Daily Briefing – July 23, 2020

Daily Briefing – July 23, 2020


Tyler Durden

Thu, 07/23/2020 – 18:25

Managing editor, Ed Harrison, joins Real Vision’s Tyler Neville to break down his ideas around secular stagnating markets, demographics, and pensions. Tyler discusses how mega corporations are no longer playing to win, but playing to not lose and how the Fed’s monetary policies, especially in response to the pandemic, entrenches calcified companies, rendering the zombification effect. Ed and Tyler also examine how markets no longer reward innovative ideas with capital, but rather have converted into a debt refinancing mechanism and encourages a rentier market. They wrap their discussion by exploring how lack of funding will push pensions to go risk-on, whether Tesla can be likened to Amazon, and what may be coming to markets next. In the intro, Nick Correa shares the state of Kentucky recently filed lawsuit against Blackstone and KKR and how this highlights the extreme weaknesses and woes of the pensions industry at large.

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Apartment Prices Near Manhattan’s Prominent Office Towers Are Crashing

Apartment Prices Near Manhattan’s Prominent Office Towers Are Crashing

Tyler Durden

Thu, 07/23/2020 – 18:10

Apartments getting the biggest discounts in New York City are officially the ones closest to office buildings. In what is likely an ugly piece of foreshadowing for office prices in the city, Bloomberg found that the “office you never go to anymore” appears to not only be abandoned, but a black hole for the surrounding apartment prices. 

In comparing rental listing prices, Bloomberg’s report found that:

  • Manhattan had the biggest share of rental listings discounted from their original asking price in the second quarter

  • The Flatiron area had the borough’s largest portion of reductions, with 45%

  • In Midtown West and the Financial District, 40% and 42% of apartments got price cuts, respectively

  • Outermost sections of Brooklyn and Queens had much lower rates of discounting in the quarter

  • The share was 8.6% in Brooklyn’s Coney Island

  • In Queens, 13% of Flushing rentals were reduced

The bargains correspond to areas of the city where people left as a result of the pandemic. These areas are closest to some of the city’s most prominent office towers and “aren’t as appealing to renters now” that everyone is working from home as a result of the coronavirus.

Prices may continue along the same trend for a while, too, as the new paradigm of working from home may wind up holding steady once the pandemic passes, some experts have estimated. “Indefinite. Or even permanent. These are words companies are using about their employees working from home,” NPR wrote in an article about the growing trend several weeks ago.

Nancy Wu, an economist with StreetEasy said: “Those who are staying in the city are looking for more space and more affordability.”

To map the discounts, Bloomberg has created an interactive map that allows viewers to compare things like median sale price, price change, listing discount and several other factors for nearly any neighborhood in New York.

You can view the interactive map, in full, here

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Inflation/Deflation: The Economy Is An Elephant

Inflation/Deflation: The Economy Is An Elephant

Tyler Durden

Thu, 07/23/2020 – 17:50

Authored by Charles Hugh Smith via OfTwoMinds blog,

This is the key dynamic of the economy going forward: defaults on debt, declining wealth as assets are relentlessly repriced lower and sharp declines in income due to layoffs and debt defaults.

The economy is like an elephant surrounded by blindfolded economists and pundits: what each blindfolded person reports about the elephant depends on what part they happen to touch.

This is why aggregate measures such as gross domestic product (GDP) and the consumer price index (CPI) will be misleading and therefore useless going forward: different parts of the economy might experience sharp deflation while other parts are experiencing rapid inflation. What each household and enterprise will experience depends on their exposure to these cross-currents.

Adding up sharply deflationary and equally severe inflationary trends to get a total inflation reading near zero will be utterly meaningless. Let’s review a few key sectors of the economy to see how different participants’ experiences of the economy will be.

Let’s start with two of the apple carts the pandemic has knocked over: retail and commercial office space.

The first chart reveals the enormous surplus of retail space in the U.S. compared to other developed nations. Half of all U.S. retail space could vanish and we’d still have more than twice as much retail space per person as most of the developed world.

Such a vast surplus and the implosion of demand suggests a highly deflationary future for retail space rents. Furthermore, empty retail = no income for landlords = default on mortgages = bank losses = banking crisis. How much is empty retail space worth when the prospects of ever getting a paying tenant are poor? The answer is zero, or even less than zero, since the owner still has to pay property taxes, liability insurance, maintenance, utilities, etc.

