This morning, Justice Kavanaugh issued a statement respecting the denial of cert in Paul v. United States. He praised Justice Gorsuch’s “scholarly analysis of the Constitution’s nondelegation doctrine” from Gundy. Kavanaugh observed that the nondelegation doctrine “may warrant further consideration in future cases.”
Kavanaugh carefully and concisely describes the relationship between the nondelegation doctrine and the major questions doctrine. He writes:
JUSTICE GORSUCH‘s opinion built on views expressed by then-Justice Rehnquist some 40 years ago in Industrial Union Dept., AFL–CIO v. American Petroleum Institute, 448 U. S. 607, 685–686 (1980) (Rehnquist, J., concurring in judgment). In that case, Justice Rehnquist opined that major national policy decisions must be made by Congress and the President in the legislative process, not delegated by Congress to the Executive Branch.
In the wake of Justice Rehnquist’s opinion, the Court has not adopted a nondelegation principle for major questions.
In Gridlock, I explained that the major question doctrine is something of an offshoot of the nondelegation doctrine. The Court need not revisit Schechter Poultry altogether. Rather, the Court’s post-New Deal jurisprudence simply does not apply to so-called major questions. Kavanaugh explains:
But the Court has applied a closely related statutory interpretation doctrine: In order for an executive or independent agency to exercise regulatory authority over a major policy question of great economic and political importance, Congress must either: (i) expressly and specifically decide the major policy question itself and delegate to the agency the authority to regulate and enforce; or (ii) expressly and specifically delegate to the agency the authority both to decide e.g., Utility Air Regulatory Group v. EPA, 573 U. S. 302 (2014); FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120 (2000); MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U. S. 218 (1994);Breyer, Judicial Review of Questions of Law and Policy, 38 Admin. L. Rev. 363, 370 (1986).
The 5th Circuit decision that found unlawful DAPA (the closely related policy to DACA) relied on what I call the major question trilogy: Brown & Williamson, UARG, and King v. Burwell. (MCI v. AT&T is a worthy contender for a major question quartet.) See 809 F.3d at 181. The Attorney General expressly relied on this section of the 5th Circuit’s opinion. His judgment is best understood to rely on the nondelegation doctrine.
Kavanaugh continues:
The opinions of Justice Rehnquist and JUSTICE GORSUCH would not allow that second category—congressional delegations to agencies of authority to decide major policy questions—even if Congress expressly and specifically delegates that authority. Under their approach, Congress could delegate to agencies the authority to decide less-major or fill-up-the-details decisions.
Kavanaugh concludes:
Like Justice Rehnquist’s opinion 40 years ago, JUSTICE GORSUCH‘s thoughtful Gundy opinion raised important points that may warrant further consideration in future cases.
I agree with my co-blogger Jonathan Adler: “If that’s not an invitation for litigants to bring additional non-delegation challenges, I do not know what is.”
The Cato Institute’s amicus brief (which I co-authored) carefully explains the relationship between DACA, the INA, the nondelegation doctrine, and the major question doctrine. And we framed the question presented in the same terms that Justice Kavanaugh’s statement explains, with citations to the major question trilogy. Here is the key excerpt (pp. 18-19):
First, consider the regulation that authorizes the secretary to grant DACA recipients with work authorization, with which we can presume the attorney general was familiar.6 8 C.F.R. 274a.12(c)(14) provides a crystalline illustration of the elephant-in-mousehole framework. In 1987, the Immigration and Naturalization Service denied a petition for rulemaking to re-strict the issuance of work authorization to certain aliens. See Dep’t of Justice, Immig. & Naturalization, Employment Authorization; Classes of Aliens Eligible, 52 Fed. Reg. 46,092 (Dec. 4, 1987). The government justified the denial, in part, because the number of such work authorizations would be “quite small”—so small, that the number was “not worth recording statistically.” Id. at 46,092-93. Moreover, such authorizations would “normally [be] of very limited duration,” and would be very rare. Id. at 46,092.
DACA operates in a very different fashion. The policy could provide roughly 1.5 million aliens with work authorization, and those authorizations could be renewed for years to come.7 This elephantine-sized grant of work authorizations—limited in neither size and “with no established end-date”—cannot conceivably be jammed into a not-statistically-significant mousehole. In every sense, this provision of benefits relies on a reading of federal immigration law that amounts to “an unconstitutional exercise of authority by the Executive Branch”—that is, the exercise of legislative powers. The attorney general’s conclusion is consistent with the Court’s admonition in Brown & Williamson: “Congress could not have intended to delegate a deci-sion of such economic and political significance”—the ability to provide work authorization to 1.5 million aliens—”in so cryptic a fashion.”8
I maintain that this argument is the only viable path by which the Court can find that DACA is in fact illegal, and uphold the Attorney General’s legal determination.
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This morning, Justice Kavanaugh issued a statement respecting the denial of cert in Paul v. United States. He praised Justice Gorsuch’s “scholarly analysis of the Constitution’s nondelegation doctrine” from Gundy. Kavanaugh observed that the nondelegation doctrine “may warrant further consideration in future cases.”
Kavanaugh carefully and concisely describes the relationship between the nondelegation doctrine and the major questions doctrine. He writes:
JUSTICE GORSUCH‘s opinion built on views expressed by then-Justice Rehnquist some 40 years ago in Industrial Union Dept., AFL–CIO v. American Petroleum Institute, 448 U. S. 607, 685–686 (1980) (Rehnquist, J., concurring in judgment). In that case, Justice Rehnquist opined that major national policy decisions must be made by Congress and the President in the legislative process, not delegated by Congress to the Executive Branch.
In the wake of Justice Rehnquist’s opinion, the Court has not adopted a nondelegation principle for major questions.
