Month: June 2018

Blasphemy!!

Authored by Steven Hayward, op-ed via The Wall Street Journal,

Its descent into social-justice identity politics is the last gasp of a cause that has lost its vitality…

Climate change is over. No, I’m not saying the climate will not change in the future, or that human influence on the climate is negligible. I mean simply that climate change is no longer a pre-eminent policy issue. All that remains is boilerplate rhetoric from the political class, frivolous nuisance lawsuits, and bureaucratic mandates on behalf of special-interest renewable-energy rent seekers.

Judged by deeds rather than words, most national governments are backing away from forced-marched decarbonization. You can date the arc of climate change as a policy priority from 1988, when highly publicized congressional hearings first elevated the issue, to 2018. President Trump’s ostentatious withdrawal from the Paris Agreement merely ratified a trend long becoming evident.

A good indicator of why climate change as an issue is over can be found early in the text of the Paris Agreement. The “nonbinding” pact declares that climate action must include concern for “gender equality, empowerment of women, and intergenerational equity” as well as “the importance for some of the concept of ‘climate justice.’ ” Another is Sarah Myhre’s address at the most recent meeting of the American Geophysical Union, in which she proclaimed that climate change cannot fully be addressed without also grappling with the misogyny and social injustice that have perpetuated the problem for decades.

The descent of climate change into the abyss of social-justice identity politics represents the last gasp of a cause that has lost its vitality. Climate alarm is like a car alarm – a blaring noise people are tuning out.

This outcome was predictable. Political scientist Anthony Downs described the downward trajectory of many political movements in an article for the Public Interest, “Up and Down With Ecology: The ‘Issue-Attention Cycle,’ ” published in 1972, long before the climate-change campaign began. Observing the movements that had arisen to address issues like crime, poverty and even the U.S.-Soviet space race, Mr. Downs discerned a five-stage cycle through which political issues pass regularly.

The first stage involves groups of experts and activists calling attention to a public problem, which leads quickly to the second stage, wherein the alarmed media and political class discover the issue.

The second stage typically includes a large amount of euphoric enthusiasm – you might call it the “dopamine” stage—as activists conceive the issue in terms of global peril and salvation. This tendency explains the fanaticism with which divinity-school dropouts Al Gore and Jerry Brown have warned of climate change.

Then comes the third stage: the hinge. As Mr. Downs explains, there soon comes “a gradually spreading realization that the cost of ‘solving’ the problem is very high indeed.” That’s where we’ve been since the United Nations’ traveling climate circus committed itself to the fanatical mission of massive near-term reductions in fossil fuel consumption, codified in unrealistic proposals like the Kyoto Protocol.

This third stage, Mr. Downs continues, “becomes almost imperceptibly transformed into the fourth stage: a gradual decline in the intensity of public interest in the problem.”

While opinion surveys find that roughly half of Americans regard climate change as a problem, the issue has never achieved high salience among the public, despite the drumbeat of alarm from the climate campaign. Americans have consistently ranked climate change the 19th or 20th of 20 leading issues on the annual Pew Research Center poll, while Gallup’s yearly survey of environmental issues typically ranks climate change far behind air and water pollution.

“In the final stage,” Mr. Downs concludes, “an issue that has been replaced at the center of public concern moves into a prolonged limbo—a twilight realm of lesser attention or spasmodic recurrences of interest.” Mr. Downs predicted correctly that environmental issues would suffer this decline, because solving such issues involves painful trade-offs that committed climate activists would rather not make.

A case in point is climate campaigners’ push for clean energy, whereas they write off nuclear power because it doesn’t fit their green utopian vision. A new study of climate-related philanthropy by Matthew Nisbet found that of the $556.7 million green-leaning foundations spent from 2011-15, “not a single grant supported work on promoting or reducing the cost of nuclear energy.” The major emphasis of green giving was “devoted to mobilizing public opinion and to opposing the fossil fuel industry.”

Scientists who are genuinely worried about the potential for catastrophic climate change ought to be the most outraged at how the left politicized the issue and how the international policy community narrowed the range of acceptable responses.

