has been shown to be a deal killer for Americans – folks who work maximum hours for minimum wages. But AOC has gone so far as to adding parolees on the recipient list of free stuff, because, well, maybe they won’t commit any additional crimes. Of course, there is no data to confirm the Mercy Act will do much good in that department.  The federal Bureau of Justice Statistics tracks released felons and concludes recidivism is ridiculously high, and these folks aren’t buying Ramen noodles and baby formula. Researchers found during a nine-year study of 67,966 prisoners from among the 401,288 prisoners released:

• The 400,000 released prisoners racked up nearly two million arrests during the nine-year period, or about five arrests per man or woman.

• Forty-four percent were arrested during their first year following release, 68% were arrested within three years, 79% within six years, and 83% within nine years.

And lest we forget, the Uplift Our Workers Act is pure, misleading hogwash. This fabulous piece of economic destruction instructs the Department of Labor to prioritize awarding of federal contracts to companies that have a $15 minimum wage and paid maternity leave – and you can imagine the rest of her demands. Quality and price be damned, just show us your feel-good work policies whether any of the above applies.

Her final salvo is to force the United States to sign on to an international accord that stipulates all people “have the right to work, fair and just conditions of work, social security, an adequate standard of living, including adequate food, clothing, housing, and healthcare.”

As Liberty Nation’s economic expert Andrew Moran writes:

“It can be difficult to fault the Congresswoman for believing that everything is a human right. She was born in 1989 to a generation that has had every tantrum satisfied, every whim realized, and every shattered dream covered up by well-intentioned parents. She might be coming from the heart, but this is where her philosophy of being morally right over factually correct is dangerous.”

And we’ll just leave this latest AOC boondoggle to die the same tragic, unspeakable death as the Green New Deal.  Bless her heart.

The odds of Hillary Clinton entering the 2020 presidential race and winning the Democratic nomination jumped to third place per PredictIt, as rumors swirl that she’ll be back to take another bite at the apple. 

Notably, former Trump chief strategist Steve Bannon told Fox Business last week “She is running. She’s just trying to decide how to fit her way in.” 

The jump in popularity comes as Joe Biden faces uncomfortable questions over whether he abused his position as Vice President to engage in profiteering with his son Hunter in Ukraine and China. 

Meanwhile, Elizabeth Warren was caught in yet another lie about her past – after video and documentary evidence disproved her claim that she was fired from a teaching job for being “visibly pregnant,” when she left voluntarily. 

On Monday, a Rasmussen poll had Hillary “neck-and-neck” with President Trump in a hypothetical rematch despite a majority (71%) responding that she shouldn’t run. 

Hillary is healthier than Bernie, less self-dealing than Biden, and lies less than Warren. Spread the word. Hillary must run. https://t.co/Yd6x9Yghnj

— Michael Berry (@MichaelBerrySho) October 7, 2019

President Trump, meanwhile, is trolling the whole idea, tweeting on Tuesday “I think that Crooked Hillary Clinton should enter the race to try and steal it away from Uber Left Elizabeth Warren. Only one condition. The Crooked one must explain all of her high crimes and misdemeanors including how & why she deleted 33,000 Emails AFTER getting “C” Subpoena!”

I think that Crooked Hillary Clinton should enter the race to try and steal it away from Uber Left Elizabeth Warren. Only one condition. The Crooked one must explain all of her high crimes and misdemeanors including how & why she deleted 33,000 Emails AFTER getting “C” Subpoena!

I think that Crooked Hillary Clinton should enter the race to try and steal it away from Uber Left Elizabeth Warren. Only one condition. The Crooked one must explain all of her high crimes and misdemeanors including how & why she deleted 33,000 Emails AFTER getting “C” Subpoena!

— Donald J. Trump (@realDonaldTrump) October 8, 2019

While Clinton firmly denied in March that she would run, telling New York’s News 12 “I’m not running, but I’m going to keep on working and speaking and standing up for what I believe. 

