In what could potentially be a major (if limited to one state) privacy decision, Maryland’s Court of Special Appeals has ruled that carrying around a cellphone with GPS features doesn’t mean that the police can simply use it to track people’s physical locations without a warrant or the protection of the Fourth Amendment.
The court is referring to cell tower simulating devices we’ve come to know as “stingrays.” Use of these tools has spread to law enforcement offices across the country, and the police have been doing everything in their power to keep their uses secret. From The Baltimore Sun:
“We conclude that people have a reasonable expectation that their cell phones will not be used as real-time tracking devices by law enforcement, and — recognizing that the Fourth Amendment protects people and not simply areas — that people have an objectively reasonable expectation of privacy in real-time cell phone location information,” the judges wrote.
“The court’s opinion is a resounding defense of Fourth Amendment rights in the digital age,” added Nathan Freed Wessler, a staff attorney who specializes in technology and privacy with the American Civil Liberties Union. “The court’s withering rebuke of secret and warrantless use of invasive cell phone tracking technology shows why it is so important for these kinds of privacy invasions to be subjected to judicial review.
Dan Kobrin, an attorney with the public defender’s office who argued the case before the court, said the impact is “enormous” and “will hopefully curb abuse of this device and bring it out into the sunlight.” But he said it was unclear whether the ruling can be applied retroactively.
The state’s attorney general’s office can appeal the decision to the state’s supreme court but is still looking over the ruling at the moment, according to the Sun.
Baltimore is one of the cities where police had been using the stingrays and had been concealing that fact from the courts and defendants as part of a non-disclosure agreement to get permission from the Department of Justice to use them. They even agreed to drop cases in order to prevent disclosure of the tools. You can read that non-disclosure agreement here.
Well, bad news is still good news in Brazil, apparently.
Despite the fact that a complete political meltdown is less than two months away, the market is excited about what’s being viewed as a possible turning point for the country’s economic fortunes.
Of course the notion that things are about to get better isn’t based on the data or on anything that even approximates an upturn in the fundamentals. Indeed it was just yesterday when the country reported its largest primary budget deficit in history, underscoring just how silly it was when officials suggested late last summer that the government would somehow manage to report a 0.5% surplus.
Just this morning we got still more bad news when Copom released its quarterly inflation outlook. “In the policy-passive reference scenario (Selic constant at 14.25% and BRL/USD constant at 3.70), projected inflation for end-2016 deteriorated by 40bp to 6.6% and is now above the 6.5% inflation target upper limit,” Goldman writes, summarizing the central bank’s forecasts on the way to explaining why the BCB is effectively incapacitated having found itself stuck between high inflation and abysmal growth. “Given the atypical inflation-activity backdrop (very high inflation amidst extremely weak real activity), and the fact that monetary policy and overall financial conditions facing the Brazilian economy are already quite restrictive, we expect the central bank to keep the Selic policy rate unchanged at the current 14.25% for a while longer. However, given the uncommon depth, breadth, and duration of the economic recession we expect the central bank to likely act on the first window of opportunity to ease policy.”
In other words, things are really, really bad on all fronts and the central bank is powerless to do anything to boost the economy because cutting rates risks exacerbating already high inflation.
Make no mistake, nothing about this situation screams: “buy.” But that’s not stopping the market from going all-in on the whole “the night is darkest just before the dawn” theory of trading.
As Bloomberg notes, “bearish bets by foreign investors against the real are at the lowest level since November 2013 [with] bearish wagers [sitting] at $16.5 billion as of March 29, down 57.4 percent from a record high of $38.7 billion on May 29.”
Ironically, the stronger the BRL, the harder it will be for the Brazilian economy to adjust, which means those betting on BRL strength as a play on an economic turnaround are inadvertently undercutting their own cause. The BCB is doing its best to counter the FX rally by selling reverse swaps, but that effort fell flat on Thursday as the bank was only able to place 2,900 of the 17,000 contracts offered. That, combined with the hot inflation report, drove the currency still higher.
It’s against this backdrop that one investor sees an opportunity in Brazilian equities (which have staged a furious rally this year). “We try to buy when blood is running on the street,” Monty Guild Jr., chief investment officer at a boutique investment firm with $190 million in global equity funds tells Bloomberg. “This is a lot like Watergate, and after Watergate what happened? Where there’s a crisis in confidence, costs go down and there’s a huge opportunity.”