Treating climate change as a planet-scale problem that could be solved only by an international regulatory scheme transformed the issue into a political creed for committed believers. Causes that live by politics, die by politics.

*  *  *

Mr. Hayward is a senior resident scholar at the Institute of Governmental Studies at the University of California, Berkeley.

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The only time the tech sector has been more valuable than this, relative to the financials, was at the very peak of the Dot-Com bubble in March 2000.

From there it was a precipitous drop back to reality…

And while we ‘know’ it’s different this time, andespite the stronger fundamentals of the technology sector today relative to  the period 20 years earlier, the high weight of the technology sector, particularly in some markets, raises the question of sustainability.

Goldman Sachs asks (and answers) – What can history tell us about the longevity of sector dominance? How big can a sector or stock get? (Spoiler Alert – a lot bigger and a lot longer)…

Sector dominance in the market

Looking at the history of the sector composition of the S&P 500 as a benchmark we can see that sector dominance is not new. 

We can split the long sweep of history in the US equity market into 4 main periods of leadership.

1) 1800 – 1850s Financials

Over this period banks were the biggest sector. Starting with almost 100% of the equity market, the stock market developed and broadened out. By the 1850s, the sectors weight had more than halved.

2) 1850s – 1910s Transport

As banks started to finance the exploding railroad system in the US (and elsewhere for that matter), transport stock took over as the largest in the index. In their boom years they reached close to 70% of the index in the US before fading to around one third of the market capitalisation by WW1 .

3) 1920s – 1970s Energy

With the huge growth of industry, powered by oil rather than steam and coal, energy stocks took over as the biggest sector. This continued as the main sector group until the 1990s, although interspersed with brief periods of leadership from the emerging technology sector (in the first wave it was lead by main frames and subsequently by software).

In the case of Europe, the sector dominance has been slightly different (see Exhibit 23).

We do not have the same history to compare with the US but, if we use the same broad 10 classifications we see industrials domination between the early 1970s and 1983 (with a brief period of commodities leading in 1980). Financials then took over as the dominant sector and have remained that way (with the exception of technology in 1999) ever since.

*  *  *

Over time different waves of technology resulted in different phases of sector dominance; as stock markets have become more diversified the biggest sector has tended to account for a smaller share of the aggregate market over time… but the lesson is: this dominance can go on longer than you can remain solvent.

However, the silver-lining for Tech bears are both the extreme valuations relative to banks (above) and the fact that these dominant cycles have tended to run for 50-or-so years and Tech has been dominant in the US since the early ’70s.

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Authored by Jason Ditz via AntiWar.com,

Massive death tolls from months of Israeli crackdowns in the Gaza Strip have been sparsely covered by the media, particularly in the US. But even where US media outlets have found fault with the killings, US Ambassador David Friedman is expressing anger, saying it’s “not reporting” to cover the killings critically.

US Ambassador David Friedman

Friedman says media coverage that wasn’t supportive of the deaths was “completely superficial,” and that Israeli military officials had assured him that they had to kill all of those Gazans to defend the nation of Israel.

A US Ambassador to Israel criticizing US media outlets is probably not going to amount to much, but Friedman also slammed Israeli newspaper Haaretz for its own coverage of the deaths, saying Haaretz never explored if there were “other alternatives” besides killing the Gazans.

That might be a bigger deal, as Haaretz is a major Israeli newspaper, and having a foreign ambassador to Israel publicly condemning an Israeli paper for criticizing an incident that happened inside Israel is likely a diplomatic faux pas, and further presents the US role within Israel as politically aligned with one faction’s narrative.

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Back in January, we introduced you to Michael Tubbs – the new mayor of Stockton, California (and the youngest mayor in American history of a city with a population of at least 100,000, according to his staff).

As a reminder, in 2013, Stockton became the most populous US municipality to ever declare bankruptcy. Since then, while the city has struggled through a painful Chapter 9 restructuring, its primarily agriculture-based economy remains mired in poverty.

Tubbs was campaigning during his final year ahead of graduation from Stanford University and upon his victory, he “felt almost a moral responsibility” to take risks and pursue unorthodox policies to help Stockton’s residents, and so, as we noted in January, the pervasive poverty in his city is what led Tubbs to announce the city would soon begin an interesting social experiment.