Via Vannity Fair: 

Clinton, of course, has firmly denied any interest in the 2020 race. Her current press tour is to promote a book she cowrote with her daughter, Chelsea, that comes out this month. To Bannon, though, Clinton’s press junket is a sure sign she’s jockeying for position ahead of the presidential primary. “Hillary Clinton is doing a whole thing,” he said. “A meeting this week for a book…she said [Trump is] an illegal president, illegitimate president…he’s a clear and present danger.”

That said, as Vanity Fair also notes, “if she is attempting a comeback, it might not be as smooth as could be hoped,” suggesting that “Clinton’s remark that staying in her marriage to Bill Clinton was the “gutsiest thing” she’s ever done on a personal level raised some eyebrows, as did her comments to People that the body politic should “get over” Biden’s habit of touching women in ways that make them feel uncomfortable.”

 

US equity markets are tumbling today following an avalanche of risk-negatives overnight:

1)      Another seeming “reversal” of the prior White House denial of the “capital flows” report from last week (Navarro “fake news” comment last week R.I.P.), as a fresh Bloomberg story states that the Trump administration IS moving ahead with discussions around possible restrictions on capital flows into China, with particular focus on limiting investments in Chinese stocks made by US govt pension funds (despite the article noting that “It’s still unclear what legal authority the White House would rely on to force major indexes to drop certain Chinese companies,” as the Federal Retirement Thrift Investment Board is supposed to mirror the MSCI All Country World Index by mid-2020)

2)      A SCMP article “source” story after hours US yday stating that the Chinese delegation has already planned to cut short its stay in DC by one night

3)      And of course, the initial US / China trade negative impulse yday came via the tech co “black-list” announcement (with Chinese Foreign Ministry spokesman Geng Shuang telling reports overnight  to “stay tuned” over potential retaliatory measures which importantly is an “escalation” from the US, because it’s the first time where “human rights” have been cited in a “new front” of the trade war (as opposed to “national security” as the basis with Huawei)

4)      “Hard Brexit” odds again increase after negotiator talks with the EU head south (supposedly Johnson told Merkel “that a deal is essentially impossible”)

5)      More “slowing global growth” confirmation, with Chinese Caixin PMI Services coming-in “light” (51.3 vs 52)

6)      And just a bit ago, US Core PPI falls by the most in more than four years, while the NFIB Small Business Optimism Index declines for the second month in a row and back near the Trump Presidency “lows”

And Nomura’s Cross-Asset Strategy MD Charlie McElligott warns there could be more to come as markets appear overly complacent at some/any resolution in the US-China negotiations.

However, the market-implied odds of a China trade deal are plunging…

Source: Bloomberg

But, as McElligott notes, there remains a view with many investors that, due to President Trump’s domestic “impeachment” issue dominating the 24 hr news cycle, he would feel increased pressure to get a deal done, satiate his increasingly restless US farmers, and claim a much-needed “win” via bolstering the US stock market.

However, the Nomura quant suggests that, into next year’s election, Trump too needs to keep the pressure on the Fed with regards to cutting rates as well as potential balance sheet expansion, and thus, I do not expect him to give away this “free option” quite so early (instead, thinking 1Q19 where the pressure dials-up), which means he will likely keep the rhetoric and actions towards China negative / heavy-handed in the near-term.

The “partial” trade deal story was floated into the ether last week, and only generated a “meh” market response – because most realize that there is no substance if a deal doesn’t address “the seven deadly sins” of:

1. IP,

2. forced tech transfer,

3. hacking,

4. dumping,

5. subsidies for SOEs,

6. fentanyl and

7. currency manipulation.

Nonetheless, McElligott warns, “DANGEROUSLY,” I would say that investor expectations CONTINUE  to expect a DELAY to the new tranche of US tariffs in order to keep discussions at least partially “thawed,” which means that there remains significant downside risk still from here if we do NOT see the expected delay come to pass.

The S&P 500 levels to watch are 2873.55 (to see selling) and 2858.52 to see CTAs flip outright short…

Source: Nomura

Authored by Ryan McMaken via The Mises Institute,

As 2018 came to an end, politicians and media pundits insisted that “gun violence” was growing and hitting crisis levels .

While a homicide rate of anything greater than zero is an measure of very-real human misery, it nonetheless turns out that fewer people were murdered in 2018 than in the year before. Moreover, 2018 was the second year in a row during which the homicide rate declined.