The best way to capitalize on this “huge opportunity” is through Brazilian stocks Guild says. Have a look at the chart below which compares the S&P during the Watergate era to the Bovespa so far during the Carwash probe.
“While some 40 years apart, there appear to be several similarities between the episodes,” Bloomberg goes on to write. “Just like the investigation into the break-in at the Watergate hotel, Brazil’s probe into kickbacks at the state oil company escalated over two years of deepening economic turmoil, eventually implicating President Dilma Rousseff [and] like the infamous tapes that led Nixon to resign, a recording of Rousseff’s conversation with her predecessor now has brought her one step closer to being impeached.”
This is all fine and good but we would advise caution here for two reasons.
First, Brazil is not America. Yes, corruption is rampant inside the Beltway and $19 trillion in debt makes the US look more and more like a banana republic with each passing day. But in Brazil, a quarter of Congress face active criminal proceedings. 1/4 of Rousseff’s impeachment committee are themselves the subjects of Supreme Court probes. Brazilians are protesting in the streets by the millions. Allow us to reiterate: by the millions. This is a country that is rapidly backsliding into “failed state” status and that isn’t where you necessarily want to invest.
Second, it’s not clear that those who have a front row seat for Brazil’s descent into chaos are feeling too good about the prospects for Brazilian risk assets. To illustrate that point, we’ll simply close with one last chart from Bloomberg.
Richard Nixon was reëlected overwhelmingly in November, 1972, and resigned in August, 1974. Dilma Rousseff, the President of Brazil, looks to be on about the same schedule: reëlected (not overwhelmingly) in October, 2014, and in such deep peril a year and a half later that it seems unlikely that she will finish her term. This week, the largest party in her governing coalition, the Partido do Movimento Democrático Brasileiro, or Democratic Movement Party, voted to leave the government, which is the most severe in what must seem to her a never-ending series of blows.
The obvious cause of Nixon’s downfall was Watergate, and the obvious cause of Rousseff’s is the Lava Jato scandal. In both cases, the name may be mysterious to outsiders. Lava jato means car wash and refers to a penny-ante roadside money-laundering operation in Brasília that, when exposed, provided the first peek at what turned out to be an almost all-encompassing system of corruption. The chief government prosecutor, a youngish judge named Sérgio Moro, from a provincial city in southern Brazil, is now investigating such economic behemoths as Petrobras, the state oil company, and the construction industry, which has been especially busy in the run-up to the 2016 Summer Olympics, in Rio de Janeiro. Every day seems to bring news of another high official under investigation, another corrupt arrangement uncovered, another grant of immunity in exchange for information.
Corruption scandals are a constant feature of Brazilian politics. Government plays a far larger role in the economy than it does in most of the developed world: there are many state-owned businesses, subsidized businesses, and businesses legally protected from competition. And an especially complex and chaotic parliamentary system—at the moment, more than two dozen parties hold seats in the national legislature—means the only way to create a governing coalition is to dole out patronage to parties, often in the form of control over government ministries, in exchange for their support. The reason that Rousseff, a career bureaucrat who had never run for office before, was elected President in 2010 is that the people who were in line for the job ahead of her were felled during a previous scandal. One of her few remaining talking points in her campaign to avoid being impeached is that almost no Brazilian politician can feel entirely safe if Moro’s investigation is permitted to play out indefinitely.
Even by Brazilian standards, though, things seem to have gotten out of hand over the last few years. For example, the prosecutors recently charged João Santana, one of Rousseff’s political consultants and therefore only a second-order political figure, with receiving $7.5 million in funds siphoned from bribes that big companies paid the government in exchange for contracts. There are now almost two dozen separate investigations under way under the broad rubric of the Lava Jato scandal.
It seems unlikely that the driving force in the mega-corruption was personal greed on the part of the rather austere President. Instead, it was probably a combination of the party-time atmosphere produced by the economic boom of the aughts—in particular, high oil prices and the prospect of the Olympics—and Rousseff’s political ineptitude. Lacking the charm and cunning of her predecessor and mentor, Luiz Inácio Lula da Silva, Rousseff seems to have been more reliant on unsubtle means of maintaining a hold on power. In particular, as a far more intellectually consistent leftist than Lula, Rousseff lacks his uncanny instinct for finding a mix of policies that at once reassure economic élites and deliver for an overwhelmingly poor political base. Rousseff’s attempt to bring Lula back into politics as her chief of staff seems to have had two purposes: to immunize him from prosecution, and to enlist him as anti-impeachment lobbyist-in-chief, a role to which he is naturally suited. As of now, a judicial injunction prevents Lula’s appointment from going forward, and that only increases the likelihood of Rousseff’s government collapsing.
