Month: August 2017

Blame Intrusive Government Policies for Income Inequality: New at Reason

Lawmakers and government officials talk a good game about income inequality. But they impose policies that raise household costs, discourage employment, and kill opportunity.

J.D. Tuccille writes:

“Income inequality in the United States has increased significantly in the last four decades,” Leilani Barnett of the Federal Reserve Bank of San Francisco wrote last week for the California Economic Summit.

And, it turns out, the activist government interventions in the economy favored by the people most concerned about the increasing gap between rich and poor are probably making things a hell of a lot worse.

To back up a bit, not everybody agrees that income inequality in itself is an enormous concern. Writing for Reason, Ronald Bailey has pointed to research demonstrating that income mobility remains healthy, with Americans continuing to move beyond the socio-economic ranks into which they were born. “Results provide very little support for the hypothesis that inequality shapes mobility in the United States. The inequality children experienced during youth had no robust association with their economic mobility as adults,” reports a 2014 paper he cited.

Still, the growing gap between the wealthy and the poor is a preoccupation in many circles—particularly among people who favor activist government economic policies to rectify the situation. So it’s interesting when the Federal Reserve Bank’s Barnett adds that “One factor contributing to this trend is the increase in involuntary part-time workers,” and then reports that employers tell researchers they’ve turned to hiring part-time workers instead of full-timers because of the costs associated with employee benefits, health care, workers’ compensation insurance, and minimum wage hikes.

View this article.

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Jeff Flake’s *Conscience* Is Good for Libertarians – and the Country

“We’ve been compromised…by forces…of populism and protectionism, isolationism, xenophobia,” says Arizona Sen. Jeff Flake, about his own Republican Party.

In a new book that borrows a title from Barry Goldwater, an NPR interview, and a no-holds-barred column in Politico, Flake is making the case that the GOP and President Trump are dishonest and disinterested in limiting the size, scope, and spending of government.

He has impeccable credentials as a libertarian-leaning politician who once ran the free-market Goldwater Institute in Phoenix. Flake is a dedicated free-trader and defender of immigration who accompanied Reason on our trip to Cuba in 2016. Since arriving in Congress in 2001, he has passionately attacked the Cuba embargo as misguided, immoral, and ineffective: “We preach the gospel of contact and commerce and trade and travel, yet with Cuba we turn around and say, ‘No, it’s not going to work there.’ It just seemed to be a glaring inconsistency in our foreign policy.” An “unapologetic member of the Gang of Eight” that sound comprehensive immigration reform, he is one of the few remaining Republicans in high office to champion higher levels of legal immigration both as a humanitarian gesture and as a practical boon to the country.

Flake tells NPR that his discontent “is a long time in coming. I got here in Washington in 2001…. And we got [President George W. Bush’s education overhaul law] No Child Left Behind, which was, I thought, big federal overreach into local education policy. And then we got the prescription drug benefit, which added about $7 trillion in unfunded liabilities. I didn’t think that was a very conservative thing to do.”

As important, Flake notes,

When we couldn’t argue that we were the party of limited government anymore, then that forced us into issues like flag burning or trying to intervene in the Terri Schiavo case, things that we wouldn’t have done otherwise if we would have been arguing about true principles of limited government or spending.

He says that conservatives need “to be honest with people” about the causes of economic dislocation. While Donald Trump and his fellow populists wail about Mexico and China, Flake stays grounded in reality. “We manufacture twice as much as we did in the 1980s with one-third fewer workers and those productivity gains will continue. Globalization has happened and the question is: Do we harness it for our benefit or are we left behind by it?”

In his Politico piece, Flake ranges close to calling for Trump’s impeachment, or at least official censure, writing that “unnerving silence in the face of an erratic executive branch is an abdication, and those in positions of leadership bear particular responsibility.” Flake says that revelations about Russian attempts to influence the 2016 election and the president’s bromance with Vladimir Putin were among the reasons he’s channeling his inner Goldwater. Where should his party go from here?:

First, we shouldn’t hesitate to speak out if the president “plays to the base” in ways that damage the Republican Party’s ability to grow and speak to a larger audience. Second, Republicans need to take the long view when it comes to issues like free trade: Populist and protectionist policies might play well in the short term, but they handicap the country in the long term. Third, Republicans need to stand up for institutions and prerogatives, like the Senate filibuster, that have served us well for more than two centuries.

No wonder there have been whispers about Trump working to primary Flake, who is up for re-election in 2018.

