Dramatic Footage Shows Saudis Intercepting Ballistic Missile Over Capital Riyadh

Remarkable footage has emerged of the Royal Saudi Air Defense shooting down one or more incoming ballistic missiles over the northeast part of the capital, Riyadh, on Sunday evening shortly before midnight, according to Saudi state-television. 

The missiles, fired from Yemen in a replica attack of last December‘s ballistic missile launch, were reportedly aimed at several Saudi airports. 

Shortly after the attack video also emerged of a missile successfully striking Saudi soil: 

Ahmed Al Omran, a reporter for the Financial Times said that the doors and windows of his apartment in Riyadh were shaking.

The attacks were focused on several Saudi airports according to Yemeni television station Al-Maseera.

As we reported in December, the Royal Saudi Air Defense shot down a Volcano 2-H missile fired by Yemeni rebels;

The Houthi attack and Saudi Arabia’s response echoes similar strikes last November and December in which a Volcano 2-H missile was launched by Yemeni rebels and reportedly shot down by Saudi air defenses seconds before striking the al-Yamama royal palace. 

Two ballastic missiles were fired at Saudi Arabia last November, but neither hit their targets. The first, on November 4, was fired at King Khalid International Airport in Riyadh while the second was fired at a Saudi oil refinery on November 30.

The Nov. 4 attack on the airport led to a tightening of a longstanding Saudi-led blockade of Yemen, which was already struggling with a devastating famine. As with past incidents involving the Houthis, Saudi accused Iran of supplying the missile to the rebels, a charge Tehran strongly denied. Yemen has been struggling for more than two years with a brutal civil war that has triggered humanitarian crises and tens of thousands of combat-related deaths.

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Hedge Fund CIO: “The Market Generals Are Dead”

Submitted by Eric Peters, CIO of One River Asset Management, as excerpted from his latest Weekend Notes

“Every market has its generals,” said the CIO, atop the hill, surveying the battlefield. “Bull markets march onward, upward until their leaders die,” he said, lowering his binoculars, smoke rising from the valley floor.

Banks led the last great bull market. Fueled by reckless lending and leverage, loose regulation, moral hazard, and the wondrous illusion of boundless riches that accompany all reflexive markets, these generals charged ever upward, looting, pillaging. Leading the troops. Until they didn’t.

The S&P 500 peaked in October 2007, then fell 58%. When it bottomed seventeen months later in March 2009, Citigroup stock lay in the dust, trampled, mangled, mutilated beyond all recognition.

Citi’s stock price had collapsed 98.3% from its 2007 highs. It never really recovered. Bank of America plunged 95%. Morgan Stanley fell 91%. Goldman 82%. JP Morgan 72%.

“I suspected that regulation would be the death of the current market’s technology generals,” he said, turning to his table, unrolling a map. “I was right.”

From the 2009 lows through the recent highs, the S&P 500 advanced 331%. In that drive, Facebook rallied 413% (from its 2013 IPO), Amazon surged 2102%, Apple 1123%, Netflix 5349%, and Google 586%.

“The generals are dead.” From recent highs, Facebook has stumbled 18%, Amazon 8%, Apple 10%, Netflix 10%, Google 14%.

“Trading market tops is difficult,” he explained, “That’s where we are now.” With his finger, he traced the advances and retreats of the S&P 500 since WWII. Nearly every top was a volatile series of skirmishes lasting 6-18mths, before the real decline. The notable exception being 1987.

“The generals are dead, but the economy remains strong.” Employment, wages, profits too. “The bull case is all backward looking. It describes why it makes sense to stay invested. But it’s intellectually bankrupt,” he said, repositioning his troops on the map. “You get paid for the future, not the past.”

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Deutsche: “We Are Entering An Environment Where Everything Wants To Sell Off”

The market responded with confusion to last week’s Fed statement, which initially was interpreted as more dovish than expected in anticipating only 2 more rate hikes in 2018 sending the S&P spiking, only for a more hawkish narrative to gradually take over, facilitating last week’s violent selloff, as the market focus shifted to the hawkish path of tightening signaled by the Fed dots. Even here though, the dot plot was slightly steeper but hardly enough to cause sleepless nights, even as Jay Powell repeated that the Fed will remain data dependent.

But perhaps the market was mostly taken aback by (lawyer) Powell’s straight-to-the-point talking style, answering questions directly and efficiently, avoiding the coma-inducing verbal diarrhea that defined the press conferences of Janet Yellen (in fact, Powell’s first presser set a record for shortest quarterly news conference by Fed chair), and generally eliminating much of the two-way confusion that markets had welcomed in the past, as it had provided a welcome buffer courtesy of Powell’s predecessors saying so much fluff (and nothing of substance) that it paradoxically provided justification for the market’s every opinion.

What does the Fed’s changing narrative mean? According to Deutsche Bank, two things.

First, in analyzing the market’s response to the Fed statement, and especially the aggressive reaction in the rate vol space, Deutsche’s resident semiotic and post-modernism analyst, Aleksandar Kocic – who has for the past year explained virtually every market move in the context of the bi-directional information pathway between the Fed and market, a trope he picked up by reading Lacan (the “mirror stage”), Derrida, Foucault and other pomos – who wrote that last week signaled a more hawkish Fed, “which suggests that monetary policy could become potentially disruptive for markets – after years for hyper-stimulative monetary policy, where everything used to rally, stimulus unwind is taking us into an environment where everything wants to sell off.”

While it is hardly news that the Fed is now in balance sheet rolloff mode, if only until stocks tumble at which point the Fed will resume easing, Kocic warns that this hawkish shift “is now happening at accelerated pace and along the way creating new pattern of vulnerability across the markets.” It also leads to an important new question:

What is the hierarchy of vulnerability in this context — which market sectors are going to be the more vulnerable than the others?

The practical implications of this “hawkish shift” narrative are a continuation of what we observed in the aftermath of the vol explosion in early February: a bifurcation of relative vol across asset classes. According to Kocic, the market still seems to see rates (and duration in general) “less vulnerable than equities.” He explains furter:

This sentiment is reflected through enthusiasm for rates volatility, selling of the covered puts in credit, and equity/credit vol switches. The underlying logic of defensive credit trade is that scaling down on credit is taking place on the back of view of its gradual widening. Short credit vol overlay compensates for the loss of carry, but remains risky in case of violent widening. This is in tune with an implicit belief that further compression in credit is likely
to be limited and orderly
. The latter trade, financing equity vol with credit vol, is a complement of the credit view with high vulnerability of equities. Based on the last week’s finale, rising geopolitical risk and trade tariffs are only going to reinforce this hierarchy of vulnerability as well as provide support for bonds which, when coupled with a more hawkish Fed, could add more flattening bias.

Here it’s also worth noting that another, parallel shift is taking place in terms of the market’s response to newsflow from the political arena (of which Donald Trump has made sure there is plenty). As Deutsche Bank has repeatedly commented for the past year, markets have learned to discount the effects of political volatility “and growing political entropy.” Ironically, noisy politics “was interpreted as an obstacle to ability to produce consensus and legislate changes.” In other words, political uncertainty became synonymous with status quo and, as such, remained bearish for market volatility.  The paradox is that the more D.C. squabbled, and the more Trump got into hot water, the more traders and algos saw this as validation of the status quo.

And while, to a large extent this still remains the case, “with the escalation of political risks new modes of market vulnerability are emerging at the intersection of politics and policy,” according to Kocic. Translated into English, this means that – as last week showed – outbursts from Trump are once again shaking markets, especially when it comes to the developing “trade war” narrative.

All this combined, pushes vol away from rates and into equities, and argues in favor of outperformance of equity vol over credit, “with a possibility that further escalation of political risk taking rates deeper into gamma bearish territory” as traders dump risky assets and buy such relative safe havens such as credit and duration (at least until China retaliates by announcing it will halt or sell TSYs).

Indicatively, we have already seen the onset of this pattern of repricing: this is shown in the two figures below, the first of which compares rates and credit vol…

… and the second looking at the repricing higher in equity vs credit vol.

So should one just enter into a “crash” pair trade, of selling rates vol and buying equity vol? Sure, just be careful for a potential whiplash in credit vol: as Kocic concedes, while in the near term, an aggressive/hawkish Fed is seen more disruptive for risk than for rates or credit, “that could change in the long run” especially if China, that holder of $1.3TN in TSYs decides to send a powerful message to Trump as to who is really calling the shots in the incipient trade war.

