Month: December 2017

Authored by Lauren Cooley via The Washington Examiner,

A new opinion piece in a Texas State University student newspaper tells white students, “Your DNA is an Abomination.”

“When I think of all the white people I have ever encountered – whether they’ve been professors, peers, lovers, friend, police officers, et cetera – there is perhaps only a dozen I would consider ‘decent,’” student author Rudy Martinez writes in the University Star.

Without much biological explanation, Martinez informs white readers:

“You were not born white. You became white… You don’t give a damn.”

 

Later in his rant, he calls the police “fascist foot soldiers” and says a “white supremacist inhabits the White House.”

The editorial also suggests that “whiteness in the United States” is a “construct used to perpetuate a system of racist power.”

According to social media posts, Martinez was arrested in Washington, D.C., during President Trump’s inauguration and attempted to crowdfund for legal fees.

Andrew Homann, former TSU student body president, took to Facebook to express his disgust with the blatantly anti-white piece.

“Just when you think the opinion's columns in the University Star couldn't get any worse, they publish this masterpiece and exceed my expectations,” Homann posted.

Homann told the Washington Examiner:

“I have no doubt that racism is still alive today. Look no further than this blatantly racist, divisive article posted by the University Star. While I believe Mr. Martinez has every right to express his disparaging world-view, I am appalled that the school paper, funded by tuition and tax dollars, would give this guy a platform to do so.”

The editorial concludes:

“Whiteness will be over because we want it to be. And when it dies, there will be millions of cultural zombies aimlessly wandering across a vastly changed landscape. Ontologically speaking, white death will mean liberation for all…

 

Until then, remember this: I hate you because you shouldn’t exist. You are both the dominant apparatus on the planet and the void in which all other cultures, upon meeting you, die.”

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The 2017 Atlantic hurricane season, which officially began on June 1 and ends today, featured the highest number of major hurricanes since the 2005 season and was only the second time that two Category 5 hurricanes made landfall. However, it was by far the costliest hurricane season on record, with a preliminary total of $368.7 billion in damages, more than twice the cost in 2005. Nearly all of the damage resulted from the season’s three major hurricanes, Harvey, Irma and Maria. Yesterday, nine scientists writing in PLOS ONE estimated that almost 14,000 DINAA archaeological sites (Digital Index of North American Archaeology) on the Atlantic and Gulf Coasts in the US could be lost by 2100 as seas rise due to climate change.

In these circumstances, it’s not surprising that the rating agencies are looking to incorporate risks from climate change, e.g. rising seas and major storms, into the credit ratings of public sector borrowers with coastal communities. Business Insurance magazine quotes from Moody’s report.

“Climate shocks or extreme weather events have sharp, immediate and observable impacts on an issuer’s infrastructure, economy and revenue base, and environment,” the New York-based ratings agency said in its report published Tuesday. “As such, we factor these impacts into our analysis of an issuer's economy, fiscal position and capital infrastructure, as well as management’s ability to marshal resources and implement strategies to drive recovery. The interplay between an issuer's exposure to climate shocks and its resilience to this vulnerability is an increasingly important part of our credit analysis and one that will take on even greater significance as climate change continues.”

Moody’s acknowledges that there is likely to be some adaptation on the part of state and local governments in the form of mitigation strategies to lessen the impact. Nonetheless, the rating agency is serving a warning, as Bloomberg notes.

“Coastal communities from Maine to California have been put on notice from one of the top credit rating agencies: Start preparing for climate change or risk losing access to cheap credit. In a report to its clients Tuesday, Moody’s Investors Service Inc. explained how it incorporates climate change into its credit ratings for state and local bonds. If cities and states don’t deal with risks from surging seas or intense storms, they are at greater risk of default.

"What we want people to realize is: If you’re exposed, we know that. We’re going to ask questions about what you’re doing to mitigate that exposure," Lenny Jones, a managing director at Moody’s, said in a phone interview. "That’s taken into your credit ratings."

In its report, Moody’s lists six indicators it uses "to assess the exposure and overall susceptibility of U.S. states to the physical effects of climate change." They include the share of economic activity that comes from coastal areas, hurricane and extreme-weather damage as a share of the economy, and the share of homes in a flood plain. Based on those overall risks, Texas, Florida, Georgia and Mississippi are among the states most at risk from climate change. Moody’s didn’t identify which cities or municipalities were most exposed.

Why the sudden focus on climate change from ratings agencies, like Moody’s. Because, as is almost always the case, they only react after the event. In May 2017, Bloomberg reported that when Ocean County (there’s a clue in the name) issued $31m of bonds in 2016, neither Moody’s nor S&P asked any questions about the impact of climate change on its finances. As Bloomberg highlights.