You might not agree with Jeff Flake on everything, but it’s good to see a principled free-market, open-borders Republican going public with his discontent, especially because he’s got a strong record of calling out massive expansions of the government going back to his first days in Congress. We need more people like him in Washington, not just the handful we already know (Rand Paul, Mike Lee, Justin Amash, Thomas Massie…).

In 2008, at Reason’s 40th anniversary gala in Los Angeles, soon after Barack Obama’s and the Democrat’s win over John McCain and the GOP Congress, Flake talked about how his party needed to get back to limited-government principles. Take a look:

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Manufacturing Surveys Signal Economy “Still Stuck In Low Gear” Amid Collapse In ‘Hard’ Data

After hitting a 9-month low in June, Markit's US Manufacturing PMI bounced to 53.3 in July with new orders, output, and employment rebounding. In a China-esque moment, ISM disappointed, modestly dropping to 56.3 with prices paid surging and new orders tumbling. All of this uncertainty is happening as 'hard' data in the American economy is collapsing.

After six straight months lower, PMI bounced in July (very slightly beating the 53.2 expectation) but ISM dipped and missed expectations.

 

ISM breakdown shows most sub-indices declined but a surge in prices paid!!

New Orders are slumping

Despite the drop in new orders and the overall index, every ISM respondent was bullish…

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The second half of the year got off to a good start for US manufacturers, with the health of the sector improving at the fastest rate for four months. Output, new orders, employment and buying activity all grew at increased rates. The only real blot on the copybook was a decline in exports for the first time since last September.

 

“However, IHS Markit expects GDP growth to accelerate to a near 3% annualised rate in the third quarter, fueled by gains in consumer spending and business investment, which should benefit manufacturing.”

However, before we get all carried away with this modest rebound, Williamson notes…

…although rising, the survey indices remain consistent with only very modest increases in comparable official data such as manufacturing output, durable goods orders and payroll numbers.

 

Clearly the manufacturing sector remains stuck in a low gear, though is at least gaining momentum and will hopefully shift up a gear as we move through the second half of the year if demand continues to improve.

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GM Auto Sales Crash, Dealer Inventory Near All Time High

It was expected to be a bad quarter for General Motors. It ended up being abysmal.

GM reported that July auto sales crashed by a whopping 15%, nearly double Wall Street’s already depressed expectations of a 8% drop, and with GM mothballing production across the country to catch up with lagging demand, it still sold only 226,107 vehicles as a result of double digits drops in Chevy, Build and Cadillac Sales of 15.3%, -30.5% and -21.7%, respectively. The only “good” performer was GMC, which dropped by “only” 7.3% Y/Y.

The company also reported that while the average transaction price was $36,000, or roughly $1,000 higher than a year ago, the incentive spending as a percentage of average transaction prices was 11.5%, near an all time high.

This is how the company explained this dramatic decline in production:

“We have strategically decided to reduce car production rather than increase incentive spending or dump vehicles into daily rental fleets, like some of our competitors,” Kurt McNeil, U.S. vice president of Sales Operations, says in a statement.

Which would be great, however judging by the almost negligible drop in dealer inventory, which saw the number of cars parked at dealer lots decline by just 40K to 939,831, resulting in a near record 104 days of sales, it appears that GM needs to shutter production for months on end to normalize GM’s unprecedented channel stuffing.

Abysmal sales aside, however, the company remains quite optimistic: “Under the current economic conditions, we anticipate the second half of 2017 will be much stronger than the first half,” Mustafa Mohatarem, GM chief economist says. Good luck with that anticipation chief GM economist.

And speaking of GM’s “competitors”, it wasn’t any better there, with Chrysler reporting a July auto sales drop of -10.5%, also far below the 6.1% expected.

  • Fiat brand -18%
  • Chrysler brand -30%
  • Jeep brand -12%
  • Dodge brand -12%
  • Ram brand sales were flat y/y
  • Fleet sales -35%

At this rate, the US auto sector could become the catalyst that finally tips the US economy over into recession.

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“The World’s A Scary Place” But One Trader Notes “The AI Bots Don’t Care How You Feel”

Day after day… another sabre rattled somewhere in the world, another policy-reform hype-destroying debacle in Washington, or another slump in 'hard' economic reality data… and another record high for stocks. Former fund manager Richard Breslow says 'get used to it' – at last until the autumn, when the central bankers return… "AI bots don't care." As he discusses below, it's not the economy, stupid; it's the trading bots…

Via Bloomberg,

I guess that until the G-3 central banks get back to business in the autumn, we’re just going to have to remember to compartmentalize.  

