Bill Introduced to Stop Civil Forfeiture Funding of DEA Marijuana Eradication Program

Citing waste of taxpayer dollars, shifting public opinion, and constitutional concerns, Reps. Ted Lieu (D-Calif.) and Justin Amash (R-Mich.) have introduced a bill in Congress that would block funds from the federal government’s controversial asset forfeiture fund from being used for the Drug Enforcement Administration (DEA) marijuana eradication program.

The Stop Civil Asset Forfeiture Funding for Marijuana Suppression Act, first introduced in 2015, would use Congress’ power of the purse to block money from the Justice Department’s Asset Forfeiture Fund from being used to support the DEA’s Domestic Cannabis Suppression/Eradication Program.

According to the DEA, the program was responsible in 2016 for the eradication of more than 5 million marijuana plants, more than 5,000 arrests, and the seizure of more than of $51 million from marijuana cultivators.

Under civil asset forfeiture laws, police can seize property and money suspected of being connected to criminal activity, even if the owner is not charged with a crime. Law enforcement groups argue it is a vital tool to disrupt drug trafficking and other organized crime. However, civil liberties advocates say there are far too few protections for innocent property owners and far too many profit incentives police and prosecutors.

For example, in 2009 federal prosecutors unsuccessfully fought to seize a farm from an Alabama woman after her husband was caught growing marijuana on the property. Her husband, who said he used the marijuana to manage chronic pain, committed suicide during his trial in a last-ditch attempt to keep the farm in family hands, as it had been for generations. His wife was never charged with a crime.

“Civil asset forfeiture is an unconstitutional practice whereby the government takes people’s property without due process,” Amash, one of the more libertarian members of Congress, said in a joint statement with Lieu. “The DEA’s use of proceeds acquired through civil asset forfeiture to expand marijuana enforcement—a state-level issue—makes the already unacceptable practice even worse.”

Lieu called the DEA eradication program “a waste of time and money and runs contrary to the will of the people.”

“The Federal Government has a responsibility to spend taxpayer money wisely,” he said. “Instead, A.G. Jeff Sessions would rather waste federal dollars by attacking marijuana, which has been legalized either for medical or recreational use in the majority of states in the U.S.”

Attorney General Jeff Sessions, a longtime supporter of the drug war, recently rescinded Obama-era guidance to U.S Attorneys on marijuana enforcement, sparking fears of a federal crackdown on the drug, which is now legal at the state level for recreational use in eight states and the District of Columbia.

A new poll conducted by Mason-Dixon Polling and Strategy and released by Smart Approaches to Marijuana (SAM), an anti-legalization group, found that only 16 percent of Americans support keeping the current federal policy on marijuana, while 49 percent favor full legalization for recreational use.

The bill also has the support of marijuana legalization groups.

“Never in modern history has there existed greater public support for ending the nation’s nearly century-long experiment with marijuana prohibition,” Justin Strekal, the political director of the National Organization for the Reform of Marijuana Laws, said in a statement. “With eight states and the District of Columbia now having legalized its personal use and 30 states having legalized medical marijuana, it is time that the DEA cease interfering with state-legal programs and stop wasting taxpayer dollars that would be better directed at going after the pill-mills contributing to the nations opioid crisis.”

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Senate Passes Surveillance Reauthorization, Health Department to Protect Religious Objectors, Seb Gorka Allegedly Wanted in Hungary: P.M. Links

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IBM “Beats” Thanks To Record Low Tax Rate, Revenue Rises For First Time in 23 Quarters

Last quarter, IBM – once again – almost fooled the market  when it “beat” but only thanks to using the lowest (until then) effective non-GAAP tax rate in its history (excluding one charge-filled quarter in which the rate N/M). Fast forward to the last quarter of 2017 when IBM did it, or at least tried it, yet again: in the three months ended Dec. 31, IBM reported Non-GAAP EPS of $5.18, barely above the expected $5.17, a clear and brazen exercise in goalseeking.

How did IBM “beat” again? By applying the same tired shtick it has used every quarter for years now: an ever lower  effective (non-GAAP) tax rate, which in Q4 dropped to an all time low of 6.1%, down from the already laughable 11% in Sept 30, 2017. This is after the company announced it would incur a one-time charge of $5.5 billion due to tax reform (including that, IBM’s effective tax rate was 123.6%). Of course, had IBM used even last quarter’s 11% tax rate, it would have missed.