The revolt against Rousseff is a middle-class one, in a country that is not yet essentially middle class in the manner of the United States. Like everything that happens in politics, it’s about power and policy, as well as corruption. Brazil’s abrupt shift from prosperity to recession, caused in part by the dramatic fall in oil prices, has made it impossible for investors and politicians to continue to get simultaneous spectacular economic returns. Now they are competitors, and the unlikely consensus over which Lula presided, in which former revolutionaries and bankers appeared to coexist happily within a government ruled by an organization called the Workers’ Party, is gone.
The real losers in the reshaping of Brazilian politics that is to come won’t only be corrupt politicians. The tens of millions of beneficiaries of the generously funded core social programs of the Lula-Rousseff years, Bolsa Família (cash grants to families) and Minha Casa Minha Vida (public housing), are at risk, too. These programs are the heart of the social compact in Brazil, in the way that Social Security and Medicare are here. It will be a tragedy if, in the mad scramble to assemble a new ruling coalition that will almost certainly be more business-friendly, their constituency gets left behind.
Were the soothing tones of the stock whisperer the catalyst to propel the market back to the all-time highs?
After the market rallied from the damage of early 2016, we noted that equities stalled in mid-March were waiting for a catalyst. The bulls had clearly reasserted their majority, but just like water, every market finds its own level of equilibrium, as we’ve seen the last two weeks.
Change in investor focus
Volumes had dried up to the point where the market barely budged, and it was clear that even the machines were taking a break before macroeconomic data kicked into top gear. Everyone was looking ahead to the employment situation on April 1, to be followed by first-quarter earnings that begin on April 11 with Alcoa, and of course, the next FOMC meeting at the end of April.
Given the soothing sounds of the stock whisperer—er, Janet Yellen—all that seems to have changed. If the Russell 2000 can get above 1160-1165 and the S&P 500 can get and stay above 2080, then the all-time highs could be challenged.
This turn from indifference to full steam ahead proves yet again that we should not go against (1) crude oil prices, (2) the Fed (in particular Janet Yellen), and (3) the VIX.
Speaking of earnings
As mentioned, first-quarter earnings season is just around the corner. By all accounts, Wall Street is expecting dismal reports and less-than-stellar company outlooks. This will certainly cast a pall over the buying trend, but will it be enough to strip out the momentum we’ve seen since February? That’s doubtful, as the market has been taking its immediate cues from other places—again, most notably crude oil, the Fed, and indicators like the VIX.
I suppose that fundamentals and the cash flow of a company will once again reign supreme in valuations, but until the market sheds all the outside influence that has been baked in over the last 7 years, I will continue to look at the market influences that have little to do with the operations of a company.
Today’s magic numbers
Here are the magic numbers for moving risk markets: VIX above 20 = sell, VIX below 14 = buy. Oil below $40 = sell, oil above $40 = buy. Anything Janet Yellen says.
The last time a Republican Presidential Convention opened without a decided nominee in the primaries was 1976, during the fight between Ronald Reagan and Gerald Ford. There were past efforts by the establishment to stop two people they regarded as outsiders — Barry Goldwater in 1964 and Ronald Reagan in 1976.
It looks as if it will be much more difficult for Trump to nail down enough delegates to beat the Republicans at their own corrupt rules. We are likely heading toward a rigged convention and this is playing into the hands of the precise thing the Republicans better not do. They are sacrificing the nation for personal perks. It is not that Trump is the savior, hardly, but at least he would be a check against these people.
It seems more likely than not that they will rig the game one way or another to stop Trump and ignore why people are even voting for him, because it is really a vote against the establishment. This appears likely to explode in total chaos for 2018, and as we look into the 2017-2020 time period, it appears that they will destroy the public confidence in government on a wholesale basis.
As it now stands, they will most likely hand the nomination to Cruz one way or another. Trump’s only chance would be to run to the Libertarian Party since there would be no time left to get on all the ballots as an independent. Cruz would lose against Hillary and Hillary will destroy the economy with massive tax increases while protecting the banks.
It appears we are indeed sowing the seed of our own destruction. The Republicans know Social Security goes negative in 2017, so they want to blame Hillary.