The world’s a scary place. Just read page one above the fold and try not to despair. Not to mention the fact that some of the really unsettling issues don’t even get presented with such prominence.

But look at the global economy, watch asset markets trade and there isn’t a whole lot of bad news driving things.

Like modern life in general, we go for instant gratification. And we’ll worry about the other stuff another day and time. Besides aren’t central banks there to kick that can as far down the road as possible? Especially if things get really bad.

 

 

There’s been a twist replacing the old Maynard Keynes line about markets staying irrational longer than you can remain solvent. We’ve come to hope and expect that payment for current excesses can be put off longer than our careers will last.

 

Does Alan Greenspan’s warning yesterday about bond bubbles and stagflation resonate on some level? It does. On the other hand, ignoring his warning, and those analogous, is the only sensible thing to do. Factoring it into your artificial intelligence equations has been a sure money loser.

 

You need to resolutely separate information that will be profitable now from news that’s going to matter to future generations. Everyone else is. Make sure you turn off the lights before you leave.

 

Just as a bonus hint: When people start to figure stagflation warnings into their calculus, you’ll see it first in Treasury yields and only secondarily in corporates, both IG and HY. So if it ever happens, don’t be fooled by an initial compression in spreads. It just reflects the liquidity dynamics of the two markets. Needless to say, 10-year Treasuries are at 2.3%. Wait until reinvestment stops.

 

Meanwhile, China is more than surviving despite the constant warnings. Japan’s growth is picking up. Europe’s doing all right. Even the likes of Argentina are putting up numbers like yesterday’s strong industrial production release. Did you see this morning’s U.K. or Russian PMIs? There are green shoots all over the place. Results this earnings season from corporates is a story of the good times rolling.

 

Today’s RBA statement couldn’t find much of anything negative to say other than to push back on currency strength. All that was taken to mean that the economy was strong but no rush to tighten. Translation: party on. And if you need any explication of why algos buy dips, check out the Shanghai Composite over the last two months. Crushing regulation indeed.

 

Breslow concludes perfectly…

Trading bots only care about finding what’s working and mining it. They figure what we humans do in our spare time is our own business

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The Last Time Stocks Were This Expensive Was… March 2000

Over 99% of investors continue to live in delusion.

That delusion is that stocks are NOT in a bubble.

They are. In fact, it’s arguably about to become the biggest stock bubble in history.

According to John Hussman, stocks have been more expensive based on median valuations only ONCE before in history.

That was the week of March 24 2000… right around the absolute PEAK of the Tech Bubble.

Here’s Hussman’s chart:

Here’s what came next for stocks…

A Crash is coming…

And smart investors will use it to make literal fortunes from it.

We offer a FREE investment report outlining when the market will collapse as well as what investments will pay out massive returns to investors when this happens. It’s called Stock Market Crash Survival Guide.

Today is the last day this report is available to the public.

We extended this offer by one week based on the market's extreme valuation.

But this is it. No more extensions.

To pick up one of the last remaining copies…

CLICK HERE!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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“You Know What You Did”: Scaramucci Punked By Email Spoofer Pretending To Be Priebus

The first two times infamous email spoofer @SINON_REBORN struck, the UK was scandalized when first Barclays CEO Jes Staley, then the head of the BOE, Mark Carney himself, were duped into lengthy email conversations with the “prankster” as the FT reported at the time. Staley, thinking he was being emailed by Barclays chair John McFarlane, offered his effusive praise to his respondent, saying among other things that he had “all the fearlessness of Clapton.” Carney, in turn, responded to emails from the imposter pretending to be Anthony Habgood, the chairman of the court of the BoE.

Then, in June, the spoofer extended his winning streak by also punking Goldman’s Lloyd Blankfein and Citi’s Michael Corbat into believing he was someone else.

Now, the same prankster, a 38-year-old web designer from Manchester according to the FT, has struck again, this time fooling several highly placed White House officials on several occasions, most remarkably Anthony Scaramucci, into thinking he was someone else.

As CNN reports, the exchange between the prankster and the Mooch may have played a role in the tensions between the now former White House Communications Director and the since-fired White House Chief of Staff, Reince Priebus, who replacement Gen. Kelly fired Scaramucci.

