Month: August 2016

Construction Spending Growth Crashes To 5-Year Lows

For the third month in a row, US construction spending dropped MoM (tumbling 0.6% in June, missing expectations of a 0.5% bounce). The overall construction spending data is now unchanged (+0.3% YoY) from a year ago – the weakest annual growth since July 2011.

 

 

Some high(low)lights include:

  • *U.S. JUNE PRIVATE CONSTRUCTION SPENDING FALLS 0.6% FROM MAY
  • *U.S. PRIVATE NON-RESIDENTIAL CONSTRUCTION FALLS MOST SINCE DEC.
  • *APRIL CONSTRUCTION OUTLAYS FELL 2.9%, REVISED FROM 2% DROP
  • *U.S. STATE, LOCAL GOVT CONSTRUCTION OUTLAYS LOWEST SINCE NOV.

But apart from that, everything is awesome.

 

Chart: Bloomberg

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Clinton Falsely Claims the FBI’s Director Pronounced Her ‘Truthful’

Although Donald Trump is a notorious, shameless liar, he still gets better ratings for honesty and trustworthiness than Hillary Clinton. In a recent CBS News survey, 67 percent of voters said the Democratic nominee was not honest and trustworthy, compared to 56 percent who said the same of Trump. To get a sense of how Clinton managed to surpass Trump in this area, have a look at the interview she gave to Fox News yesterday—in particular, her comments about the controversy over her use of a private email account and server while she was secretary of state.

Fox News Sunday host Chris Wallace played a video clip of Clinton assuring the public that her email exchanges did not include classified material:

“I did not email any classified material to anyone on my email. There is no classified material.” (March 10, 2015)

“I am confident that I never sent nor received any information that was classified at the time.” (July 26, 2015)

“I had not sent classified material nor received anything marked classified.” (August 19, 2015)

Wallace pointed out that “after a long investigation, FBI Director James Comey said none of those things that you told the American public were true.” Clinton responded by denying that Comey said what he said:

Chris, that’s not what I heard Director Comey say, and I thank you for giving me the opportunity to, in my view, clarify.

Director Comey said my answers were truthful, and what I’ve said is consistent with what I have told the American people, that there were decisions discussed and made to classify retroactively certain of the emails.

I was communicating with over 300 people in my emailing. They certainly did not believe and had no reason to believe that what they were sending was classified.

Now, in retrospect, different agencies come in and say, well, it should have been, but that’s not what was happening in real time.

On July 5, the day he recommended against prosecuting Clinton for her “extremely careless” handling of “very sensitive, highly classified information,” Comey directly refuted Clinton’s claim that retroative classification accounts for any official secrets that may have made their way into her email. “From the group of 30,000 emails returned to the State Department,” he said, “110 emails in 52 email chains have been determined by the owning agency to contain classified information at the time they were sent or received [emphasis added].”

As for Clinton’s claim that “Director Comey said my answers were truthful,” he said exactly the opposite in congressional testimony on July 7. Wallace highlighted part of an exchange between Comey and Rep. Trey Gowdy (R-S.C.):

Gowdy: Secretary Clinton said there was nothing marked classified on her e-mails either sent or received. Was that true?

Comey: That’s not true.

Gowdy: Secretary Clinton said, “I did not email any classified material to anyone on my email. There is no classified material.” Was that true?

Comey: There was classified material emailed.

There was more to that exchange, and it was equally damning:

Gowdy: Secretary Clinton said she used just one device. Was that true?

Comey: She used multiple devices during the four years of her term as secretary of state.

Gowdy: Secretary Clinton said all work-related emails were returned to the State Department. Was that true?

Comey: No. We found work-related emails, thousands that were not returned.

Gowdy: Secretary Clinton said neither she nor anyone else deleted work related emails from her personal account. Was that true?

Comey: That’s a harder one to answer. We found traces of work-related emails in—on devices or in slack space. Whether they were deleted or whether when the server was changed out something happened to them, there’s no doubt that the work-related emails…were removed electronically from the email system.

Gowdy: Secretary Clinton said her lawyers read every one of the e-mails and were overly inclusive. Did her lawyers read the email content individually?

