June 2018 – Page 198

“Uncomfortable” Starbucks Employees Respond To Becoming “World’s Biggest Public Toilet”

Starbucks employees are bristling after being forced to sit through an entire day of training on racial bias on Tuesday, following an April incident in which a Philadelphia manager called the police on a pair of black men who were sitting in the store without having purchased anything, which sparked a nationwide protest and culminated with Starbucks becoming “America’s largest public toilet.”

In order to atone for the now-fired manager’s poor judgement, Starbucks rolled out a new “inclusiveness” policy – shuttering 8,000 locations for a day of “Color Brave” training which included several documentary videos, notebooks for employees to record their “private thoughts,” and a 68-page employee guidebook which teaches employees about topics such as institutional racism and the history of prejudice.

According to the WSJ, “they also listened to a series of audio recordings of Starbucks employees describing interactions they have had with customers in which their own biases became apparent.”

The whole thing made many employees, especially African Americans, highly uncomfortable.

“I don’t think Starbucks realized how uncomfortable it would be for people of color to have to watch these videos and talk about this,” said biracial shift supervisor Jamie Prater to the Journal, adding “But sometimes we need to be uncomfortable.”

“Cordell Lewis, manager of the Ferguson, Mo., Starbucks, was among the employees who said the training seemed to make some African-Americans uncomfortable. He said he could see employees’ shoulders tighten as they leaned forward in their chairs.”

The company’s new inclusiveness training also warned employees not to accidentally mistake scruffy looking husbands for homeless men.

In one, an employee recalled seeing a scruffy-looking man approach a woman in line and hold out his hand to her, after which the woman got money out of her purse. The employee said she went up to the man and told him panhandling isn’t allowed in the store. The woman informed her the man was her husband.

As we noted yesterday, Starbucks rolled back a key provision in their new “inclusiveness” policy which would allow vagrants to use the coffee chain as a homeless shelter.

On occasion, the circumstances of a customer’s disruptive behavior may make it necessary to prohibit that customer from returning to our stores.

And while the “inclusiveness” training taught employees about institutional racism and not to discriminate against the homeless, others – predictably – felt Starbucks wasn’t inclusive enough.

Mr. Lewis, who is biracial, also said the emphasis on relations between black and white people left some employees feeling excluded, something he raised with company leaders. “I have trans partners and Philippine partners, and they were like, ‘What about me?’”

Yet other employees were turned off by the whole thing.

One black barista in Connecticut told The Journal “it’s just to save face. It doesn’t mean anything.” Another barista from Ohio who is white said that he found the training “wishy-washy,” and that “I went in with an open mind. I was hoping we’d go through scenarios of how customers might feel in certain scenario and how to make them not feel that way.”

Still, some white employees found the training eye-opening.

Krystie Ward, a barista in Patchogue, N.Y., said Tuesday’s training was enlightening, particularly a short documentary produced for Starbucks by filmmaker Stanley Nelson Jr. that detailed the history of access to public spaces for African-Americans. It featured a black man describing how he is often followed around stores by employees who suspect he is going to steal something. He said he has to be aware of the way he acts every time he leaves his house, like making sure to keep his hands visible in certain places.

“That was really powerful to me, because I couldn’t imagine living my life like that,” said Ward, who is white.

* * *

Starbucks said there will be continuing education around diversity and bias, but the company hasn’t shared details of what that will entail. in doing so, it risks alienating the silent majority of employees who are already on the fence about the company’s virtue signalling policies:

“The baristas are already doing five or 10 things, including taking out the garbage and cleaning the bathrooms,” said Prater. “We’re already struggling to provide the bare minimum of customer service, so when you throw in this, how do we even do this? This is a lot.”

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Trump’s Crony Capitalism: Energy Division

DOElogo Who you gonna call when your business is being outcompeted and you’re going bust? The feds, of course. President Donald Trump obliged his cronies in the electric power and coal industries today by ordering the Department of Energy (DOE) to take “immediate steps” to save the companies from going bankrupt. Those immediate steps will result in consumers having to pay higher power bills.