Pretending to be Priebus, the prankster emailed Scaramucci’s official account using a mail.com account on Saturday, the day after Priebus’ resignation was announced.

“I had promised myself I would leave my hands mud free, but after reading your tweet today which stated how; ‘soon we will learn who in the media who has class, and who hasn’t’, has pushed me to this. That tweet was breathtakingly hypocritical, even for you. At no stage have you acted in a way that’s even remotely classy, yet you believe that’s the standard by which everyone should behave towards you? General Kelly will do a fine job. I’ll even admit he will do a better job than me. But the way in which that transition has come about has been diabolical. And hurtful. I don’t expect a reply.”

To which Scaramucci responded: “You know what you did. We all do. Even today. But rest assured we were prepared. A Man would apologize.”

The UK spoofer wrote back, again pretending to be Prievus:

“I can’t believe you are questioning my ethics! The so called ‘Mooch’, who can’t even manage his first week in the White House without leaving upset in his wake. I have nothing to apologize for.”

Scaramucci response, date July 30: “Read Shakespeare. Particularly Othello. You are right there. My family is fine by the way and will thrive. I know what you did. No more replies from me.”

 

Not content with spoofing Scaramucci once, the prankster did it again in another exchange in which the former SkyBridge executive was again fooled by the prankster, this time pretending to be Russia Ambassador Jon Huntsman Jr.

“Who’s (sic) head should roll first?” the bogus Huntsman asked from a Gmail account on Friday, before the Priebus termination had been announced. “Maybe I can help things along somewhat.”

“Both of them,” responded the real Scaramucci, in what CNN believes was an apparent reference to both Priebus and White House Senior Adviser Steve Bannon, about whom Scaramucci has been quite critical.

After a few other nice messages of support from faux Huntsman, Scaramucci wrote, “Are you in Moscow now? If not please visit.”

* * *

Finally, for good measure, the prankster also pretended to be Scaramucci’s friend, Arthur Schwartz, on Monday evening after news of his departure had already hit, emailing the Mooch: “Everyone’s pushing for why’s and who’s” to which the response was “Yup call in a bit.”

Jon Huntsman was also tricked, with the prankster pretending to be Eric Trump: “Thanks for the thoughtful note,” the ambassador-designate wrote to fake Eric Trump. “Russia will be a challenging but no doubt rewarding assignment.” The fake Eric Trump responded with this suggestion: “Maybe we could have Dad sat (sic) on a horse, top off, giving the full Putin! He’s in better shape than his suits suggest.”

In a follow up, the White House acknowledged the incidents to CNN and said they were taking the matter seriously. “We take all cyber related issues very seriously and are looking into these incidents further,” White House press secretary Sarah Huckabee Sanders said. In addition to demonstrating politician gullibility, what these spoofing incidents demonstrate is just how easy it is to engage into a confidence and trust-building conversation with some of the most important politicians and bankers, and that contrary to conventional wisdom, anyone can do it, not just the KGB.

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Seattle’s “Democracy Vouchers” Serve as Campaign Welfare for Well-Established Candidates

A voting boxSeattle’s Democracy Vouchers were supposed to break the hold of special interests on elections and open up the field to outsider candidates.

Instead the program—which awards Seattle voters a total of $100 that they can donate to qualified local candidates—almost all of the 315,000 tax dollars raised prior to the city’s primary election Tuesday have gone to only three candidates, one and incumbent and two politically connected activists.

Regardless of the results of the election, the city of Seattle, as Reason has previously reported is being sued by the Pacific Legal Foundation for promoting a program the foundation says violates the First Amendment of the Constitution.

The first candidate to qualify for democracy vouchers was incumbent candidate for City Attorney, Pete Holmes, who has so far received $46,050.

City Council Position 8 candidate John Grant, a past president of the Washington Tenants Union, has collected the most money, $150,000 so far. Grant, who’s making his second run for at the seat, was the first to register his campaign committee on December 8, 2016, nearly two months ahead of any other candidate.

Teresa Mosqueda, the Political and Strategic Campaign Director for the Washington State Labor Council (the state’s AFL-CIO), has pulled in $104,725, as well as garnering endorsements from influential interest groups like Planned Parenthood, the Sierra Club, and a several unions.

Evan Blevins, attorney for the Pacific Legal Foundation, says it’s hardly a surprise the benefits of Democracy Douchers accrue almost exclusively to well-practiced political operatives.

“To receive [the vouchers] you have to leap several hurdles with the Seattle Ethical Elections Commission”, he says, including participation in debates and receiving the contributions and signatures from 400 voters.

