Month: June 2018

US To Build Billion Dollar Missile-Defense Radar In Hawaii

Authored by Frank Sellers via TheDuran.com,

The senator from Hawaii said that his state aims to have “the most powerful combination of missile interceptors and radar systems anywhere.”

A billion dollar anti-ballistic missile radar system is being planned for development in Hawaii in order to counter nuclear ICBM threats from somewhere. Even though, at the present moment, there aren’t any threatening postures from nations with ICBM tech, the need to spend 1$ billion on detecting and combating those ICBMs is apparently greater than ever before, at least according to some congressmen.

RT reports

The flat-face surface radar would “counter evolving missile threats in the Pacific Region”, the Missile Defense Agency (MDA) says. Although the timing of the radar’s construction seems curious given current efforts at rapprochement with North Korea, plans for the military installation actually predate the Trump administration. The radar system was mandated by the 2017 National Defense Authorization Act, which was signed into law by Barack Obama in December 2016.

The system would be able to differentiate warheads from decoys on the potential incoming missiles launched towards the US before relaying the trajectory to interceptors in Alaska to take them out. The proposed radar would help identify long-range ballistic missile threats mid-way through flight.

Currently, the MDA is surveying two sites on the island of Oahu as the possible resting place of the radar that would be about 9 to 15 meters wide and 18 to 24 meters high, AP reported.

So far lawmakers have secured $61 million in funding for the planning stage of the project but have yet to appropriate funds to construct the $1 billion system, Democratic Senator Brian Schatz told AP.

The senator from Hawaii said that his state already boasts “robust capabilities” but aims to have “the most powerful combination of missile interceptors and radar systems anywhere.”

While the MDA is reportedly collecting public comments about the installation sites through July 16, it remains questionable whether the expansive project will materialize, after North Korean leader Kim Jong-un and US President Donald Trump made history at a top-level summit in Singapore earlier this month, paving the way for reconciliation and denuclearization of the Peninsula.

Are the Americans looking for war? The current environment considers that the objective conditions for war including ICBMs is actually quite small, that is barring some crazy pretext and military action being taken by the West in order to justify their next piece of preemptive military action, no doubt to be of a ‘precise’ nature, as in Trump’s recent Coalition strikes in Syria.

The threat of facing off against these kinds of weapons is objectively on the decline as North Korea is looking for peace and offering to dismantle its nuclear arsenal and testing facilities, and as long as the JCPOA stays intact, the Iranians aren’t developing a nuclear weapons arsenal, so unless the US plans to engage in a hot war with the threats that it is presently identifying and economically countering, i.e. China and Russia, then there would really be little need to implement such a system at this point in time, when the federal budget has other needs and uses for those funds. But, security sells, even when volcanoes are the only active threat.

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Netflix Reportedly Under Investigation For Streaming Child Pornography

A disturbing clip from an Argentinian movie that purports to show two young girls engaged in sexual activity has caught the attention of PJ Media, which reported it to the FBI and Department of Justice, along with the National Center for Missing and Exploited Children. In response to the tip, the DOJ has reportedly launched an investigation.

The scene is from a movie titled “Desearas” – or “Desire,” in English. In it, two young girls who look to be about seven and nine are playing with two pillows when the older girl begins to masturbate, as the younger one watches. The scene includes a disturbing closeup of the child’s face in slow motion. The film was directed by Diego Kaplan. 

Netflix

PJ Media advises anybody thinking about sharing the clip to abstain: Sharing child pornography – even if you’re trying to “raise awareness” or get help for the victims – is considered distribution and could carry heavy legal penalties.

Child pornography is clearly defined by the Department of Justice in Section 2256, Title 18 of the US Code:

Section 2256 of Title 18, United States Code, defines child pornography as any visual depiction of sexually explicit conduct involving a minor (someone under 18 years of age).  Visual depictions include photographs, videos, digital or computer generated images indistinguishable from an actual minor, and images created, adapted, or modified, but appear to depict an identifiable, actual minor.  Undeveloped film, undeveloped videotape, and electronically stored data that can be converted into a visual image of child pornography are also deemed illegal visual depictions under federal law.

Notably, the legal definition of sexually explicit conduct does not require that an image depict a child engaging in sexual activity.  A picture of a naked child may constitute illegal child pornography if it is sufficiently sexually suggestive.  Additionally, the age of consent for sexual activity in a given state is irrelevant; any depiction of a minor under 18 years of age engaging in sexually explicit conduct is illegal.