Comey: No.

So how could Clinton possibly claim that Comey pronounced her “truthful”? She is referring to this exchange between Comey and Rep. Gerald Connolly (D-Va.):

Connolly: The FBI interviewed Secretary Clinton. Is that correct?

Comey: Yes.

Connolly: Did she lie to the FBI in that interview?

Comey: I have no basis for concluding that she was untruthful with us.

In other words, Comey confirmed that Clinton had repeatedly misled the public, but he said there was no evidence she had lied in her interview with the FBI (which would be a federal crime). Clinton’s gloss: “Director Comey said my answers were truthful.”

Trump lies blatantly, floridly, and compulsively. Clinton’s lies, like her husband’s, tend to be more subtle, based on split hairs, idiosyncratic interpretations, and mental reservations. But by now there is a clear public record of the contrast between her statements about the email controversy and the facts, forcing her to either admit a series of embarrassing errors, cop to deliberate dishonesty, or continue lying. In that respect she is looking more like Trump every day.

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US Manufacturing PMI Bounces To 9-Month Highs, ISM Drops

Following China’s great-and-terrible manufacturing PMI data overnight, Markit’s US manufacturing index surge to 9-month highs, printing at the expected 52.9 led by faster growth of output, new orders, and employment. However, in true Chinese-style, US ISM Manufacturing missed expectations (52.6 vs 53.0) with new orders and employment dropping.

So take your pick!

 

New Orders fading in SA ansd NSA ISM data… but rising in PMI…

 

As Markit notes,

“The stronger manufacturing PMI survey data for July fuel hopes that the sector will act as less of drag on the economy in the third quarter after a disappointing first half of the year.

 

“Having signalled the sector’s worst performance for over six years in the second quarter, contributing to a sluggishness in the economy that was later seen in the soft GDP numbers, the improvement in July suggests that manufacturers and exporters will have helped lift the economy at the start of the third quarter.

 

“Job creation has also picked up, hopefully in a sign that producers are seeing a brighter picture, coping with a strong dollar and having put the worst of the energy sector’s restructuring behind them.”

So July looks good – time for a rate hike?

Charts: Bloomberg

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Satyajit Das Slams Policymaker Ignorance: “QE-Forever Cycle” Means Catastrophe Is Inevitable

"Policymakers have chosen to ignore the central issue of debt as they try to resuscitate activity," warns Satyajit Das in a shocking Op-Ed in today's FT, and with global central banks now printing $180 billion a month (and growing), "the global economy may now be trapped in a QE-forever cycle," confirming von Mises prescription that "there is no means of avoiding the final collapse…"

The European Central Bank and Bank of Japan are buying around $180 billion of assets a month, according to Deutsche Bank, a larger global total than at any point since 2009, even when the Federal Reserve's QE programme was in full flow.

And if market consensus proves accurate, that total is about to rise by billions more

*  *  *

But as Das details, a combination of QE and the prospect of fresh fiscal stimulus won’t generate a recovery.

Since 2008, total public and private debt in major economies has increased by over $60tn to more than $200tn, about 300 per cent of global gross domestic product (“GDP”), an increase of more than 20 percentage points.

Over the past eight years, total debt growth has slowed but remains well above the corresponding rate of economic growth. Higher public borrowing to support demand and the financial system has offset modest debt reductions by businesses and households.

If the average interest rate is 2 per cent, then a 300 per cent debt-to-GDP ratio means that the economy needs to grow at a nominal rate of 6 per cent to cover interest.

Financial markets are now haunted by high debt levels which constrain demand, as heavily indebted borrowers and nations are limited in their ability to increase spending. Debt service payments transfer income to investors with a lower marginal propensity to consume. Low interest rates are required to prevent defaults, lowering income of savers, forcing additional savings to meet future needs and affecting the solvency of pension funds and insurance companies.

Policy normalisation is difficult because higher interest rates would create problems for over-extended borrowers and inflict losses on bond holders. Debt also decreases flexibility and resilience, making economies vulnerable to shocks.

Attempts to increase growth and inflation to manage borrowing levels have had limited success. The recovery has been muted.