In Gridlock, I explained that the major question doctrine is something of an offshoot of the nondelegation doctrine. The Court need not revisit Schechter Poultry altogether. Rather, the Court’s post-New Deal jurisprudence simply does not apply to so-called major questions. Kavanaugh explains:
But the Court has applied a closely related statutory interpretation doctrine: In order for an executive or independent agency to exercise regulatory authority over a major policy question of great economic and political importance, Congress must either: (i) expressly and specifically decide the major policy question itself and delegate to the agency the authority to regulate and enforce; or (ii) expressly and specifically delegate to the agency the authority both to decide e.g., Utility Air Regulatory Group v. EPA, 573 U. S. 302 (2014); FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120 (2000); MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U. S. 218 (1994);Breyer, Judicial Review of Questions of Law and Policy, 38 Admin. L. Rev. 363, 370 (1986).
The 5th Circuit decision that found unlawful DAPA (the closely related policy to DACA) relied on what I call the major question trilogy: Brown & Williamson, UARG, and King v. Burwell. (MCI v. AT&T is a worthy contender for a major question quartet.) See 809 F.3d at 181. The Attorney General expressly relied on this section of the 5th Circuit’s opinion. His judgment is best understood to rely on the nondelegation doctrine.
Kavanaugh continues:
The opinions of Justice Rehnquist and JUSTICE GORSUCH would not allow that second category—congressional delegations to agencies of authority to decide major policy questions—even if Congress expressly and specifically delegates that authority. Under their approach, Congress could delegate to agencies the authority to decide less-major or fill-up-the-details decisions.
Kavanaugh concludes:
Like Justice Rehnquist’s opinion 40 years ago, JUSTICE GORSUCH‘s thoughtful Gundy opinion raised important points that may warrant further consideration in future cases.
I agree with my co-blogger Jonathan Adler: “If that’s not an invitation for litigants to bring additional non-delegation challenges, I do not know what is.”
The Cato Institute’s amicus brief (which I co-authored) carefully explains the relationship between DACA, the INA, the nondelegation doctrine, and the major question doctrine. And we framed the question presented in the same terms that Justice Kavanaugh’s statement explains, with citations to the major question trilogy. Here is the key excerpt (pp. 18-19):
First, consider the regulation that authorizes the secretary to grant DACA recipients with work authorization, with which we can presume the attorney general was familiar.6 8 C.F.R. 274a.12(c)(14) provides a crystalline illustration of the elephant-in-mousehole framework. In 1987, the Immigration and Naturalization Service denied a petition for rulemaking to re-strict the issuance of work authorization to certain aliens. See Dep’t of Justice, Immig. & Naturalization, Employment Authorization; Classes of Aliens Eligible, 52 Fed. Reg. 46,092 (Dec. 4, 1987). The government justified the denial, in part, because the number of such work authorizations would be “quite small”—so small, that the number was “not worth recording statistically.” Id. at 46,092-93. Moreover, such authorizations would “normally [be] of very limited duration,” and would be very rare. Id. at 46,092.
DACA operates in a very different fashion. The policy could provide roughly 1.5 million aliens with work authorization, and those authorizations could be renewed for years to come.7 This elephantine-sized grant of work authorizations—limited in neither size and “with no established end-date”—cannot conceivably be jammed into a not-statistically-significant mousehole. In every sense, this provision of benefits relies on a reading of federal immigration law that amounts to “an unconstitutional exercise of authority by the Executive Branch”—that is, the exercise of legislative powers. The attorney general’s conclusion is consistent with the Court’s admonition in Brown & Williamson: “Congress could not have intended to delegate a deci-sion of such economic and political significance”—the ability to provide work authorization to 1.5 million aliens—”in so cryptic a fashion.”8
I maintain that this argument is the only viable path by which the Court can find that DACA is in fact illegal, and uphold the Attorney General’s legal determination.
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Dem-Controlled School District Adopts SJW-Backed Busing Plan Despite Widespread Opposition
This is what happens when voters allow unaccountable Democrats to run wild with radical policies focused at building ‘equity’ and attacking ‘privilege’.
In deep-blue Howard County, Maryland, a local school board voted last week to impose a massive, 1970s-style busing and redistricting plan on the affluent suburban county, despite the fact that the plan is vehemently opposed by an overwhelming majority of residents.
According to the Daily Caller’s Luke Rosiak, after the first vote for the plan failed, members of the county school board retreated into their back room. When they came out, the one Democratic member who had voted “No” was visibly upset. When the board held another vote a few minutes later, she acquiesced.
Board member Kirsten Coombs voted “no” after board member Jennifer Mallo motioned to move a swath of children out of their schools to try to balance poverty rates. It failed 4-3, and people clapped. “I move that we go into recess to consider the impact of the failure of that last motion,” Mallo said.
Coombs appeared to be crying when they came out of the back room and said the board should vote again “because otherwise the entire plan falls apart.”
Across suburban America – and especially along the eastern seaboard – there are few local policy experiments as reviled as “busing”, as the Washington Post reminds us.
What’s more, the board received nearly 7,000 pieces of mail opposing the policy, and just 150 in support of it.
The police will dislodge thousands of children from their schools to try and balance out poverty rates in an attempt to equalize performance, drop-out rates and other metrics that measure ‘equality’. Tellingly, many residents in the communities that this plan is supposed to help also oppose it, since it could involve sending their children to schools far from home.
Adding insult to injury, after the vote passed, Jennifer Mallo, the board member who helped convince Coombs to change her vote, had the temerity to lecture her audience about the importance of equality, and neglected to mention the fact that nobody asked for this policy – and few support it, even among those the policy is purportedly designed to ‘help’. Mallo also lamented the open-government laws that allowed her audience to be present, and even complained about the low pay received by board members.
Unfortunately, this issue isn’t isolated to Howard County: A loose alliance of activist groups (many of the groups are backed by billionaire investor George Soros) are pushing “equity” plans that rely on what some economists have called “junk science”.
One country resident told the DC that she is questioning her allegiance to the Democratic Party because of the busing decision.
Marybeth Steil, a county resident and lawyer, told the DCNF, “I thought I was a Democrat before the August 22 release of the plan, but this totally alienated me. Lots of my neighbors have told me the same. They awoke a bear for sure.”