Here’s a link to the movie’s IMBD page. And the promotional photo can be found below:

Desearas

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Everyone’s Got A Plan…

Authored by Lance Roberts via RealInvestmentAdvice.com,

“There’s still room for stock markets to rise and worries of an impending recession are premature.” – Mickey Levy, Berenberg Capital Markets

This is a common view of much of the mainstream analysis as common threads still relatively low interest rates,  corporate profitability, and low unemployment rates are set to keep the bull market running well into the foreseeable future. But much of the rally since the 2009 recessionary lows has been an influence of outside factors. Interest rates are low because of the Federal Reserve’s actions, corporate profitability is high due to share repurchases, accounting rule changes following the financial crisis, and ongoing wage suppression.

But now, all of that is beginning to change. Interest rates are rising, the yield spread is flattening, and Central Banks globally are “beginning the end” of the “Quantitative Easing” experiment. As I noted recently:

“Combine a ‘trade war’ with a Federal Reserve intent on removing monetary accommodation, both through higher rates and reduction in liquidity, and the market becomes much more exposed to an unexpected exogenous event which sparks a credit-related event. (Of course, it isn’t just the Fed, but also the BOJ and ECB.)”

This is no small matter, although it is being dismissed as such. There has been a direct correlation between the“equity bull market” and the expansion of the Fed’s balance sheet. Yet, much to the Fed’s dismay, little of the asset surge translated into actual economic growth.

But now, that support is being withdrawn and as such the market, unsurprisingly, has run into trouble.

However, such shouldn’t matter if the economy, which ultimately drives earnings, is indeed firing on all cylinders as is commonly stated.

Let’s take a look at a few charts.

Employment

Employment is the lifeblood of the economy. Individuals cannot consume goods and services if they do not have a job from which they can derive income. Therefore, in order for individuals to consume at a rate to provide for sustainable, organic (non-Fed supported), economic growth they must be employed at a level that provides a sustainable living wage above the poverty level. This means full-time employment that provides benefits and a livable wage. The chart below shows the number of full-time employees relative to the population. I have also overlaid jobless claims (inverted scale) which shows that when claims fall to current levels, it has generally marked the end of the employment cycle and preceded the onset of a recession.

Question:  Does the current level of employment support current asset valuations and the assumption of a continued bull market?

Personal Consumption Expenditures (PCE)

Following through from employment; once individuals receive their paycheck they then must consume goods and services in order to live. Personal Consumption Expenditures (PCE) is a measure of that consumption and comprises roughly 70% of GDP currently.

PCE is also the direct contributor to the sales of corporations which generates their gross revenue. So goes personal consumption – so goes revenue. The lower the revenue that comes into companies the more inclined businesses are to cut costs, including employment, to maintain profit margins.

The chart below is a comparison of the annualized change in PCE to businesses fixed investment and employment.

Question: Do the current levels of PCE and Fixed Investment support current valuations or expectations of continued “strong” employment?

Revenue Growth

As we continue to “follow the money,” as stated, what consumers earn and spend drives revenue growth. As I discussed just recently in “Q1-Earnings Review,” there is evidence which suggests the economy is not a fully robust as it may appear in headline data. To wit:

“Looking back it is interesting to see that much of the rise in “profitability” since the recessionary lows have come from a variety of cost-cutting measures and accounting gimmicks rather than actual increases in top-line revenue. As shown in the chart below, there has been a stunning surge in corporate profitability despite a lack of revenue growth. Since 2009, the reported earnings per share of corporations has increased by a total of 336%. This is the sharpest post-recession rise in reported EPS in history. However, that sharp increase in earnings did not come from revenue which has only increased by a marginal 49% during the same period.”

“Furthermore, while the majority of buybacks have been done with ‘repatriated’ cash, it just goes to show how much cash has been used to boost earnings rather than expanding production, making productive acquisitions or returning cash to shareholders. 

Ultimately, the problem with cost-cutting, wage suppression, labor hoarding and stock buybacks, along with a myriad of accounting gimmicks, is that there is a finite limit to their effectiveness. Eventually, you simply run out of people to fire, costs to cut and the ability to reduce labor costs.” 