Meanwhile, Trump shoots himself in the foot all the time and the media is in a full-blown assault against him. This is likely to undermine the entire confidence in government especially since Cruz came out and said he would not support Trump, only himself.
I attended a panel discussion on private blockchains in banking at UBS in NYC last night. There were two overarching misconceptions that appeared to permeate the discussions:
Counterparties can be trusted, hence you can build reliable systems with trusted parties, and;
Capital markets are, and always will be predicated upon the legacy, highly centralized hub and spoke model that we know today. Basically, the influential gatekeepers that control access to a centralized, authoritative exchange.
Referring to the picture above, there’s a group of lawyers on the right and technologists and bankers on the left. It’s interesting in that the technologists (an executive from R3C3V) said that blockchain tech will NOT be disruptive to the financial industry, but instead will be gradual in nature, and the representative from the banking industry agreed. The lawyers (Sullivan & Cromwell, the ex-general counsel of the Swiss National Bank, etc.) said that blockchain technology lowers the cost and increases the transparency of intermediation, thereby allowing more people to participate in the transfer of value.
This is interesting for if the guy(s) on the right are correct, then the guys on the left are wrong. You see, the guys on the left ARE the intermediators, and they claim blockchain tech will not disrupt, meaning their revenues and profits will remain extant and by definition intermediation costs will remain high even if efficiencies are increased (the difference will be captured as added profit to the intermediators – the banks). If the guys on the right are correct, extreme disintermediation will be the soup du jour, and the intermediators revenue base will be distributed to the masses as cost savings.
Nowhere is this more prevalent than in the capital markets business, where P2P capital markets threatens to rear its hyper-efficient and transparent head. For over-the-counter (OTC) derivatives transactions, where much of the complexity of Lehman Brothers’ bankruptcy resolution was rooted, creditors’ recovery rate was below historical averages for failed firms comparable to Lehman. This is the source and cause of fear when dealing with untrusted parties. Before we go further, let’s define a “trusted party” for the sake of this discussion. As per Wikipedia:
In a social context, trust has several connotations Definitions of trusttypically refer to a situation characterized by the following aspects: One party (trustor) is willing to rely on the actions of another party (trustee); the situation is directed to the future. In addition, the trustor (voluntarily or forcedly) abandons control over the actions performed by the trustee. As a consequence, the trustor is uncertain about the outcome of the other’s actions; they can only develop and evaluate expectations. The uncertainty involves the risk of failure or harm to the trustor if the trustee will not behave as desired. Vladimir Ilych Lenine expresses this idea with the sentence “Trust is good, control is better”.
Our value trading platform, Veritaseum, enables absolute control, thus trust is not needed. This is known as a “zero trust transaction” – or a transaction wherein the performance of your counterparty is given and guaranteed whether you know them or not – their credit risk, balance sheet, ethics, liquidity and macro risks be damned. This is also the antithesis of a private blockchain solution where only “trusted” parties are allowed to participate. Hmmm… Here we go again, trust. What parties can truly be trusted (with trust being defined as above)? Certainly not banks, for “As a consequence, the trustor is uncertain about the outcome of the other’s actions”. If you are uncertain about the outcome, then you only hope to trust, but cannot truly trust. Take Lehman Brothers’ failings for instance. I’m sure Lehman’s myriad counterparties went into the derivatives deals knowing “they can only develop and evaluate expectations”. The problem was that “The uncertainty involves the risk of failure or harm to the trustor if the trustee will not behave as desired.” Lehman did not behave as desired. It’s not just bankrupted banks either. Take the biggest (Lehman was the smallest of the big Wall Street banks) and the best and you still have actors that don’t “behave as desired”.
Feb 8, 2016 – APT-style bank robberies increase with Metel, GCMAN and Carbanak 2.0attacks. Encrypted configuration for Metel malware plugins. APT-style …
Feb 8, 2016 – The Carbanak group has been performing acts on the Internet since 2013. It occasionally disappears and eventually comes back with a new …
Feb 8, 2016 – Now its successor, Carbanak 2.0, is targeting the budgeting and accounting departments of companies beyond banks, and in one instance …
An executive of R3C3V (blockchain tech company that’s creating a consortium of banks to run settlement products through private blockchains) wrote an opinionated article basically belittling the logic of using public blockchains for security settlement in the Tabb Forum. He quoted the European Commission’s Directive 98/26/EC as: “[T]o minimize systemic risk by ensuring that any payment deemed final according to the system rules is indeed final and irreversible, even in the event of insolvency proceedings.