“The redistricting plan based on ‘equity’ came out of left field and is clearly an idea which came from outside the county. Even the board members who were very much ‘for’ the plan cited how the ‘country was watching’ — which just goes to show they were more interested in their own headlines than the lives of our county’s school children,” Steil said.
“I do think we are a warning to Montgomery County. Our Asian and Indian populations are all a buzz about it,” she said.
Fox News conducted an interview with the DC reporter who broke the story last night.
As the reporters pointed out, it appears this is yet another example of crusading white SJWs patronizing minorities and the indigent.
There is a laundry list of dangerous assets bubbles in the global financial markets today that have built up over a record long US economic expansion:
Highest ever global debt to GDP levels;
A passive investing and ETF craze that has led to historic lofty US equity valuations across a composite of fundamental measures tracked by Crescat;
Impossibly valued currency and credit markets in China at an extreme for any large country relative to the size of its economy;
China’s banking assets are valued at USD 41 trillion, including substantial hidden non-performing loans in our analysis, a major mismatch compared to its much smaller and stumbling 13.6 trillion GDP economy;
Record $17 trillion of negative yielding sovereign debt which may have just peaked in August 2019;
Private equity/VC excesses in opaque assets, highly leveraged companies, and frequently unprofitable businesses masquerading as new economy disruptors;
Record indebtedness of US public and private corporations combined relative to GDP;
Crowded “risk parity” positioning among large hedge funds and institutions who are long stocks paired with leveraged long bonds, a strategy that worked exceptionally well in a forty-year backtest as well as the last ten years that it has become popular, but it’s a strategy that would likely get decimated in a rising inflation paradigm;
Fashionable short volatility strategies which are yield enhancement strategies for an income starved world, but the extra yield is earned in exchange for accepting asymmetric downside risk;
High valuations and crowding into sectors traditionally viewed as defensive (including utilities, REITs, and consumer staples) with utilities being the most fundamentally questionable among them in our view; and
Tech bubble 2.0 with extraordinary valuations in SaaS, certain FANG+ stocks, many recent IPOs.
Catalysts
The unwinding of these imbalances is likely to be highly destructive to the investment portfolios of unprepared global savers today. Below, we list the confluence of macroeconomic timing signals, including social and geopolitical forces, now bearing down for an assault on overvalued financial assets. Most of these have been uncanny warning signs directly ahead of past bear markets and business cycle peaks.
In the US:
The Treasury yield curve recently exceeded the critical 70% inversion threshold that has preceded each of the last six recessions with no false signals;
The Conference Board’s consumer expectations survey has diverged strongly to the downside compared to its unsustainably high present situation index;
Job openings are declining while the lagging and contrarian unemployment rate is at cyclical lows;
Both the Atlanta and New York Fed’s real-time GDP trackers have been trending steadily down for almost two years and appear to be approaching recessionary levels;
Corporate earnings of the Russell 3000 already contracted on a year-over-year basis in the last reported quarter;
US share buybacks are now 30% lower than 2018;
Increased insider selling of stocks;
Declining CEO/CFO confidence surveys;
M&A transactions drying up;
ISM manufacturing PMI at recessionary levels;
Construction spending declining;
Bearish deteriorating stock market breadth while indices reach highs;
Implied volatility for stocks retesting low levels that preceded previous selloffs;
Smart money flow index diverging from the recent run-up in the S&P 500;
Leveraged loans stumbling;
Busted/delayed/cancelled IPOs;
Recent liquidity crisis that spiked interest rates in the overnight US Treasury rehypothecation market;
Inflation rate above the entire Treasury yield curve;
Core and median CPI at 10-year highs diverging from long-term inflation expectations at 40-year lows;
Capacity utilization now falling;
Commercial & industrial loans declining the most since the housing bust;
Auto loan spreads rising as delinquency rates rise;
Net exports of services now falling the most since the GFC and tech bust;
Increased election uncertainty and rising political polarization creates an unknown binary outcome for future tax policy which is now friendly for financial markets but could swing 180 degrees;
Trump impeachment proceedings might impair his credibility in maintaining a hyped-up economic narrative in face of deteriorating macro fundamentals; and
New bipartisan willingness to embrace fiscal stimulus and rising government deficits could change the inflation paradigm sooner rather than later and be detrimental to financial assets.
Worldwide:
Yield curve inversion with the US dollar as the world reserve currency versus an unprecedented 19 economies now with 30-year yields below USD Libor overnight rates;
Like the US, Hong Kong, Canada, and Japan all recently breached critical 70% inversion levels within their own yield curves;
Emerging market currencies have been falling despite recent easy Fed policies indicating that dollar liquidity globally is still tight amidst record dollar-denominated foreign debt;
Ongoing trade and cold war between the world’s two leading economies with diametrically opposed political systems, each with its own historically extreme financial imbalances;
China yuan recently broke the key 7 level and looks poised for an accelerated devaluation that would almost certainly take global investors by surprise;
Tariff increases that go into effect in December are a catalyst for an RMB shock if trade negotiations continue to stall which is our base case;
Accelerated yuan depreciation is the rhino in the room that would be a likely contagious global risk-off event feeding back to US, European, as well as other Asian and emerging markets as we have seen on multiple occasions already since 2015 with only minor devaluations;
There have already been material disruptions in the global manufacturing supply chain due to the trade war;
Frontloading of Chinese semiconductor inventory and CAPEX spending in 2019 amidst the threat of escalating US intellectual property purchase restrictions sets up earnings weakness ahead for this market leading but cyclically vulnerable industry;
The global manufacturing PMI has already dropped to recessionary levels;
Multiple political and economic crises have already been erupting in emerging and frontier markets;
Rising populism and nationalism more generally around the globe is causing disruption in world trade and financial markets; and
Last but not least, Brexit.