The same dynamic dominates the commercial office space there’s a massive surplus of office space while demand is imploding as marginal businesses fold and remote work becomes the desired setting for millions of digital workers and the default setting for employers anxious to avoid lawsuits arising from needlessly exposing their workforce to crowded offices.

What’s the value of an empty office tower if the current owner overpaid and has a mortgage that far exceeds any realistic valuation based on 50% vacancy rates for the foreseeable future?

Next up–lofty rents for apartments in previously hot metro areas like San Francisco and NYC. Rents in the S.F. Bay Area are up 60% from 2009, far more than most renters’ income gains in the same period. If the exodus from these hot markets accelerates as layoffs gather momentum, rents could fall far more than many expect.

Then there’s the core problem with our entire economy: debt payments are fixed, income and profits are not. Take a quick glance at the chart of student loans, now pushing $1.7 trillion, and ponder how many of the Millennials who have to make these fixed debt payments were employed in sectors that have collapsed: tourism, restaurants, musical venues, gig economy, etc.

Recall that every debt that crushes the borrower is an asset that yields monthly interest to the affluent owners of that debt. When unemployed people default on their student loans, the value of those loans falls, and the income flowing to the affluent owners of the debt drops to zero.

This is the key dynamic of the economy going forward: defaults on debt, declining wealth as assets are relentlessly repriced lower and sharp declines in income due to layoffs and debt defaults.

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*  *  *

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FBI Warns ‘Secret’ PLA Members Are Doing Scientific Research In 25 US Cities

FBI Warns ‘Secret’ PLA Members Are Doing Scientific Research In 25 US Cities

Tyler Durden

Thu, 07/23/2020 – 17:30

Yesterday, the FBI revealed to the press that a senior PLA researcher wanted by the US federal law enforcement agency is believed to have been granted refuge at a Chinese consulate in San Francisco. The bombshell report followed other shocking news: that the Trump Administration had ordered a Chinese consulate in Houston – the first PRC mission to be established in the US – to close within 72 hours over allegations that the consulate is – as Marco Rubio said – a den of spies.

Over the past 18 months, the DoJ has arrested several Chinese researchers and charged them with stealing trade secrets or research and transmitting it back to the PRC. Now, with China reportedly preparing to retaliate against the US for closing the Houston consulate, WSJ is reporting that law enforcement is struggling to root out Communist Party members who are hiding in plain sight at universities around the country.

PLA members are reportedly working in 25 US cities.

It’s no secret that US colleges and researchers have accepted billions of dollars in financing via programs like Beijing’s “thousand talents” program. A Harvard professor has been indicted for failing to disclose some of the money.

 

 

 

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Political Climate Preventing 62% Of Americans From Sharing Their Views

Political Climate Preventing 62% Of Americans From Sharing Their Views

Tyler Durden

Thu, 07/23/2020 – 17:10

Authored by Ivan Pentchoukov via The Epoch Times,

A growing number of Americans feel that the political climate is preventing them from sharing their views, according to a new survey by the Cato Institute.

The institute surveyed 2,000 Americans and found that 62 percent are reluctant to share their views due to the political climate. In 2017, 58 percent of people surveyed expressed the same opinion.

Republicans are much more likely to be afraid to share their opinions than Democrats and independents, the survey found. More than 3 in 4 Republicans—77 percent—said they are afraid to share their views compared to 52 percent of the Democrats and 59 percent of the independents.

The reluctance to share one’s views appears to grow as respondents shift right on the political spectrum, the survey found.

Compared to 2017, the reluctance to share one’s views increased across the political spectrum. Liberals, moderates, and conservatives were all 7 percent more likely to be afraid to express their opinions.

The increase in reluctance was more pronounced among strong liberals, rising 12 points to 42 percent, compared to 2017. Reluctance to share their views among strong conservatives notched up 1 point to 77 percent.

“This suggests that it’s not necessarily just one particular set of views that has moved outside of acceptable public discourse,” Emily Ekins, research fellow and director of polling at the Cato Institute, wrote about the survey.

“Instead these results are more consistent with a ‘walking on eggshells’ thesis that people increasingly fear a wide range of political views could offend others or negatively impact themselves.”

The self censorship cut across demographic groups as well, with roughly 2 in 3 Latino Americans and white Americans and nearly half of African Americans holding views they are afraid to share. More men (65 percent) than women (59 percent) said the political climate prevents them from speaking their mind.

The Cato Institute also polled respondents on whether they would support firing someone if they had donated to President Donald Trump or presumptive Democratic presidential nominee Joe Biden.