Rathering than parceling out the four $25 vouchers, Seattle sends all of them out on Jan. 1, encouraging voters to spend their vouchers all at once on the candidates first to the trough.

“It’s going to the people they know, who already have campaigns active,” Blevins tells Reason. “That’s going to be incumbents or well-funded candidates.”

In total, $78,000 in Democracy Vouchers were assigned by voters to candidates who never received permission to spend that money. Upstart candidates in the Position 8 race have paid a price.

Hisam Goueli, doctor and political neophyte, did not officially register his campaign until February, and according to the rules, didn’t qualify for $14,650 pledged to him until this past Friday, four days before the primary.

“Instead of getting my message out, I’m trying to get Democracy Vouchers,” Goueli told the Seattle Times, which is exactly the opposite way the program is supposed to work.

Likewise, council candidate and civil rights activist Sheley Secrest, was pledged $14,350 in Democracy Vouchers, but failed to meet the qualifications to access that money.

Taxing citizens to pay for campaign donations, and then making those donations available only to a selective number of political candidates certainly violates the spirit in which Seattle’s Democracy Vouchers were sold to voters. According to Blevins, it likely violates the Constitution as well.

“When you are forced to give a certain amount of money to someone who then uses it to contribute it to a candidate, that’s compelled speech in violation of the First Amendment,” he says.

That lawsuit, filed in June, is still a long way from resolution.

Seattleites will go to the polls Tuesday, many of them not realizing the questionable program they have underwritten isn’t helping any of those dark horses on the ballot.

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A.M. Links: Trump and Russia, Joe Arpaio Found Guilty, Venezuelan Regime Arrests Opposition Leaders

  • President Donald Trump reportedly dictated the misleading statement that Donald Trump Jr. issued after news broke of Trump Jr.’s 2016 meeting with a Russian lawyer.
  • “New White House chief of staff John Kelly was so upset with how President Donald Trump handled the firing of FBI Director James Comey that Kelly called Comey afterward and said he was considering resigning, according to two sources familiar with a conversation between Kelly and Comey.”
  • Opposition leaders in Venezuela were reportedly taken from their homes in the middle of the night by government forces.
  • Joe Arpaio, the former sheriff of Maricopa County, Arizona, has been found guilty of criminal contempt in U.S. District Court.
  • Former Trump campaign manager Corey Lewandowski has reportedly been fired from One America News Network.
  • “The United States began removing furniture and equipment from a diplomatic property in Moscow on Tuesday in the first sign of compliance with a Kremlin order to slash its presence in Russia as retaliation for new U.S. sanctions.”

Follow us on Facebook and Twitter, and don’t forget to sign up for Reason’s daily updates for more content.

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Trump Tweets Dow 22,000 Today: Embraces Big, Fat, Ugly Bubble

Having dismissed the “big, fat, ugly bubble” during his campaign, President Trump seems more than willing – in his apparently desperate search for a win – to embrace the bubble now. Continuing the trend over the weekend, Trump’s first tweet of the morning crows of his massive market gains since election…

We tend to agree with Peter Schiff on this – it’s a mistake for Trump to ‘own’ the stock market’s gains…

Chances are, Trump realizes that most people won't look at a chart of the stock market and he just wants some good PR.

The president wants people to think that he is the reason for the stock market bubble.

This is a big mistake.

The Fed is the premier member of the so-called "Deep State". In fact, without The Fed, there would hardly be a "Deep State" to speak of.

The Fed sits at the top of the Deep State. They have the ultimate power (that no human beings should ever have) to create new money out-of-thin-air.

In case Trump hasn't figured it out yet, the Deep State does not like him.

Should a major decline in the stock market occur during Trump's Administration, guess who will take the blame?

President Trump.

After all, he took ownership of the bubble!

Should the market tumble, the mainstream media (that also despises Trump) will have plenty of his quotes, YouTubes, and Tweets to use against him.

The economic woes will be pinned on Trump.

Will Trump deserve the blame? No, but it'll be too late.

?This is not to say that a major decline will occur during Trump's tenure. Bubbles can take on a life of their own, and this one may last during Trump's full term.

But that's a risky gamble to make.

This bubble is going on almost 10 years now without a serious decline.

Should we see a major selloff, Trump has very few friends in the major power centers that will come to his aid.

As Peter Schiff points out in this fantastic clip below: The Fed now has their fall guy:

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