Month: February 2016

Federal Judge Orders Withdrawal of Fraudulent Chobani Yogurt Ads

Last Friday a federal judge in Utica, New York, issued preliminary injunctions against ads for Chobani yogurt that disparage two competing brands, Yoplait and Dannon, by describing the artificial ingredients they contain as “bad stuff” that is hazardous to consume. Responding to complaints filed by General Mills (which owns Yoplait) and the Dannon Company, U.S. District Judge David Hurd concluded there is a “substantial likelihood” the plaintiffs can show Chobani violated the Lanham Act, which prohibits “unfair competition” through “false advertising.” Although some may fault this sort of intervention on free-speech grounds, the Chobani ads do more than appeal to the arbitrary preference for “all natural” ingredients, which the government has no more business suppressing than any other religion. The ads also commit a kind of fraud by misleading consumers to believe the competing products are poisonous.

One TV spot shows a woman behind the wheel of a convertible parked at a fruit stand, scrutinizing the label of a Yoplait Greek 100 container, then disgustedly throwing it out in favor of Chobani’s Simply 100 Greek Yogurt. While this is happening, a narrator says, “Yoplait Greek 100 actually uses preservatives like potassium sorbate. Potassium sorbate? Really? That stuff is used to kill bugs!” The hashtag #NOBADSTUFF appears at the bottom of the screen. Another TV spot shows a woman lying on a pool chair who goes through a similar routine with Dannon Light & Fit Greek Yogurt. In this case, the narrator says, “Dannon Light & Fit Greek actually uses artificial sweeteners like sucralose. Sucralose? Why? That stuff has chlorine added to it!” Chobani produced online and print ads that communicated similar messages.

Although both TV spots are literally true, Hurd notes, the implication that potassium sorbate and sucralose are unsafe for human consumption is not (citations omitted):

Potassium sorbate…is a “potassium salt of sorbic acid” that has been “generally recognized as safe” for human consumption by the U.S. Food and Drug Administration (“FDA”). According to the U.S. Department of Agriculture, “few substances have had the kind of extensive, rigorous, long-term testing that sorbic acid and its salts [like potassium sorbate] have had. It has been found to be non-toxic even when taken in large quantities, and breaks down in the body into water and carbon dioxide.”…

Sucralose…is a “zero-calorie, non-nutritive sweetener” that has been approved by the U.S. Food and Drug Administration (“FDA”) for human consumption since 1999. Sucralose has been extensively studied and the FDA has reviewed more than 110 safety studies in connection with its use as a general purpose sweetener for food.

Sucralose is a molecule with twelve carbon, nineteen hydrogen, eight oxygen, and three chlorine atoms linked together in a stable form that is safe to consume. The molecule is manufactured through a process in which three atoms of chlorine are “substituted” for three hydrogen-oxygen groups on a sucrose molecule. This trio of chlorine atoms are known in the scientific community as a “chloride,” a compound of chlorine that is bound to another element or group. Such chlorides are found throughout nature and in numerous natural food sources ranging from simple table salt to cow’s milk.

Pool chlorine, on the other hand, is a colloquial term for calcium hypochlorite, a powerful bleach and disinfectant that is harmful if added to food or ingested. This substance is distinct both chemically and practically from the chlorine atoms found in sucralose. Calcium hypochlorite is not found in, or used to manufacture, any of Dannon’s products.

Given the ambiguous meaning of chlorine (the element vs. the pool chemical) and the poolside setting of the TV spot slamming sucralose in Dannon yogurt, that ad is especially egregious. But even though it’s true that potassium sorbate can be used “to kill bugs,” saying that a food contains insecticide without explaining that the insecticide is nontoxic to humans, especially when the ingredient is described as “bad stuff,” is also grossly misleading. It reminds me of the warning that e-cigarette fluid contains “antifreeze,” referring to glycerol and propylene glycol, two other food ingredients that the FDA deems “generally recognized as safe.” Since the most familiar and commonly used kinds of antifreeze are toxic, the intent to mislead people is clear.