The cancel culture manifested stronger among staunch liberals than staunch conservatives. Half of all the people who identified as staunch liberals said they would support firing Trump donors, compared to 36 percent of staunch conservatives who would support firing someone who donated to Biden.

Nearly a third of Americans said they are afraid that their political views may cost them their jobs or career opportunities. In line with the results on cancel culture, the fear was slightly stronger among conservatives (34 percent) than liberals (31 percent).

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Watch Live: SecState Pompeo Delivers Address On US-China Relations

Watch Live: SecState Pompeo Delivers Address On US-China Relations

Tyler Durden

Thu, 07/23/2020 – 17:04

A day after the US ordered the closure of China’s consulate in Houston, saying Wednesday the move was done to “protect American intellectual property and Americans’ private information,” Secretary of State Michael R. Pompeo delivers a speech at the Richard Nixon Presidential Library in Yorba Linda, California, addressing US-China relations.

Pompeo’s will be the fourth in a series of addresses on China by top Trump administration officials.

“We put together a series of remarks aimed at making sure the American people understood the ongoing, serious threat posed by the Chinese Communist Party to our fundamental way of life here in the United States of America,” Pompeo told the Washington Times earlier this week.

It started off hawkishly as one might expect:

“The Chinese military is growing stronger and more menacing… we must not maintain a paradigm of blind engagement with China…”

Other highlights (via Bloomberg)

  • *POMPEO: CHINA MORE AUTHORITARIAN AT HOME, AGGRESSIVE ABROAD

  • *POMPEO: XI JINPING IS `TRUE BELIEVER’ IN TOTALITARIAN IDEOLOGY

  • *POMPEO: MUST `DISTRUST AND VERIFY’ WITH CHINA’S COMMUNIST PARTY

Full text to follow.

Watch Live:

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Israeli Fighter Jet Intercepts Iranian Passenger Plane Over Syria, Nearly Causes Collision

Israeli Fighter Jet Intercepts Iranian Passenger Plane Over Syria, Nearly Causes Collision

Tyler Durden

Thu, 07/23/2020 – 16:50

An Israeli fighter jet came close to an Iranian passenger plane over Syrian airspace causing the pilot to change altitude quickly to avoid collision, which injured several passengers, the official IRIB news agency reported on Thursday. Video posted by the agency showed a jet from the window of the plane and comments from a passenger who had blood on his face.

The Iranian plane, belonging to Mahan Air, was heading from Tehran to Beirut and landed safely in Beirut, an airport source told Reuters.

Israel and the United States have long accused Mahan Air of ferrying weapons for Iranian-linked guerrillas in Syria and elsewhere.

One passenger in the IRIB report described how his head had hit the roof of the plane during the change in altitude and video also showed an elderly passenger sprawled on the floor.

After the incident, Foreign Ministry spokesman Abbas Mousavi said that Iran will hold the U.S. responsible for any damage to an Iranian passenger plane.

Iran’s Ambassador to the United Nations Majid Takht-Ravanchi echoed the same message, telling the U.N. Secretary-General that the U.S. would be held responsible if anything happened to the plane while it was on its way back to Iran.  The warning was also relayed to the Swiss envoy to Tehran; the necessary political and legal measures will be taken once the government’s investigation into the incident concludes

 

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Joe Biden’s $2 Trillion Green New Deal Is Just a Worn-Out Democratic Jobs Program

biden

“There’s no more consequential challenge that we must meet in the next decade than the onrushing climate crisis. Left unchecked, it is literally an existential threat to the health of our planet and to our very survival.” That’s Democratic presidential contender Joe Biden, laying out his energy plan for the country.

He wants you to believe that his $2 trillion plan to combat climate change is a bold new agenda to save the planet. In fact, it’s the same old worn-out jobs programs for Democratic Party interests that he’s been pushing since he became a senator in the early 1970s.

“Climate change is real, but it’s not the end of the world,” says writer and activist Michael Shellenberger, who Time named a “hero of the environment” in 2008. He stresses that deaths from natural disasters “have declined 80 percent over the last 40 years, including in very poor countries.” What’s more, says Shellenberger, “carbon emissions have peaked in rich countries. They’re going to peak in poor countries in the next 10 or 20 years.” His new book, Apocalypse Never, makes the case that climate alarmism, which has become a central part of the Democratic Party’s platform, is flat-out wrong and counterproductive for both the environment and the economy.

A major problem of Biden’s rehash of the Green New Deal is that renewable energy sources such as solar power simply can’t scale up to deliver the electricity that a modern society needs. Shellenberger notes, for instance, that solar farms require 400 times more land than natural gas or a nuclear plant because of the physics of sunlight or wind.