Sluggish demand, slowing global trade and capital flows, demographics, lower productivity gains and political uncertainty are all affecting activity. Low commodity, especially energy, prices, overcapacity in many industries, lack of pricing power and currency devaluations have kept inflation low.

In the absence of growth and inflation, the only real alternative is debt forgiveness or default. Savings designed to finance future needs, such as retirement, are lost.

Additional claims on the state to cover the shortfall or reduced future expenditure affect economic activity. Losses to savers trigger a sharp contraction of economic activity. Significant writedowns create crises for banks and pension funds. Governments need to step in to inject capital into banks to maintain the payment and financial system’s integrity.

Unable to grow, inflate, default or restructure their way out of debt, policymakers are trying to reduce borrowings by stealth. Official rates are below the true inflation rate to allow over-indebted borrowers to maintain unsustainably high levels of debt. In Europe and Japan, disinflation requires implementation of negative interest rate policy, entailing an explicit reduction in the nominal face value of debt.

Debt monetisation and artificially suppressed or negative interest rates are a de facto tax on holders of money and sovereign debt. It redistributes wealth over time from savers to borrowers and to the issuer of the currency, feeding social and political discontent as the Great Depression highlights.

The global economy may now be trapped in a QE-forever cycle. A weak economy forces policymakers to implement expansionary fiscal measures and QE.

If the economy responds, then increased economic activity and the side-effects of QE encourage a withdrawal of the stimulus. Higher interest rates slow the economy and trigger financial crises, setting off a new round of the cycle.

 

If the economy does not respond or external shocks occur, then there is pressure for additional stimuli, as policymakers seek to maintain control. All the while, debt levels continue to increase, making the position ever more intractable as the Japanese experience illustrates.

Economist Ludwig von Mises was pessimistic on the denouement. “There is no means of avoiding the final collapse of a boom brought about by credit expansion,” he wrote. “The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

*  *  *

Satyajit Das is the author of A Banquet of Consequences, published in North America as The Age of Stagnation

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Color-Conscious Drug Warriors Breed Mistrust: New at Reason

Even conservatives who are generally skeptical of “big government” and rarely reluctant to criticize its representatives tend to make an exception for public employees who wear uniforms and carry guns. That soft spot for armed agents of the state is not just philosophically inconsistent, writes Jacob Sullum, but it is empirically unjustified, too—as two recent studies of police behavior show. While one of the studies casts doubt on the claim that cops are quicker to shoot blacks than whites, they both confirm that encounters with police are racially skewed in ways that are hard to justify—a troubling pattern that is closely correlated with the war on drugs.

Conservatives who are inclined to dismiss the significance of disparities like these should listen to Tim Scott, one of two blacks and the only black Republican in the U.S. Senate. A couple of weeks ago, Scott told his colleagues about some of his own experiences with the special scrutiny that black men tend to receive, including seven traffic stops within a single year when he was already an elected official, exclusion from a political event to which four white companions were admitted, and demands for identification on Capitol Hill after he was elected to the Senate.

“There’s absolutely nothing more frustrating, more damaging to your soul, than when you know you’re following the rules and being treated like you are not,” he said, quoting a former staff member who replaced his Chrysler 300 with a less fancy car after it repeatedly attracted police attention. “I do not know many African-American men who do not have a very similar story to tell.”

View this article.

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CNN to Host Second Town Hall With Gary Johnson and William Weld This Wednesday

CNN announced this morning that the cable network will hold another town hall discussion on Aug. 3 at 9 p.m. ET with the Libertarian Party White House ticket of former Govs. Gary Johnson and William Weld. “Johnson and Weld will address the current state of the 2016 race and the platform of the Libertarian Party in addition to fielding questions from voters,” the press release reads.

More than 900,000 households tuned into the Libertarians’ previous CNN town hall on June 23, in a highly anticipated performance that I and many other observers judged as “awkward.” Since then, the duo has been making pretty much nonstop media rounds, including at the two major-party conventions. It’s a far cry from four years ago, when Johnson was almost never included in national presidential polls, and was reduced to organizing protests begging for media coverage outside of…CNN.