Few parts of the U.S. are as exposed to the threats from climate change as Ocean County, New Jersey. It was here in Seaside Heights that Hurricane Sandy flooded an oceanfront amusement park, leaving an inundated roller coaster as an iconic image of rising sea levels. Scientists say more floods and stronger hurricanes are likely as the planet warms.

It becomes apparent that Moody’s focus on climate change has little to do with being pro-active, rather it’s a response to pressure from investors who, no doubt, remember what happened to many AAA-rated sub-prime mortgage bonds not too many years ago. Indeed, when asked, Moody’s was not ale to recall an example where the credit rating of a city or state had been downgraded for failing to address climate change. Bloomberg continues.

If repeated storms and floods are likely to send property values — and tax revenue — sinking while spending on sea walls, storm drains or flood-resistant buildings goes up, investors say bond buyers should be warned.

Jones said Tuesday that the company had been pressured by investors to be more transparent about how it incorporates climate change into the ratings process. Some praised the move, while also urging it to go further.

What are investors’ views on this issue? Bloomberg provides some feedback.

"This kind of publication shoots for municipalities to think harder about disclosure," Adam Stern, a senior vice president at Breckinridge Capital Advisors in Boston, said in an interview. "The action would start to happen when and if you start seeing downgrades."

Eric Glass, a fixed-income portfolio manager at Alliance Bernstein, said real transparency required having a separate category or score for climate risk, rather than mixing it in with other factors like economic diversity and fiscal strength. Still, the new analysis is "certainly a step in the right direction," Glass said by email.

Public administrators are doubtful that anything will change until Moody’s and other ratings agencies show they mean business with actual downgrades.

Others worried that Moody’s is being too optimistic about cities’ desire to adapt to the risks associated with climate change. Shalini Vajjhala, a former Obama administration official who consults with cities on preparing for climate change, says that won’t happen on a large scale until cities start facing consequences for failing to act — in this case, a ratings downgrade.

"Investors and governments alike are looking for clear market signals to pursue, and perhaps even more importantly, to defend investments in major adaptation and resilience projects to their constituents and taxpayers," Vajjhala, who now runs Re:Focus Partners, said in an email. "Outside of the rating agencies, it is not obvious who else could send a meaningful market-wide signal."

Unfortunately, our suspicion is that, for now, Moody’s focus on climate change risk is driven by the need to be seen saying the right things. We hope the agency “will walk the walk”, rather than merely “talk the talk”, with some downgrades. That would undoubtedly create a response from state and local governments.
 

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Authored by Kevin Muir via The Macro Tourist blog,

I know everything is fan-freaking-tastic – with the tax reform bill and global synchronized expansion and all. I figure the last thing you need is some nattering naysayer throwing cold water on this unbelievable party, so I won’t. At least not for the short run.

This rally will end when it ends. Maybe tomorrow, maybe next week, maybe next month, maybe next year. I don’t know and every time I try to guess, I just end up looking foolish.

But I recently listened to this terrific Bloomberg Masters in Business interview of the legendary hedge fund manager, Felix Zulauf, and he articulated such a compelling argument for the timing of the next slowdown, I felt like Felix was my Spirit Bear.

I have always enjoyed Felix’s viewpoint, but Barry Ritholtz did such a great job during this interview, that I have a new found appreciation for Felix’s career, and more importantly, his market calls. I had mistakenly assumed Felix was always bearish, but the truth of the matter is that he definitely switches from side to side, and is not the pro-typical Swiss hard money uber-bear. I didn’t agree with all of his economic philosophy by any means, but his market (and political) analysis was some of the most compelling dialog I have listened to in quite some time. If you haven’t heard it, then give it a listen.

If you don’t want to take the time, don’t fret – I have transcribed the most important part for you.

Felix: China I believe is in an interesting position right now. You heard President Xi’s speech last week, and in 2021 there is the 100th anniversary of the Chinese Communist party and it’s very clear that they want to have a strong economy at that time. If you want to have a strong economy in 2021, you stimulate in 2020. And they are central planners. So that’s means they have to take their foot off the pedal in 2018, 2019. I think in ‘18 and ‘19, they will address the imbalances in the financial sector and that will slow down the Chinese economy in ‘18 and ‘19, which will also slow down the rest of the world.

 

So we are entering a period where sometime in ‘18, I would say the peak of the market will be in the first half, the peak in the economy is probably from mid-2018 on, and then we slow down into 2020.