The two closest analogs to today’s excessive fundamental valuations for US stocks were the 2000 Tech Bubble and the culmination of the Roaring Twenties in 1929. Our work suggests that today’s valuations are even higher than those two periods. The nifty fifty stock mania of 1972 is another comparable period that featured excessive valuations in a popular group of large cap growth stocks that became widely regarded as “blue-chip” buy and hold positions. Institutions and retail investors were taught to cling to these stocks through thick and thin, throwing fundamental analysis and valuation principles out the window. The same idea is the prevalent passive investing dogma of today.
From today’s valuations, a mere cyclical mean reversion in stock market multiples implies a 50+% drawdown in prices. Yet, too many investors remain oblivious to these valuation risks. Many today have further been lulled into believing that central banks have their backs and will keep markets rising. Such bullish sentiment on the heels of recent Fed liquidity injections has emboldened a late cycle speculative push higher in the indices even as the market internals have been noticeably deteriorating. Never mind that the last two Fed easing cycles after tightening cycles coincided with and were confirmations of major bear markets and recessions underway rather than prevention of them.
A Perfect Predictor of Recessions, so Far
The recent distortions in the US Treasury yield curve are among the most relevant macro indicators supporting Crescat’s bearish thesis and positioning today. Our comprehensive calculation shows that across all 44 spreads of the yield curve, the percentage of them that are inverted spiked to 73% just three months ago in August. This is a critical timing signal as we show in the chart below, because in the five prior business cycle expansions that we studied, we found that when 70% or more of the yield curve first inverts, a recession soon follows. In all but one case, those recessions were accompanied bear market declines in stocks. Three of them were close to 50% collapses in the S&P 500 Index.
How to Profit from Yield Curve Inversions
From a portfolio management perspective, we have determined that buying gold and selling stocks is one of the most compelling macro investment ideas after inversions reach excessive levels. Since 1970, our analysis shows that when the yield curve first exceeds 70% inversions in a business cycle expansion, the gold-to-S&P 500 ratio performed exceptionally well on average in the following two years returning close to 90% while stocks lost almost 1/3 of their value on average. The only time buying this ratio didn’t work was during the S&L crisis. Yet, back then, equity valuations were quite the opposite from today. We think the 70%+ inversions that immediately preceded the 1973-4 inflationary recession and tech bust have the most comparable setups to today. Both of those times, the numerator and denominator of this ratio worked extremely well for the ensuing 2-year period resulting in an average gain in the gold-to-S&P 500 ratio of 147% excluding dividends! The intriguing fact here is that the commodities-to-equity ratio was near historic lows at the peak of those two stock bubbles (Nifty Fifty and Tech) as shown by the first chart in our letter above. Today’s macro set up looks remarkably similar, perhaps even more extreme. Gold is near record undervalued relative to the size of global monetary base and money supply. At the same time, equity valuations relative to their underlying fundamentals are arguably at their highest ever.
Negative Real Rates Across the Whole Treasury Curve – Uber Bullish for Gold
The entire Treasury curve now yields less than core CPI. It’s the second time in history we have seen this, the first being in early 2016. That time, the Fed had already hiked rates at the end of 2015 and was in quantitative tightening mode. This time, the Fed has cut interest rates three times in three months and has returned to quantitative easing at an alarming 45% annualized rate. With $15+ trillion worth of sovereign bonds with negative yields and central banks easing globally, we believe precious metals are in the early stages of a multi-year bull market.
Economy Weakening as Inflation Rising
When we look at the chain of events historically, it’s Fed tightening late in the business cycle that leads to yield curve inversions and then recessions. By the time the Fed starts easing, it’s a confirmation that the downturn is ripe to unfold. When such times have also coincided with stocks at record valuations, severe equity bear markets have ensued. Today, given the historic levels of debt and macro imbalances worldwide, the next decline could easily be among the worst in US history. Given all the warning signs, we think investors should prepare urgently if they have not already. In our view, a new wave of global fiat debasement policies is in its early stages and a shift in the inflation paradigm could be near. To get a glimpse of this in the US, note how the Atlanta Fed’s GDP nowcast has been declining in the face of rising consumer prices. This scenario could be extremely bullish for scarce and non-dilutable forms of haven assets such as precious metals.
At Crescat, precious metals are overwhelmingly our preferred hedge against fiat money printing and over-valued financial assets. It’s important to note that cryptocurrencies provide an additional outlet for investors to flee stocks and bonds as well as fiat currencies today and thereby to help make rising inflation in those currencies a self-fulfilling prophecy. Bitcoin is a bet on technology and cryptography as well as a vehicle to disrupt and even circumvent government control over money. Bitcoin is limited in supply like precious metals and in that sense could be a valuable call option on inflation. As the first mover, it has the network-effect advantage over other cryptocurrencies which are abundant and therefore unlike precious metals as an asset class. We believe a small position in bitcoin could provide diversification and hedging with significant upside, but we do not advocate for more than one or two percent of a portfolio at this time given its high risk. For those living under authoritarian governments with strict capital controls, it is important to note that cryptocurrencies provide a functional and disruptive means of escape which plays into our bearish view on the Chinese yuan.
In the wake of the 2008-9 crisis, central banks starved investors for yield in attempt to generate new borrowing and spending and thereby grow the economy. But in the absence of significant fiscal stimulus to go along with it, extraordinary monetary policy mainly served to generate extreme expansion in value of financial assets with only muted economic growth and real-world inflation to go along with it. Monetary stimulus alone thus increased the wealth disparity between the rich who disproportionately own stocks and bonds compared to the more generally debt-laden masses. It is thus no surprise that today we have a fertile breeding ground for rising populism and nationalism and their financial bubble bursting implications, including trade wars, and deglobalization.