According to new homicide statistics released by the FBI last month, the homicide rate in the United States was 5 per 100,000 people. That was down from 5.3 per 100,000 in 2017 and down from 5.4 in 2016. In 2014, the homicide rate in the US hit a 57-year low, dropping to 4.4 per 100,000, making it the lowest homicide rate recorded since 1957.

At 5 per 100,000, 2018’s homicide rate has been cut nearly in half since the 1970s and the early 1990s when the national homicide rate frequently exceeded nine percent.

The regions with the largest declines were New England and the Mountain west where homicide rates decreased 18 percent and 12 percent, respectively. The only region reporting an increase was the Mid Atlantic region, with an increase of one percent. This was driven largely by an increase in homicides in Pennsylvania.

At the state level, the homicide rate went down in 38 states, and increased in 12.

The states with the lowest homicide rates were South Dakota, Rhode Island, New Hampshire, Vermont, and Maine. The states with the lowest rates were nearly all found in New England and in the West. For additional context, I have graphed US states with Canadian provinces (in red):

Indeed, when we map the states by homicide rate, we can see some clear regional differences:

In American political discourse, it is fashionable to insist that those places with the most strict gun control laws have the least amount of violence.

This position, of course, routinely ignores the fact that large regions of the US have very laissez faire gun laws with far lower levels of violent crime than those areas with more gun regulations. Moreover, if we were to break down the homicide rates into even more localized areas, we’d find that high homicide rates are largely confined to a relatively small number of neighborhoods within cities. Americans who live outside these areas — that is to say, the majority of Americans — are unlikely to ever experience homicide either first-hand or within their neighborhoods.

We can see the lack of correlations between gun control and homicide, for instance, if we compare state-level homicide rates to rankings of state-level gun laws published by pro-gun-control organizations.

For example, using the Giffords Center’s rankings of state gun policy, many of the states with the lowest homicide rates (South Dakota, Maine, New Hampshire, Vermont, and Utah) are states with the most laissez faire gun policies. The Giffords Center naturally ranks these states the lowest for gun policy, giving Maine and Utah grades of “F” and “D-“, respectively, although both states are two of the least violent places in all of North America.

Homicide vs. “Gun Violence”

As is so often the case when dealing with gun statistics put out by pro-gun-control groups, the Giffords Center attempts to fudge the numbers by measuring “gun deaths” rather than homicides. By design, this number includes suicides — which then makes violence rates look higher — while excluding all forms of homicide not involving guns.

Thus, a state with higher homicide rates overall — but with fewer gun homicides — will look less violent than it really is.

Meanwhile, a state with little violent crime, but with relatively high homicide rates, will be counted as a state with many “gun deaths.” These nuances are rarely explained in the public debate however, and the term “gun deaths” is just thrown around with the intent of making places with looser gun laws look like they have more crime.

Moreover, the attempt to use suicide to “prove” more guns lead to more suicides is easily shown to be baseless at the international level: the US has totally unremarkable suicide rate even though it is far easier to acquire a gun in the US than many countries with far higher suicide rates.

Mass Shootings

As the total number of homicides in the US has gone down in recent decades, many commentators have taken to fixating on mass shooting events as evidence that the United States is in the midst of an epidemic of shootings.

Mass shootings, however, occur in such small numbers as to have virtually no effect on nationwide homicide numbers.

According to the Mother Jones mass shootings listing, for examples, there were 80 deaths resulting from mass shootings in 2018, or 0.5 percent of all homicides. That was down from the 117 mass-shooting total in 2017, which was 0.7 percent of all mass shootings. And how will 2019 look? So far this year, there have been 66 mass-shooting deaths. On a per-month basis, mass shootings have so far been deadlier in 2019 than in 2018. But we could also note that although there have been 66 mass shooting victims this year, the total number of homicides in Maryland alone fell by 68 from 2017 to 2018.