* * *

There is a second “narrative” to emerge as a result of last week’s hawkish FOMC: as Deutsche explains, “last week’s FOMC meeting can also be interpreted as an attempt of the Fed to take control of the process of rates market normalization. This is the alternative narrative.” This particular narrative is one of substantial latent risks, as until now, the Fed was willing to let market’s dictate the normalization process, even if it means a dual paradoxical outcome whereby the tightening after several rate hikes lead to higher risk, while yields rose in the context of an acute, and recessionary, curve flattening.

It is this nonsensical reaction to “normalization” that the Fed is hoping to “normalize” in turn, although in doing so it risks losing control of the entire process.

As Kocic notes, for more than seven years after 2008, bear steepeners and bull flatteners were dominant modes of the curve — while short end hardly moved, back end articulated response to market shocks.

These two modes of curve response were effectively a referendum on success of stimulus. However, one should keep in mind that these two curve modes are highly unnatural. Normally, shocks arrive at the front end of the curve and, since rates are mean reverting, their effect attenuates with time making them less visible at the back end. This is why in normal times bull steepening and bear flattening represent dominant modes of the curve. In that context, bear steepeners and bull flatteners are a reflection of explosive rates dynamics (negative mean reversion) – front end shocks amplify with time. The explosive process does not present a problem as long as the front end is in a “sleeper” mode, but as soon as it starts moving – when rate hikes commence – the risk of the long end getting unhinged becomes a problem.

This “breathing” of the curve between Bear Flattening (BeF) and Bear Steepening (BeS) is shown schematically below:

It is this curve “breathing”, which directly impacts downstream risk assets, that the Fed has been trying to control since the beginning of rate hikes.”

As a consequence of this effort, “every violent bear steepener has been  encountered with an appropriate response of the short end of the curve causing a gradual flattener in such a way to shift the action closer to the front end. This is the “breather” mode of the curve. Effectively this was an attempt to recalibrate rates market and remove the risk of “exploding” back end. As a result, with time the bear steepening eruptions became less volatile and more limited arguing in favor of Fed’s success in their effort.

However, as a result of the changing narrative, and especially if indeed Powell wants to regain curve control over the recent resumption in flattening, the Fed risks jeopardizing its “credibility” of being able to control the curve.

In any case, according to Kocic, what this boils down to is that the Fed continues to supply convexity to the market, albeit in different form then before (rates range during QE or transparency and dialogue with the market in the first two years of rate hikes). It is in this shift that “the risks are being flexed.”

In terms of market mechanics, this means that as monetary policy remains negatively convex to higher rates due to tail risk of the bond unwind trade, “the Fed’s supply of vol is effectively financed by increasing their negative convexity exposure.”

In practical terms, this means that in a dramatic regime change, one which we hinted at in February when we first relayed the new Fed chair’s stunning philosophical admission that “the Fed has a short volatility position“, Powell now appears to be abandoning the problem of facing the tail risk by being behind the curve and is instead pushing rates higher themselves, or as Kocic summarizes, “instead of risking that markets raise rates” – a process which can quickly spiral out of control – “are taking control of that process.”

This is where the biggest risk emerges:

And although locally vol could stabilize, stakes are getting higher with time and the question of whether the Fed would be able to successfully fine-tune its exit and take control of rates normalization without causing major disruption remains open.

However, a few more big, sharp drops in the S&P and there will be no question what the market thinks of the Fed’s sharp regime change, and its chances of successful execution, especially if what Deutsche said earlier on, namely that “stimulus unwind is taking us into an environment where everything wants to sell off” remains the case.

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Are Corporations Poised To Overtake Countries?

Submitted by WorldView,

  • Corporations such as Facebook and others will continue to outdo the state in accruing massive amounts of personal data on individuals, particularly in the West.

  • Massive firms could use such information as part of an effort to reshape people’s allegiances.

  • As states perceive corporations as potential threats to their power, they will take action to keep such companies at bay.

Will the corporation supplant the state as the world’s dominant organizational structure in the coming century?

It’s a question to which many world thinkers adamantly answer “yes.” In this bold vision for the future, national borders gradually wither away as transnational companies become ever more powerful, leading governments by the nose in pursuit of perfect supply chain efficiency.

For advocates of this vision, the prevailing trends throughout the world, large companies’ growing influence, the giant cash piles of companies like Apple and diminishing trade barriers all point to the coming predominance of the corporation.

Skeptics, by contrast, say the obituary for the state is decidedly premature but concede that the corporation is likely to eat away at national power in the decades to come.

Is the Sun Setting on the State?

The history of the world is essentially a history of the invisible lines that have shaped the global population. The basic societal unit, the human, is largely the same the world over, but systems have emerged to turn humans into cogs in larger machines. Organizations and institutions exercise power thanks to individuals’ willingness to subordinate themselves to wider goals. In feudal times, a king’s power depended on the loyalty of his lords, who themselves needed to keep their peasants in line to ensure their own continued strength. While ostensibly preoccupied with the world to come, the Catholic Church once wielded a large degree of power in the present realm. Today, however, the institution is a shadow of its former self because it has not succeeded in persuading as large a percentage of the population to believe in it, thereby reducing its power on a relative basis. In the centuries that followed the Peace of Westphalia in 1648, the nation-state began to supplant the church, ultimately providing a common sense of identity for which large groups of diverse people were willing to die.

But the idea that individuals could begin to rally around the corporation more than the nation-state is flawed. First off, the favorable geopolitical circumstances that have permitted corporations to thrive over the last seven decades might not continue. Beyond that, however, there are also deeper philosophical problems with the idea, centered on the question of personal motivation.

If corporations are to overtake the state in global importance, individuals would need to collectively switch their primary allegiance (or be compelled to do so by circumstance) to massive companies over their current polities. The situation would also require the average person to prize a corporate identity more highly than a national one – something that few have been willing to do thus far. National identities have coalesced over many centuries, becoming woven into families, cultures, traditions and languages. Corporations, by contrast, are relative newcomers to the realm of identity politics and have not managed to achieve the same degree of penetration into people’s lives. Still, recent developments portend a shift in power from country to corporation.

Harnessing Knowledge in Pursuit of Power

In recent years, personal information has become an increasingly important commodity, particularly in Europe and North America. But whereas one would have expected the state to collect such information in the past, today it is the corporation that is amassing such knowledge. Western populations have been relatively content – the present fallout from the Facebook-Cambridge Analytica incident notwithstanding – to allow companies to learn vast amounts of information about them. Over the last two decades, companies such as Facebook, Google and Amazon have become interwoven in the daily lives of Western citizens, and they have amassed extraordinary amounts of information at an individual user level for the purposes of targeted advertising. These developments have given technology corporations the ability to gain access to a degree of knowledge over individuals’ lives that a Western politician seeking election could only dream about.

Large proportions of people’s lives are migrating online into areas such as social media, and if the trajectory continues at its current rate, corporations such as Facebook and Amazon could soon possess more knowledge about individuals in a Western country than national governments, which are largely restrained in the information they can gather and retain.

Large proportions of people’s lives are migrating online into areas such as social media, and if the trajectory continues at its current rate, corporations such as Facebook and Amazon could soon possess more knowledge about individuals in a Western country than national governments, which are largely restrained in the information they can gather and retain. In a battle for hearts and minds, it is not hard to imagine Apple one day enjoying a better chance than a national government of persuading an individual to align with its interests. This could be the key to enormous persuasive power; indeed, it is possible that it could provide corporations with a path to ultimately win the battle for a population’s hearts and minds.

Already, it appears that states are preparing a counterattack against the corporate challenger, particularly by resorting to antitrust legislation. Judicial officials in the European Union have launched legal action against major U.S. technology companies through such avenues, while a similar debate has begun in the United States as well.

The planet is a long way from sitting down to watch a World Cup match pitting Amazon versus Facebook instead of the likes of Brazil versus France, yet corporations will continue to make inroads into the lives of people around the globe to the degree that they could come to rival the state for power. As the recent legal proceedings in the European Union show, the first salvoes have been fired in the great battle between the state and the corporation, and more are likely to come.