Nick Gillespie and I interviewed Johnson at both the Republican National Convention and Democratic National Convention, and Gillespie interviewed Weld at the RNC. And at FreedomFest just before convention season, Gillespie interviewed both:

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Transgender DNC Delegate Calls Out Sex-Work Shamers

At this year’s Democratic National Convention (DNC), Pennsylvania activist Sharron Cooks was one of 28 openly transgender delegates and two trans women-of-color delegates. She’s also a former sex worker. Unfortunately but unsurprisingly, it’s this last bit that The Philadelphia Inquirer columnist Jenice Armstrong chose to focus on.

“Delegates to political conventions come from all kinds of backgrounds,” wrote Armstrong at the beginning of her post. “Still, it’s kind of surprising, when you come across someone who admits to having worked in the sex industry.” On Thursday, the last day of the DNC, Armstrong took her surprise directly to Cooks, asking the 38-year-old delegate about her past career and insinuating that having a former sex-worker as a Democratic delegate was somehow at odds with the party nominating its first female presidential candidate.

Cooks, founder and chief executive of the nonprofit Making Our Lives Easier—and a former “professional adult entertainer and film actress,” according to her bio—handled the situation with grace. “I’ve had some individuals say, well, what about when you were an adult film actress? Or what about when you did that?” she told Armstrong. “I don’t necessarily think that it is a negative thing. People look at it as a negative thing and it’s not necessarily a negative thing.”

“The thing about that is, people here in America have a stigma around sexuality, sexual orientation, what bathroom you use,” Cooks continued.

People are always going to have questions about that. We here in America we have freedom of expression. That freedom of expression takes various different forms for each particular individual. Some people like to paint. Some people like to dance. Some people like to express themselves in an erotic way.

That wasn’t good enough for the Inquirer columnist, however, who kept pressing Cooks for more details about her past work. It’s only after the delegate evades her farther that the writer begins to “feel dirty” about her line of questioning.

I asked if she had ever worked under the name “Mistress Soliel” as the paper had been tipped off. (And no, I’m not going to describe what I saw when I Googled it.)

[…] “If you look on my website, I address that.”

Suddenly, I felt dirty raising the topic with her. It was a downer on what really was a triumphant moment for Cooks to be in such a heady atmosphere just steps away from where President Obama had spoken so eloquently the night before.

Cooks said she wasn’t surprised that someone had felt the need to tip off the paper about her experience with sex work.

When you educate and start rising, people are going to try to tear you down. It’s sad because here it is an African American trans woman has the opportunity to represent and bring awareness to issues and you have other individuals who are trying to undermine that progress.

In an interview with Next magazine, Cooks explained that the reason she became an activist for transgender rights is the personal discrimination she experienced trying to find a job. “I too know what it’s like to be stereotyped, stigmatized and misunderstood,” said Cooks. “I know what it’s like to need quality medical care. I know what it’s like to engage in high risk activities to survive.”

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Hillary’s Latest Headache: Skolkovo

The subject of Russia’s influence in American politics has been a hot topic of late, particularly as the MSM continues to link Donald Trump to Vladimir Putin and the DNC hack. However, a report published by the Government Accountability Institute presents a new twist in the Kremlin-US political ties. It all started with the 2009 “Russian reset” touted by then-Secretary of State Hillary Clinton.

As detailed in a WSJ op-ed by Peter Schweizer (author of the GAI report), after President Obama visited Russia in 2009, both nations agreed to “identifying areas of cooperation and pursuing joint projects and actions that strengthen strategic stability, international security, economic well-being, and the development of ties between the Russian and American people.”

One such project was Skolkovo, an “innovation city” of 30,000 people on the outskirts of Moscow, billed as Russia’s version of Silicon Valley. As chief diplomat, Hillary was in charge of courting US companies to invest in this new Russian city. Russia, on the other hand, had committed to spend $5 billion over the next three years (2009-12).