 

And 2022 is the next Chinese Congress, and President Xi is probably the first leader who tries to run for a third time. So he wants to have a very good economy in 2021 and 2022. That means he has to first slow things down, restructure some of the imbalances in the system because if he tries to carry through, it could backfire on him. It could be the worst of all worlds. Namely a completely overheated situation, with high inflation rates, etc…

 

That’s why I think the leader of this cycle, China, is going to slow down next year.

 

Barry: So the whole global economy is dependent on President Xi’s re-election desires in 2022?

 

Felix: As I said before, you always need to figure out what is the leading theme in the market cycle. In the last cycle, it was real estate, in this cycle it is China. And that’s why China is so important. China is the second largest economy, and in 10 or 15 years, it will be the largest economy of the world.

Longtime readers will instantly see why Felix’s theory appealed to me. I have long argued that China’s fiscal and monetary policy might be the most two important variables when it comes to forecasting the global economy. And here was Felix making the case that the entire global economic cycle is being driven by China. Felix – you had me at hello.

Now, make no mistake. This is a longer-term call. It’s not going to affect market prices next week, and probably not even next month. But in the coming quarters, it has the potential to be the most important determinant of financial asset performance.

I will take a little more nuanced approach to Felix’s theory, but in broad strokes, I completely agree with his analysis. The Chinese government will not allow their 100th anniversary be anything less than a rocking success. And President Xi is smart enough to know that he can’t just keep the pedal to the metal for the next four years and hope that the economic expansion lasts.

China’s performance over the past year

Remember all the dire warnings from your favourite star hedge fund managers about China’s coming collapse? Well, I don’t want to be prematurely counting any chickens, but it looks like Xi & Co. have managed to successfully navigate another year without the end of the world financial Armageddon scenario coming to fruition.

And it’s not like this has been achieved through growth-at-any-cost with super easy monetary policy. In fact, during the past year, both interest rates and the Chinese Yuan have risen.

It appears as if, bit-by-bit, China has slowly tightened monetary policy. And I suspect that trend will not only continue, but even accelerate from now. President Xi will continue strangling the excesses out of the Chinese financial economy through tighter monetary policy. The PBOC won’t plunge China into a recession, but instead slowly choke off the speculative froth.

But there’s more to the story

Now here is where I will expand on Felix’s theory. China is in the midst of a massive infrastructure spending program with their One-Belt-One-Road initiative. The program is massive, and entails many complicated and extensive transportation system upgrades in all parts of their country. This sort of development is not something that you easily turn on and off. And nor should it be. This is true investment in the future of China. Much like Eisenhower’s interstate highway program that set up America to become an economic powerhouse for decades to come, China’s OBOR initiative is a crucial step for China’s development. Xi will not alter this plan. The course is set, and the money will be spent.

In fact, it’s already happening. And it’s causing China to run the greatest fiscal stimulus in history. Have a look at this chart from the world’s most charming and well-spoken China bear, Kyle Bass:

Yup, that’s crazy. China is running a fiscal deficit of 14% of GDP. Any wonder why the global economy is cruising along so nicely? It sure helps when you have this sort of fiscal stimulus wind in our sails.

Will Xi tap this back? Sure, he might try to trim around the edges, but the reality is that he will not make any meaningful cuts to the OBOR policy.

Therefore, China will be running a hot fiscal policy for years to come, and the only way to counteract its effect, will be by tightening on the monetary side. This will also have the added benefit of causing the financial economy to slow. In fact, we are already seeing this play out in the housing market.

While I was thinking about this situation, I was reminded of a passage in the Market Wizards book where Stanley Druckenmiller spoke about his trade surrounding the unification of East and West Germany:

Everything started to come together at that time. Not only was I trading on my own without any interference, but that same eastern European situation led to my first truly major trade for Soros’s Quantum Fund. I never had more conviction about any trade than I did about the long side of the Deutsche mark when the Berlin wall came down. One of the reasons I was so bullish on the Deutsche mark was a radical currency theory proposed by George Soros in his book, The Alchemy of Finance. His theory was that if a huge deficit were accompanied by an expansionary fiscal policy and tight monetary policy, the country’s currency would actually rise. The dollar provided a perfect test case in the 1981-84 period. At the time, the general consensus was that the dollar would decline because of the huge budget deficit. However, because money was attracted into the country by a tight monetary policy, the dollar actually went sharply higher.

 

When the Berlin wall came down, it was one of those situations that I could see as clear as day. West Germany was about to run up a huge budget deficit to finance the rebuilding of East Germany. At the same time, the Bundesbank was not going to tolerate any inflation. I went headlong into the Deutsche mark. It turned out to be a terrific trade.