 

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At this rate IBM will soon need a negative non-GAAP tax rate to make its negative non-GAAP earnings turn positive, or some other double negative. That, or IBM is hoping that Trump tax reform passe another 4-6 times.

 

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Amusingly, readers will recall that last quarter IBM boldly said that it “continues to expect a full-year effective operating (non-GAAP) tax rate of 15 percent, plus or minus 3 points, excluding discrete items.

Well, as we jokingly predicted last quarter, it was minus: IBM’s full year non-GAAP effective tax rate was 12%.

Yet while IBM is an undisputed wizard when it comes to fudging its bottom line, there was finally some good news on the top line, where after 22 consecutive quarters, IBM finally posted an increase in Y/Y revenue, the first time it did so in 22 consecutive quarters.

 

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And while IBM beat on the top line, it still missed its Q4 adjusted gross margin of 49.5%, which came in well below the estimate of 50.8%

Away from the top and bottom line, IBM reported that in Q4 it generated free cash flow $6.8 billion. And, as has been the case every quarter, IBM returned $1.4 billion in dividends and $0.7 billion of gross share repurchases to shareholders. At the end of December 2017, IBM had $3.8 billion remaining in the current share repurchase authorization having expanded it in the last quarter. We expect the company will soon authorize another $5-10 billion or so in new buybacks.

As usual, Ginni Rometty had some pep talk for shareholders…

“Our strategic imperatives revenue again grew at a double-digit rate and now represents 46 percent of our total revenue, and we are pleased with our overall revenue growth in the quarter,” said Ginni Rometty, IBM chairman, president and chief executive officer. “During 2017, we strengthened our position as the leading enterprise cloud provider and established IBM as the blockchain leader for business. Looking ahead, we are uniquely positioned to help clients use data and AI to build smarter businesses.”

… although judging by the stock price after hours, the shareholders were not impressed.

Finally, IBM ended the fourth quarter of 2017 with $12.6 billion of cash on hand. Total debt rose by $1.2BN to $46.8 billion, up from $45.6BN at the end of Q3 and up from $42.2BN one year ago.

As noted above, neither the stock, nor shareholders are happy with the company’s results, as it now appears that everyone can see past IBM’s feeble attempts at tax accounting 101 gimmickry.

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2017 Was the Second Hottest Year Since 1880, Says NASA

BestThermometerBigMeryllDreamstime2017 was the second-warmest year since 1880, according to NASA. Only 2016 was warmer.

More specifically, NASA reports that globally averaged temperatures last year were 0.90° Celsius warmer than the mean temperature from 1951 to 1980. The three other major institutions that track global temperature trends find that 2017 is the third warmest year in their records.

The National Oceanic and Atmospheric Administration reports:

The average temperature across the globe in 2017 was 1.51 degrees Fahrenheit (0.84 degrees Celsius) above the 20th century average of 57 degrees Fahrenheit (13.9 degrees Celsius). 2017 marks the 41st consecutive year (since 1977) with global land and ocean temperatures at least nominally above the 20th-century average.

“The six warmest years on record for the planet,” the agency adds, “have all occurred since 2010.”

Researchers at the Met Office Hadley Centre and the University of East Anglia’s Climatic Research Unit report that the global average temperature in 2017 was about 0.99° Celsius above pre-industrial levels, and about 0.38° Celsius above the 1981–2010 average.

The climatologists at the University of Alabama in Huntsville who oversee the satellite temperature data report that the average temperature in the lower troposphere over the globe in 2017 was 0.375° Celsius warmer than seasonal norms. These temperature trends are calculated relative to a 30-year average (1981–2010). The Huntsville satellite record trend, often cited by folks who are less concerned about climate model projections, is basically identical to the Hadley Centre’s conclusions.

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Remote Sensing Systems (RSS) also uses satellite temperature data to calculate global temperature trends. It reports that 2017

was the second warmest recorded since satellite observations began in 1979. Last year, 2016, was the warmest ever recorded. The near-record warmth of 2017 is notable because an El Niño event did not occur in 2017. The other 3 warmest years, 1998, 2010, and 2016, were El Niño years. Except for 1998, all of the warmest years occur after 2000, providing clear evidence of global temperature increase in the troposphere.

RSS notes that the although the recent warm years have brought climate model projections and measured temperature trends closer, it is still the case the “the troposphere has not warmed quite as fast as most climate models predict.”

The Huntsville researchers find that the globe is warming at 0.13° Celsius per decade, while RSS reports a warming trend of 0.18° Celsius per decade. The surface data trends fall within this range. It is generally agreed that the earth has warmed by about 1° Celsius since the 19th century.