And then, of course, there is the issue of crime prevention through private gun ownership. Since only averted crimes are not counted in any government statistic, we only know how many homicides occur, but not how many are averted due to the potential victim being armed. Pro-gun-control advocates insist that the number is very low. But, again, there is no empirical evidence showing this. Some gun control activists will point to studies that conclude more homicides occur in areas with more guns. These studies may be getting the causality backwards, however, since we’d expect more gun ownership to result in areas that are perceived to be more crime-ridden.

Following a renewed surge in protest unrest and violence in the wake of the controversial mask ban which went into effect on Saturday, Hong Kong leader Carrie Lam has for the first time issued public warning that the Chinese military could step in, saying this drastic step would only happen if it “becomes so bad”.

Expressing hope it won’t come to that, and that the situation will resolve itself under local authorities, she noted that the four month-long raging protests were no longer “a peaceful movement for democracy” and urged outside critics to understand this. 

“I still strongly feel that we should find the solutions ourselves. That is also the position of the central government, that Hong Kong should tackle the problem on her own, but if the situation becomes so bad, then no options could be ruled out if we want Hong Kong to at least have another chance,” Lam said at a news conference on Tuesday.

Over the past month especially, demonstrations have increasingly involved a smaller but more hardline crowd of mostly face-masked youth relying on extreme tactics such as hurling molotov cocktails at police, and setting stores and infrastructure on fire, along with increased vandalism.

The anti-Beijingers have attempted to bring the city to a complete halt, using various tactics such as erecting barriers on busy roadways, occupying the international airport, and vandalizing train stations including attempting to disable trains. The protests seem to have entered a new, more dangerous phase, which further suggests the Chinese military could be inching closer to direct intervention. 

From Friday night to Saturday, violence spread in #HongKong, the way rioters attacked was shocking, causing unprecedented damage. They even attacked the city’s train system, including the cars and railway: #CarrieLam #香港 pic.twitter.com/teFjzpITs5

— Global Times (@globaltimesnews) October 5, 2019

Chinese state media as it continues highlighting the dangerous vandalism, including an alleged attack on a cross-border train into China, seems to be making a case that only direct mainland intervention can remedy the situation and restore order. 

Over the weekend the city’s MTR train network had to be closed for two days. As the AP reports, this was over fears of wide scale attacks and disablement of the public transit system which carries some 5 million passengers daily:

Videos on local media showed masked protesters smashing windows of a train heading to mainland China late Monday as passengers screamed — the first time a train carriage was attacked. Protesters also threw objects on the track as the train pulled away. An MTR spokesman, who identified himself only as Terry, confirmed the incident and said some cross-border services were suspended Tuesday.

Both police and random passersby suspected of harboring pro-mainland views have also been subject of attack by mobs of masked protesters. Police regional chief Kwok Yam-yung has slammed “Ruthless and reckless acts are pushing the rule of law to the brink of total collapse,” after in only four days he indicated 241 people were detained due to what he dubbed widespread “atrocities”.

Fire burning on top of a train in Kowloon Tong, according to my local producer. Another video making social media rounds. #HongKong #HongKongProtests pic.twitter.com/gDwYNBGEPL

— Ramy Inocencio 英若明 (@RamyInocencio) October 4, 2019

Only days in effect, the mask ban has resulted in 77 arrests, with 16 of those cases already prosecuted — a violation which can receive up to a year in jail and a fine, according to police numbers cited by the AP. Technically a formal charge of rioting, though perhaps harder to prove, can bring a penalty of up to ten years. 

According to Hong Kong police figures, a total of 2,363 people have been arrested, and among those more than 200 have been charged with rioting. 

Pro-Beijing social media has further begun to accuse to the HK protesters of beginning to deploy roadside bombs, upping their usual petrol bombs into something more deadly.

That’s not the sound of an explosion; it’s the sound of freedom. 🙄🙄 Maybe the first casualty would be a firefighter that gets killed by a roadside bomb, in Hong Kong pic.twitter.com/HvNG0YYW9k

— LFC (@goldencaskcap) October 7, 2019

Given there’s no sign the ferocity of the unrest will stall or lessen, and given Carrie Lam’s first formal warning of the mainland’s People’s Liberation Army intervention, it appears Hong Kong authorities are prepping for a worst case scenario, which Beijing will only be too happy to oblige. 