Hillary Clinton and Russian Foreign Minister Sergei Lavrov

As Schweizer continues, “soon, dozens of U.S. tech firms, including top Clinton Foundation donors like Google, Intel and Cisco, made major financial contributions to Skolkovo, with Cisco committing a cool $1 billion. In May 2010, the State Department facilitated a Moscow visit by 22 of the biggest names in U.S. venture capital—and weeks later the first memorandums of understanding were signed by Skolkovo and American companies.

By 2012 the vice president of the Skolkovo Foundation, Conor Lenihan—who had previously partnered with the Clinton Foundation—recorded that Skolkovo had assembled 28 Russian, American and European “Key Partners.”

Of the 28 “partners,” 17, or 60%, have made financial commitments to the Clinton Foundation, totaling tens of millions of dollars, or sponsored speeches by Bill Clinton…

Russians tied to Skolkovo also flowed funds to the Clinton Foundation. Andrey Vavilov, the chairman of SuperOx, which is part of Skolkovo’s nuclear-research cluster, donated between $10,000 and $25,000 (donations are reported in ranges, not exact amounts) to the Clinton’s family charity”

Thus far, this should not be surprising. It is yet another instance of crony capitalism that has so well characterized the Clintons over the years. However, as US intelligence agencies including the FBI were soon to find out, the Russian Silicon Valley served other purposes as well.

More from the WSJ op-ed: “The state-of-the-art technological research coming out of Skolkovo raised alarms among U.S. military experts and federal law-enforcement officials. Research conducted in 2012 on Skolkovo by the U.S. Army Foreign Military Studies Program at Fort Leavenworth declared that the purpose of Skolkovo was to serve as a “vehicle for world-wide technology transfer to Russia in the areas of information technology, biomedicine, energy, satellite and space technology, and nuclear technology.”Moreover, the report said: “the Skolkovo Foundation has, in fact, been involved in defense-related activities since December 2011, when it approved the first weapons-related project—the development of a hypersonic cruise missile engine. . . . Not all of the center’s efforts are civilian in nature…”

“The FBI believes the true motives of the Russian partners, who are often funded by their government, is to gain access to classified, sensitive, and emerging technology from the companies. The [Skolkovo] foundation may be a means for the Russian government to access our nation’s sensitive or classified research development facilities and dual-use technologies with military and commercial application.”

As Schweizer concludes:

Even if it could be proven that these tens of millions of dollars in Clinton Foundation donations by Skolkovo’s key partners played no role in the Clinton State Department’s missing or ignoring obvious red flags about the Russian enterprise, the perception would still be problematic. (Neither the Clinton campaign nor the Clinton Foundation responded to requests for comment.) What is known is that the State Department recruited and facilitated the commitment of billions of American dollars in the creation of a Russian “Silicon Valley” whose technological innovations include Russian hypersonic cruise-missile engines, radar surveillance equipment, and vehicles capable of delivering airborne Russian troops.

 

A Russian reset, indeed.

Naturally, the Hillary campaign did not reply to any requests from Schweizer on the report. But we are comfortable that HRC’s response would likely be along the lines “what difference at this point does it make?”

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It’s about to become much easier to open a bank account in Hong Kong

It all started with 9/11.

After the twin towers fell in 2001, the US government sprang into action to wage the global war on terrorism.

Within days following the attack, Congress pushed through the USA PATRIOT Act, providing unprecedented authority to the US federal government.

The legislation also gave several government agencies sweeping powers over the US banking system. And they made an important discovery.

You see, the entire world relies on the US banking system… at least for now.

The US dollar is still the world’s most dominant reserve currency.

Oil contracts around the globe from Iraq to Indonesia are settled in US dollars.

Foreign governments and central banks hold US dollars as their reserves.

And the US dollar is widely used in global trade. When a Vietnamese manufacturer sells to a Ukrainian wholesaler, that deal will transact in US dollars.

This widespread use of the dollar means that the US banking system is essential to global commerce.

International banks must have access to the US banking systems so that they can transact in US dollars.

Being shut out of the US banking system would be disastrous for a foreign bank because they’d no longer be able to do business in US dollars with the rest of the world.

This gives the US government enormous leverage over global banks. And they realized this in 2001.

Uncle Sam wanted foreign banking data in order to follow the money and track terrorist financing.