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Steven Pinker Thinks Pope Francis Is a Problem, Nuclear Power Is a Solution, And We All Need Enlightenment Now!

“The Enlightenment principle that we can apply reason and sympathy to enhance human flourishing may seem obvious,” writes Steven Pinker in his new book Enlightenment Now: The Case for Reason, Science, Humanism and Progress. “I wrote this book because I have come to realize that it’s not.”

Pinker is a linguist who teaches at Harvard and is the author of The Better Angels of Our Nature, The Blank Slate, and How the Mind Works. He’s been named on the top 100 most influential intellectuals by both Time and Foreign Policy.

In this wide-ranging podcast interview with Nick Gillespie, Pinker explains why he thinks Pope Francis is a problem when it comes to capitalism, nuclear energy is a solution to climate change, and why libertarians need to lighten up when it comes to regulation. He also makes the case for studying the humanities as essential to intellectual honesty and seriousness even as he attacks that “cluster of ideas, which is not the same as the humanities, but just happens to have descended over large sectors of the academic humanities: the deep hatred of the institutions of modernity, the equation of liberal democracy with fascism, the feeling that society is in an ever-worsening spiral of decline, and the lack of appreciation, I think, that the institutions of liberal democracy have made the humanities possible, made them flourish.”

Audio production by Ian Keyser.

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Video version produced by Todd Krainin. Cameras by Mark McDaniel and Krainin. Go here to watch and get downloadable versions.

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The interview has been edited for clarity. Check all quotes against the audio for accuracy. For an audio version, subscribe to the Reason podcast.

Nick Gillespie: What comprises the Enlightenment?

Steven Pinker: My point of view identifies four things: reason, science, humanism and progress. Reason being the ideal that we analyze our predicament using reason as opposed to dogma, authority, charisma, intuition, mysticism. Science being the ideal that we seek to understand the world by formulating hypotheses and testing them against reality. Humanism, that we hold out the well-being of men, women and children and other sentient creatures as the highest good, as opposed to the glory of the tribe or the race or the nation, as opposed to religious doctrine. And progress, that if we apply sympathy and reason to making people better off, we can gradually succeed.

Gillespie: Why did the Enlightenment happen when it did?

Pinker: Because it only happened once, we don’t really know and we can’t test hypotheses, but some plausible explanations are that it grew out of the scientific revolution of say the 17th century, which showed that our intuitions and the traditional view of reality could be profoundly mistaken, and that by applying reason, we can overturn our understanding of the world.

Maybe the more proximate technological kickstarter was the growth of printing technology. That was the only technology that showed a huge increase in productivity prior to the Industrial Revolution. Everything else had to wait for the 19th century.

Gillespie: You talk about how basically between the year 1000 and about 1800, in many places people saw very little increase in material well-being.

Pinker: Yeah. Economic growth was sporadic at best. But printing technology did take off in the 18th century. Pamphlets were cheap and available, and broadsheets and books, and they got translated. They were circulated across all of the European countries as well as the colonies, so that the exchange of ideas was lubricated by that technological advance.

Another possible contributor was the historic memory of the wars of religion. That showed that dogmas about faith and scripture and interpretation and messiahs and so on could lead to tremendous carnage, and people thought, ‘Let’s not do that again.’ These are all the ingredients. Which one was causal, we don’t know.

Gillespie: A large section of the book documents the incredible material progress that we’ve made. What for you are some of the key markers that show the impact of Enlightenment thinking on our world?

Pinker: Certainly the conquest of hunger—the fact that now we’ve got this problem called obesity, the obesity epidemic. Historically, as problems go, that’s a pretty good one to have compared to the alternative of mass starvation.

There still is hunger, especially in war-torn, remote regions, but by and large famine, as one of the Horsemen of the Apocalypse, has been tamed. And just sheer longevity, the fact that in the world as a whole, life expectancy now is 71. For most of human history, it was 30. Literacy—the fact that 90 percent of people under the age of 25 can read and write, when in Europe a couple of hundred years ago it was 15 percent. Less obviously, war has been in decline over the past 70 years or so, and crime has declined, even in a pretty crime-prone country like the United States.

Gillespie: But violent crime on a day-to-day basis started declining in the late Middle Ages, right?

Pinker: Yeah, so we can’t credit the Enlightenment for that, because it was part of the transition to modernity. But it got a boost in the 19th century with the formation of professional police forces and with the more systematic application of criminal justice, and then in the 1990s and the 21st century with data-driven policing.

Gillespie: I found one insight related to criminal justice really interesting: talk about the idea of having a prison sentence or a sanction against a criminal fit the crime.

Pinker: Prior to the Enlightenment, there were gruesome criminal punishments for what we would consider rather trivial misdemeanors. Drawing and quartering, cutting a person open, ripping out his entrails while he was still alive and conscious.

Gillespie: I’m sure he was guilty of something, right?

Pinker: You know, poaching. Criticizing the royal garden. Then in the 18th century, Cesare Beccaria, who also coined the term ‘the greatest good for the greatest number’ (later picked up by Jeremy Bentham as a model for utilitarianism), argued for proportionality. Not so much to satisfy some cosmic scale of justice, but just to set up the right incentive structure. He pointed out that if you’re going to apply the severest penalty to rather minor crimes, criminals could just say, ‘Well, why stop at that? If I’m going to take a chance, I may as well go all the way—kill the witnesses, kill the witnesses’ families, if I’m going to get the same punishment as just burglarizing the house in the first place.’ It’s a real rational, incentive-based argument.

Gillespie: You say, ‘The world has made spectacular progress in every single measure of human well-being. Here is a second shocker. Almost no one knows about it.’ Why don’t we acknowledge that more?

Pinker: Some of it is that we have no exposure to it. Our view of the world comes from journalism. As long as rates of violence and hunger and disease don’t go to zero, there will always be enough incidents to fill the news. Since our intuitions about risk and probability are driven by examples, the ‘availability heuristic,’ we get a sense of how dangerous the world is that’s driven by whatever events occur, and we’re never exposed to the millions of locales where nothing bad happens.

I think there’s also a moralistic bias at work. Pessimists are considered morally serious. As Morgan Housel put it, ‘Pessimists sound like they’re trying to help you. Optimists sound like they’re trying to sell you something.’ We attach gravitas often to the doomsayer.

Gillespie: You beat up on Dr. Pangloss, the character in Voltaire’s Candide who’s fond of saying, ‘This is the best of all possible worlds, so everything in it is perfect.’ If you want to be a data-driven optimist—a rational optimist, in Matt Ridley’s phrase—how do you prevent yourself from becoming Gillespie Panglossian? Because there’s no question, compared to 500 years ago we’re much better off, so stop complaining, you know?

Pinker: As Matt points out, Pangloss was a pessimist. An optimist thinks that the world can be much better than what it is today.

Gillespie: Yeah, and he has syphilis, so it’s like, his world could be a lot better.

Pinker: Voltaire was really satirizing Leibniz’s argument for ‘Theodicy,’ namely that God had no choice but to allow earthquakes and tsunamis and plagues, because a better world was just ontologically impossible.

[To keep from being a Pangloss, you should] stick with the data and notice that some things get worse. Right now, for example, the opioid epidemic is clearly an example. There have been fantastic setbacks: the Spanish flu epidemic in 1918–1919, World War II, the 1960s crime boom, AIDS in Africa. You’ve also got to be aware of low-probability but high-impact events such as nuclear war. Such as the possibility of catastrophic climate change.

Gillespie: Let’s look at some of the groups that you see as anti-Enlightenment. The first one I want to talk about is the Romantic Green movement. What do you mean by that phrase, and who are these people?

Pinker: Well, my particular foil for that would be Pope Francis, and I know that arguing with a man who’s infallible must be the ultimate exercise in futility.

Gillespie: That’s why you have tenure, right?

Pinker: That’s exactly right. This is the idea that humanity made a terrible mistake when it began the Industrial Revolution, that we’ve been raping and despoiling the environment, which has been getting steadily worse and worse and worse, and that we will pay the price in a dreadful day of reckoning.

Gillespie: Even if we did have 200 years of progress from 1800 on, everything’s about to go to hell?