Authored by Patrick Buchanan via Buchanan.org,

The backstage struggle between the Bush interventionists and the America-firsters who first backed Donald Trump for president just exploded into open warfare, which could sunder the Republican Party.

At issue is Trump’s decision to let the Turkish army enter Northern Syria, to create a corridor between Syrian Kurds and the Turkish Kurds of the PKK, which the U.S. and Turkey regard as a terrorist organization.

“A disaster in the making,” says Lindsey Graham. “To abandon the Kurds” would be a “stain on America’s honor.”

“A catastrophic mistake,” said Rep. Liz Cheney.

“If reports about US retreat in Syria are accurate,” tweeted Marco Rubio, Trump will have “made a grave mistake.”

“The Kurds were instrumental in our successful fight against ISIS in Syria. Leaving them to die is a big mistake,” said ex-U.N. ambassador Nikki Haley, “we must always have the backs of our allies. ” But of our NATO ally of almost 70 years, Haley said, “Turkey is not our friend.”

Sen. Mitt Romney called it a “betrayal”:

“The President’s decision to abandon our Kurd allies in the face of an assault by Turkey is a betrayal. It says that America is an unreliable ally; it facilitates ISIS resurgence; and it presages another humanitarian disaster.”

Trump tweeted this defense of his order to U.S. forces not to resist Turkish intervention and the creation of a Turkish corridor in Syria from the eastern bank of the Euphrates to Iraq:

“The Kurds fought with us, but were paid massive amounts of money and equipment to do so. They have been fighting Turkey for decades. … I held off this fight for … almost 3 years, but it is time for us to get out of these ridiculous Endless Wars, many of them tribal, and bring our soldiers home.”

When, in December, Trump considered ordering all U.S. troops home from Syria, Defense Secretary James Mattis resigned in protest.

Behind this decision is Trump’s exasperation at our NATO allies’ refusal to take back for trial their own citizens whom we and the Kurds captured fighting for ISIS.

The U.S. has “pressed France, Germany, and other European nations, from which many captured ISIS fighters came, to take them back, but they … refused,” said a Sunday White House statement. “The United States will not hold them for what could be many years and great cost. … Turkey will now be responsible for all ISIS fighters in the area captured over the past two years.”

What are the arguments interventionists are using to insist that U.S. forces remain in Syria indefinitely?

If we pull out, says Graham, the Kurds will be forced, for survival, to ally themselves with Bashar Assad.

True, but the Kurds now occupy a fourth of Syria, and this is not sustainable. We have to consider reality. Assad, the Russians, Iranians and Hezbollah have won the war against the Sunni rebels we and our Arab friends armed and equipped.

We are told that the Kurds will be massacred by Turkey’s President Recep Erdogan, who sees them as terrorist allies of the PKK.

But the Turks occupied the Syrian border west of the Euphrates and the Kurds withdrew without massacres. And how long must we stay in Syria to defend the Kurds against the Turks? Forever?

If we depart, ISIS will come back, says Cheney: “Terrorists thousands of miles away can and will use their safe-havens to launch attacks against America.”

But al-Qaida and ISIS are in many more places today than they were when we intervened in the Middle East. Must we fight forever over there — to be secure over here? Why cannot Syria, Iraq, Iran, Turkey, Saudi Arabia and the Gulf States deal with ISIS and al-Qaida in their own backyard?

Why are ISIS and al-Qaida over there our problem over here?

“This will throw the region into further chaos,” says Graham.

But if Trump’s decision risks throwing the region into “further chaos,” what, if not wholesale U.S. intervention, created the “present chaos”?

Consider.

Today, the Taliban conduct more attacks and control much more territory than they did in all the years since we first intervened in 2001.

Sixteen years after we marched to Baghdad, protests against the Iraqi regime took hundreds of lives last week, and a spreading revolt threatens the regime.

Saudi Arabia is tied down and arguably losing the war it launched against the Houthi rebels in 2015. Iran or its surrogates, with a handful of cruise missiles and drones, just shut down half of the Saudi oil production.