Before Biden revealed his massively expensive green energy plan, he had already promised more than $6 trillion in new spending over the coming decade, paid for through a mix of borrowing and hikes in income and corporate taxes. This comes at a time when the COVID-19 lockdown and emergency spending will push the debt above 100 percent of GDP by the end of 2020, and when the federal government is running vastly larger deficits than it did even at the height of the 2008 financial crisis.

Shellenberger says that if politicians were really serious about combating global warming, they would get behind fracking and nuclear energy, which is both clean and practical. Biden doesn’t mention nuclear power, though, because it won’t create jobs for “longshoreman” and “ship builders” or fulfill any other progressive fantasy, such as his dream of a “modern day Civilian Climate Corps” based on the New Deal’s Civilian Conservation Corps.

In Apocalypse Never, Shellenberger argues that environmentalism has become a substitute for religion in an increasingly secular world. Environmentalists, he says, are “treating nature as a new god. They start treating science as a new religion. And that’s when things just go absolutely bonkers and problematic.”

Joe Biden’s “clean energy plan” may make his followers feel saved and it might even help get him elected. But if past is prologue, it won’t create many jobs or help “heal” the planet. It will just mean spending gobs of money we don’t have in a massive giveaway to special interests.

Produced by Nick Gillespie. Graphics by Isaac Reese.

Photo credits: Caro/Oberhaeuser/Newscom, Dan Parrett/Newscom, Michael Bryant/Philadelphia Inquirer/TNS, Bill Clark/CQ Roll Call/Newscom, Michael Nigro/Pacific Press/Sipa USA/Newscom, Pacific Press/Sipa USA/Newscom, Patrick Fallon/ZUMAPRESS/Newscom, Scranton Times-Tribune/ZUMAPRESS/Newscom, Scranton Times-Tribune/ZUMAPRESS/Newscom, Tracy Robillard/ZUMA Press/Newscom, SMG/ZUMA Press/Newscom.Music credits: “Cold River,” by Repina, “Levitate,” by Out of Flux, licensed by Artlist.

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How Much Will the Planet Warm If Atmospheric Carbon Dioxide Doubles?

CO2RichardGriffinDreamstime

The hopeful prospect that doubling the atmospheric carbon dioxide levels might yield a relatively mild increase in global average temperatures is unlikely, according to a comprehensive new study.

Equilibrium climate sensitivity (ECS) is conventionally defined as the increase in Earth’s average surface temperature that would occur if carbon dioxide concentrations in the atmosphere were doubled and the climate system was given enough time to reach an equilibrium state. Scientific American once called it “the most important number in climate change.”

First, let’s consider where the planet’s climate stands right now. The level of carbon dioxide in the atmosphere has increased from the pre-industrial level about 280 parts per million (ppm) to 415 ppm today. The additional carbon dioxide has been added largely due to humanity’s burning of coal, oil, and natural gas, along with plowing down forests. According to ice core data, today’s carbon dioxide levels are higher than at any point in at least the past 800,000 years, and more recent research suggests that the current level is the highest it’s been in the past 23 million years. Average global temperatures are currently about 1.2°C above pre-industrial levels.

In 1979, the U.S. National Academy of Sciences conjectured that ECS was probably somewhere between 1.5°C and 4.5°C per doubling of CO2. In 2013, the Intergovernmental Panel on Climate Change concluded that ECS is likely to be between 1.5°C and 4.5°C. In other words, the best estimate of sensitivity remained basically the same more than three decades later.

The new study narrows the range of the probable temperature increase. With doubled atmospheric carbon dioxide, the eventual warming would probably be between 2.6°C and 3.9°C. There would be less than 5 percent chance of staying below 2°C—and a 6 to 18 percent chance of exceeding 4.5°C.

Their evidence stems, in part, from a better understanding of the atmospheric feedback processes. The researchers evaluated the evidence for how changes in carbon dioxide, water vapor, surface reflectivity, and, most importantly, cloud cover affect global temperature trends. One of the greatest uncertainties with respect to future global temperature trends has been whether changes in clouds will tend to cool the planet. The researchers conclude that warming-induced changes in clouds will tend to boost rather than moderate future temperatures.