If the Huntsville rate of temperature increase is maintained for the rest of this century, the world would end up just a bit over 2° Celsius warmer than it was around 1900. If the RSS trend is sustained, that would yield a further increase of nearly 1.5° Celsius, resulting in a global average temperature that’s 2.5° Celsius warmer than it was in 1900. It is worth noting that the temperature difference between now and the last ice age is between 4 to 7° Celsius. That increase occurred at a much slower pace.

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American Express Suspends Buybacks “To Rebuild Capital”, Stock Slumps

American Express shares are down at one-month lows in the after-market following its announcement that the firm will suspend its share buyback program for the first half of 2018 to rebuild capital after the Tax Act.

As previously disclosed, the quarter reflected a substantial charge related to the Tax Act. The $2.6 billion charge represents our current estimate of taxes on deemed repatriations of certain overseas earnings and the remeasurement of U.S. deferred tax assets and liabilities. For 2018, the company expects an effective U.S. tax rate of approximately 22 percent before discrete tax items.

“The upfront charge triggered by the Tax Act reduced our capital ratios and, as a result, while we will be continuing our quarterly dividends at the current level, we plan to suspend our share buyback program for the first half of 2018 in order to rebuild our capital.

“Overall, we believe the Tax Act will be a positive development for both the U.S. economy and American Express. Given the momentum in the business and the anticipated benefit of a lower tax rate, we now expect to invest up to $200 million more in 2018 than we originally planned for customer-facing growth initiatives. We’ve also made an incremental contribution to our employee profit-sharing plans to support the long-term financial well-being of our employees. And, for shareholders, we expect to use the remaining anticipated benefits to build capital and support earnings growth in 2018.

Amex additionally cut guidance: Sees FY adjusted EPS $6.90 to $7.30, estimate $7.38 (range $6.89 to $7.88) (Bloomberg data)

Which also did not help the stock…

 

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All of which raises the question – why does Amex need to “build capital” if everything is so awesome? … or is a consumer credit bust around the corner?

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Crypto Comeback Continues As Stocks, Bonds, Dollar Sink

Just seemed appropriate somehow…

 

The biggest story of the day is the resurgent rally in crypto-currencies with Ripple up 80% off yesterday’s lows…

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Bitcoin traded above $12,000 (up 32% off yesterday’s lows), Ethereum back above $1000…

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The Dow closed lower – late-day slam hit as Democrats made headlines proclaiming they had the votes to cause a govt shutdown… Trannies managed to scramble back into the green to close…

 

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VIX continues to rise…closing at 12 today as The Dow was desperately held above 26k..

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Treasury yields rose on the day, bear steepening (30Y +4bps)…the belly of the curve is worst this week so far though…

 

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10Y broke above 2.62% intraday (pushed up at the end by Dem headlines)..

 

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Just shy of the Dec 15th 2016 intraday highs of 2.6394%… (10Y is up 30bps since The Fed hiked rates in December)…

 

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The Dollar Index continued the same patter for the 7th day in a row – being dumped after AsiaPac markets closed…

 

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WTI Crude was lower (on a big draw) and RBOB was higher (on a big build?)…

 

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Gold and silver were both down (despite a weaker dollar)…

 

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The “World’s Most Bearish Hedge Fund” Has A “Stunning” Theory What Happens Next To The Dollar

After a rollercoaster year, the clients of Horseman Global, which in 2016 we dubbed  the world’s most bearish hedge fund when its net exposure hit over -100%…

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… finally got some good news when in his December letter, CIO Russell Clark announced that after returning 5.54% for December, the month emerged back in the green for the full year, up a modest 2.27%.

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However, what caught our attention was not the fund’s performance, which after a -24% 2016 barely closed in the green in 2017 (and suffered a dramatic plunge in AUM as a result), but Russell Clark’s comments on the plunging USD, a topic which seemingly everyone has an opinion on.

Specifically, we found his comments notable because if he is right, the dollar slide will only accelerate, and will have profound consequences not only for assets, but for the US and global economy in the not too distant future.

Here is Clark’s “fascinating” – as he puts it – theory about the source of dollar weakness, and more troubling, why what is about to happen next will make the recent collapse in the USD seem like a walk in the park.