At the time, reports stated that a random sample of 300,000 Stockton residents will receive $500 every month with no strings attached. The program was set to become the US’s largest experiment with a policy that has become a favorite topic of Mark Zuckerberg and his Silicon Valley peers: Universal Basic Income.

Proponents argue that:

• The lack of expensive means-testing leads to a higher proportion of the budget going to recipients. This would be more efficient

• The transparency of universal payments would drastically reduce the need to detect benefits fraud

• One scheme could replace the current complex arrangement of government benefits, rebates and tax rebates

• Work will always benefit recipients of this welfare, rather than the ‘benefits trap’ that leaves part-time workers

Critics argue that:

• Universal income may be inflationary and, in attempting to move all individuals out of poverty, it may simply raise the level of the poverty line

• It may reduce the incentive to work and studies have found some evidence to support this.

• A reduction in taxable income would reduce the government’s ability to cover other expenses, such as healthcare

The universal basic income, in theory, combats poverty by doling out a fixed amount of cash per month to low-income or unemployed residents to create a guaranteed safety net, but after running a two-year trial, giving 2,000 unemployed residents about $685 a month, Finland recently abandoned its Universal Basic Income experiment (with the Finnish government imposing stricter benefits plans, introducing legislation making some benefits for unemployed people contingent on taking training or working at least 18 hours in three months).

However, despite Finland’s recent cessation, Tubbs is moving ahead with his plan… but on a considerably smaller scale than planned for in January.

As The Daily Caller reports, Stockton will be choosing 100 of its own residents to receive $500 a month in private funds to approximate the effects of a universal basic income.

The Economic Security Project (ESP) is funding the 18-month project, spending $1 million to conduct the test and monitor how the hand-picked residents spend the extra cash each month. ESP is partnering with Stockton Mayor Michael Tubbs, who says there will be “no strings” for accepting the payments.

“And then, maybe, in two or three years, we can have a much more informed discussion about the social safety net, the income floor people deserve and the best way to do it because we’ll have more data and research,” Tubbs told Reuters.

Facebook co-founder Chris Hughes, who also worked on former- President Barack Obama’s campaign, co-chairs ESP.

In the past, Hughes has proposed instituting a basic income of $500 for every American making under $50,000 a year. He proposed raising the income and capital gains taxes to 50 percent to pay for the program, according to Reuters.

Libertarian economist Charles Murray has championed the universal basic income as a viable and better alternative to welfare in the U.S., describing it in 2016 as “the least damaging way for the government to transfer wealth from some citizens to others.”

The Heritage Foundation’s Robert Rector, an expert on welfare policy, disagreed with Murray’s analysis in a 2018 report, saying welfare reform is a better vehicle for a social safety net.

“The premise of universal basic income has a known track record of failure that hurts recipients and increases dependence on government,” Rector writes.

“Policymakers seeking to reform the welfare state should focus instead on policies proven to work.”

Growing up in Stockton, where one in four residents live in poverty, Tubbs’ family relied on government assistance to meet their basic needs.

“My mom was on welfare for the first five, six years of my life,” he said. “You’d get food stamps, but that’s not cash, and maybe food’s not the biggest need … So this gives people more agency to kind of make the best decision.”

And remains convinced the UBI experiment will show that Stockton’s best bet is to invest in its own people.

But, as we noted previously, not everybody agrees.

In what he describes as a “radical critique of Universal Basic Income”, Charles Hugh Smith explained in a post we published back in June how UBI – far from staving off widening income inequality – would instead lead to de facto “serfdom”.

But a radical critique must go much, much further, and ask: is UBI the best that we can do? If we provide the basics of material security – the bottom level of Maslow’s hierarchy of human needs – what about all the higher needs for positive social roles, meaningful work, and the opportunity to build capital?

This critique reveals the unintended consequences of UBI: rather than deliver a Utopia, UBI institutionalizes serfdom and a two-class neofeudalism in which the bottom 95% scrape by on UBI while the top 5% hoard what every human wants and needs: positive social roles in our community, meaningful work that makes us feel needed, and the opportunity to build capital in all its manifestations.