Crown Prince Mohammed bin Salman is awakening to his nation’s vulnerability and may be looking to negotiate with Tehran.

Among those objecting most loudly to an American withdrawal from the forever wars of the Middle East are those who were the most enthusiastic about plunging us in.

And, yes, there is a price to be paid for letting go of an empire, but it is almost always less than the price of holding on.

…and just like that, it was gone.

The gains from “bad is good” payrolls and China trade-deal hype are gone…

Dow (cash) has filled the gap from Friday’s close…

And all the major US equity indices have broken back below their 50- and 100-day moving averages (Small Caps below 200DMA)…

Yuan has erased all its Golden Week gains…

Source: Bloomberg

And 30Y Yields are pushing back down towards 2.00% once again…

Source: Bloomberg

Where’s Larry Kudlow when we need him most?

US ambassador to the European Union, Gordon Sondland, has been directed by the Trump administration not to appear for a Tuesday morning interview scheduled in the House’s impeachment inquiry, reports the New York Times. 

Sondland was prominently featured in a text exchange revealed last week in which US diplomat to Ukraine, William Taylor, said in early September “As I said on the phone, I think it’s crazy to withhold security assistance for help with a political campaign,” referring to nearly $400 million in military aid withheld from Ukraine. 

Sondland made a phone call to Trump, who said that assertion was false. Sondland then texted back: “Bill, I believe you are incorrect about President Trump’s intentions,” adding “The President has been crystal clear no quid pro quo’s of any kind.”

“I suggest we stop the back and forth by text.” 

The decision has riled the three House committees seeking to speak with Sondland, which may result in what Times suggests could be “potentially profound consequences for the White House and President Trump.” House Intelligence Committee Chair Adam Schiff (D-CA) says the failure to deliver Sondland is obstruction – a charge itself which carries the potential for impeachment. 

…in making the decision, hours before he was scheduled to sit for a deposition in the basement of the Capitol, the Trump administration appears to be calculating that it is better off risking the House’s ire than letting Mr. Sondland show up and set a precedent for cooperation with an inquiry they have strenuously argued is illegitimate. –New York Times

“Ambassador Sondland is profoundly disappointed that he will not be able to testify today,” said Sondland’s lawyer, Robert Luskin – saying that his client had no choice but to comply with the administration’s order. “Ambassador Sondland believes strongly that he acted at all times in the best interests of the United States, and he stands ready to answer the committee’s questions fully and truthfully.” 

Sondland was asked by Trump to take the lead in relations between the Trump administration and Ukraine, making him a key witness to US relations with former Soviet state. 

The Times repeats the lie that Trump asked Zelensky to do him a “favor” and investigate the Bidens. As we’ve repeated ad nasueum, the “favor” was in relation to locating the lost DNC server. One can verify this for themselves by simply reading a transcript of their July 25 phone call. 

Mr. Sondland interacted directly with Mr. Trump, speaking with the president several times around key moments that House Democrats are now investigating, including before and after Mr. Trump’s July call with the new Ukrainian president, Volodymyr Zelensky. The president asked Mr. Zelensky on the call to do him “a favor” and investigate the business dealings of Vice President Joseph R. Biden Jr.’s son and a conspiracy theory about Ukrainian meddling in the 2016 election. –New York Times

According to text messages given to Congress last week, Sondland and another senior diplomat worked together on a statement they wanted Zelensky to make in AUgust which would have committed him to investigating former Vice President Joe Biden and his son Hunter over allegations of corruption. Sondland and another senior diplomat consulted with President Trump’s personal lawyer, Rudy Giuliani, on the statement. 

If he does end up testifying, Sondland will be in a position to reveal whether the withheld military aid was contingent upon Ukraine opening investigations into the Bidens. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

Since the lows of last December, the markets have climbed ignoring weakening economic growth, deteriorating earnings, weak revenue growth, and historically high valuations on “hopes” that more “Fed rate cuts” and “QE” will keep this current bull market, and economy, alive…indefinitely.