Question:  Do weak rates of top-line revenue growth support the current market narrative?

Corporate Profits As % Of GDP

Following the corporate profit story, we can look directly at corporate profits. Over the last several years, companies have manufactured profitability through a variety of accounting gimmicks, expanded share buybacks through increased leverage and continued increases in productivity. However, that profitability has come at the expense of “Main Street” as employment and wages have not risen. As shown, the annual rate of change in personal incomes has been on a decline since the turn of the century. This is a function of both the structural shift in employment (higher productivity = less employment and lower wage growth) and the drive to increase corporate profitability in the midst of weaker consumption. The chart below shows the disparity between corporate profits and employment and wages.

While corporate profitability has surged since the financial crisis, those profits have come at the expense of employees. Since 2009, wages for “non-supervisory employees,” which is roughly 83% of the current workforce, is lower today than at the turn of the century.

The decline in economic growth epitomizes the problem that corporations face today in trying to maintain profitability. The chart below shows corporate profits as a percentage of GDP relative to the annual change in GDP. As you will see the last time that corporate profits diverged from GDP it was unable to sustain that divergence for long and economic growth subsequently declined with profits.

Question: How long can corporate profit growth remain detached from slower rates of economic growth?

Margin Debt Vs. Junk Bond Yields

As stated above, global Central Banks have lulled investors into an expanded sense of complacency. The problem is it has led to a willful blindness and disregard of the underlying fundamentals as asset prices have risen with seemingly reckless abandon. The complete lack of “fear” in the markets combined with a “chase for yield” has driven “risk” assets to record levels. The rise in leverage also supports this idea.

The chart below shows the relationship between margin debt (leverage), stocks and junk bond yields. This didn’t end well last time as the reversion in the assets triggered repeated margin calls leading to a cycle of forced liquidations.

Question:  What is the possibility of this divergence being maintained indefinitely?

Being bullish on the market in the short term is fine – you should be. Central Banks have rushed in every burning building with a “fire hose” of liquidity each time a crisis has presented itself. So far it has worked.

However, the problem is that a crisis, which will be unexpected, inevitably will trigger a reversion back to the fundamentals. What will that catalyst be? I don’t have a clue and neither does anyone else. But disregarding reality in a quest to chase market-based returns has always ended badly when the “herd” inevitability turns.

It has never been, and will not be, a slow and methodical process but rather a stampede with little regard to valuation or fundamental measures. As prices decline it will trigger margin calls which will induce more indiscriminate selling. The vicious cycle will repeat until margin levels are cleared and selling is exhausted.

The reality is that the stock market is extremely vulnerable to a sharp correction. Currently, complacency is near record levels and no one sees a severe market retracement as a possibility. The common belief is that there is “no bubble” in assets and the Federal Reserve has everything under control. The question you have to answer, is whether or not such is actually the case? 

“Wall Street is a street with a river at one end and a graveyard at the other.” – Fred Schwed, Jr. 

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“Another Day, Another Fantasy” Trader Warns “Enjoy The Market’s Happiness While It Lasts”

While US equity markets are down a few percent in the last few days, commission-takers and asset-gatherers are out in force to reassure the American investing public that plunging global economic data is not a problem (US ‘healthy’ – have you seen unemployment rates?), a collapsing Yuan and EM currencies is nothing to fear (The Fed is hiking ‘for the right reasons’ and our banks have ‘fortress balance sheets’ this time), the most systemically important banks in the world are crashing (transitory – yield curve will steepen as inflation rises and tax cuts and… breathless), and trade wars are not a worry (Trump’s just posturing, ‘art of the deal’… and besides ‘earnings’ blah…).

Well, not everyone is buying this utopian vision of America’s port in a storm. As former fund manager Richard Breslow suggests “enjoy all the happiness for as long as it lasts.”

Via Bloomberg,

When so many things seem so downbeat, it’s a tribute to the human spirit that almost everyone I’ve heard from today has some upbeat spin on things.

Quite extraordinary.

Europe is having yet another “make or break” summit…

emerging markets continue to get caned…

Italy’s much anticipated BTP auction was met with a tepid reception…

Chinese equities and the yuan keep sliding away…

and the RBNZ sent the New Zealand dollar to a two-year low.