Repo Liquidity Crisis a Wake-up Call to China Risks
When today’s plethora of macro imbalances begin to unwind, we fully expect that Fed intervention will again be necessary to attempt to ease the pain of collapsing asset prices. The rehypothecation (repo) liquidity crisis that we just experienced in September is a new kind of wake-up call. Like in 2008, a freeze up in the interbank credit markets is a sign that a large financial institution somewhere on the planet may be on the brink of collapse. The Fed indeed has already responded with emergency liquidity injections. We can only imagine that a large and wobbling Chinese bank needs US dollars and has been attempting to pledge Treasuries to borrow them. Perhaps other banks stepped away for fear that those Treasuries had already been pledged too many times over and nobody really knows who would get them if the music stopped. We are not saying that is what happened in September. We don’t know what exactly happened. The Fed has been carefully guarding the true story, but it has also continued in emergency QE mode for the last three months. What we are saying is that there is indeed substantial financial market risk today because of the truly insane imbalances that have built up inside the Chinese banking system. Based on our macro research, we believe the PBOC has already more than fully encumbered its foreign exchange reserves in its effort to keep its currency from collapsing to date. The recent surprise new money printing from the Fed is confirmation that there are indeed real problems beginning to surface in the global capital markets. The Fed’s role, to be clear, if China’s banking imbalances are indeed finally poised to unwind, is not to rescue Chinese banks, rather to rescue the US banks that are their counterparties.
So, while today’s US stock market has many parallels to 1929, 1972, and 2000 in terms of valuation and downside risk, it also has some to parallels to 2008 with the potential for banking liquidity crises in the interbank dollar funding markets. We are much less concerned about the risk of an actual collapse of the US banking system today because the Fed has proven its willingness and ability to swiftly step in there.
Ultimately, we believe combined fiscal and monetary stimulus will be applied in concert to combat the next market and economic downturn. We strongly believe that too many investors today are underestimating the future inflationary risk of this high likelihood. The problem is the recency bias of the post-GFC world where central bank easing failed to generate the inflation that was feared at that time. The reason it didn’t is that, outside of China, the accompanying fiscal expansion was absent. The chessboard looks much different today. The willingness to embrace new monetary and fiscal experiments today is high and they will come at a cost.
Such a political climate is particularly troublesome for stock and bond bulls today because rising inflation would almost certainly be a killer of today’s financial asset euphoria. If one is going to buy stocks at all in this environment, one area that looks extremely attractive with low valuations and improving fundamentals is gold and silver mining stocks. Many of these companies have low valuations, improving growth, and strong positive free cash flow already, after going through a bear market from 2011 to early 2016. After four years of base building, we believe they are poised to take off fundamentally and technically in a soon to be rising gold and silver price environment.
New Leak Shows Operating Manuals For ‘Re-education Camps’ For Chinese Muslims In Xinjiang Region
A series of classified Chinese government documents were leaked by a group of journalists describe the secret operations of detention camps in Xinjiang, reported Reuters.
Published by the International Consortium of Investigative Journalists (ICIJ) Sunday, the documents offer a rare look into the massive internment camp for Muslim-majority Uyghur in the troubled western region of China.
The 2017 documents reveal a list of guidelines “that effectively serves as a manual for operating the camps now holding hundreds of thousands of Muslim Uighurs and other minorities,” said ICIJ.
The leak shows intelligence briefings of “how Chinese police are guided by a massive data collection and analysis system that uses artificial intelligence to select entire categories of Xinjiang residents for detention,” said ICIJ.
The manual, called a “telegram,” is a six-page document that “instructs camp personnel on such matters as how to prevent escapes, how to maintain total secrecy about the camps’ existence, methods of forced indoctrination, how to control disease outbreaks, and when to let detainees see relatives or even use the toilet,” ICIJ adds.
The US State Department recently said nearly 2 million Muslim Uyghurs are being detained in camps in the western region of the country.
The manual also reveals the minimum detention time is about one year.
Reuters wasn’t able to confirm the authenticity of the leaked documents.
This is the second data dump of leaked documents on detention camps in Xinjiang in under two weeks.
403 pages of internal documents were leaked earlier this month to the New York Times that describe a clampdown in Xinjiang – a resource-rich territory located on the border of Pakistan, Afghanistan and Central Asia – where authorities have “corralled as many as a million ethnic Uighurs, Kazakhs, and others into internment camps and prisons over the past three years.”
Satellite images reviewed by The Wall Street Journal and a specialist in photo analysis show that camps have been growing. Construction work has been carried out on some within the past two weeks, including at one near the western city of Kashgar that has doubled in size since Journal reporters visited in November.
The full extent of the internment program was long obscured because many Uighurs feared speaking out. Now more are recounting experiences, including six former inmates interviewed by the Journal who described how they or other detainees had been bound to chairs and deprived of adequate food.
Top above shows a camp near Kashgar, China on April 17, 2017 according to the WSJ.
Below shows same camp on August 15, 2018, whichappears to have doubled in size. Image source: Wall Street Journal
The Uyghur American Association via Buzzfeed: “A satellite photo of a Chinese reeducation camp near Korla city in central Xinjiang. GPS coordinates were provided by a Uighur exile who had visited the camp.”
Satellite image of a re-education camp in Makit, Xinjiang (above). Source: Shawn Zhang via Medium.
The classified documents, leaked to Western media outlets, have sparked an international outcry over China’s human rights in the Xinjiang region. Led by the US and 30 other countries, they have labeled the detention centers a “horrific campaign of repression.”
Unsurprisingly, the Court also denied certiorari in a parallel non-delegation case, Paul v. United States, but Justice Brett Kavanaugh wrote separately suggesting he is ready to reconsider the Court’s nondelegation precedents, particularly in the context of “major questions.” Among other things, this suggests the Court may be more willing to revisit nondelegation in the context of a major regulatory initiative than in the context of a focused criminal statute–think net neutrality or greenhouse gas regulation as opposed to sex offender registration.