UBI is the last gasp of a broken, dying system, a “solution” that institutionalizes all the injustices of serfdom under the guise of aiding those left behind by automation. We can do better–we must do better–and I lay out how to do so in this book.

A radical critique must also examine the widely accepted assumption that automation will destroy most jobs. Is this assumption valid? It turns out this assumption rests on a completely false understanding of the nature of work, the economics of automation and the presumed stability of an unsustainable global economy.

Community organizer Trina Turner, a pastor who deals with economically disadvantaged people, hopes the experiment will change the way people see Stockton, which declared bankruptcy in 2012 and has high rates of crime and homelessness.

“I think it will begin to shift the narrative about Stockton,” she said. “Instead of being the miserable city, we’ll be the city that people are waiting to come to for all of the right reasons.”

Of course, the experiment could just encourage more freeloaders and discourage actual taxpayers in the city… but then that’s probably racist, or sexist, or poorist, so we would never say that.

 

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Via Middle East Eye,

Former aide Ben Rhodes says gifts worth hundreds of thousands of dollars were lavished by the Saudis ahead of Cairo speech…

Saudi Arabia gave White House aides jewellery worth hundreds of thousands of dollars in large suitcases, according to Ben Rhodes, former speechwriter and deputy national security adviser in the Obama administration.

In his memoir The World As It Is, published on Tuesday, Rhodes recounts a trip to Saudi Arabia in June 2009 soon after Barack Obama became president.

He says on arrival he and other US officials were taken to housing units in a compound owned by the monarchy in the desert.

“When I opened the door to my unit, I found a large suitcase,” Rhodes recounts.

“Inside were jewels.”

The trip to Saudi Arabia was the beginning of Obama’s first tour of the Middle East as president, and preceded his famous Cairo speech which he intended as a message to the Muslim world.

Rhodes says at first he thought the bagged treasure was a bribe, to influence him as he wrote Obama’s speech.

However, he soon learned he was not the only member of the delegation to be lavished with such expense.

“We all got suitcases full of jewels,” the former aide told the Guardian newspaper.

“We all gave them to the state protocol office who handles gifts. You have the option to buy the gifts, but given the price – I don’t remember what it was but it was tens of thousands, I believe – no one kept them that I recall.”

Valued guests

The State Department’s register notes the Saudis gave Rhodes “one pair of silver cufflinks, one male watch, one female watch, one silver pen, and one diamond jewellery set including earrings, a ring, and a bracelet, presented in a green leather case”.

It justifies the acceptance of such gifts by saying “non-acceptance would cause embarrassment to [the] donor and US government”.

While the value of the hoard given to Rhodes is estimated by the State Department to be $5,405, the contents of the green leather cases given to other officials were far more precious.

The gifts given to aide Marvin Nicholson were valued at $18,580, meanwhile Peter Rundlet, deputy assistant to the president and deputy staff secretary to Obama, was given $12,560 worth of jewellery.

Eleven other White House officials were given gift sets by the Saudi government.

The president and his wife, Michelle, were not spared expensive gifts either.

The then Saudi king, Abdullah, gave the Obamas and their daughters almost $190,000 worth of gifts.

A diamond and ruby jewellery set given to Michelle Obama was valued at $132,000 alone.

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If there is one thing traders have learned from the past decade, it is that the VIX, or “fear” index as it is still incorrectly called in various financial outlets, has become especially meaningless when measuring market nervousness whether because it is manipulated outright (here, here and here), due to anticipation of central bank intervention following every market crash drop keeping a lid on volatility, or simply because we live in a world in which even the algos have realized the tail wags the dog (with lots of leverage) and instead of buying risk assets, they are selling volatility futures instead.

Furthermore, as Goldman recently explained, the increasingly erratic moves in the VIX are an indication not only that “something is not right”, but that “liquidity is the new leverage” in a world in which central banks and HFTs have soaked up all liquidity precisely when it is most needed.