And yet everyone is happy. I sincerely applaud their resilience and completely understand the cynicism of so many of the people calling the shots.

But I have a theory. And it doesn’t reflect well on the notion of how markets reflect reality, absent distortion from central banks.

Things don’t look great in Europe? Yes, but we got close to support in the euro at 1.15 versus the dollar so it must be a buy. And therefore the story line inevitably shifts toward that for this morning the migration crisis will pass with everyone learning to get along happily. Populism is just a passing fancy. Another day, another fantasy.

Asian and European stocks are down but, hang on, the S&P 500 futures are at their support line at 2700 so there is little to worry about. Where can it go? Didn’t we prove just the other day that we figured out where the new reaction function line in the sand is? Risk on it is.

I’ve even been treated to the notion that, external debt denomination notwithstanding, emerging market currencies are doing just fine if you go back and pretend they are measured against something no one in the real world does.

Besides, they’re far away. And why should their problems spoil our mood? It’s a beautiful day in New York, if you ignore the rain and temperature.

I certainly don’t begrudge the market needing a mental-health day. I’m scheming to have an unplanned one myself. Today’s moves are what they are and I’m prepared to go with the flow. It’s a day to be a follower, not a thought leader. But keep a launchpad view of sovereign bond yields open so you remember it’s just for a trade.

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Trump and Scott Walker’s Wisconsin Foxconn Deal Is Cronyism at Its Worst

President Donald Trump is visiting southeast Wisconsin today to celebrate the groundbreaking for the construction of what he once called, “an unbelievable [manufacturing] plant, like we’ve never seen before.”

Foxconn, a Taiwanese manufacturer perhaps best known for producing iPhones in the so-called “Foxconn City” of China’s Shenzhen province, has promised to build a massive plant in rural Wisconsin and create as many as 13,000 jobs.

The deal might look good politically for both Trump and Wisconsin Gov. Scott Walker (R), who is campaigning for re-election to a third term this fall. But the Reason video below explores some of the deal’s troubling details, including $4.5 billion in state and local subsidies and tax breaks, as well as the potential seizure of family homes via eminent domain.

The Foxconn agreement, shepherded by Walker and touted by Trump, embodies latter’s view of the executive branch as financial deal broker. For Trump, the prospect of family homes being seized to make way for a private corporation is simply the (rather low) cost of doing business.

He expressed as much as a private citizen in the wake of the Kelo v. New London decision—a case where retiring Justice Anthony Kennedy was the deciding vote—which affirmed the legal right of a Connecticut town to force home sales in order to make way for the pharmaceutical giant Pfizer because Pfizer’s use of the land would supposedly spur more economic development in the area, though Pfizer never built the facility and the lots where many homes stood remain vacant 13 years later. In a 2005 interview with Fox News, Trump told interviewer Neil Cavuto that, “I happen to agree with it 100 percent.” He continued:

If you have a person living in an area that’s not even necessarily a good area, and government, whether it’s local or whatever, government wants to build a tremendous economic development, where a lot of people are going to be put to work and make area that’s not good into a good area, and move the person that’s living there into a better place—now, I know it might not be their choice—but move the person to a better place and yet create thousands upon thousands of jobs and beautification and lots of other things, I think it happens to be good.

Trump tried to use eminent domain on several occasions as a real estate developer, once attempting to evict a 90-year-old widow to make way for a limousine parking lot for his Atlantic City hotel.

Thanks to the local government of Mt. Pleasant, Wisconsin, Foxconn will receive more than 1,000 acres of land for free, the logic being that the subsequent increase in land value will pay for itself eventually in the form of higher property taxes.

Wisconsin’s use of “tax incentives” in many cases amounts to outright subsidies. For instance, the state will reimburse Foxconn 17 cents for every dollar it pays to employees, meaning the very taxpayers losing their homes will likely subsidize the paychecks of future Foxconn workers.

For all this, Foxconn has promised 13,000 jobs and billions in additional tax revenue, figures that were finalized in a handwritten deal between Walker and Foxconn’s chairman. The Wisconsin legislature estimates that the state will break even by the year 2043.