Since the financial crisis, I have tried to apply the Japanese Quantitative Easing (‘QE’) model to the world as more and more central banks moved to zero or negative interest rates and asset purchase programs. In Japan the practical effect of QE has been for Japan to export capital, and this creates credit bubbles in the recipient countries. The country receiving the capital then has to deal with the credit bubble by devaluing and exporting deflation back to Japan. In my view, Japanese QE was the cause of the Asian Financial Crisis, and played a role in the Global Financial Crisis and the Eurocrisis. In Japan QE has meant my strategy has been to always be bullish JGBs, and short Japanese equities whenever they attempt to exit QE, and short the currencies of countries that had accepted QE capital flows. From 2013 to 2016, shorting various emerging markets, and being long developed market bonds was a winning strategy for the Fund.

However, in 2016 Chinese policy changes seemed able to reverse this trend, mainly through government mandated capacity cuts. I have seen many fund managers and economists hold on to investment and economic ideas long after they have been proven wrong, so given this break in the model, I thought it wise to question many of my investment ideas, particularly on bonds.

It is very easy to get bearish on bonds. With Chinese growth improving, and commodity prices rising, inflationary pressure is building. Furthermore, Chinese bonds currently offer 4%, substantially higher than developed market bonds. In addition, in a break with the Japanese experience of QE, the Federal Reserve has managed 5 interest rate increases, rather than only the one or two that Japan has been able to achieve since the bursting of the bubble. The refrain that I have heard these days is that QE works, and the US will be able to easily exit QE policies, followed by the ECB and the BOJ, and that bonds are a sell.

* * *

December tends to be quiet, so I have had time to reflect on market views on QE. Looking at how the US dollar has traded, and the performance of bonds, I am beginning to think that the model is not broken, but needs to be adjusted for the fact that QE is now undertaken by various central banks simultaneously, rather than just by Japan. The big increase in QE from the ECB and the BOJ that we saw in 2016, has seen capital move from Japan and Europe to the US. This has meant that even as the US has raised rates, credit conditions have remained very favourable. This combined with a recovery in China has created an extremely favourable market for all assets in 2017. But what does it mean for 2018?

Well, if the QE model still holds, then the capital flows from Europe and Japan to the US are beginning to slow and even reverse. The implications of this is that the strategy is to be bearish US dollars and bearish on US corporate credit. It also implies being bearish on European and Japanese banks, and buying of bunds and JGBs, however this remains to be seen.

Intriguingly, all these assets are already beginning to move this way. The full implications of thinking this way are fascinating.

And here is the conclusion, where – if Clark is right – better hold on to your hats, because it’s about to get very volatile:

The worst-case scenario would be profound dollar weakness forcing the Federal Reserve to increase interest rates much more quickly than expected. Dollar weakness would cause Japanese and European exporters to suffer, forcing money into JGBs and bunds. This would be like the capital flight market in the US we saw in the late ‘70s. For reference, Swiss bonds yielded only 2% in the late 1970s, even as US rates went to near 20%.

Naturally, it would be poetic justice if the payback for the world’s biggest (and really only) globally coordinated episode of QE which injected some $15 trillion in QE in capital markets, was a just as rapid, and accelerating episode of rising interest rates, starting with the US, in the process crushing US stock first and then spreading like a tsunami around the globe.

Maybe mean reversion is not dead after all, maybe it’s just waiting for the right reversal to remind the economist PhDs in the Marriner Eccles building that there is no such thing as a free lunch… or free all time highs in the stock market.

And incidentally, for those who are wondering, Horseman “remains long emerging markets, short developed markets.”

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ICE Plans Largest Raid On Northern California Illegals After State Passes Sanctuary Legislation

U.S. immigration officials plan to conduct a “major sweep” in San Francisco and other Northern California cities over the next few weeks in the recently-minted “sanctuary state,” reports the San Francisco Chronicle

Centered in the Bay Area, the campaign has its sights set on over 1,500 undocumented individuals – sending a message that federal immigration policies will still be enforced in the ‘defiant’ sanctuary state. According to The Chronicle, ICE will be flying immigration enforcement officers in from around the country to assist with the raids – which will include worksites believed to be harboring illegal employees. The raids could take several days, according to an unnamed source.

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The sweep would be the largest of its kind under the Trump administration, a source told the Chronicle – and would be the first such operation since California Governor Jerry Brown signed legislation enacting statewide “sanctuary” laws last October – vastly limiting who state and local law enforcement agencies can detain, question and transfer at the request of federal authorities. 

It also forbids police officers from making arrests for civil immigration warrants, as well as joining federal task forces intended to enforce immigration laws. 

Acting ICE Director Homan slammed Jerry Brown and the state of California for passing SB54, which he said undermined public safety.