Back in March, the bankrupt nuclear and coal-fired electric power generator FirstEnergy asked the DOE to invoke section 202(c) of the Federal Power Act and declare that an “emergency condition” exists in Midwestern electricity markets. The company claims that closing down its old and unprofitable coal-fired plants will significantly reduce the reliability to electricity supply in the region.

In fact, the only real “emergency” is that the company has been losing money. In the guise of maintaining electric power reliability, FirstEnergy wants the DOE to order all coal and nuclear generating units in the PJM Interconnection footprint—a region covering all or parts of 13 states, plus D.C.—that have at least 25 days of onsite fuel be given non-market, cost-of-service rates and also guaranteed profits for at least four years. The “onsite fuel” qualification is meant to exclude generators that burn natural gas to produce electricity. Basically, the company wants the federal government to force consumers to buy its expensive electricity, and it wants to be guaranteed a profit too. Subsidizing these coal-fired plants would also help keep Trump’s coal industry pal Robert Murray, CEO of the Murray Energy Corporation, in business.

In January, the Federal Energy Regulatory Commission voted unanimously to reject an earlier DOE proposal requiring coal-fired and nuclear power plants to stockpile 90 days of fuel onsite. The requirement was artfully framed as a measure to increase power grid resilience, but it was really a stealth subsidy to the coal industry.

Coal and nuclear power plants are losing money largely because they are being outcompeted by new and cheaper generation fueled by natural gas.

The folks who run the power grid at PJM Interconection don’t think there’s a looming supply reliability problem. “There is no need for drastic action,” says a statement PJM released today. It adds:

Markets have helped to establish a reliable grid with historically low prices. Any federal intervention in the market to order customers to buy electricity from specific power plants would be damaging to the markets and therefore costly to consumers….

The PJM electrical grid is more reliable than ever, with 23 percent reserve margins and billions of dollars of new investment. All of this is occurring while emissions are decreasing and wholesale prices are at historic lows for the 65 million consumers we serve. From 2008 to 2017, wholesale prices in PJM fell by more than 40 percent. Competition has required generators to operate more efficiently while also attracting new, more efficient technology, resulting in more than $1.4 billion in annual savings.

Just another depressing example of Trump invoking war emergency powers to reward corporate cronies and stick it to consumers.

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Study: Trump’s Proposed Automobile Tariffs Will Destroy 195,000 American Jobs

A new study says the American automobile industry will lose 195,000 jobs over the next three years if President Donald Trump presses forward with a plan to impose 25 percent tariffs on imported cars and auto parts. That’s on top of the existing tariffs on steel and aluminum, which are already forecast to whack automakers and other manufacturing jobs.

According to the study, which was released by the D.C.-based Peterson Institute for International Economics (PIIE), a 25 percent tariff on automobiles and auto parts would cause production in those industries to fall by about 1.5 percent and would force the industry to shed around 1.9 percent of its American workforce. The resulting slowdown would affect more than $200 billion in U.S. exports, PIIE projects.

Last week, Trump ordered Commerce Secretary Wilbur Ross to investigate whether the U.S. should slap new tariffs on imported vehicles and auto parts under Section 232 of the Trade Expansion Act of 1962, which allows the president to impose tariffs unilaterally for “national security” reasons. It’s the same process the White House used to craft the tariffs on steel and aluminum imports that Trump announced in early March.

It’s absurd, of course, to argue that imported cars are a threat to national security.

The auto tariffs “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war,” Thomas J. Donohue, president of the U.S. Chamber of Commerce, said in a statement.

The American automobile industry employs 50 percent more people than it did in 2011, Donohue noted, and domestic production has doubled in the last decade. According to PIIE, the United States imported $183.8 billion of passenger cars, SUVs, and minivans in 2017, mostly from the European Union ($46.6 billion), Canada ($43.3 billion), and Japan ($43 billion). The U.S. currently imposes a 2.5 percent tariff on cars and a 25 percent tariff on trucks—a hangover from a 1960s trade war with France and Germany.