Trump headlined a press conference in July 2017 announcing the deal, along with Walker, House Speaker Paul Ryan (R–Wisc.), and Vice President Mike Pence, whose much-touted Carrier deal in Indiana quickly cratered. Walker, who repeatedly referred to the company as “Foxcom” during the presser and at one point misidentified Sony as a partner (the plant will manufacture Sharp LCD screens), said that Trump identified the location for the plant as he flew over rural Wisconsin in his helicopter. Walker has faced criticism from voters and local media for the billions in tax incentives he’s handing to Foxconn but has told critics to “suck lemons.”

The president’s visit to the Foxconn site coincides with an ongoing feud with motorcycle producer Harley-Davidson, a Wisconsin-based company. Walker is a proud biker, and his campaign ads often feature him traversing the state on a Harley-Davidson motorcycle. That makes it a bit awkward, since Trump has declared that the company will “be taxed like never before” if it moves production overseas in reaction to the E.U.’s tariffs on motorcycles. Those tariffs were, of course, imposed in retaliation for the Trump administration’s duties on foreign steel and aluminum.

Trump’s willingness to push and pull levers like eminent domain, taxation, trade policy, and the bully pulpit to bend private companies to his will shouldn’t be a surprise to anyone who’s paid attention to his rhetoric and behavior both as a private businessman and a politician.

But that high-profile Republicans and self-professed champions of the free market such as Walker and Ryan tacitly and explicitly endorse cronyist policies on such a grand scale is yet another sign that the GOP is abandoning even the pretense of being the party of free trade and more fully embracing an increasingly incoherent ideology of corporatist populism.

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Dear Democratic Socialists Who Think You’re Having a Moment: It’s Me, a Libertarian, Who’s Been Through This.

CortezUntil the Janus decision ended mandatory public sector union dues and Associate Justice of the Supreme Court Anthony Kennedy announced his retirement, Wednesday was looking like a pretty good day for the progressive left. One of their champions, Alexandria Ocasio-Cortez, defeated the fourth most powerful House Democrat in an upset primary victory—another clear sign that the energy and enthusiasm is with the Bernie Sanders wing of the party.

Democratic socialism, the ideology with which Ocasio-Cortez identifies, appears to be having a political moment. To which I say, as a libertarian who has been through the whole an-idea-whose-time-has-finally-come experience: good luck with that, comrades. The signs are easy to misread.

Yes, Ocasio-Cortez is aligned with the Democratic Socialists of America—she even has the red rose of socialism in her Twitter profile—and ran on a democratic socialist’s platform: Medicare for all, free college tuition, a federal jobs guarantee. (She also wants to abolish ICE, but that’s not really a socialist-specific idea: we libertarians want to abolish ICE, too, whereas Sanders, who can’t quite bring himself to support the elimination of a government program, does not.)

“So-called socialist ideas might be more popular than you think,” wrote Vox‘s Dylan Scott, in a wildly optimistic piece that hailed Ocasio-Cortez as “the future” of the Democratic Party. Splinter—the new go-to site for Gawker­­­-style uncompromising leftism—celebrated the fact that the Ocasio-Cortez could help normalize “the s word.”

The most starstruck members of this ideological group probably envision their ideas making headway within the Democratic Party. Who could be against socialism, as defined by Ocasio-Cortez as “democratic participation in our economic dignity” and “the basic elements that are required for an economic and socially dignified life in the United States”? (MSNBC’s Chris Hayes, to his credit, was mildly incredulous about the future Congresswoman’s “agnostic” definition of the term.)

And yet it’s easy to imagine, when things are going your way in the elections department, it’s because you’re right and people are waking up to that fact. Ocasio-Cortez’s defeat of Rep Joe Crowley (D–N.Y.) is already being compared to upstart Dave Brat’s defeat of Republican House Majority Leader Eric Cantor in 2011. I recall that many in the media saw Brat’s victory as a sign that the Tea Party was winning—that the crony-corporatist, big-government-loving wing of the Republican Party was losing out to a libertarian insurgency. In the period of time between 2009 and 2015, a group of Republicans that appeared like they wanted to shrink government stole some power from the old guard, TIME magazine dubbed Sen. Rand Paul the most interesting man in national politics, and libertarianism was finally enjoying its political moment. Even The New York Times thought so.