Recall what Goldman said two weeks ago:

One conspicuous consequence of post-crisis evolution is that trading volumes in many markets are now dominated by high-frequency traders (HFTs). While bid-ask spreads and other indicators of trading liquidity appear to indicate liquidity has improved in markets where HFT has grown, the quality of this liquidity has not yet been stress-tested by recession. The recent experience of the “VIX spike” suggests there is good reason to worry about how well liquidity will be provided during episodes of market distress, and this is only the latest example of a “flash crash”. Regulators and researchers increasingly warn that HFT strategies can contribute to breakdowns in market quality during periods of distress.

As for those macrotourists who still diligently explain to anyone who bothers to listen how central banks have little impact on risk assets, and thus the VIX, and how the record low VIX is the result of decimalization, best of luck with that.

But while VIX may have become an irrelevant byproduct of a manipulated market, there is one indicator that shows just how increasingly jittery, fragile and prone to sudden bouts of liquidation the market has become: price action itself.

Consider the following ratio of S&P returns on down vs up days.

According to Bank of America’s equity derivatives team, so far in 2018, the ratio of the average return of the SPX on down days relative to up days is 1.20 as losses on negative days average 0.89% and gains on positive days average 0.74%.  Just like the trending level in the VIX (which however is doing its best to revert to its 2017 pattern) this marks a sharp reversal from 2017, when the average ratio was 0.83 (the 5th lowest of all time) amid the low vol, lack of any significant drawdowns, and extreme buy-the-dip mentality resulting in higher vol to the upside than the downside.

Call it the market’s “nervousness” indicator, or the willingness to sell stocks at the smallest hint of trouble, coupled with an increasing reluctance to ramp higher.

Another way of observing this ratio divergence is shown in the following Bloomberg chart:

But if in 2017 the ratio was almost an all time low, 2018’s average down/up return ratio is one of the highest on record, the largest we’ve seen since 2008, when the ratio was 1.21.

Not surprisingly, the higher this ratio, the more susceptible the market – and broader economy – are to major upheavals. For reference, the all-time highest level recorded was in 1940 (1.66) at the start of WWII, while the second highest just over 1.40 was in 1929/1930, just in time for the Great Depression.

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Authored by William Suberg via CoinTelegraph.com,

Hedge fund mogul Jim Chanos claimed Bitcoin was “masquerading as a technological breakthrough” in a new interview with Bloomberg June 4. Chanos said that in the event of a global crisis, it would be “better” to own food, or a government-backed (fiat) currency.

image courtesy of CoinTelegraph

Speaking to the Institute for New Economic Thinking and quoted by various media outlets, Chanos, who last year stated he “didn’t understand” Bitcoin or blockchain technology, issued stark warnings about cryptocurrency investment.

“We’re now nine years into this bull market, same as the ’90s, so I suspect that now things are starting to percolate,” he told Bloomberg. He also called the past year’s increased public interest in Bitcoin part of the “fraud cycle,” adding:

“This is simply a security speculation game masquerading as a technological breakthrough in monetary policy.”

Chanos added that in the event of a global crisis, governments would step in with fiat currency as lenders of last resort, an option unavailable to cryptocurrency, given its decentralized nature:

“For those who believe that you need to own digital currency as a store of value in the worst-case scenario, that’s exactly the case in which a digital currency will work the least.

The last thing I’d want to own is Bitcoin if the grid goes down.”

The well known short-seller, who predicted the fall of Enron, joins an ever-decreasing pool of steadfast Bitcoin naysayers.

Goldman Sachs CEO Lloyd Blankfein, who in December 2017 told Bloomberg Bitcoin “isn’t for him,” has since presided over a policy of increasing exposure to crypto assets.

Berkshire Hathaway CEO Warren Buffet and vice president Charlie Munger nonetheless remain committed to denouncing Bitcoin investment in increasingly grotesque language, with Munger most recently comparing crypto trading to dealing in “freshly harvested baby brains” last month.

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Billionaire Howard Schultz is looking more and more like a contender to take on President Trump in 2020 as the Starbucks executive chairman who announced his end-of-month departure from the board gave some very Presidential sounding answers to CNBC Squawk Box host Andrew Ross Sorkin on a wide range of topics, from Trump’s trade policy towards China, to US border policy.