Now I know this isn’t the perfect analogy, but I can’t help but wonder if it will be more correct than all the Yuan bears who are predicting a China collapse.

Putting it all together

We have a Chinese President who wants to be re-elected shortly after his party’s 100th anniversary celebration in 2021. Therefore, it will be important that the Chinese economy is humming along at full speed at that time. To do that, he needs to stimulate in 2020, but the problem is, if he doesn’t tap the brakes now, he might risk overheating before then. President Xi will therefore take the hit, and get the pain over with in 2018 and 2019. Yet the story is further complicated by the fact that China’s long run infrastructure program is causing a hot fiscal policy. All of these factors add up to a much tighter PBOC for the next couple of years.

Call me an idiot, but I am tempted to take the long Yuan trade. I know that seems insane – all those really smart hedge fund managers are all forecasting a China collapse. But buying Yuan is probably better than betting on stocks going down because of the tight Chinese monetary policy. Not convinced it’s the best trade, and not even sure if I am going to do it in any real size, but I have often found the hardest trades, are often the best trades.

Either way, be aware of this multi-year seasonal Chinese economic timing dynamic. Maybe Felix just laid out a timetable for the market to finally roll over, albeit still many months away. That’s probably good because it certainly feels like it will be that long before we get any meaningful correction…

 

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Following a report from the Joint Committee on Taxation, which unveiled late on Thursday afternoon that the Senate Tax bill would generate enough economic growth to lower its $1.4 trillion revenue cost by only about $458 billion over a decade – in other words it would still boost the deficit by roughly $1 trillion – in a dramatic showdown on the Senate floor, GOP leaders agreed to effectively increase taxes by $350 billion in response to a procedural ambush by deficit hawks led by Sen. Bob Corker that nearly killed the GOP tax reform bill.

According to Bloomberg, Senator David Perdue, a Georgia Republican, said that GOP Senators are “discussing a new compromise for their planned tax overhaul that would increase taxes in future years.”

David Perdue

Quoted by The Hill, Senate Republican Whip John Cornyn told reporters after a round of intense discussions on the floor, “we have an alternative, frankly, tax increase we don’t want to do to try to address Sen. Corker’s concerns.”  Cornyn said the details of the proposal are being worked out.

Corker had insisted on a “trigger” proposal that would have rolled back tax relief in case economic projections fell short of expectations; the flipside is that it would have also made any recession in the near future far worse by staggering tax increases just as the economy slowed down, in the process sending the deficit soaring and accelerating the economic contraction.

And in an unexpected, 11th hour reversal, the Senate parliamentarian ruled Tuesday afternoon that the trigger would not pass procedural muster. “It doesn’t look like the trigger’s going to work according to the parliamentarian,” Cornyn said. Cornyn’s remarks came after an hourlong standoff on the Senate floor in which three Republicans – Corker, Ron Johnson and Jeff Flake – held up a procedural vote that would have sent the measure back to the Senate Finance Committee.

At least two of those members, senators Bob Corker of Tennessee and Jeff Flake of Arizona, had backed the trigger concept in recent days. Corker The deficit hawks threatened to vote for a motion to recommit the tax bill back to the Finance Committee. That move would have put the legislation in limbo for the foreseeable future and scuttled an all-night voting session on tax relief.

As The Hill adds, Republican leaders appeared extremely frustrated with Corker, Flake and Johnson during their intense discussions on Thursday night while the fate of the bill teetered in the balance.

McConnell’s face grew flushed as he huddled with Corker and Sen. Pat Toomey (R-Pa.), one of the main architects of the tax reform bill, while GOP colleagues crowded around them to listen in. Johnson said he joined Corker’s rebellion so he could win an assurance from GOP leaders about getting a vote on setting the corporate tax rate above the 20-percent level favored by President Trump.

Ultimately the hawks allowed the floor debate to continue, but it’s unclear whether or how their demands might be met. Meanwhile, Senator David Perdue said the estimated tax increase would be $350 billion over a decade. Cornyn told reporters that the size could be even larger. Senator Ron Johnson of Wisconsin said he held out as well, to ensure he can offer amendments, including one to raise the pass-through deduction to about 25%, paid for by eliminating the corporate deduction for state and local taxes.

Quoted by Bloomberg, Johnson said he doesn’t know if senators will finish the bill Thursday night. “We just saw a kink in the time plan right there so who knows what other cogs might be put in this wheel,” he said.

Republican Senator Lindsey Graham added: “I think you’re going to see a lot of these scrums, and here’s the way they’ll end: We’ll pass the bill sometime tomorrow.”

For the sake of the parabolic market, he better be right. 

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