We now know that this analysis was, at the very least, incomplete. While it’s true that more and more people desire cultural freedom—specifically the kind of customization, choice, and control over their own lives that a libertarian worldview provides—political libertarianism had much less support than it seemed. Voters didn’t send the Tea Party to Washington to constrain government, and they ended up caring far less about crony capitalism than they did about illegal immigration. As the libertarian-leaning Republican Rep. Thomas Massie told The Washington Examiner, he though people that backed Ron and Rand Paul were voting for libertarian ideas; once these same voters turned to Trump, he realized they were not. “I realized when they voted for Rand and Ron and me in these primaries, they weren’t voting for libertarian ideas—they were voting for the craziest son of a bitch in the race,” said Massie. “And Donald Trump won best in class, as we had up until he came along.”

Ocasio-Cortez doesn’t appear crazy: she’s an eloquent, if naïve and unspecific, defender of far-left ideas. But be cautious about attributing her success to the rising salience of democratic socialism. It could be a mere anti-incumbent insurgency, or it could be no insurgency at all, given that it’s currently a one-off. During this time of heightened concern regarding the Trump administration’s treatment of immigrant children, perhaps this majority minority district just really wanted to send a young woman of color to Congress instead of an aging white man. As FiveThirtyEight‘s Nate Silver put it:

There’s no doubt socialism—as defined in incredibly loose terms as a vast social welfare system—is gaining popularity among young Democrats. But libertarians have learned the hard way that it’s all-too easy to draw unwarranted conclusions and misdiagnose the moment. Especially when The New York Times fawns over you.

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Justice Anthony Kennedy Retires, Everyone Flips Out: Reason Roundup

The end of democracy?!?! The upcoming retirement of Anthony Kennedy, announced by the 81-year-old U.S. Supreme Court justice yesterday, has struck fear and glee into the hearts of people concerned about the future of abortion access in this country—and not without reason. It’s also spawned a fair share of apoplectic doomsaying about the future of same-sex marriage, contraception access, and democracy itself.

Let’s start with Slate, which opens its piece on Kennedy’s retirement thusly:

When he heard that Supreme Court Justice Anthony Kennedy was retiring on Wednesday, a friend in his twenties told me: “Today is the darkest political moment my generation has experienced.”

“What about the day Trump was elected?” I asked in surprise.

“This is worse,” he responded. “It’s the day Trump consolidates his power.”

Or here, for instance, was the headline at Splinter:

And here is the cover of New York’s Daily News today:

The Slate piece centers on a common refrain: the fearsome tailspin launched by Kennedy’s retirement and what it could mean is a sign that “the institutions meant to constrain [the Trump administration] are proving far more pliant than we might have feared.” Some say it shows there’s too much power vested in the Supreme Court.

But this interpretation is predicated on all these doomsday predictions being true. It is, at the very least, premature, and reads a lot like the kind of narcissistic dystopian melodrama everyone loves to conjure up for their side these days. The speed with which progressive activists and serious media types reached for the Handmaid’s Tale analogies again is telling.

In any case, much of the concern (or dismissal of it) rings hollow from the ranks of those who tweet very different tunes when the court or Congress seems stacked another way…

…which isn’t to say it’s premature to start mobilizing against potentially awful picks or any negative consequences that could come from them—and people already are.

(For more on potential nominees, see this post from Eric Boehm.)

But being smart on this front takes avoiding the trap of thinking we live in uniquely democracy-challenging (or racist, or misogynistic, etc) times, and that’s not something either Democrats or Republicans are (or aim to be) good at. Obama is coming for your guns has given way to get an IUD now before SCOTUS bans them! And hysteria on both sides drives unproductive policy discussion as well as truly painful cable news segments.

For an even-handed look at Kennedy’s legacy, see this piece from Ilya Somin at The Volokh Conspiracy. As for what this could actually mean for abortion access—and politics—in this country: “Kennedy was the firewall for abortion rights for as long as he was there,” Mary Ziegler, a law professor at the Florida State University, told The New York Times.

He has been the defining force in American abortion law since the ’90s, so his absence means that Roe will be much more in peril. A decision overturning Roe is way more likely. A series of decisions hollowing out Roe without formally announcing that’s what’s going on is pretty likely, too.

As long as Kennedy was the swing vote, there wasn’t even really much of a point in asking the court to overturn Roe; now, we’re kind of in a brave new world. The question now is: ‘Who are you talking to? Who’s the swing vote? Who do you need to win over?’ It’s a complete game-changer.

But in what direction the game will go is anyone’s guess.