Hurd’s injunction against the anti-Yoplait ads leaves Chobani free to “spread its message about the value of selecting natural ingredients,” as long as it refrains from claiming that “potassium sorbate is unsafe for consumers,” that Yoplait’s products are “unsafe because they contain potassium sorbate,” or that they contain “stuff…used to kill bugs.” His injunction against the anti-Dannon ads likewise is limited to claims that “sucralose is bad or unsafe for consumers,” that Dannon products “are unhealthy because they contain chlorine,” or that the sweetener has anything to do with “a dangerous chemical used to clean swimming pools.”

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The Next Fed Chair All But Promised NIRP is Coming to the US

The Fed Vice-Chair has begun laying the groundwork for NIRP.

 

The US Federal Reserve is obsessed with market reactions to its policies. Because of this, anytime the Fed plans to announce a major change in policy, it preps the markets via numerous leaks and hints… oftentimes for months in advance.

 

An excellent example of this concerns the Fed’s decision to taper QE back in 2013.

At that time, the Fed had been engaging in two open ended-QE programs… programs that had been running for over six months.

 

Rather than simply beginning to taper the programs, then-Fed Chairman Ben Bernanke, hinted that the Fed was contemplating a taper in June.

 

The markets reacted sharply with bond yields rising.

 

The Fed then spent six months allowing the market to get used to the idea of a taper, before the actual taper finally began in December 2013.

 

Put another way, the Fed gave the markets a full six months to adjust to a change in policy, before actually implementing said change. This only highlights just how focused the Fed is on market reactions to its policies.

 

In the simplest of terms: the Fed will NEVER surprise the market. This is particularly true now that the Fed is in the political cross hairs due to ample evidence showing its policies have increased wealth inequality.

 

If the Fed is planning on something new, particularly something that might have political repercussions, we’ll see numerous hints and suggestions well before the actual policy is unveiled.

 

With that in mind, we need to consider that the Fed is now actively engaged in a campaign to prep the markets for Negative Interest Rate Policy or NIRP.

 

1.     First we find that a Fed official hinted at NIRP during the Fed’s September 2015 meeting.

 

2.     Then, in early October 2015, NY Fed President Bill Dudley stating that negative rates were “an option” though not a “relevant conversation” right now.

 

3.     This statement was followed up by former Minneapolis Fed President Narayana Kocherlakota stating point blank that the Fed should “consider negative rates.”

 

Kocherlakota is a former Fed President and so is more aggressive with his campaign.

 Fast forward to yesterday and…

 

4.     Now Fed Vice-Chair Stanley Fischer stated in a Bloomberg interview that NIRP is working “more than I expected.”

 

Carefully note the word choice here. Fischer didn’t say he was “surprised” to see NIRP working; his phrasing implies that he “expected” NIRP to work. The surprise element is just how well it’s working.

 

It is one thing for Fed uber-doves or former Fed President to promote an extremely aggressive scheme; it’s entirely something else for the Fed VICE-CHAIR to do so.

 

Fischer is the current Vice-Chair for the Fed (formerly this position was held by Janet Yellen). As such, he is the most likely candidate for future Fed Chair when Yellen’s term ends in February 2018.

 

Previously, the Fed had never once hinted at or discussed NIRP during its policy meetings. Then, in the span of three weeks, an anonymous Fed official state that he or she believes NIRP is coming to the US, followed by two highly visible Presidents suggesting NIRP for consideration, and now the current Fed Vice Chair (and most likely candidate for future Fed Chair) has stated that NIRP is “working more than I expected.”

 

NIRP WILL BE COMING TO THE US.

 

This is simply part of the Fed’s larger War on Cash.

 

For six years straight, the Fed has been trying to “trash” cash.

 

First it cut interest rates to zero… making it so that savings deposits produced almost nothing in the way of interest income. Consider that at current rates, a retiree with $1 million in savings earns a measly $2,500 per year in interest income.