Pinker: Right. Or the progress that we’ve experienced so far is illusory, since we’re breathing in carcinogens as we speak and since species are dropping like flies, so actually our situation is getting worse and worse and worse. This movement tends to be opposed to the technology-driven increase in living standards over the last couple of years. It tends to see humanity as a scourge on the planet. In the book, I acknowledge that concern with the environment certainly is a good thing, and we have the Green movement to thank for reminding us that there can be harms from pollution.

However, there is an alternative approach to protecting the environment, sometimes called ecomodernism or ecopragmatism, that acknowledges that pollution has been a price that we have paid for enormous benefits to humanity—more than doubling lifespans, emancipating slaves, emancipating women from domestic drudgery, emancipating children from farm labor and getting them into schools. Some degree of pollution is worth paying just as some amount of dirt in your house is worth it, because the effort to keep it perfectly clean would mean sacrificing everything else good in life.

Gillespie: It’s not that the world exists merely for us to blow it up if we want to, but rather that a lot of the Romantic Greens don’t seem to put any value on human flourishing.

Pinker: An example would be the implacable opposition to genetically modified organisms, which promise increased nutrition and in fact promise enormous environmental benefits—crops that need fewer pesticides, fewer fertilizers, less acreage.

Gillespie: Less water, less resources.

Pinker: Right. So paradoxically, that would be a case in which adherence to a Romantic ideology—what is natural is good, what is human-made is bad—actually can harm the environment.

Another aspect of ecomodernism is the recognition that affluence in general is good for the environment. When people are so poor that electricity itself offers a big leap in their living standards, they’ll live with an awful lot of pollution in return for electric current coming out of their walls. Once you get a little bit richer, and you’re starting to choke on smog and you can’t see the horizon, then you’re willing to pay for the pollution control devices that give you the electricity without all the pollution.

Gillespie: China 50 years ago just wanted enough to eat, and they were willing to industrialize without thinking about pollution. Now you’re starting to see that as Chinese people get richer, they want cleaner air.

Pinker: Absolutely. The world’s most polluted areas are poor countries. Poverty is the greatest polluter.

Gillespie: I would think neo-Marxists would say, ‘Well, that’s because the rich parts of the world are exporting their pollution to poor countries.’

Pinker: That’s not literally true. Most of our pollution can’t be exported because it’s involved in the generation of power and home heating and so on. And a lot of the pollution in the developing world comes from burning wood or dung, especially indoors, and from contaminated drinking water.

Gillespie: Let’s talk a bit about climate change. First and foremost, you believe that it’s happening and that human activity adds to it, right?

Pinker: Yeah.

Gillespie: You talk about how there’s a strong argument for nuclear energy if what you care about is how to get the most energy out of the fewest greenhouse gases. How did you come to appreciate nuclear?

Pinker: Partly from thinking through that we really do need scalable, abundant, affordable energy, particularly in the developing world. There’s a moral imperative to allow India and China and Africa to enjoy the benefits that we’ve enjoyed from abundant energy. Nuclear energy doesn’t involve burning anything, so it doesn’t emit carbon, and a lot of our dread of nuclear energy is because it hits all of our cognitive buttons for the fear response: It’s novel, we can imagine a catastrophe, it’s man-made as opposed to natural. There are a few salient events that lodge in our cultural memory, mainly Three Mile Island and Chernobyl, and now Fukushima, despite the fact that the human damage in each case was trivial compared to what we tolerate day in and day out from burning coal.

Gillespie: I hadn’t thought about it in these terms, but you mention that only 60 or 100 people died directly in Chernobyl.

Pinker: Yeah, and then there probably was a slightly elevated cancer rate, barely detectable.

Gillespie: So is this a case where we can imagine the disastrous outcome and that overwhelms the cognitive ability to talk about this stuff rationally?

Pinker: That’s right, because the far greater number of deaths come from fossil fuels—from mining, from transporting, from the pollution. It just never happens all at once in a photogenic event. Coal kills, according to one estimate, about a million people a year, but that doesn’t make the headlines.

Gillespie: You also note that France and Germany, which are countries that get a lot of electricity generation out of nuclear power, are moving toward getting rid of it, right?

Pinker: Germany most of all, and their carbon emissions have gone up. Because when nuclear power plants are taken offline, they’re replaced by fossil fuels.

Gillespie: I guess part of the Romantic Green movement is this idea that you can get something for nothing. But if you wanted to use wind energy or solar panels, there’s a vast amount of area that would need to be covered with these things in order to generate the type of energy we need.

Pinker: And also the wind is sometimes becalmed, and the sun doesn’t shine at night. Even with the enormous penetration of photovoltaics, which is clearly a good thing, there’s a limit to how much of the energy demand [solar] can assume, since a modern economy also has to provide energy at night, and there are long periods of time in which there’s pretty thick cloud cover. If we need a fossil fuel backup, then it doesn’t really help with reducing carbon emissions, because we still have to have those gas or coal plants.

Gillespie: This is all kind of pursuant to the idea that climate change is happening, and that it makes sense for the planet to reduce carbon emissions. In your reading of the data, what are the odds the bad scenario is going to happen?

Pinker: I couldn’t assign a number to it. It strikes me as high enough that we should reduce the tail risk. There’s a range of pretty gruesome scenarios as to how high sea levels could rise, and possible flips like the Gulf Stream being diverted that would turn Europe into Siberia. Not definitely going to happen, but high enough of a probability that the consumer should worry about it.

Gillespie: Your preferred fix to this is a carbon tax. How would that work?

Pinker: The idea would be to, as they say, internalize the externality of emitting the carbon that could result in climate change that harms everyone—but without the command-and-control mechanism where someone decides what source of energy we should use, what conservation methods we should adopt. The advantage of carbon pricing is that the decisions are distributed across billions of agents, who can weigh the various trade-offs—the benefit that you get from fossil fuels as opposed to the cost that the carbon tax would impose.

Gillespie: Political economy people worry about how to figure out the cost of a ton of carbon or exactly how much damage it does. How do you price it so that you don’t create a false market that causes malinvestment?

Pinker: That risk can never be zero, because no one’s omniscient, but I think having one is better than not having one.

Gillespie: Some people hate modernity because of environmental concerns, but it seems that the anti-Enlightenment attitudes on the right come from a different place. Who are the major players there, and what’s motivating them?

Pinker: Some of the concerns are religious—we shouldn’t play God by extending human lifespans, or, conversely, we don’t even have to worry about climate change because God wouldn’t let any bad thing happen.

Part of it comes from something that’s called theoconservatism—the idea that the Enlightenment roots of the American social order were a big mistake, that it just has led to relativism and homosexuality and pornography.

Gillespie: Women wearing pants?

Pinker: And worse, just decadence and degeneration, because the right to life, liberty and the pursuit of happiness is just too tepid for a morally robust society. So we need something, some sort of rock-solid principles, which immediately are provided by religion—particularly Catholicism. This is a movement that distrusts science for its Promethean usurping of power from the gods, especially when it merges with classical liberalism and other Enlightenment values.

Gillespie: It seems to me that there are two major legacies of the Enlightenment. One is scientific progress, or the idea that we can and should investigate all aspects of the natural world and the social world and get to understand them better. But that in a weird way leads to things like Darwinism and other forms of scientific determinism, where we know why things happen, and we know they’re going to happen in pretty predictable ways, and that limits our autonomy. On the other hand, there is the political legacy of the Enlightenment, which is the idea that each of us should be able to run our lives more than we did in the past, because we’re all thinking agents who deserve life, liberty, and the pursuit of happiness.

Is there a tension between those two legacies? Because life, liberty, and the pursuit of happiness means we have an open society, and an open society means we sometimes come across scientific discoveries that tell us we’re not that special. You’re never going to be a baseball player, I’m never going to be a Harvard professor. How do we maintain equality in the political sphere as science tells us we’re more and more unequal?

Pinker: We have to embrace the ideal of equality of opportunity and equality of treatment under the law, as opposed to equality of outcome. That’s an inescapable consequence of the fact that we’re not clones. We’re genetically different. But if you adopt a principle that we’re not going to prejudge an individual by the characteristics of his or her group, that’s a moral and political decision that is justifiable, and it’s one that we can stick to.

Gillespie: Talk about the structural postmodern critique of the Enlightenment.