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Adventures in GMO labeling. After Vermont passed a law in 2014 requiring foods made from genetically modified organisms (GMOs) be labeled as such, “GMO-labeling initiatives were soon popping up on ballots all over the country, and Congress eventually passed a national labeling law in 2016,” notes The Atlantic in a new exploration of Vermont’s adventures in GMO labeling.

In the heat of political battle, both sides presented the labeling situation as do-or-die. The Organic Consumers Association, which supported labeling, likened mandatory GMO labels to a “kiss of death” and credited them for driving GMOs out of grocery stores in Europe. On the other hand, opponents of labels argued that they would unnecessarily scare shoppers, as GMOs pose no unique threat to safety despite the negative public perception of them. A GMO label, National Geographic wrote in 2016, might as well be “a skull-and-crossbones.” Tens of millions of dollars were spent in the fights, most of by food companies opposed to labeling.

And after all that?

A new study has found that Vermont’s GMO labeling law may have even decreased opposition to GMOs.

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  • Good morning from President Trump: “Russia continues to say they had nothing to do with Meddling in our Election! Where is the DNC Server, and why didn’t Shady James Comey and the now disgraced FBI agents take and closely examine it? Why isn’t Hillary/Russia being looked at? So many questions, so much corruption!”
  • Thirty-six members of Congress, including 22 Republicans and 14 Democrats, are backing new legislation to grant statehood to Puerto Rico.
  • A new Congressional Budget Office report says our national debt will double as a share of the economy in the next three decades.

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NATO Allies Express Fear Over Unexpected Putin-Trump Summit Announcement

Authored by Jason Ditz via AntiWar.com,

Russian officials confirmed on Wednesday that a deal has been reached on holding a summit between President Trump and President Putin. Though the two have met twice on the sideline of international events, this will be the first direct summit with the Russian leader of Trump’s time in office.

US officials have confirmed that the summit will take place in a third country – Helsinki, Finland – on July 16.

With allegations still swirling about Russian “meddling” in the 2016 election, President Trump has been very cautious with his diplomatic ties with Russian officials. This has meant that, despite substantial issues to be addressed, the US has much less engagement with Russia than in years past.

John Bolton, who was in Moscow negotiating this summit, says that President Trump will be raising a “full range of issues” during the summit. He downplayed the significance of the meeting, saying he didn’t view the summit as anything unusual.

Which normally it wouldn’t be. US and Russian presidents meet often. That Trump hasn’t done so formally in the last 18 months is much more unusual, however, and the political circus still swirling around the election will  likely make the summit controversial, particularly for Trump’s political opponents.

But, now that the Summit is set, key US allies in NATO, including some long-time advocates of President Trump, are expressing severe opposition to Wednesday’s announcement of an upcoming summit between Trump and Russian President Vladimir Putin.

Polish Sen. Anna Maria Anders said everyone needs to be worried, saying that Putin is “extremely charming” and it would be impossible to predict how Trump would react to this. She expressed concern Putin would talk Trump into withdrawing from Poland.

Other European officials offered similar concerns that Trump might make “spontaneous promises” to Putin on myriad important issues.

They said the worst-case scenario would be Trump embracing Putin after a tense meeting with NATO.

This has been a recurring issue since Trump took office. 

Trump’s campaign talk of improving US-Russia ties was rejected by most other NATO members, and since then every hint of Trump meeting Putin or having talks with Russia has been followed by panic from those nations.

While it’s unlikely a simple summit with Russia would lead to any shocking changes in bilateral ties, the opposition is chiefly about changing the status quo, with much of NATO very comfortable with remaining hostile toward Russia, and fearing even the illusion of rapprochement.

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“Turmoil Awaits” As China Prepares To Ban Short-Term Dollar Bond Sales

China is caught between a debt rock and a hard soaring dollar.

On one hand, over the past few years, taking advantage of a relatively cheap and stable dollar, China’s semi-SOEs corporations gorged themselves on dollar borrowings, blowing out their balance sheets but not in yuan but rather in greenbacks. On the other hand, the dollar has surged in 2018 as the yuan has tumbled at a pace not seen since the 2015 devaluation, leaving USD-exposed borrowers scrambling to rollover existing debt.