 

The Fed’s hope was that by making it painful for savers to sit in cash, said savers would move into risk assets such as bonds and stocks. This has worked in that stocks are now in one of, if not THE biggest bubbles in history… while bonds are trading at yields never before seen outside of wartime.

 

However, the Fed overlooked two outlets for investors who didn’t want to be forced into risk. They are: Gold bullion and physical cash.

 

The Fed has been dealing with bullion via clear manipulation of prices for years (that’s an article for another time). And now it is moving to make physical cash obsolete.

 

This is just the beginning. Indeed… we've uncovered a secret document outlining how the US Federal Reserve plans to incinerate savings in the coming months through NIRP, and possibly even by outlawing physical cash.

 

We detail this paper and outline three investment strategies you can implement

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Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

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Bernie Sanders Effectively Tied Hillary Clinton In Iowa. That’s a Reminder of Clinton’s Weakness as a Candidate.

Neither Bernie Sanders nor Hillary Clinton claimed victory in their post-Iowa caucus speeches last night, and the final winner likely won’t be known for a while. But since the candidates will split the delegate pool, it effectively means that Bernie Sanders drew Clinton to a tie. (Indeed, a handful of the delegates—possibly enough to decide the final victor—appear to have decided by coin toss.)

Relatively speaking, that outcome has to be counted as a win for Sanders and a loss for Hillary Clinton. It’s a loss that shows how weak a candidate Hillary Clinton really is.

Iowa, of course, has never been particularly kind to the Clintons. Hillary’s husband Bill not only lost the caucus in 1992 to home-state Senator Tom Harkin, who came in behind both Paul Tsongas and the more than 11 percent of the state’s Democratic caucus-goers who chose “uncommitted” over Bill Clinton, who was still a long-shot candidate at the time. And Hillary Clinton, of course, lost the 2008 Iowa caucus to Barack Obama, coming in third place in a near-tie with John Edwards.

But it’s not just that Iowa doesn’t like the Clintons.

Hillary Clinton didn’t just lose—she blew a lead that as recently as November was roughly 30 points ahead of Sanders. Well into the middle of January, she was running 10 to 12 points ahead. 

In the end, Hillary Clinton may eke out a technical victory in Iowa, “winning” by a handful of coin-toss delegates. But the main thing that happened last night was that Hillary Clinton lost her huge lead. That’s incredibly telling about her strength as a candidate. 

It’s often said that as voting day nears, people get more serious about their choices, and they tend to shift support to more practical candidates. Hillary Clinton ran explicitly as the practical choice for Democrats, and she did so with the financial and organizational backing of much of the Democratic establishment. And yet in the weeks and months leading up to the vote, it seems that Iowans shifted away from her—and towards a self-avowed democratic socialist Senator promising to scrap Obamacare and replace it with an impossibly expensive single-payer plan.

That tells you something about the mood of the Democratic party. Like the GOP, it is in revolt against its establishment and it is deeply dissatisfied with the political status quo, which Hillary Clinton, more than any other candidate this year, represents.

But it’s also telling about Hillary Clinton’s general weaknesses as a candidate: Unlike the Republican race, where establishment candidates have never had a strong foothold, Hillary Clinton had a substantial lead—and lost it as people got to know her more. 

This isn’t the first time something like this has happened to Clinton either. Her 2014 book tour in support of Hard Choices was supposed to be an early trial run for her presidential campaign, was a gaffe–packed disappointment, if not a flop. And early on, Clinton was widely expected to roll to victory in the 2008 Democratic primary. She blew it then too.

Hillary Clinton may well still be the Democratic nominee this year—I’d still rank her the overall favorite—and she might even take the White House. But it won’t be a cakewalk, like so many insiders and Clinton allies seemed to have assumed for the last year or so. The general election is likely to be close and competitive in most scenarios, and especially with Clinton on the ticket. And that ought to make Democrats nervous: Her virtual tie with Sanders last night shows just how hard it can be for her to win a should-be easy race.