Justice Kavanaugh’s opinion respecting the denial of certiorari reads as follows:
I agree with the denial of certiorari because this case ultimately raises the same statutory interpretation issue that the Court resolved last Term in Gundy v. United States, 588 U. S. ___ (2019). I write separately because Justice Gorsuch’s scholarly analysis of the Constitution’s nondelegation doctrine in his Gundy dissent may warrant further consideration in future cases. Justice Gorsuch’s opinion built on views expressed by then-Justice Rehnquist some 40 years ago in Industrial Union Dept., AFL–CIO v. American Petroleum Institute, 448 U. S. 607, 685–686 (1980) (Rehnquist, J., concurring in judgment). In that case, Justice Rehnquist opined that major national policy decisions must be made by Congress and the President in the legislative process, not delegated by Congress to the Executive Branch.
In the wake of Justice Rehnquist’s opinion, the Court has not adopted a nondelegation principle for major questions. But the Court has applied a closely related statutory interpretation doctrine: In order for an executive or independent agency to exercise regulatory authority over a major policy question of great economic and political importance, Congress must either: (i) expressly and specifically decide the major policy question itself and delegate to the agency the authority to regulate and enforce; or (ii) expressly and specifically delegate to the agency the authority both to decide the major policy question and to regulate and enforce. See, e.g., Utility Air Regulatory Group v. EPA, 573 U. S. 302 (2014); FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120 (2000); MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U. S. 218 (1994); Breyer, Judicial Review of Questions of Law and Policy, 38 Admin. L. Rev. 363, 370 (1986).
The opinions of Justice Rehnquist and Justice Gorsuch would not allow that second category—congressional delegations to agencies of authority to decide major policy questions—even if Congress expressly and specifically delegates that authority. Under their approach, Congress could delegate to agencies the authority to decide less-major or fillup-the-details decisions.
Like Justice Rehnquist’s opinion 40 years ago, Justice Gorsuch’s thoughtful Gundy opinion raised important points that may warrant further consideration in future cases.
If that’s not an invitation for litigants to bring additional non-delegation challenges, I do not know what is.
One final note. This opinion should not be particularly surprising, especially the focus on the “major questions” doctrine. As a lower court judge, Kavanaugh expressed concerns about deferring to agencies in the context of broad delegations concerning major questions. In USTA v. FCC, for example, he wrote:
If an agency wants to exercise expansive regulatory authority over some major social or economic activity – regulating cigarettes, banning physician-assisted suicide, eliminating telecommunications rate-filing requirements, or regulating greenhouse gas emitters, for example – an ambiguous grant of statutory authority is not enough. Congress must clearly authorize an agency to take such a major regulatory action.
While this issue typically comes up in the context of Chevron deference claims, it is clearly connected to broader nondelegation concerns, so it’s no surprise that the particular problem posed by major questions is the focus of Justice Kavanaugh’s separate opinion this morning.
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Unsurprisingly, the Court also denied certiorari in a parallel non-delegation case, Paul v. United States, but Justice Brett Kavanaugh wrote separately suggesting he is ready to reconsider the Court’s nondelegation precedents, particularly in the context of “major questions.” Among other things, this suggests the Court may be more willing to revisit nondelegation in the context of a major regulatory initiative than in the context of a focused criminal statute–think net neutrality or greenhouse gas regulation as opposed to sex offender registration.
Justice Kavanaugh’s opinion respecting the denial of certiorari reads as follows:
I agree with the denial of certiorari because this case ultimately raises the same statutory interpretation issue that the Court resolved last Term in Gundy v. United States, 588 U. S. ___ (2019). I write separately because Justice Gorsuch’s scholarly analysis of the Constitution’s nondelegation doctrine in his Gundy dissent may warrant further consideration in future cases. Justice Gorsuch’s opinion built on views expressed by then-Justice Rehnquist some 40 years ago in Industrial Union Dept., AFL–CIO v. American Petroleum Institute, 448 U. S. 607, 685–686 (1980) (Rehnquist, J., concurring in judgment). In that case, Justice Rehnquist opined that major national policy decisions must be made by Congress and the President in the legislative process, not delegated by Congress to the Executive Branch.
In the wake of Justice Rehnquist’s opinion, the Court has not adopted a nondelegation principle for major questions. But the Court has applied a closely related statutory interpretation doctrine: In order for an executive or independent agency to exercise regulatory authority over a major policy question of great economic and political importance, Congress must either: (i) expressly and specifically decide the major policy question itself and delegate to the agency the authority to regulate and enforce; or (ii) expressly and specifically delegate to the agency the authority both to decide the major policy question and to regulate and enforce. See, e.g., Utility Air Regulatory Group v. EPA, 573 U. S. 302 (2014); FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120 (2000); MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U. S. 218 (1994); Breyer, Judicial Review of Questions of Law and Policy, 38 Admin. L. Rev. 363, 370 (1986).
The opinions of Justice Rehnquist and Justice Gorsuch would not allow that second category—congressional delegations to agencies of authority to decide major policy questions—even if Congress expressly and specifically delegates that authority. Under their approach, Congress could delegate to agencies the authority to decide less-major or fillup-the-details decisions.
Like Justice Rehnquist’s opinion 40 years ago, Justice Gorsuch’s thoughtful Gundy opinion raised important points that may warrant further consideration in future cases.
If that’s not an invitation for litigants to bring additional non-delegation challenges, I do not know what is.
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Stelter and guest say Trump supporters need ‘deprogramming’
CNN’s resident lunatic Brian Stelter went above and beyond his regular whackery Sunday, wheeling out a ‘cult expert’ on his “Reliable Sources” show, who claimed that President Trump is a “destructive cult” leader, a la Jim Jones, and that he is using “mind control” to direct supporters.
Stelter introduced Steven Hassan, author of a book titled The Cult of Trump, claiming that many prominent figures (read ‘CNN talking heads’) have been suggesting recently that Trump’s America first movement is ‘cultish’.
Hassan claimed that Trump supporters are “not being encouraged to really explore and look at the details and arrive at their own conclusion.”
“Much of what they’re hearing is emotionally driven, loaded words, thought-stopping, and thought-terminating-type clichés.” he added, citing “fake news,” “build the wall,” “make America great again.”