Pinker: It didn’t take long after the Enlightenment for there to be a counter-Enlightenment movement. The 19th century Romantics, the cultural pessimists like [Arthur] Schopenhauer and [Friedrich] Nietzsche, lead to the Frankfurt School of [Max] Horkheimer and [Theodor] Adorno, and to the existentialists and then to the postmodernists, who rejected pretty much every one of the Enlightenment ideals. [They thought] reason was just a pretext to exert power, and the individual was a myth—individuals are embedded in a culture and it’s the culture that’s real.

One strain of that led to blood-in-the-soil nationalism. We’re just sort of cells of a superorganism. There’s no such thing as objective truth, just competing narratives, and far from there being progress, there has been deterioration, and any moment now the entire society will collapse.

Gillespie: Are there critiques of the Enlightenment that you find convincing? Because you kind of push away the negative things. I’m thinking of Adorno and Horkheimer saying the Enlightenment is totalitarian, because it controls every aspect of the human experience, much like Nazism or Stalinism or Maoism. You say, ‘No, those were perversions of the Enlightenment.’

Pinker: Yeah, there is the danger of the ‘No True Scotsman’ fallacy. But no, Nazism was not an Enlightenment movement. I don’t think you can trace it back to Adam Smith and David Hume and [Baruch] Spinoza and James Madison. It was counter-Enlightenment in valorizing the tribe over the individual, and it was opposed to liberal movements of the 19th century that tried to generate wealth, reduce injustices, maximize flourishing of as many people as possible. These were all anathema to the Nazis.

Gillespie: Isn’t there a hubris that’s part of the Enlightenment legacy that we always need to be on guard against?

Pinker: Yeah, and the Enlightenment had many contradictory strains, so it’s in the very nature of the Enlightenment that it wasn’t a doctrine or a catechism of beliefs. It would be impossible to say everything about the Enlightenment is worthy, because they disagreed with each other. There also was a critique of the Enlightenment from Edmund Burke, that we’re just not smart enough to design a society from rational principles, so we should respect tradition and [existing] social structures even if we can’t explain their rationale, because they keep us from teetering over the brink.

Gillespie: His great example of that was the French Revolution, which leveled all sorts of past institutions.

Pinker: Here’s the way I would put it, though: Yeah, the Enlightenment as a movement, obviously, was filled with flaws. Because they’re just guys. They couldn’t have gotten everything right on the first try. They disagreed with each other, and there was a lot of stuff they didn’t know. They didn’t know evolution, they didn’t know thermodynamics. It’s really the ideals that I associate with the Enlightenment that we ought to venerate.

Gillespie: You say in the book that politicization makes us dumb. What’s your general argument?

Pinker: People identify with what you might call tribes, and leftism and rightism have become tribes. We’ll evaluate any idea in terms of how well it conforms with a particular set of ideas that happen to be associated with that tribe. We’ll resist evidence to the contrary. We’ll demonize those who disagree with us.

There are studies that show that people, when evaluating data from a hypothetical experiment—if it’s politically neutral, like the efficacy of a skin cream—do a decent job of interpreting the numbers. But as soon as it’s a political hot button, like concealed weapon laws, then they’ll systematically misread the data in the direction that favors the position associated with their coalition.

Gillespie: What are the ways around that?

Pinker: Ideally, it would be reminding people that this phenomenon exists—that political tribalism makes us make math errors, that it is a human failing, and that we should evaluate policies in terms of evidence about their effects and how well they conform with what we want.

That is the idealization, but of course if we were rational enough to accept that, we probably wouldn’t have fallen into tribalism in the first place. [Another solution], with perhaps more of an appeal to our emotional selves, would be to find spokespeople who are branded with the opposite coalition to speak in favor of a particular position. In the case of climate change, it would be far more effective if there were people on the libertarian right who were chosen as spokesmen, as opposed to Al Gore, who was the Democratic candidate for president, to frame issues in a way that doesn’t immediately trigger your tribal affiliations.

We do know that issues can flip. Environmentalism used to be thought of as a right-wing position, because these were gentlemen in their country estates who valued the view and duck hunters who wanted the habitat preserved for their prey. Whereas serious progressives cared about real issues—

Gillespie: They want to put dams everywhere so that they could provide energy for poor people.

Pinker: Exactly.

Gillespie: You chastise the libertarian right for embracing a rigid dogma over serious introspection on things. Like, libertarians will go right from a regulation getting introduced to ‘We’re at the final terminus of the road to serfdom.’

Pinker: The next thing you know we’re Venezuela, yeah.

Gillespie: Then there’s the way politics damages academia. What are the worst elements or outgrowths of this kind of politicization as it affects you on a daily basis?

Pinker: There are some hypotheses that are hard to advance without being branded as a this-ist or a that-ist. The fact that men and women aren’t indistinguishable, the fact that intelligence is in good part heritable, the fact that parenting doesn’t have a lasting effect on the personalities of children, the fact that rates of crime differ across ethnic groups, the fact that policing has a large effect on the crime rate. I could go on.

Gillespie: The problem is that because of the politics around these issues, you’re not even supposed to investigate them.

Pinker: I think there are two problems. One is simply that we can’t converge on a most likely hypothesis if there are some hypotheses that are just undiscussable. It’s only in the crucible of ideas and debate that you can converge on the truth.

The other is that, by making certain hypotheses undiscussable, you open a niche for people who stumble across them outside of the sandbox of academia. And they can often attach themselves to the most extreme versions, since they feel empowered that they’ve discovered a truth that’s undiscussable in academia.

You get communities in the alt-right that often embrace quite illiberal, extreme views, because they feel so exhilarated that they’ve come across them. A silly example would be Milo Yiannopoulos saying that because women place a greater emphasis on family vs. career in their lifestyle trade-offs, we should keep women out of medical school, because they’re just going to drop out and have babies.

It is actually a fact that there is a difference in the distribution of life priorities between men and women. Of course, that doesn’t mean that all men place 100 percent weight on their career and 0 percent on family, or vice versa. And there are moral and political arguments why, even if it were the case that more women drop out, we would not want to keep them out of medical school. But that debate doesn’t even take place if you can’t acknowledge the fact that men and women have different distributions.

Gillespie: But in the university, it’s not the Milo Yiannopouloses of the world that are keeping that conversation from happening.

Pinker: That’s right, yes, but then these views can kind of fester in these online communities. Likewise, another example that I’ve given is that you can’t really understand crime in this country without noting that there are pretty severe differences in rates of incidence across different ethnic groups and races. But if that’s undiscussable and then you stumble across it because you go to FBI.gov, you might think, ‘Oh, it shows that African Americans are inherently more violent.’ Which of course is nonsense, because rates of crime [aren’t static]. At other points in American history, it was the Irish-Americans who had the high rates of violent crime. So actually, by suppressing a basic statistical fact, it can encourage racism in these alternative communities, because they never get pushback in an arena in which all hypotheses are out there and their limitations can be rationally discussed.

Gillespie: I can remember in grad school in the late ’80s and early ’90s, I had a lot of professors who had gone to Berkeley in the ’60s. I was libertarian and they didn’t particularly agree with me about a lot of things, but they were interested in discussing them. That seems to have faded. Why is the university no longer the place where you argue all ideas and get rid of the ones that can’t go more than a few rounds without being revealed as lightweight?

Pinker: I don’t know the exact history, but there was a fair amount of intolerance in the ’70s. It was not exactly a golden age for speech. A lot of speakers were, as we now say, deplatformed. But It does seem to have gotten worse in the last five to 10 years, and I don’t know if it’s that the Baby Boom generation itself had some intolerance toward non-leftist views, then became the establishment and established norms that the millennial generation has internalized.

Gillespie: Is it coming more from the faculty or the students?

Pinker: I think a lot of it actually comes from the student life bureaucracy, the various deans and associate deans and Title IX administrators and affirmative action administrators. They have formed this new guild that operates outside the ordinary university chain of command, with a president and a provost who rose from the faculty and presumably have some commitment to intellectual values. This is an autonomous culture that moves laterally from university to university. They have their own norms, and the control of a lot of student life has kind of been outsourced to them.

Gillespie: You make a case for studying the humanities as well as hard sciences. Yet you’re also extremely critical of what’s happening in the humanities.