They also argue that the empirical data for historical warming of 1.2°C over the past century or so suggests that an ECS of 1.5°C is implausible. And as a third line of evidence, they looked deeper into prehistoric climates, including the succession of ice ages and the mid-Pliocene warm period, to see how changes in atmospheric carbon dioxide levels correlated with changes in global average temperatures. In the depths of the ice ages, the level of atmospheric carbon dioxide was just below 200 ppm; global temperatures were between 3°C to 7°C lower than the pre-industrial average.

During the mid-Pliocene warm period, carbon dioxide levels hovered around 400 ppm and average global temperature was 1°C to 5°C warmer than the pre-industrial average. Sea level was 20 to 30 meters higher than now, indicating significant reductions in Antarctic glacial ice. The paleoclimate data, they conclude, suggests the ECS is likely to fall within 1.5°C to 5°C, with highest likelihood around 2.5°C.

The researchers integrate the data from these three strands of evidence to find that the earlier lower-bound estimate of a 1.5°C ECS is improbable. Cloud feedbacks will not likely cool temperatures, historical temperature increases are already approaching the lower bound, and mid-Pliocene warming that was higher than now occurred with lower levels of atmospheric carbon dioxide. On the other hand, both historical and paleoclimate evidence suggest that an ECS greater than 4.5°C is also unlikely. The researchers conclude that there is a 66 percent chance that the ECS is  2.6°C to 3.9°C; they offer a broader 2.3°C to 4.5°C range to cautiously account for alternative views, assumptions, and unknown unknowns.

If the current annual increase in atmospheric carbon dioxide of 2.3 ppm is sustained, it will reach double the pre-industrial level before 2090. Keep in mind that the difference between an ice age when continental glaciers buried about one-third of the global land area and today, when they cover around 10 percent, is a temperature increase of as little as 3°C.

For more background, see “What Climate Science Tells Us About Temperature Trends” and “Climate Change: How Lucky Do You Feel?” 

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New on SCOTUSBlog: “Invisible majorities: Counting to nine votes in per curiam cases”

SCOTUSBlog published my new essay, titled Invisible majorities: Counting to nine votes in per curiam cases. Here is the introduction:

When the Supreme Court issues a signed opinion, each of the nine justices will indicate their position: affirm, reverse or recuse. But not all opinions are signed. The court sometimes issues unsigned per curiam decisions – so named after the Latin phrase meaning “by the court.” In such cases, the justices’ positions are not always so clear. All we know for sure is that at least five members – a majority of the court – agreed with the unsigned order. Individual justices can, and do, write separately to express their concurrence with, or dissent from, a per curiam ruling. But the failure to write separately does not necessarily indicate assent. As a result, it is often impossible in these cases to figure out which justices were in the majority, and which were in the dissent.

This past term, the court issued per curiam rulings in two pairs of “companion” cases: the “faithless elector” cases and the Creek Nation cases. In these decisions, it was difficult to count to nine.

I still remain perplexed by the votes in the Creek Nation cases.

The voting lineup in one of the Creek Nation companion cases is even more ambiguous. On July 9, the court decided McGirt v. Oklahoma and Sharp v. Murphy. Both cases presented the same question: whether portions of eastern Oklahoma remained land reserved for the Creek Nation. McGirt split 5-4. Gorsuch wrote the majority opinion. He found that the territory retains its status as a Native American reservation. He was joined by Ginsburg, Breyer, Sotomayor and Kagan. Roberts dissented, joined by Thomas, Alito and Kavanaugh. The dissenters argued that Congress had disestablished the reservation.

Murphy was decided with a one-sentence per curiam opinion: “The judgment of the United States Court of Appeals for the Tenth Circuit is affirmed for the reasons stated in McGirt v. Oklahoma.” But Gorsuch was recused in Murphy – and as a result, only four members of the McGirt majority remained. There had to be at least five justices to form a majority in Murphy. (If the court had split 4-4, and there had been no majority, the per curiam ruling would have stated that the 10th Circuit is affirmed “by an equally divided Court.”) We can safely assume that the remaining four members of the McGirt majority remained: Ginsburg, Breyer, Sotomayor and Kagan. But who was the fifth vote? Thomas and Alito noted their dissents from the Murphy per curiam opinion, presumably for the same reasons they dissented in McGirt. So they’re out.

That leaves Roberts and Kavanaugh. One or both of them must have voted with the majority – even though they vigorously dissented in McGirt. Why? Perhaps they deemed McGirt binding precedent, which must be followed. Or one of them joined the per curiam decision as a courtesy “fifth” vote to create a majority. It is impossible to know for sure. But at least one member of the McGirt dissent must have put aside their disagreement to join the Murphy majority.

I appreciate the chance to write on these nerdy issues.

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