He then went on to state that the possibility of a 51% style attack could allow a miner or pool of miners to reverse a transaction in the blockchain. Unfortunately, he failed to go into detail as to how difficult and expensive that would be without an economic majority – essentially requiring quantum computing power which currently does not exist. He also failed to note that if there was an economic majority than there is a majority consense that the change is appropriate, which makes it correct. There is much, much less probabilistic risk of this occurring than the risk of deploying and relying on a tech that has no where near the proven security, testing, use and seasoning as the extant bitcoin network.
Let’s look at a historic case involving Lehman to put this theory to the test….
The settlement of OTC derivatives is a long and complex process. In the case of a chapter 11 bankruptcy, settlement occurs on different tracks for different groups of derivatives creditors. According to the NY Federal Reserve, “prior to bankruptcy, Lehman’s global derivatives position was estimated at $35 trillion in notional value, accounting for roughly 5 percent of derivatives transactions globally (Summer 2012). Its OTC derivatives positions represented 96 percent of the net worth of its derivatives-related entities.”
The settlement of Lehman’s OTC derivatives positions proceeded along three tracks.
There’s a statutory safe harbor that allows derivative contracts counterparties to bypass the automatic stay of debt put in place by a bankruptcy proceeding. As a result of this safe harbor, many of Lehman’s derivatives contracts were terminated early, This did not extend to the out of-the-money counterparties who were underwater in the trade and owed money to Lehman. They had no economic incentive to terminate their contracts. Even those that chose to terminate early had ambiguity since a mutually agreed upon termination value had to be reached. This is difficult in a litigious situation, and even more so from a fundamental perspective in an illiquid market with large positions such as those with big bank counterparties.
For OTC Derivatives Contracts That Were Terminated Early:
Out of more than 900,000 trades, 733,000 were automatically terminated by November 13, 2008 yet only 6 percent of ISDA contracts had been settled by July 2009, with this number rising slowly to 46 percent by September 2010. For the record and sake of comparison, Veritaseum claims to settle derivative transactions within 40 minutes – by hook or by crook.
OTC Derivatives Where Out-of-the-Money Counterparties Chose Not to Terminate Early
Those counterparties that owed Lehman money unsurprisingly chose not to terminate their contracts early, thereby avoiding paying the accrued losses on their out-of-the-money and/or underwater positions. This was a significant portion of the value of Lehman’s derivative positions, even though it paled in the actual number of contracts.
As quoted from the NY Fed report on the topic:
”… by January 2, 2009, just 2,667 contracts (out of more than 6,000 contracts at the time of bankruptcy) and 18,000 derivatives trades remained outstanding, and by June 17, 2009, less than 17 percent of contracts and less than 1 percent of trades were not terminated (Panel B of Table 2). Assignment of claims moved slowly, partly because of market illiquidity and the balance sheet constraints of financial firms, and partly because the positions were less valuable. For example, some were uncollateralized, had weak credits, or involved long maturity instruments (LBHI, “§341 Meeting,” July 8, 2009). Nevertheless, the Lehman estate made good progress on collecting derivatives receivables, with cash collections increasing from less than $1 billion through November 7, 2008, to about $8 billion through November 6, 2009 (LBHI, “The State of the Estate,” November 18, 2009) and to about $11.5 billion through June 30, 2010 (LBHI, “The State of the Estate,” September 22, 2010). As of January 10, 2011, Lehman had issued notices to counterparties commencing ADR procedures in connection with 144 derivatives contracts and resolved fifty-two of these contracts, resulting in receipt of approximately $356 million (“Debtors’ Disclosure Statement for First Amended Joint Chapter 11 Plan,” January 25, 2011).”
From 2008 to 2011, take note of the progress. For the record and sake of comparison, Veritaseum claims to settle derivative transactions within 40 minutes – by hook or by crook.
OTC Derivatives Contracts with Big Bank Counterparties
I have decreid for many years the concentration risk of global derivative exposure. Over 90% global derivative exposure is concentrated in just 6 banking institutions (out of tens of thousands of financial institutions). Concentration equals risk, which does not equal trust!
Again quoting from the NY Fed report:
“… the Lehman estate reported that, of the outstanding contracts, the share of the thirty big bank counterparties was 85 percent of the number of trades and 48 percent of derivatives contracts by dollar value, but only 5 percent of the number of contracts. Settlement of derivatives with big bank counterparties proved challenging owing to difficult legal and valuation issues (LBHI, “The State of the Estate,” September 22, 2010).”