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The Flaw In The Fed Model: Recession Odds Are Far Higher Than Widely Believed

Ask the Fed what market indicators are implying about recession odds and it will tell you: about 4%. There is one problem with the Fed’s model: as Deutsche Bank’s Dominic Konstam shows, it is wrong due to the Fed’s own intervention in the yield curve.

To disentangle the Fed’s reflexive meddling in market signals, DB writes that it “had a critical look at the Fed’s model for the probability of recession given the shape of the yield curve. Our findings suggest that the current model, which estimates the probability of recession at only 4%, is biased to the downside by the structurally lower level of rates.”

So what is the real recession probability? DB explains:

In a special report published earlier this week, we noted that today’s near-zero interest rate regime does not allow the yield curve to freely invert or even flatten too much because of certain structural limits. For example, liabilities-driven investors who in the past could receive long rates below the fed funds rate can no longer do so once rates are floored at zero. Investment fund managers are also restricted by mandates from buying negative yielding assets that lead to mark-to-market losses on their portfolios. Pension investors, who must target returns based on liability assumptions, have been driven into high yielding non-core rate assets as their discount rates are stubbornly and unrealistically high compared to Treasury yields. These factors keep the curve artificially steep even though both short and long rates have been clearly trending downward over the years.

 

To address the artificial steepness of the curve we corrected the 3m10y spread for the level of the rates. Specifically we regressed the spread against the short rate, leaving the residual which by definition removes for the bias of the rate level and is centered at zero. Using this new curve as model input, we found the probability of a recession in the next 12 months is 46 percent, considerably higher than the original Fed model has predicted.

It gets worse: with every drop in 10Y yields, the odds of a recession rise; this is particularly notable today because as we showed earlier with yields plunging to 10 month lows, the market is actually screaming a recession is just over the horizon:

So what are the bodey levels? Keep an eye on 1.50% and 1.00%: if the 10Y slides that low, it means recession odds soar to 59% and 71% respectively:

As it may be useful for investors, we attempt to handicap the relationship between the yield curve and future recessions captured in our model. Holding the 3m rate constant, every 25 bps rally in 10s (implying an equal flattening in 3m10y) raises the recession probability by 6 percent. If 10yr yields rally to 1.50%, our model predicts a 59 percent chance of recession in the next 12 months; at 1.00% 10s, the probability is 71 percent.

 


Check to you, dear apolitical, “policy mistaken” Fed.


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ISM New York Tumbles Most Since August As Revenues Crash

While Chicago’s business outlook managed a miraculous bounce in January, New York did not. ISM New York printed 54.6, plunging most since August from December’s 62.0 level. The extremely noisy time series continues to swing, this time lower, as the underlying components deteriorate with Revenues collapsing to at least 3 year lows.

Headline data tumbled…

 

But Revenues crashed to the lowest since at least 2013…


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WTI Crude Crashes Back Below $30

What goes up (on short-squeeze-driven hope and rumors), must come down (on supply, demand reality and denials)…

 

After a 26% spike off the late-January lows, WTI Crude is now down 14% from last Thursday's highs…

 

Turns out – surprise surprise – that most OPEC members are against an emergency meeting!


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There Are Now 3,700 U.S. “Boots On The Ground” In Iraq

While global stock markets fail to rebound from recent lows, the US military is using every available distraction to build up the military presence in Iraq, and as the US defense secretary admitted moments ago:

  • CARTER SAYS 3,700 U.S. `BOOTS ON THE GROUND’ IN IRAQ TODAY

Considering a typical battalion has anywhere between 300 and 800 soldiers, at what point does the Pentagon stop calling it the politically palatable “boots on the ground” and start calling it what it really is: an army?


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This Is What A “Humbled” Donald Trump Sounds Like

On Monday evening, something strange happened: Donald Trump became a “loser.”

Not in the pejorative sense of the word (as he so often uses the term), but rather in the sense that the GOP front runner who just two days ago surpassed Ted Cruz in Iowa pre-caucus polls for the first time since last August, lost to the Texas senator in the all important Iowa caucuses.