Pinker: Well, if the humanities are defined as the study of, say, products of the human mind—of symbolic creations including art, ideas, political philosophies, and so on—there shouldn’t be a debate between the sciences and the humanities. We’ve obviously got to nurture scholarship of artists and writers and thinkers, past and present, and that has to be reinterpreted every generation with new understanding both of sources and of the greater intellectual context.

It’s just this particular set of assumptions that happens to have taken over big sectors of the humanities that I think is a source of the problem. Obscurantism in expression—the fact that by far the most turgid, jargon-ridden prose comes out of the postmodernist humanities—the deep hatred of the institutions of modernity, the equation of liberal democracy with fascism, the feeling that society is in an ever-worsening spiral of decline, and the lack of appreciation, I think, that the institutions of liberal democracy have made the humanities possible, made them flourish. It’s that cluster of ideas, which is not the same as the humanities, but just happens to have descended over large sectors of the academic humanities.

Gillespie: You’re making a defense of the Enlightenment. Are you optimistic that your intervention here will help?

Pinker: The honest answer is I don’t know. I think it would be grandiose to say that my book will change the situation. I’m doing what I can. The optimism that I’m associated with in this book isn’t just thinking that everything is bound to get better—that there’s some law of nature that will carry everything ever upward. It’s really more an empirical defense of progress. We have made accomplishments. They’re precious, we’re always in danger of losing them, and what will happen going forward depends very much on the choices that we make now.

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Morgan Stanley: “We Can Already See The Writing On The Wall”

Last Sunday, just before the Facebook plunge opened the selling floodgates for tech stocks (as also previewed here last weekend in “FANG + Apple Now Account For A Quarter Of The Nasdaq, And Some Are Getting Worried“) and the broader market, Morgan Stanley warned that “something was different this year“, specifically pointing out that as a result of escalating trade tensions and a global economy that is rolling over, the market may be priced beyond perfection, and that “2018 earnings expectations may be too high“, which however was good news for vol-starved hedge funds (which just suffered their worst month since January 2016).

When considering what that means for markets, it feels less like ‘morning in America’ than ‘happy hour in America’. In that sense, we’re pushing back on the notion that US policy actions have meaningfully extended the market cycle, instead arguing that markets have already largely reflected, and are currently pricing in, the benefits they delivered. Hence, we see more volatility to navigate as we work through the other side of the policy agenda. In US equities, for example, tax benefits are clear in their scale, but their use is murky. The nearly 8% move in 2018e EPS following the passage of tax reform aligns with our US equity colleagues’ estimate for full potential earnings benefit for the S&P from tax reform (~7.6%), leading us to believe that estimates are baking in a full flow-through of tax reform.

Morgan Stanley doubled down on the bearishness the very next day, when on Monday its chief US equity strategist Mike Wilson said that it is likely that the highs for the year are now in, that “when we look at our internal data combined with industry flows and sentiment, we think there is a strong case that January was the melt-up, or at least the culmination of it“, that “peak sentiment/positioning is behind us” …

… even as profits – the primary driver behind the recent market rally – peak: “earnings expectations might need to come down if we start to see some evidence of lower margins since consensus forecasts assume no operating margin degradation. That is another reason why we think the S&P 500 makes its highs for the year.”

What does Morgan Stanley think now? Below we present the latest take from Michael Wilson, who released the following Sunday Start report ahead of this week’s trading, which appears set for more volatility if only on purely statistical grounds – as some have noted, since 1990 when the S&P has lost more than 1.5% on a Friday, Monday saw a lower low 97% of the time, or on 90 out of 93 occasions.

From Morgan Stanley’s Michael Wilson:

* * *

Cruel to Be Kind

Just two short weeks ago, investors were celebrating the remarkably strong US jobs data with few signs of inflation. It was, in fact, the ideal combination for risk markets with many proclaiming “Goldilocks is alive and well!” Indeed, on the day of the release, the S&P 500 was up 1.74%–the biggest single day increase since the day after the US Presidential election in November 2016. Global markets celebrated too with every regional equity market rallying sharply that Friday or the following Monday for those that were closed when the data were released.

But, that excitement was quickly met with disappointing price action over the following days. There was no follow through—a classic sign that the good news had exhausted rather than uncovered new buyers. It also coincided with the top end our 2650-2800 trading range in which we have been suggesting the S&P 500 would be stuck until the next positive catalyst could arrive—1Q corporate earnings.

We also pointed out in our Weekly Warm-up on March 12th that the market wasn’t properly focused on two very visible risks over the coming weeks—The Fed’s March meeting and the potential escalation of trade tensions initiated with the US administration’s steel and aluminum tariffs. Fast forward to today, and the good news is that the market is now fixated on both—especially the higher risk for a potential escalation of trade tensions—and we have quickly fallen all the way back to the low end of our trading range.

Our nearly 30 years of experience often makes us wonder if markets are really designed to play with our emotions. At the same time, we can’t help but think that our firm’s 2018 outlook for a “Tricky Handoff” is playing out to a T. To recall, this was very different from our much more bullish view in 2017 and out of consensus at the time of publication. The reality is that many of the things we expected this year are happening—higher volatility across rates, FX and equity markets, tighter financial conditions, risk adjusted underperformance of credit relative to equities, contracting equity valuations in the US, narrower breadth, and a peak in economic leading indicators and data surprises.

We have yet to see some of the more inauspicious things we expect later this year—including a peak in operating margins and y/y EPS growth in the US and perhaps other regions as well. However, we can already see the writing on the wall and are highly confident this becomes obvious to the masses by the end of 3Q, or 4Q at the latest. This suggests more tough times for equity investors, but we doubt it will be that easy as market tops tend to be particularly exhausting.

In the near term, we think global equity markets will eventually settle down about the Fed’s slightly more hawkish path of tightening they signaled last week and the elevated risks of a broader trade dispute. Specifically, the dot plot is slightly steeper but not enough to upset the apple cart in the next few months/quarters. Our fixed income strategists have been highlighting rising funding costs—led by LIBOR—as a near term risk, but they also expect reduced supply in April and a subsequent fall in these rates. This should provide another positive catalyst along with corporate earnings.

As for the risk of a broader trade dispute, we think the odds here remain low as well. We note that so far, the size of the tariffs announced—25% on up to $50-60B—amounts to just $12-5-15B in actual tariffs. More importantly, Europe has been exempted much like the President exempted Canada and Mexico from the steel and aluminum tariffs a few weeks ago. This all suggests these shots across the bow are being used more as negotiating tactics. China’s response, so far, is tepid with tariffs affecting just $3B of traded goods with the US.

While I acknowledge most disputes are typically started unintentionally, I also believe the tail event will be over discounted in the near term relative to the actual near term impact on earnings and growth. In addition, these kinds of events do tend to ebb and flow and right now it’s ebbing sharply which means it’s getting priced; and just like markets top on good news, they bottom on bad. There is also significant valuation support at current prices so we stick to our guns that higher price highs for the year are still likely in 2Q/3Q for US equity markets as forward earnings move higher; but it should continue to narrow, we expect leadership to get more defensive and the S&P 500 should likely end the year not far from current levels as earnings growth expectations decelerate from the evolution of the business cycle, tougher comparisons and tighter financial conditions. In the meantime, enjoy your Sunday!

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“Tonight Is The Beginning”: Seven Things To Watch For In Stormy Daniels’ Interview

Tonight at 7pm ET/PT, 60 Minutes will air a controversial interview with Stephanie Clifford, aka Stormy Daniels, the adult-film star who says she had an affair with Donald Trump. Daniels will talk to Anderson Cooper about the relationship she says she had with Trump in 2006 and 2007, unveiling details that bring her story up to the present. It will be the first – and so far only – television interview in which she speaks about the alleged relationship.

The 60 Minutes interview will include an examination of the potential legal and political ramifications of the $130,000 payment that Trump’s attorney Michael Cohen says he made to Daniels using his own funds. Daniels accepted the money in return for signing a confidentiality agreement, although she recently violated the CA, claiming Trump never signed it.

The president has denied having an affair with Daniels, while Trump’s legal team – in this case led by Charles Harder who won a $140MM verdict for Hulk Hogan against Gawker – is seeking to move the case to federal court and claims that Stormy is liable for up to $20 million in damages. This in turn prompted Daniels to launch a crowdfunding campaign to fund her lawsuit against Trump, which at last check had raised over $290K.