Stelter then brought up mind control, asking “You say the President is using mind control, but how is that provable?”
“So, we can start with the pathological lying, which is characteristic of destructive cult leaders.” Hassan claimed, again without providing any evidence.
“Saying things in a very confident way that have nothing to do with facts or truthfulness. The blaming others and never taking responsibility for his own failures and faults. Shunning and kicking out anyone who raises questions or concerns about his own behavior. His use of fearmongering, immigration is a horrible thing.” the guest continued.
Stelter then chimed in with the stunning insight that “It is frightening to hear a cult expert say that you see all of these signs right now today in American politics.”
The pair then remarkably suggested that Trump supporters need to be ‘deprogrammed’ by breaking them out of their ‘bubbles’.
Could there be a better example of the pot calling the kettle black?
The real cult is happening at CNN, where for four years talking heads and presenters have completely obsessed themselves with opposing anything Trump says or does, as well as a plethora of things he doesn’t say or do.
63 million Americans are definitely not part of a mind controlled cult. However, a few thousand CNN viewers certainly seem to be.
Budget office says “procedures were followed.” After the talk of a “quid pro quo” with Ukraine started, President Donald Trump’s team may have sought to reverse-engineer some legitimate reasons for withholding military aid. A review by the White House Counsel’s Office found emails in which Acting Chief of Staff Mick Mulvaney asked budget officials if there was any legal justification for Trump’s order to withhold the aid—weeks after the president had given said order.
According to the administration, Mulvaney was simply asking to review the budget office’s legal justification, which is a standard document produced whenever promised funds are withheld.
The question of whether the president withheld the millions in aid to ensure President Volodymyr Zelenskiy’s cooperation in investigating the Biden family is at the center of the Trump impeachment inquiry. The president admits to both ordering the aid hold and asking for an investigation into Biden business dealings but maintains that this was no quid pro quo.
The Washington Post mentions “three people familiar with the [White House Counsel’s Office investigation] who spoke on the condition of anonymity”:
One person briefed on the records examination said White House lawyers are expressing concern that the review has turned up some unflattering exchanges and facts that could at a minimum embarrass the president. It’s unclear whether the Mulvaney discussions or other records pose any legal problems for Trump in the impeachment inquiry, but some fear they could pose political problems if revealed publicly.
According to the Post‘s reporting, the evidence uncovered in this examination goes way beyond an email or two from Mulvaney. The review “has turned up hundreds of documents that reveal extensive efforts to generate an after-the-fact justification for the decision and a debate over whether the delay was legal,” write Josh Dawsey, Carol D. Leonning, and Tom Hamburger.
Office of Management and Budget (OMB) spokesperson Rachel Semmel denies that there was anything unusual about communications. Semmel told The New York Times:
To be clear, there was a legal consensus at every step of the way that the money could be withheld in order to conduct the policy review. O.M.B. works closely with agencies on executing the budget. Routine practices and procedures were followed.
FREE MARKETS
Sen. Elizabeth Warren omits son’s private schooling when arguing against school choice. Last Thursday, the Massachusetts Democrat and 2020 presidential candidate was confronted by several school-choice activists in Atlanta. “We are going to have the same choice that you had for your kids because I read that your children went to private school,” said Sarah Carpenter of the Powerful Parent Network in a video uploaded to Facebook. Warren responded:
Elizabeth’s daughter went to public school. Her son went to public school until 5th grade. Elizabeth wants every kid to get a great education regardless of where they live, which is why her plan makes a historic investment in our public schools. Every public school should be a great school. Her plan does not affect funding for existing non-profit charter schools, but she believes we should not put public dollars behind a further expansion of charters until they are subject to the same accountability requirements as public schools.
FREE MINDS
California sex workers are concerned about the $1.5 million the state has allocated for a study on human trafficking victims. “Though we really want to support that, we’re concerned that the groups that were allocated the monies had conflicts of interest, in that the groups that were to do the investigation, the research into sex trafficking want to call all of us sex trafficking victims, when we’re not,” said Maxine Doogan of the Erotic Service Providers Legal Education and Research Project (ESPLERP). “Also, the main group is involved in law enforcement, and they are able to arrest people for prostitution and then call them sex trafficking victims and then count them as sex trafficking victims and inflate the numbers of sex trafficking.”
Inflated “victim” numbers are then used to justify an increase in policing conducting undercover prostitution stings. This is “because the only way [police] identify sex trafficking victims is through prostitution sting operations where people are arrested for prostitution,” said Doogan. “We don’t think [victims] should be arrested.”
ELECTION 2020
Bloomberg officially in. “The idea that Mike Bloomberg is going to skip the first four states and then bludgeon his way into the mix through sheer financial muscle has to be one of the most fanciful presidential-campaign strategies ever,” writes Rich Lowry at National Review.
Over the weekend, the former New York City mayor officially joined the Democratic 2020 presidential race.
Bloomberg—the news outlet, not the candidate—announced that to avoid any conflict of interest it would not do any investigative reporting on its namesake and publisher and, to be fair, would not to any investigative reporting on other Democratic candidates either.
Just in: Extraordinary statement from Bloomberg News Editor-In-Chief John Micklethwait about Bloomberg’s coverage plans of Mike Bloomberg’s candidacy: Bloomberg Editorial board suspended, no “investigation” of Mike, his family or foundation: pic.twitter.com/afjsHDQg0d
Capitalism remains the preferred economic system of 60 percent of respondents in a new Gallup poll, while 39 percent prefer socialism. But “eighty-seven percent of the population has a positive view of free enterprise,” notes J.D. Tuccille, “including 92 percent of Republicans, 88 percent of Independents, and 83 percent of Democrats.” And 90 percent “have a positive view of entrepreneurs.”