To be sure, few would have predicted last year that the brazen billionaire would have been competitive in Iowa, let alone place second. In that regard, last night’s performance was a validation of Trump’s legitimacy as a born again politician.

On the other hand, the results suggest Trump can’t win on mere bombast. Trump spent as much on “Make America Great Again” hats as he did on staff in the lead-up to the caucuses and that, some say, may have cost him.

Make no mistake, Trump is a smart man. He surely recognized when he decided to run for The White House that the deck was stacked against him and poll numbers aside, there’s little doubt that he understands just how unlikely his rise to the forefront of America’s political consciousness truly his. The problem going into Monday may have been that Trump was beginning to believe his own rhetoric. “I could stand in the middle of Fifth Avenue and shoot somebody and I wouldn’t lose any voters, OK?”, Trump asked/said a week ahead of the caucuses.

“Ok.” But what Monday night’s results may have signaled is that while there’s a groundswell of enthusiasm for Trump’s bellicose bellowing, when it comes time to cast their ballot, voters are gun shy. And as anyone who watched last night’s proceedings is well aware, the defeat wasn’t for lack of turnout.

So where does the Trump campaign go from here, you ask? Well, onward and upward, according to the billionaire’s concession speech which was uncharacteristically humble.

“We finished second and I want to tell you, I’m just honored,” Trump said. “I want to congratulate Ted, and all of the incredible candidates,” he added.

Does the change in tone suggest Trump has been humbled by the experience in Iowa? Probably not. But it may signal a shift towards rhetoric that’s less likely to turn off undecided voters, who Trump will need if he wants to win the nomination.

Up next is New Hampshire.

In the meantime, Trump plunged from 48 cents to 30 cents on Predictit overnight.

And a bit of humor from The New Yorker:

Senator Ted Cruz’s stunning victory in the Iowa caucuses is serving as a beacon of hope to despised people across the nation, a number of disliked Americans confirmed on Monday.

 

In interviews from coast to coast, dozens of pariahs said that the Cruz triumph meant that “the sky’s the limit” for widely hated people like them.

 

Tracy Klugian, a real-estate agent from Jupiter, Florida, said that the fact that she has systematically alienated her co-workers, by bad-mouthing them to management and stealing their listings, no longer seems like an obstacle to advancement.

 

“Sometimes, knowing that everyone in the office hates me so much that they won’t even ride in an elevator with me kind of brought me down,” she said. “That’s why this Cruz thing is such a game-changer.”


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Hillary Clinton Wins Iowa Precinct On a Coin Toss

As Reason‘s Peter Suderman wrote yesterday, the Iowa Caucuses are insane, less an exercise in representative democracy than an unwieldly political speed-dating happy hour without booze:

Iowa Democrats use a rowdy, drawn-out process that involves groups of people standing around yelling at each other, sometimes for hours, and requires people to physically move themselves to stand with other supporters of their candidate. The idea is to form a pack for your candidate, and then get others to join your group. As Drake University political scientist Dennis Goldford recently told Vox’s Andrew Prokop, “It’s kind of like a carnival, where the candidates’ supporters say, ‘Come over to us, to our group!'” There’s no secret ballot—which surely depresses turnout and complicates voting for many—and the event can last for hours. Convention delegates are then divided up based on the results; candidates who fail to secure the support of 15 percent in a precinct get nothing. (Here’s an explanation of how it works using Legos.)

In Des Moines Precinct 70 last night, a 61-61 deadlock between Hillary Clinton and Bernie Sanders was decided by a coin toss, per the guidebook Democratic Iowa Caucus chairpeople are instructed to follow.

As the crestfallen Sanders supporter in the video notes, “Remember, this is a caucus! It was very, very close. It was called by a coin toss.” 

After a night of performing your civic duty by screaming at your neighbors in a school gymnasium, why the hell not reach a consensus through random chance?

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