So faced with the threat of another surge in defaults among USD-borrowers, Bloomberg reports that China is slowing approvals for offshore bonds and is even considering whether to ban outright short-dated issuance in dollars, moves that would reduce financing options for the debt-laden developers that sit at the center of the nation’s economy.

The National Development & Reform Commission is weighing a ban on the sale of dollar bonds with tenors of less than one year, said the people, who asked not to be named because they’re not authorized to speak publicly. The regulator is already restricting offshore issuance quotas for Chinese companies, people said.

In the regulator’s statement, it said that the use of proceeds from builders’ overseas bond sales must be limited to just refinancing, instead of investing in domestic property projects and replenishing working capital.

“Some of the issuers have low profits, which don’t match the amount of foreign debt they are raising,” the NDRC said, referring to developers and to local government financing vehicles.

The news was the latest hit to Chinese stocks, with property developers and airlines tumbling overnight: Air China has fallen for 11 straight days in Hong Kong, its longest ever losing streak. China Southern Airlines has plunged 35% in 10 days, while developer Country Garden Holdings is the worst performer on the Hang Seng Index this week.

There was a similar rout in the bond market, where most Chinese property dollar bonds fell, with China Evergrande Group and Logan Property Holdings leading the losses. In the past two years, Chinese developers have sold about $10 billion of dollar notes that mature in less than a year, Bloomberg-compiled data show.

“The news that China will crack down on property speculation in 30 cities hurt sentiment and put pressure on shares,” said Dai Ming, Shanghai-based fund manager with Hengsheng Asset Management Co. “It makes investors agitated whenever China tightens regulation over the property sector.”

Why the focus on short-term debt? Recently, selling bonds that mature in 364 days had become a popular financing tactic because as Bloomberg notes, it didn’t require pre-approval from the NDRC.

The regulator has publicly signaled that it’s wary of the offshore issuance boom, saying in a Wednesday statement that developers are only allowed to use proceeds to refinance existing debt, that some companies are borrowing amounts that are out of proportion with their profits, and that many don’t have foreign-currency revenues to protect themselves against the yuan’s slide.

Commenting on the decision, Scott Bennett, Hong Kong-based executive director of fixed income at Oppenheimer Asia said that “I find this an understandable move, however issuers will unlikely be happy. It could be negative in the short-term for weaker Chinese property developers as this removes one source of refinancing and may potentially lead to defaults.“

While the move is the latest attempt by China to rein in runaway leverage, and is expected to be good for the market over a longer term as it’ll filter out riskier issuers, CITIC CLSA Securities analysts wrote that “turmoil awaits” as companies with near-term debt maturities scramble to make ends meet.

Chinese builders who splurged on dollar issuance in recent years are facing bond repayments of $77.4 billion in the domestic and overseas markets through 2019, and have been reeling from tightened liquidity at home induced by a clampdown on shadow financing. That’s prompted them to sell debt in the offshore market, with dollar bond sales reaching a record $27.5 billion this year. The latest regulatory intervention would limit their use of that offshore funding venue; it would also shield issuers from an increase in debt-servicing costs if the yuan keeps falling.

It was not immediately clear where they would find alternative funding at yields that do not put them on a precarious path to mass defaults, something which China has already been hit by in 2018, something we described in “Is It Time To Start Worrying About China’s Debt Default Avalanche”

The silver lining is that the latest developments are positive for the medium term stability of the industry, according to Charles Macgregor, head of Asia markets at Lucror Analytics in Singapore. “We do not see this as a likely stimulus for defaults – that is not in the interests of the NDRC.”

“My view would be that that is just to limit the currency risks that exist. We’ve seen many periods of history that it’s dangerous to borrow too much in a foreign currency because not only do you have interest rate costs but also FX risks,” said Nicholas Wall, London-based fixed income portfolio manager at Old Mutual Global Investors in Hong Kong. Dollar appreciation “could increase risks for sectors that are tremendously important for China and Chinese growth,” he said.

While the long-term view is accurate, and is a much needed “rationalization” of China’s bloated corporate debt bubble, the bigger threat is if the bond market “turmoil” gets out of control at a time when China’s economy is already suffering; meanwhile should the sharp Yuan devaluation not serve as a boost to the economy but merely reinforce the same capital outflow dynamics observed in late 2015 and early 2016, it is likely that a repeat of the global bear market that ensued over two year ago – from which the US was mostly spared – could be in the cards.

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