So they demanded all sorts of information from foreign banks, threatening anyone who didn’t comply with being kicked out of the US banking system.

The banks complied. And the US government immediately saw how powerful this threat could be.

In 2010, as the dust settled from the 2008 crisis, they used this threat again.

This time the legislation was called the Foreign Account Tax Compliance Act, or FATCA.

FATCA was passed because the US government realized they were flat broke.

Desperate to find every penny they could get their hands on, FATCA commanded every bank in the world to share information with the IRS.

The idea was to track down illicit funds from Americans who were evading taxes and hiding money overseas.

The US government thought that FATCA would generate hundreds of billions of dollars in new tax revenue.

It didn’t. Official estimates show that FATCA brings in between $250 million and $800 million per year in additional revenue.

That might sound like a lot, until you consider that the cost of implementing such onerous legislation have been estimated as high as $1 trillion.

In 2013 the UK government determined that the cost of implementing FATCA just for British businesses would run into the billions of dollars.

So, financially, FATCA is a pitiful failure. The costs of implementing it far exceed the any benefits.

But what’s even more important is that FATCA destroyed global banking.

For example, many countries have strict banking privacy laws that forbade them from sharing their customers’ information.

But that didn’t matter to Uncle Sam.

Even if a bank would be violating its own local laws by complying with FATCA, the US government still threatened to kick them out of the US banking system.

The US even destroyed a few banks along the way just to set an example of what would happen to dissidents.

As the years went by, the US government continued to leverage this threat to get whatever it wanted from foreign banks.

In 2015, the US government levied a $9 billion fine against French bank BNP Paribas for conducting business with countries that the US didn’t like (Cuba, etc.)

Of course, BNP Paribas wasn’t violating any French laws. But that was irrelevant.

The US government still fined BNP and threatened to kick them out of the US banking system if they didn’t pay.

This has become standard practice in the Land of the Free. Whenever the US government needs money, they just fine and threaten everyone.

In fact, global banks have shelled out over $200 billion in fines over the last six years.

These constant threats have created an environment where banks are scared to do anything.

They’re all terrified of the US government; no one wants to be the next bank that gets fined billions of dollars or kicked out of the US banking system.

Doing any business at all means risking the ire of the US government.

So rather than facilitating commerce and responsibly managing people’s savings, banking is now about compliance, bureaucracy, suspicion, and innuendo.

The simple act of opening a bank account is fraught with difficulty and obscene amounts of paperwork.

And when you walk into a bank there is an automatic presumption that you are some criminal money laundering tax evader.

If you want to test this assertion for yourself, try withdrawing $10,000 in cash and see how they treat you.

Even simple transactions are held up by droves of unnecessary obstacles and paper-pushing bureaucrats who domineer over your savings like Dark Lords of the Sith.

This has been toxic to global commerce.

But finally there’s at least one jurisdiction that’s said, “enough is enough.”

No surprise, it’s Hong Kong, one of the more economically free places in the world.

Hong Kong already has one of the safest, most liquid and well-capitalized banking systems on the planet.

(My analysts recently performed an independent stress test for our premium members that showed Hong Kong banks easily withstanding catastrophic financial conditions…)

Hong Kong’s Monetary Authority has decided that it will no longer live in fear of Uncle Sam and is now leading a rebellion against US government financial servitude.

They’ve just announced new guidelines to make Hong Kong, once again, one of the easiest and best places in the world to bank.

And those guidelines will specifically include simplified account opening procedures for foreigners, foreign businesses, and even startups.

This is great news. More to follow.

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U.S. Military Adds Jeff Bezos and Cass Sunstein to Pentagon’s Defense Innovation Advisory Board

Earlier this year, when I found out Google’s Eric Schmidt had been named head of a newly created Pentagon board I thought that was creepy enough. It’s gotten creepier.

The Washington Post reports:

The Pentagon’s increasingly eclectic Defense Innovation Advisory Board has reached full strength, with celebrity astrophysicist Neil deGrasse Tyson and Amazon.com founder Jeffrey P. Bezos among the latest named to a group that includes some of the private sector’s most successful leaders.

continue reading

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