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In an appearance earlier this month on Fox News, Homan accused California Democrats and Gov. Jerry Brown of placing “politics ahead of public safety,” adding that California “better hold on tight,” as ICE would “significantly increase” pressure on the state. 

They’re about to see a lot more special agents, a lot more deportation officers in the state of California,” said Homan.

The operation would go after people who have been identified as targets for deportation, including those who have been served with final deportation orders and those with criminal histories, the source said. The number could tick up if officers come across other undocumented immigrants in the course of their actions and make what are known as collateral arrests. –SF Chronicle

When asked for comment on Tuesday, Senator Dianne Feinstein (D-CA) was outraged, saying that immigrants “must not be targeted in raids solely because they are Californians,” adding that a large-scale enforcement operation would suggest that “the administration is carrying out its enforcement actions to make a political point and not based on the security of the country.”

Last week, a group of politicians including Reps. Barbara Lee, D-Oakland, and Zoe Lofgren, D-San Jose, sent a letter to Department of Homeland Security Secretary Kirstjen Nielsen requesting a meeting with her and Homan to clarify the remarks he made on Fox News about stepping up enforcement in California.

“The statements are a direct threat to Californians,” the letter read. “These statements are reprehensible and the department’s change in policy will instill fear in our communities. … Acting Director Homan’s attack on sanctuary cities is not only an infringement of state rights but a direct assault on communities of color.” –The Chronicle

Jerry Brown and other California Democrats would be wise to watch this…

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Was This Kelly’s “Bannon Moment”?

The Washington Post shocked readers on Wednesday when it reported that White House Chief of Staff John Kelly told the Congressional Hispanic Caucus during a visit to the Hill that President Donald Trump’s initial vision for the southern border wall was “ill-informed.”

But anybody who assumed WaPo was distorting Kelly’s remarks, or taking them out of context, was swiftly disabused of that notion when Kelly himself took to Fox News to offer a quick clarification: Kelly explained to Bret Baier that what he really said was that Trump’s views on the Wall – and on DACA – had “evolved” since the campaign…

“As we talked about things — where this president is and how much he wants to deal with this DACA issue and take it away — I told them that, you know, there’s been an evolutionary process that this president has gone through as a campaign [sic]. And I pointed out to all of the members that were in the room that they all say things during the course of campaigns that may or may not be fully informed. But this president, if you’ve seen what he’s done, he has changed the way that he’s looked at a number of things. … So he has evolved in the way he’s looked at things. Campaign to governing are two different things, and this president is very, very flexible in terms of what is within the realm of the possible.”

While we imagine Kelly’s remarks were well-intentioned, observers familiar with Trump’s obsessive approach to his public image will recognize that Kelly made the grave mistake of undercutting his boss’s claim to be the master of all subjects (“I’m, like, really smart”).

 

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Trump quickly let his displeasure be known Thursday morning when he rebuked Kelly in a series of tweets, declaring that “the wall is the wall” and that Trump’s views on the wall have never “evolved.” Mexico will still pay for the wall, Trump said, declaring that its estimated cost of $20 billion (many estimates place it closer to $70 billion) is “peanuts” relative to Mexico’s $70 billion annual trade surplus with the US.

 

 

 

 

Axios’  White House reporter Jonathan Swan later confirmed with one of his high-ranking White House sources that Trump is angry with Kelly, and that the chief of staff is in for a rough day at the office Thursday.

In a piece entitled “Is This Kelly’s Bannon Moment?” Swan points out that this is one of the first public signs of tension between Trump and his chief of staff.

Last night, Kelly undercut Trump’s self-perception as the most brilliant man on earth, and instant master of all subjects. The notion of evolution would be inherently offensive to him.

Swan said his source raised the Bannon comparison, claiming that Kelly has finally ventured into “Steve Bannon territory.”

Kelly has finally ventured into Steve Bannon territory when it comes to trying to create the perception that he’s the ‘great manipulator,’ saving the country from Trump’s ignorance.

The difference is, Steve tried to develop that reputation in off-the-record conversations with reporters. Kelly did it openly on the country’s most-watched cable network. It’s the subtle difference between hubris and arrogance.

Kelly has been widely credited with instilling a sense of discipline on the West Wing. He has also in the past proven himself a loyal soldier, standing up to attack his boss’s critics, like he did when a Florida Congresswoman accused Trump of forgetting the name of a green beret who was killed under mysterious circumstances in Mali late last year.

But is the beginning of an irreparable rift? It’s definitely something to keep an eye on.

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