For the record and sake of comparison, Veritaseum claims to settle derivative transactions within 40 minutes – by hook or by crook – and does so via mutually agreed upon smart contracts that execute automatically. Thus, there is no bickering over whether 2+2=4. Via smart contract, either it does, or it doesn’t. Now this does ring up a whole raft of other issues or concerns, particularly conflicts between the laws of math and the laws of the Southern District of NY, but hopefully you can see I’m coming from.
Additionally, quoting from the NY Fed report:
“Confirmation of the Joint Chapter 11 plan by the court on December 6, 2011, did not completely resolve the settlement of derivatives with big bank counterparties, as the Lehman estate had entered into settlement with only eight of thirteen major financial firms at the time. The slow progress of negotiations can be gauged by the fact that, in 2012, the estate settled only about 1,000 of the roughly 2,000 contracts open at the beginning of the year (LBHI, “2013+ Cash Flow Estimates,” July 23, 2013). This implies that an estimated 16 percent of contracts remained to be finally settled almost a year after confirmation of the liquidation plan (Panel C of Table 2). Nevertheless, sufficient progress was made such that the Lehman estate was able to make the first distribution to creditors on April 17, 2012.”
Keep in mind the Lehman liquidity event and bankruptcy took place in 2008. Four years after the fact, and the first payment was made to creditors in 2012. For the record and sake of comparison, Veritaseum claims to settle derivative transactions within 40 minutes – by hook or by crook – and does so via mutually agreed upon smart contracts that execute automatically.
This can get into a protracted debate on bankruptcy law, markets etc., and that is not my intention. What I do intend to to is bring to light the weaknesses inherent in the private blockchain argument. There is no such thing as a trustworthy party. You can trust a party, but parties can’t be trusted. The Lehman analysis above is a perfect example of what happens when a so-called “trusted party” bares the undeniable fact that no bank or financial entity can truly be trusted. If you think 30 days is a long time to settle a trade, try 4+ years and counting. This is what you face with private blockchains, and this is avoidable with zero trust chains, aka, the bitcoin blockchain.
… we are still going to err bearishly of stocks and certainly we shall not err bullishly of them. We are, in our retirement account here at TGL long of gold in EUR and Yen related terms; we are long of a small position in the corn ETF and we are long of the bond market ETF, which tends to be a bearishly construed position. As of the close of trading yesterday we are +8.2% for the year-to-date, compared to the loss thus far this year of our International Index of 3.0% and compared to the small gain by the S&P of 0.5%… a gain that many shall tout as evidence of a great bull run. We shall not.
On the other hand, we said that “we shall expect another ~1% rise in the market.” We were close.
In any case, after having flipflopped two weeks ago when Gartman against went bearish “of stocks” on March 16, by buying the VIX as stocks were about to take out their 2016 highs, Gartman has finally thrown in the towel. From his latest letter:
SHARE PRICES HAVE CONTINUED THEIR RUSH SKYWARD following Dr. Yellen’s “All-Clear” signal to the investment world Tuesday when she spoke to the Economics Club of New York, telling the world that it was she and no one else at the Fed who was in charge of monetary policy and said, without equivocation that the Fed under here aegis will not be tightening monetary policy any time soon. This is, it seems, the best of all equity investment worlds where economic growth is slow but steady; where inflationary pressures… at least in the eyes and mind of the “authority”… is not problematic and shall not be, and where monetary policy shall be accommodative.
We may not agree with what Dr. Yellen is proposing… and what she will pursue… or why she is proposing and pursuing it… but it is not our duty to argue and then to take positions openly at odds with her, for as the great, departed and greatly missed Mr. Marty Zweig always said, “Don’t fight the Fed.” It is our duty, instead, to understand that the Fed’s “margin account” is far larger than is ours; that it is effectively unlimited and that as the equally great Lord Keynes said, “The market can remain irrational far longer than we can remain solvent.” We may think Dr. Yellen’s actions are irrational; we may see them in the end as being disastrous; we may fully expect them to come to naught and very probably they shall, but taking positions in opposition them and to her shall cause us to lose both mental and real capital. It is a fight we may win eventually, but eventually can be a very, very, very long while off into the future.