Cooper conducted the interview earlier this month, shortly after Cohen obtained a temporary restraining order against Daniels. Meanwhile, Daniels is seeking a ruling that the confidentiality agreement between her and the president is invalid, in part because Mr. Trump never signed it. The president’s attorneys are seeking to move the case to federal court and claim Daniels is liable for more than $20 million in damages for violations of the agreement.

On Thursday, the lawyer representing Daniels fired off a tweet with a picture of what appeared to be a compact disc in a safe – hinting that he has video or photographic evidence of Clifford’s affair with President Trump. 

“If ‘a picture is worth a thousand words,’ how many words is this worth?????” tweeted lawyer Michael Avenatti. 

Avenatti has been a frequent guest on cable news as he promotes Stormy’s upcoming 60 minutes tell-all about her alleged affair with President Trump. When CBS Evening News’ Julianna Goldman asked Avenatti if he had photos, texts or videos of her alleged relationship with Trump, he replied “No comment,” adding that Clifford just “wants to set the record straight.” (which you can read more about in her upcoming book, we’re sure).

Previewing today’s 60 Minutes segment, Avenatti purposefully built up the suspense, tweeting that, among other things, “tonight is not the end – it’s the beginning”

And while it is highly unlikely that the Stormy Daniels scandal will escalate into anything of Clinton-Lewinsky proportions, not to mention that Trump has enough other headaches on his hands, here according to The Hill, are seven things to watch for in tonight’s interview:

1. Will she give details about the nondisclosure agreement?

Daniels has never spoken publicly about the nondisclosure agreement that purportedly bars her from speaking about her alleged affair with Trump. But a lawsuit filed by Daniels earlier this month confirmed the existence of such a document, arguing that it is invalid because it was never co-signed by Trump himself.

Whether Daniels will discuss the details of the agreement in the “60 Minutes” interview remains to be seen. Her lawsuit seeking to void the contract is still pending, and NDAs often prohibit signatories from speaking about the agreements.

Daniels has hinted that is true of her NDA. During an interview with late-night host Jimmy Kimmel in January, Kimmel pointed out that Daniels would likely be barred from discussing the agreement if it, in fact, existed. “You’re so smart, Jimmy,” was her cagey response.

2. Will she talk openly about the alleged affair?

Daniels has implied she was paid $130,000 by Trump’s personal attorney Michael Cohen weeks before the 2016 presidential election to keep quiet about the alleged affair. Speaking openly about her claims would certainly violate the terms of the disputed NDA, and could subject Daniels to legal penalties.

In court papers filed earlier this month, Trump’s lawyers said that Daniels could face up to $20 million in damages for violating the terms of the agreement. One question that remains is whether Daniels could toss out the NDA completely in her “60 Minutes” interview, and provide details about her alleged relationship with the president. The last time she spoke about it was 2011, when she gave an interview to In Touch magazine that wasn’t published until this year.

3. Will she mention possible video or photographic evidence?

Avenatti has repeatedly hinted that video or photographic evidence of Daniels’s alleged affair with Trump exists. The March 6 lawsuit filed by Daniels to void the nondisclosure agreement with Trump refers to “certain still images and/or text messages which were authored by or relate to” the president. While the NDA reportedly required her to turn over such material and get rid of her own copies, Avenatti has suggested that Daniels may have retained it.

Avenatti hinted this week that he may be in possession of such material, tweeting a cryptic photo of a compact disc inside of what appeared to be a safe. “If ‘a picture is worth a thousand words,’ how many words is this worth?????” he wrote on Twitter.

4. Will she address whether she was physically threatened?

Avenatti prompted questions earlier this month when he said that Daniels had been threatened with physical harm in connection with the alleged affair with Trump. Asked on MSNBC’s “Morning Joe” whether Daniels had been physically threatened, Avenatti bluntly replied, “yes.” Exactly who may have threatened Daniels or what the nature of those threats may have been is unclear, and Avenatti has declined to discuss the matter in greater detail. Daniels herself has not addressed any potential physical threats that she may have gotten, leaving open whether she will discuss the topic in the “60 Minutes” interview.

5. Will she discuss whether Trump knew about the $130K payment?

Cohen himself has acknowledged making the payment to Daniels, but has insisted that the money came from his personal funds and that Trump was never made aware of the transaction. White House press secretary Sarah Huckabee Sanders has said she does not believe Trump knew about the payment. But Avenatti has argued otherwise, saying the fact that Cohen used a Trump Organization email address backs up his claim that the real estate mogul was aware of the transaction. In an interview on “Morning Joe” last week, Avenatti also suggested that he had more evidence that Trump knew about the payment. Asked by Willie Geist if his “belief that the president directed this payment is based on more than a hunch,” Avenatti simply replied, “yes,” but declined to provide any evidence.

6. Why does she want to talk about the affair now?

Daniels’s lawsuit claims she expressed interest in discussing the alleged affair publicly in 2016 after The Washington Post published a 2005 “Access Hollywood” tape in which Trump could be heard boasting about groping and kissing women without their permission. It was at this point that Cohen and Trump “aggressively sought to silence Ms. Clifford,” according to the lawsuit, which claims that the $130,000 payment and nondisclosure agreement soon followed. But for more than a year after that, Daniels was silent about the alleged affair, and it was only in recent months that the accusations resurfaced. One thing to watch for is whether Daniels addresses her motives in the “60 Minutes” interview, or answers questions about what she hopes will happen next.

7. What happens next?

There may be hints of what Daniels’s next steps are in the interview. A planned court hearing for Daniels’s lawsuit is still months away. However, whatever Daniels reveals in the interview may force the hand of Trump’s own legal team. After news broke that CBS intended to air the “60 Minutes” segment with Daniels, speculation swirled that Trump’s lawyers would take legal action seeking to block the broadcast. Such legal action would have been unlikely to proceed, because courts rarely allow such prior restraint of speech, particularly regarding the news media.

But Trump’s legal team has already signaled they’re willing to fight Daniels on her claims. They reportedly asked for a temporary restraining order against her last month and have asked to transfer the lawsuit from California state court to a federal court in Los Angeles. But how Trump and his lawyers respond to the interview after it airs will be closely watched.

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Cash Is King Again – BlackRock’s Buying Bills As Yield Tops Stocks

TINA is dead… cash is king again.

For the first time since June 2008, the yield on the S&P 500 is below that of the ‘as good as cash’ 6-month Treasury-Bill yield.

Simply put – there IS an alternative, and it’s cash…

 

And  BlackRock’s Jeffrey Roszenberg agrees

Short-term bonds are looking attractive again after years of near-zero yields. The Federal Reserve’s rate increase this week only adds to the appeal.

We see short-term U.S. debt offering relatively compelling income, with limited downside risk, now that market participants have greater confidence in the Fed’s planned normalization path. In most of the post-crisis normalization period, the bond market significantly discounted Fed expectations for the pace of normalization.

The market has now caught up with the Fed’s view, with rising short-term interest rates reflecting this greater confidence. Market participants previously had good reason to be skeptical. 2017 was the only year the Fed delivered on its promised pace of normalization. But current economic tailwinds – tax cuts and plans for more government spending – suggest the central bank is poised to extend that recent track record.

Combined with what is already priced into front-end yields, this makes for attractive risk vs. reward. It means an investment perceived as “risk-free” now offers limited downside risk and positive after-inflation yields. A two-year Treasury yield now well above the core inflation rate restores a viable and perceived safe investment option that has been missing since the crisis.

Technical factors such as increasing U.S. Treasury bill issuance – the result of a surging budget deficit – are adding to the factors pulling short-term yields higher and making the short end look more attractive.

Lost revenues from tax cuts, twinned with greater government spending, mean more borrowing to fund deficits. We project the U.S. deficit to hit 5.7% of gross domestic product (GDP) by 2019, the highest since 1960, outside of the 2008 crisis aftermath. The deficit spike comes even as the jobless rate drops to multi-decade lows – an unprecedented disconnect.

Treasury bill and bond issuance are ramping up at a time when the Fed is reducing its reinvestment of maturing bond holdings. We estimate net bill issuance to the tune of roughly $500 billion in 2018, far beyond levels seen in recent years. The result: a need for greater private-sector financing of federal deficits.