The Adult Performers Actors Guild is protesting discriminatory Instagram censorship. President Alana Evans “has collected a list of more than 1,300 performers who claim that their accounts have been deleted by Instagram’s content moderators for violations of the site’s community standards, despite not showing any nudity or sex”:
Hundreds of porn stars and sex workers had their Instagram accounts deleted this year. I spoke with some of them about their fight to stay on the platform. https://t.co/ldAfpzQK7c
Fox & Friends preview an interview with Rick Perry, where he says that Trump is "the chosen one" and "sent by God to do great things"
Pete Hegseth: "God has used imperfect people forever," but what Trump "has withstood is unlike what really any other mortal could understand" pic.twitter.com/ITDAErMJiN
Budget office says “procedures were followed.” After the talk of a “quid pro quo” with Ukraine started, President Donald Trump’s team may have sought to reverse-engineer some legitimate reasons for withholding military aid. A review by the White House Counsel’s Office found emails in which Acting Chief of Staff Mick Mulvaney asked budget officials if there was any legal justification for Trump’s order to withhold the aid—weeks after the president had given said order.
According to the administration, Mulvaney was simply asking to review the budget office’s legal justification, which is a standard document produced whenever promised funds are withheld.
The question of whether the president withheld the millions in aid to ensure President Volodymyr Zelenskiy’s cooperation in investigating the Biden family is at the center of the Trump impeachment inquiry. The president admits to both ordering the aid hold and asking for an investigation into Biden business dealings but maintains that this was no quid pro quo.
The Washington Post mentions “three people familiar with the [White House Counsel’s Office investigation] who spoke on the condition of anonymity”:
One person briefed on the records examination said White House lawyers are expressing concern that the review has turned up some unflattering exchanges and facts that could at a minimum embarrass the president. It’s unclear whether the Mulvaney discussions or other records pose any legal problems for Trump in the impeachment inquiry, but some fear they could pose political problems if revealed publicly.
According to the Post‘s reporting, the evidence uncovered in this examination goes way beyond an email or two from Mulvaney. The review “has turned up hundreds of documents that reveal extensive efforts to generate an after-the-fact justification for the decision and a debate over whether the delay was legal,” write Josh Dawsey, Carol D. Leonning, and Tom Hamburger.
Office of Management and Budget (OMB) spokesperson Rachel Semmel denies that there was anything unusual about communications. Semmel told The New York Times:
To be clear, there was a legal consensus at every step of the way that the money could be withheld in order to conduct the policy review. O.M.B. works closely with agencies on executing the budget. Routine practices and procedures were followed.
FREE MARKETS
Sen. Elizabeth Warren omits son’s private schooling when arguing against school choice. Last Thursday, the Massachusetts Democrat and 2020 presidential candidate was confronted by several school-choice activists in Atlanta. “We are going to have the same choice that you had for your kids because I read that your children went to private school,” said Sarah Carpenter of the Powerful Parent Network in a video uploaded to Facebook. Warren responded:
Elizabeth’s daughter went to public school. Her son went to public school until 5th grade. Elizabeth wants every kid to get a great education regardless of where they live, which is why her plan makes a historic investment in our public schools. Every public school should be a great school. Her plan does not affect funding for existing non-profit charter schools, but she believes we should not put public dollars behind a further expansion of charters until they are subject to the same accountability requirements as public schools.
FREE MINDS
California sex workers are concerned about the $1.5 million the state has allocated for a study on human trafficking victims. “Though we really want to support that, we’re concerned that the groups that were allocated the monies had conflicts of interest, in that the groups that were to do the investigation, the research into sex trafficking want to call all of us sex trafficking victims, when we’re not,” said Maxine Doogan of the Erotic Service Providers Legal Education and Research Project (ESPLERP). “Also, the main group is involved in law enforcement, and they are able to arrest people for prostitution and then call them sex trafficking victims and then count them as sex trafficking victims and inflate the numbers of sex trafficking.”
Inflated “victim” numbers are then used to justify an increase in policing conducting undercover prostitution stings. This is “because the only way [police] identify sex trafficking victims is through prostitution sting operations where people are arrested for prostitution,” said Doogan. “We don’t think [victims] should be arrested.”
ELECTION 2020
Bloomberg officially in. “The idea that Mike Bloomberg is going to skip the first four states and then bludgeon his way into the mix through sheer financial muscle has to be one of the most fanciful presidential-campaign strategies ever,” writes Rich Lowry at National Review.
Over the weekend, the former New York City mayor officially joined the Democratic 2020 presidential race.
Bloomberg—the news outlet, not the candidate—announced that to avoid any conflict of interest it would not do any investigative reporting on its namesake and publisher and, to be fair, would not to any investigative reporting on other Democratic candidates either.
Just in: Extraordinary statement from Bloomberg News Editor-In-Chief John Micklethwait about Bloomberg’s coverage plans of Mike Bloomberg’s candidacy: Bloomberg Editorial board suspended, no “investigation” of Mike, his family or foundation: pic.twitter.com/afjsHDQg0d
Capitalism remains the preferred economic system of 60 percent of respondents in a new Gallup poll, while 39 percent prefer socialism. But “eighty-seven percent of the population has a positive view of free enterprise,” notes J.D. Tuccille, “including 92 percent of Republicans, 88 percent of Independents, and 83 percent of Democrats.” And 90 percent “have a positive view of entrepreneurs.”
The Adult Performers Actors Guild is protesting discriminatory Instagram censorship. President Alana Evans “has collected a list of more than 1,300 performers who claim that their accounts have been deleted by Instagram’s content moderators for violations of the site’s community standards, despite not showing any nudity or sex”:
Hundreds of porn stars and sex workers had their Instagram accounts deleted this year. I spoke with some of them about their fight to stay on the platform. https://t.co/ldAfpzQK7c
Fox & Friends preview an interview with Rick Perry, where he says that Trump is "the chosen one" and "sent by God to do great things"
Pete Hegseth: "God has used imperfect people forever," but what Trump "has withstood is unlike what really any other mortal could understand" pic.twitter.com/ITDAErMJiN