To this end, we note then that our International Index has gained 79 more points, or 0.9% since yesterday, but even so it remains down for the year-to-date by 2.1%. Stocks here in the US, however, as measured by the S&P are actually higher by 1.0% while we here at TGL, in our retirement fund, are up 6.7%, with our “out-performance” relative to global and domestic stocks narrowing rather sharply yesterday. We enter today’s markets long of gold in EUR and Yen related terms; long of the long end of the US bond market via the 20 year bond ETF; long of small position in an oil E&P producers and long of another small position in the corn ETF. We have no actual net long or short position in equities, however.
In a few moments, Turkey’s president Recep Erdogan will address the Brookings center with a speech titled “Global challenges and Turkey’s goals for the year 2023.” The speech can be watched below:
However, the major news is not Erdogan’s speech, but what is taking place just before it, and how it puts any treatment of a Trump protest to shame.
According to FP, the speech descended into violence and chaos Thursday, with one journalist physically removed from the event site by Turkish security personnel, another kicked by a guard, and a third — a woman — thrown to the sidewalk in front of a Washington think tank where he was to speak.
A small group of protesters gathered across the street from the Brookings Institute near Dupont Circle in Washington, with one holding a large sign reading “Erdogan: War Criminal On The Loose,” while another used a megaphone to chant that he was a “baby-killer.”
When the protesters tried to cross the street, Washington police officers blocked traffic and physically separated them from Turkish personnel. A Secret Service agent standing nearby told a colleague that “the situation is a bit out of control.”
Later, a shoving match between what appeared to be a Brookings Institute worker and Turkish security broke out. “I am in charge of this building,” the apparent Brookings employee shouted as the two tangled. A Foreign Policy reporter and others holding cameras outside the event were also scolded by Turkish security. One cameraman was chased across the street by Turkish guards.
There were also confrontations between Turkish security and D.C. police. The Turkish officials wanted police to remove protesters, and the cops refused.
As Turkish journalist Ilhan Tanir tweets, as this exact moment, in front of the Brookings Institute, Erdogan bodyguards are attacking journos, yelling, “traitors” and breaking up protests.
Some pictures – in front of Brookings — Erdogan bodyguards attacking journos, yelling: “traitors” https://t.co/tymd93HBUA
In a stark reminder of the entrenched problems facing the French economy, today police used tear gas to disperse thousands of angry activists across the nation, who are protesting new labor reforms. French rail and air traffic suffered serious disruption on Thursday after transport staff stopped work and took to the streets along with high-school students to challenge plans for a pro-business loosening of the country’s protective labor laws.
In Paris the protest started in Place de la Nation, the same place where previous anti-labor rallies took place. The demonstrators threw bottles with flammable liquid and stones at police officers. Video footage relayed on social media showed some hooded youths jumping on cars and taunting police. CGT chief Martinez played down reports of a dozen arrests, saying there was often a bit of trouble caused by “some people who have nothing to do with the issue”.
“Everyone hates the police,” the protesters were shouting. At least two protesters have been beaten by police officers in the city of Lille, according to photo reporter Julien Pitinome, who tweeted a picture of the incident.
In the city of Nantes demonstrators tried to storm the town hall and smash windows.
According to Reuters, the day of protest, the fourth in a month, “has been billed by local media as a make-or-break test of strength for President Francois Hollande, plagued by low popularity and a jobless rate stuck stubbornly above 10 percent as mid-2017 elections loom” and where anti-Euro frontrunner Marine Le Pen looms large.
What is notable about today’s protest is that among the most vocal protesters were secondary-level school pupils who were mobilized in Paris and dozens of other cities for protest marches alongside those called by labor unions.
At issue is a proposed overhaul of France’s labor code, a set of regulations bosses claim deters recruitment. Critics say the reforms will lead to worse working conditions and more sackings. The reforms, due to be debated in parliament next week, would give employers more flexibility to agree in-house deals with employees on working time.
Students are rallying against labor law reforms recently proposed by Labor Minister Myriam El Khomri. The French authorities are desperately trying to battle high unemployment in the country, and have suggested cutting overtime pay for work beyond 35 hours.
In the proposed reforms, employers would pay only 10% of overtime bonus, instead of the current 25%.
According to RT, the protests were partially organized by a Facebook community called ‘Loi travail: non, merci’ (Labor reform: No, thanks). Arguing that the reforms concern all French citizens, the group has started a petition, which has so far been signed by over one million people.