The U.S. tax system overhaul also has created incentives for companies to repatriate overseas cash currently held in short-term instruments. Anticipation of these fund outflows is contributing to rising yields on shorter maturities.

Bottom line

We see rising opportunities at the front end of the curve, where yields finally above inflation levels (ZH: and stock dividend yields) offer investors a viable alternative to cash.

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Demographics And Automation Will Create A Perfect Economic Storm Until 2030

Via MauldinEconomics.com,

Last month, Bain & Company issued a magnum opus report called “Labor 2030: The Collision of Demographics, Automation and Inequality.”

The bad news is that Bain thinks automation will eliminate up to 25% of US jobs by 2030, with the lower-wage tiers getting hit the hardest and earliest. That will be devastating, and it’s not that far away.

On a positive note, Bain predicts that the manpower needed to build out the technology will keep us all working until 2030. The Bain team is way more optimistic than I am. But they have their reasons.

Why Is This Happening?

The answer is demographics and automation. Employers increasingly turn to automation as they can’t find enough workers with the skills they need.

The Baby Boom generation is leaving the workforce – although many Boomers are putting off their retirement as long as they can. The additional labor that came from one-time factors like China’s opening up has mostly run its course.

At the same time, technology is getting better and less expensive.

Source: Bain Macro Trends Group

Much of the job automation so far has been mild. It has mostly replaced dangerous factory work or other repetitive, unpleasant manual labor.

Often, automation makes human workers more productive instead of replacing them. But that’s about to change as artificial intelligence technology improves. Machines will be able to perform cognitive tasks that once required highly trained, experienced humans.

Automation Will Hurt Everyone

This trend might look like a good thing to employers. Invest in machines, lay off people, mint more profits.

But that’s short-sighted because someone has to buy your products. The laid-off workers won’t spend as much unless they get new jobs.

In theory, automation will enable lower prices, which will raise demand and create more jobs. Bain does not think it will happen that way. They foresee up to 40 million permanent job losses in the US.

Source: Bain Macro Trends Group

Projected Data Implies an Unemployment Rate of 25%

In the next 10–12 years, the US economy will swing from a labor shortage to a huge labor surplus. With the labor force presently around 160 million, this implies an unemployment rate around 25%.

I find it hard to see how we could call that an economic boom.

Bain’s report also points out that wages will go down long before workers get replaced by machines. The mere existence of the new technologies will cap wages as the price of automating vs. employing humans falls.

This will increase inequality and curb consumption. The best case is that reduced demand will result in decades of flat or mild growth. The worst? Economic dislocation and inequality lead to social breakdown and more calls for government intervention, higher taxes on the wealthy, and more generous welfare programs.

None of those outcomes would be good, but it’s not clear to me how we’ll avoid them.

Wealth Tax Is Coming

There is a 50-50 chance that a left-wing populist movement will arise in the coming decade. And those odds mean higher taxes. And larger government and more government controls. And a wealth tax.

Not an income tax, mind you, but a tax on all your wealth.

Now imagine having to “donate” 1% or 2% of your net worth to the IRS every year. It could happen, and if it does, it will make it that much harder to keep your assets growing against other headwinds.

I know that many of us think this outcome would be a terrible thing for the country. But it is quite possible that many more voters in this country will disagree with us, and things will change.

Remember that the significant majority of Millennials, who will be voting in greater numbers, think that socialism is superior to free-market capitalism.

For investors, a wealth tax would mean that merely keeping your wealth, let alone growing it, may get a lot harder in the next decade.

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Trump Unable To Hire diGenova, Toensing Over Conflicts, Mueller Strategy In Limbo

On Friday, we reported that President Trump would be “F—ing doing it my way” after “hitting the roof” over his legal team’s cautious approach to dealing with special counsel Robert Mueller, and after Trump had brought on D.C. veteran attorneys Joe diGenova and his wife Victoria Toensing last Monday to lead the Mueller probe just as Trump’s head Russian probe lawyer, John Dowd, was about to resign. 

diGenova and Toensing were reportedly recommended to Trump by Dave Bossie and Jeanine Piro – both of whom are outside advisors to Trump. That said, Fox News Senior Judicial Analyst Judge Napolitano thinks Dowd’s resignation and the decision to put Trump in front of Mueller’s team would be a “disaster” for the President.

Well, 48 hours later, it appears that Trump will be facing special counsel Robert Mueller without the diGenova and Toensing over conflicts of interest – however they will still assist in other matters.

“The president is disappointed that conflicts prevent Joe diGenova and Victoria Toensing from joining the president’s special counsel legal team,” said Trump’s personal lawyer, Jay Sekulow on Sunday morning. “However, those conflicts do not prevent them from assisting the president in other legal matters. The president looks forward to working with them.

While some outlets reported that Trump had a bad feeling about diGenova and Toensing, the reason the husband and wife legal team will not be joining President Donald Trump’s personal legal team representing him in Special Counsel Robert Mueller’s Russia investigation is due to a determination that their firm’s existing work presents a conflict.

Sekulow said last week that diGenova’s addition to the legal team was subject to an “ongoing process of conflict review” as is standard ethics practice for lawyers. Toensing already was representing other clients involved in Russia investigations, including the president’s former campaign aide Sam Clovis and Mark Corallo, a former spokesman for Trump’s legal team.

Sekulow said last week that diGenova’s addition to the legal team was subject to an “ongoing process of conflict review” as is standard ethics practice for lawyers, and according to Bloomberg, Toensing already was representing other clients involved in Russia investigations, including the president’s former campaign aide Sam Clovis and Mark Corallo, a former spokesman for Trump’s legal team. More from the NYT:

Mr. Corallo has told investigators that he was concerned that a close aide to Mr. Trump, Hope Hicks, may have been planning to obstruct justice during the drafting of a statement about a meeting between a Russian lawyer and Donald Trump Jr. during the campaign.

Ms. Hicks’s lawyer has strongly denied that suggestion, and White House aides said Mr. Corallo’s assertion had come up in discussions with the president as he weighed whether to go ahead with Mr. diGenova and Ms. Toensing. –

Toensing also represents William D. Campbell, the FBI informant who was deep undercover in the Russian uranium industry and testified to Congress in February of what he says were Russia’s efforts to control the global uranium industry – which included evidence that Russian energy officials routed millions of dollars for the benefit of a Clinton charity before the Uranium One deal was approved. 

The announcement that Toensing and diGenova won’t be joining Trump’s special counsel defense comes at a tenuous time for the President’s legal team – as his former lead attorney, John Dowd, quit last Thurasday amid discussions on how to best interface with the special counsel investigation. At present, Jay Sekulow and Trump’s longtime personal attorney Marc Kasowitz form the nucleus of his legal apparatus. 

On Sunday, Trump spoke to the issue over Twitter, tweeting “Many lawyers and top law firms want to represent me in the Russia case…don’t believe the Fake News narrative that it is hard to find a lawyer who wants to take this on. Fame & fortune will NEVER be turned down by a lawyer, though some are conflicted.” 

Trump then spoke to the immense task of taking over his representation:

“Problem is that a new lawyer or law firm will take months to get up to speed (if for no other reason than they can bill more), which is unfair to our great country – and I am very happy with my existing team. Besides, there was NO COLLUSION with Russia, except by Crooked Hillary and the Dems!”

diGenova has been on of Trump’s most ardent defenders – speaking in January of a “Brazen plot” by the deep state to exonerate Hillary Clinton and frame Donald Trump.

The FBI used to spy on Russians. This time they spied on us. what this story is about – a brazen plot to exonerate Hillary Clinton from a clear violation of the law with regard to the way she handled classified information with her classified server. Absolutely a crime, absolutely a felony. It’s about finding out why – as the Inspector General is doing at the department of justice – why Comey and the senior DOJ officials conducted a fake criminal investigation of Hillary Clinton. Followed none of the regular rules, gave her every break in the book, immunized all kinds of people, allowed the destruction of evidence, no grand jury, no subpoenas, no search warrant. That’s not an investigation, that’s a Potemkin village. It’s a farce.  -Joe diGenova via Daily Caller

 

Meanwhile, we’re just hours away from Stormy Daniels’ 60 minutes interview. Perhaps she’ll shed some light on the alleged “disk pic” containing, what her lawyer says, is evidence of her affair with President Trump. 

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