While Schultz was certain to hedge against speculation, saying “There’s a lot of things I can do as a private citizen other than run for the presidency of the United States … Let’s just see what happens,” one can only conclude after watching the interview that if there ever was a prelude to a bid for the White House, this interview is it. 

“Going back to China and trade… this rhetoric about all these trade wars that are now being engaged with China, with Mexico, with Canada… this might sound like a trite line, but it’s important,” Schultz said. “We should not be in the business of building walls, we should be in the business of building bridges.”

Schultz suggested that instead of worrying about China, the U.S. needs to focus on the national debt. 

“We are in a trade battle here that I do not understand. Our problem is not China. Our problem is here in the US we have $21 trillion in debt.”

Schultz also said Trump’s border policy is “inhumane,” and said he is concerned “for the country and the standing in the word, the lack of dignity, lack of respect coming from the administration. I think we can do much better.“

On the economy, Schultz thinks it’s “very wrong to use the stock market as a proxy for the U.S. economy,” saying “I don’t believe that the stock market is going to continue to grow at the level it has between now and 2020. You’re going to see a sea-change.” 

In short, Schultz predicted a stock market correction over the next 18 months – as we don’t imagine “sea change” means equity growth will simply moderate.

You also have systemic problems in the country, the likes of which we have not had in a long time. You got a major mental health crisis, you got a major homeless crisis, you got an opiates crisis, you have racial divide in this country. And you also have 45% of American households that don’t have four-hundred dollars (41%, but close), and you also have 67% of the workforce in America among men that are not in it. 

Schultz will be stepping down as Starbucks executive chairman effective June 26, and will be replaced by Myron “Mike” Ullman – former chairman of JCPenny.

Schultz vs. Trump – battle of the wallet bulge

When it comes to net worth, Bloomberg calculates that the 64-year-old Schultz has a $3.2 billion fortune to mount a bid for public office – around $400 million more than the 71-year-old Trump, according to the Bloomberg Billionaires Index.

His fortune includes a 2.6 percent stake in Starbucks valued at $2 billion; stock options worth $150 million; and a $1.1 billion investment portfolio seeded by dividends and previous stock sales. Schultz’s net worth, closely tied to fluctuations in Starbucks’ stock, has climbed $61 million so far this year.

Trump’s net worth, on the other hand, has slid to $2.8 billion over the past year – a decline of $100 million. 

The drop, the second in two years, is based on figures compiled by the Bloomberg Billionaires Index from lenders, property records, annual reports, market data and a May 16 financial disclosure. It occurred as Trump began his second year in the White House and his name was stripped from buildings in Toronto, Manhattan and Panama.

The most recent estimate, down from $2.9 billion last June, is the lowest since Bloomberg began tracking Trump’s wealth in 2015. The biggest declines, totaling $220 million, came from adjacent buildings in midtown Manhattan: 6 E. 57th St., which previously housed a Niketown store, and Trump Tower, where lower occupancy resulted in less income. –Bloomberg

Then again, one wonders how much Schultz’s net worth would drop were he to run, and win, especially if that “sea-change” stock market correction comes sooner than later. 

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Last week saw API and EIA disagree but WTI rallied into the API print tonight amid expectations for a 2.1mm crude draw. However, the biggest gasoline build since the first week of Jan sparked selling in both WTI/RBOB.

 

API

• Crude -2.28mm (-2.1mm exp)

• Cushing -1.038mm (-500k exp)

• Gasoline +3.759mm – biggest build since the first week of January

• Distillates -871k

After last week’s EIA data showed the exact opposite of API’s one wonders whether the extra noise is worthwhile (and who is correct), but the big surprise gasoline build will be the one to watch in tomorrow’s data…

 

The price advantage for crude from U.S. wells “just begs for more exports” of U.S. crude, said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York.

“People are looking at the talk of an increase from OPEC and especially thinking that the barrels will tend to compete in the Atlantic market with Brent, so that’s pushing Brent down,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

WTI rallied into the print – after testing two-month lows earlier in the day – but kneejerk’d modestly lower on the data before bouncing back to unchanged…before RBOB weakness dragged them both lower…

 

 

 

 

 

 

 

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