Hollande has said the reforms would help employees have more job stability. “We must also give companies the opportunity to recruit more, to give job security to young people throughout their lives, and to provide flexibility for companies,” he said.
More than 260 protests are taking place in France, the Local reported.
The protests come a day after Hollande, who has said he will not run for re-election if he fails to make a dent in the jobless rate, abandoned another piece of legislation – plans to strip convicted terrorists of French citizenship. That climbdown was forced on him by other lawmakers, many of them in his own camp. “When you admit you got it wrong once, it’s possible to say you got it wrong twice … we’re optimistic. The government needs to say it got it wrong,” said Philippe Martinez, head of the large CGT union.
Hollande’s government, desperate to deliver on his so far elusive commitment to reduce high unemployment, watered down its reform proposal shortly before it was unveiled this month by ditching a clause that would have capped severance pay awards.
Economists fault the French system for creating a divide between people with open-ended work contracts and first-timers condemned to move from one short-term job to another because of employer reluctance to commit to long-term contracts.
Former Democratic Sen. Bob Graham, who in 2002 chaired the congressional Joint Inquiry into 9/11, maintains the FBI is covering up a Saudi support cell in Sarasota for the hijackers. He says the al-Hijjis’ “urgent” pre-9/11 exit suggests “someone may have tipped them off” about the coming attacks.
Graham has been working with a 14-member group in Congress to urge President Obama to declassify 28 pages of the final report of his inquiry which were originally redacted, wholesale, by President George W. Bush.
“The 28 pages primarily relate to who financed 9/11, and they point a very strong finger at Saudi Arabia as being the principal financier,” he said, adding, “I am speaking of the kingdom,” or government, of Saudi Arabia, not just wealthy individual Saudi donors.
Sources who have read the censored Saudi section say it cites CIA and FBI case files that directly implicate officials of the Saudi Embassy in Washington and its consulate in Los Angeles in the attacks — which, if true, would make 9/11 not just an act of terrorism, but an act of war by a foreign government.
For just and obvious reasons, it’s illegal under U.S. law for foreign governments to finance individual candidates or political parties. Unfortunately, this doesn’t stop them from bribing politicians and bureaucrats using other opaque channels.
A perfect example is the shady, influence peddling slush fund known as The Clinton Foundation, which entered the public consciousness last year and was the central topic of multiple postshere at Liberty Blitzkrieg. Although they remain the reining champions of cronyism, being a shameless, corrupt fraud isn’t limited to the Clintons. It shouldn’t surprise anyone that a John McCain linked nonprofit has been found accepting million dollar contributions from the most barbaric, backwards nation on planet earth: Saudi Arabia. Naturally, the absolute monarchy remains a very close ally of the U.S. government.
When should the United States go to war? “When attacked,” says Gary Johnson. Should we cut foreign aid? “Every penny,” says Austin Petersen. Why are you running for president? “Because our bodies and our minds belong to ourselves,” says John McAfee. If you aren’t hearing these sentiments in this year’s political debates, that’s because you’re not watching candidates from the Libertarian Party.
You can correct that oversight tomorrow night at 9 p.m. ET on Fox Business Network, where libertarian hero John Stossel will dedicate the first of two episodes to airing a fully-fledged debate between three of the top LPers running for the brass ring. Here’s a tease:
I take part, along with America’s libertarian bestie Kennedy, in a post-debate critique. Both shows have been taped already, so I can exclusively pre-report that Gary Johnson is decidedly Gary Johnson (squishy from a libertarian-purist point of view on stuff like forcing anti-gay-marriage bakers to do business with homosexualists, sharpest in the field on the whats and whys of specifically cutting government), Austin Petersen looks like a cheeky 35-year-old playing at running for president (“Don’t hate me because I’m pretty!”), and John McAfee has taken the whole “Most interesting man in the world” ad campaign as some kind of personal dare. Crudely speaking, Johnson’s the pragmatist, McAfee’s the philosopher, and Petersen’s the hustler.
Areas of disagreement flare up with the aforementioned Nazi cakes, abortion, Social Security, and gender-pay equality. Each candidate has moments that feel less than ready for prime time, and oh man if John McAfee was on a national debate stage talking about whatever the hell happened there down in Central America. But the biggest sensation for those of us who have become numb watching eight months of decidedly statist discourse might the sheer relief at seeing policy discussed from an unabashedly libertarian point of view.
Make sure to follow along on Twitter using the hashtag #StosselForum, and see you Friday at 9!