This is at least what much of the media suggests as noted recently by Rex Nutting via MarketWatch:

“‘Recessions are always hard to predict,’ says Lou Crandall, chief economist for Wrightson ICAP, who’s been watching the Fed and the economy for three decades. But after looking deeply into the economic data, he concludes that ‘there’s no reason’ for the economy to topple into recession. The usual suspects are missing. For instance, there’s no inventory overhang, nor is monetary policy too tight.”

Since the financial markets tend to lead the economy, he certainly seems to be correct. 

However, a look at the economic data indeed suggests that something has gone wrong in the economy in recent months. The latest Leading Economic Index (LEI) report showed continued weakness along with a myriad of economic data points. The chart below is the RIA Economic Composite Index (a comprehensive composite of service and manufacturing data) as compared to the LEI.

The downturn in the economy shouldn’t be surprising given the current length of the overall expansion. However, the decline in the LEI also is coincident with weaker rates of profit growth.

This also should be no surprise given the companies that make up the stock market are dependent on consumers to spend money from which they derive their revenue. If the economy is slowing down, revenue and corporate profit growth will decline also. 

However, it is this point which the “bulls” should be paying attention to. Many are dismissing currently high valuations under the guise of “low interest rates,” however, the one thing you should not dismiss, and cannot make an excuse for, is the massive deviation between the markets and corporate profits after tax. The only other time in history the difference was this great was in 1999.

This is nuts!

Lastly, given the economic weakness, as noted above, is going to continue to depress forward reported earnings estimates. As I noted back in May, estimates going into 2020 have already started to markedly decline (primarily so companies can play “beat the estimate game,”) 

For Q4-2020, estimates have already fallen by almost $10 per share since April, yet the S&P 500 is still near record highs. 

As we discussed in this past weekend’s newsletter, it all comes down to “hope.” 

“Investors are hoping a string of disappointing economic data, including manufacturing woes and a slowdown in job creation in the private sector, could spur a rate cut. Federal funds futures show traders are betting on the central bank lowering its benchmark short-term interest rate two more times by year-end, according to the CME Group — a welcome antidote to broad economic uncertainty.” – WSJ

Hope for:

• A trade deal…please

• More Fed rate cuts

• More QE

The reality, of course, is that as investors chase asset prices higher, the need to “rationalize,” a byproduct of the “Fear Of Missing Out,” overtakes “logic.” 

As we also discussed this past weekend, the backdrop required for the Fed to successfully deploy “Quantitative Easing” doesn’t exist currently. 

“The critical point here is that QE and rate reductions have the MOST effect when the economy, markets, and investors have been ‘blown out,’ deviations from the ‘norm’ are negatively extended, and confidence is extremely negative.

In other words, there is nowhere to go but up.

Such was the case in 2009. The extremely negative environment that existed, particularly in the asset markets, provided a fertile starting point for monetary interventions. Today, the backdrop could not be more diametrically opposed.”

If we are correct, investors who are dependent on QE and rate cuts to continue to support markets could be at risk of a sudden downturn. This is because the entire premise is based on the assumption that everyone continues to act in the same manner.  This was a point we discussed in the Stability/Instability Paradox:

“With the entirety of the financial ecosystem now more heavily levered than ever, due to the Fed’s profligate measures of suppressing interest rates and flooding the system with excessive levels of liquidity, the ‘instability of stability’ is now the most significant risk.

The ‘stability/instability paradox’ assumes that all players are rational and such rationality implies an avoidance of complete destruction. In other words, all players will act rationally, and no one will push ‘the big red button.’”

Simply, the Fed is dependent on “everyone acting rationally.”

Unfortunately, that has never been the case.

The behavioral biases of individuals is one of the most serious risks facing the Fed. Throughout history, the Fed’s actions have repeatedly led to negative outcomes despite the best of intentions.

This time is unlikely to be different.

Over the next several weeks, or even months, the markets can certainly extend the current deviations from long-term means even further. Such is the nature of every bull market peak, and bubble, throughout history as the seeming impervious advance lures the last of the stock market “holdouts” back into the markets.

The correction over the last couple of months has done little to correct these extensions, and valuations have become more expensive as earnings have declined. 

Yes,. the bullish trend remains clearly intact for now, but all “bull markets” end….always.

Given that “prices are bound by the laws of physics,” the chart below lays out the potential of the next reversion.

This chart is NOT meant to “scare you.”

It is meant to make you think.

While prices can certainly seem to defy the law of gravity in the short-term, the subsequent reversion from extremes has repeatedly led to catastrophic losses for investors who disregard the risk.

There are substantial reasons to be pessimistic about the markets longer-term. Economic growth, excessive monetary interventions, earnings, valuations, etc. all suggest that future returns will be substantially lower than those seen over the last eight years. Bullish exuberance has erased the memories of the last two major bear markets and replaced it with “hope” that somehow, “this time will be different.”

Maybe it will be.

Probably, it won’t be.

The Reason To Focus On Risk

Our job as investors is to navigate the waters within which we currently sail, not the waters we think we will sail in later. Higherer returns are generated from the management of “risks” rather than the attempt to create returns by chasing markets. That philosophy was well defined by Robert Rubin, former Secretary of the Treasury, when he said;

“As I think back over the years, I have been guided by four principles for decision making.  First, the only certainty is that there is no certainty.  Second, every decision, as a consequence, is a matter of weighing probabilities.  Third, despite uncertainty, we must decide and we must act.  And lastly, we need to judge decisions not only on the results, but on how they were made.

Most people are in denial about uncertainty. They assume they’re lucky, and that the unpredictable can be reliably forecast. This keeps business brisk for palm readers, psychics, and stockbrokers, but it’s a terrible way to deal with uncertainty. If there are no absolutes, then all decisions become matters of judging the probability of different outcomes, and the costs and benefits of each. Then, on that basis, you can make a good decision.”

It should be obvious that an honest assessment of uncertainty leads to better decisions, but the benefits of Rubin’s approach, and mine, goes beyond that. For starters, although it may seem contradictory, embracing uncertainty reduces risk while denial increases it. Another benefit of acknowledged uncertainty is it keeps you honest.

“A healthy respect for uncertainty and focus on probability drives you never to be satisfied with your conclusions.  It keeps you moving forward to seek out more information, to question conventional thinking and to continually refine your judgments and understanding that difference between certainty and likelihood can make all the difference.”

We must be able to recognize, and be responsive to, changes in underlying market dynamics if they change for the worse and be aware of the risks that are inherent in portfolio allocation models. The reality is that we can’t control outcomes. The most we can do is influence the probability of certain outcomes which is why the day to day management of risks and investing based on probabilities, rather than possibilities, is important not only to capital preservation but to investment success over time.

Just something to consider.

A majority of Americans think that Joe and Hunter Biden’s Ukraine and China dealings should be investigated, according to an Investor’s Business Daily/TIPP poll. 

57% of those surveyed said yes, while 37% said no to an investigation. 

Should DOJ investigate Joe Biden and his son regarding Ukraine and China?
Yes 57%
No 37%

IBD/TIPP 9/26-10/3https://t.co/ejniZjjg1J pic.twitter.com/zY4OEYUepP

— Political Polls (@Politics_Polls) October 6, 2019

 The poll also found that “as a result of the Ukraine story, 8% said they were more likely to vote for Biden and 23% more likely to vote against him.” 

On the flipside, 50% of those surveyed found Trump’s efforts to get Ukraine to investigate Biden found it to be an impeachable offense vs. 46% who didn’t. Among independents, 46% said yes while 47% disagreed. 

That said, 15% of respondents said they were more likely to vote for Trump due to the impeachment inquiry, while 18% said they were more likely to vote against him. 

Trump’s efforts to get Ukraine to investigate Biden and his son Hunter’s dealings in the country appear to be aimed at weakening the Democrat best positioned to beat him in the 2020 election.

Although the president’s efforts, first exposed by a whistleblower, have fueled the Democrats’ Trump impeachment drive, Biden’s political prospects have taken a hit.

Biden still led Trump, 51%-44%, in the October IBD/TIPP Poll. But his advantage narrowed from 54%-42% in September. Among independents, Biden’s lead narrowed to just 1 point (46%-45%) from 18 points (55%-37%). –IBD

Let’s see how people feel once the Biden adventures in Ukraine and China are fully explored.