If other countries respond to American tariffs on automobiles and auto parts with similar tariffs, PIIE projects, the consequences could be even more disasterous. In that scenario, American production would fall 4 percent and 624,000 American jobs would be lost.

“Both scenarios demonstrate how reliant the domestic industries are on imported parts, or intermediate inputs, that are not produced in the United States or that have no easy US-made substitute,” PIIE’s analysts write. “Consumers could expect to see prices rise for both imported and domestically produced vehicles.”

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Art Berman: Think Oil Is Getting Expensive? You Ain’t Seen Nothing Yet

Authored by Adam Taggart via Peak Prosperity,

After issuing clear warnings on this program that sub-$50 oil prices were going to be short-lived, oil expert and geological consultant Art Berman returns to the podcast this week to explain why today’s $70 oil prices will go higher — likely much higher — and start materially contricting world economic growth.

Art explains how the current glut of oil created by the US shale boom — along with high crude output by both OPEC and non-OPEC producers — is a temporary anomaly. Fundamentally, we are not finding nearly as much oil as we need to continue the trajectory of the global demand curve. And at the same time, we’re extracting our reserves at a faster rate than ever. That’s a mathematical recipe for a coming supply crunch — it’s not a matter of if, but when:

The price of oil has gone up 30%+ percent just here in the last year alone. There are some very good reasons for that.

In the United States, we’ve been drawing down our reserves, our inventory and the amount of oil we have in storage, consistently since February of 2017. We’re going into the 15th month of drawing from storage each week because we’re not producing enough to meet the need.

To those paying attention: the United States is right now producing more oil than it ever has in its history. We are a million barrels a day higher than the peak in 1970 — the one that King Hubbert got in trouble for warning about. We’re higher by 50,000 or so barrels per month of production. Yet, here we are, still sucking oil out of storage. What does that tell you? There is only one way to interpret that: We are using more than we are producing.

Countries like the United States and western Europe; our demand is pretty much stable. We are not a big growing economy anymore. But the emerging markets – Asia, Latin America, and Africa – they are going full bore. That is where something like 80% of world demand growth is coming from.

Never ever lose sight of the fact that the United States imports a ton of oil. I mean we are importing, on average, 7 million barrels of crude oil a day. I mean that is more than many continents use a day. Why are we importing all that when we are also producing 11 million barrels a day?

We are nowhere near energy self-sufficiency, nor do I think we will ever get there.

We’re in deep trouble.

Click the play button below to listen to Chris’ interview with Art Berman (60m:06s).

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DHS Confirms “Rogue” Cellular Eavesdropping Device May Have Been Used Near White House

The Department of Homeland Security has confirmed that a device used to eavesdrop on cell phones and other electronic devices was detected near the White House, prompting concerns that it may have been used to spy on key government officials – including President Trump’s non-secure iPhones.

The letter from DHS official Christopher Krebs hilariously begins by thanking Oregon Senator Ron Wyden (D) for meeting with him “to discuss your objection to Senate consideration of the President’s nomination for me to serve as the Under Secretary for the Department of Homeland Security’s (DHS) National Protection and Programs Directorate (NPPD).”

Krebs’ letter is a follow-up to an April communication with Wyden in which he revealed that “anomalous activity” was detected in Washington D.C. consistent with “stingray” surveillance devices during an NPPD pilot program.

In a new response posted by Senator Wyden, Krebs admits that “While the NPPD pilot did observe anomolous activity that appeared consistent with IMSI catcher technology within the NCR, including locations in proximity to potentially sensitive facilities like the White House, NPPD has neither validated nor attributed such activity to specific entities, devices, or purposes.”

In other words – someone was probably trying to spy on the White House and other “sensitive facilities,” but DHS has no clue who it was or why they did it.

Another DHS official who spoke anonymously to AP in April said that the devices were detected during a three-month trial of equipment provided by Las Vegas-based agency contractor, ESD America.

The Stingray units operate by tricking a cellular device into locking onto them instead of a legitimate cell tower – revealing the exact location of a particular phone. As AP notes, more sophisticated versions can eavesdrop on calls by forcing phones to step down to the older, unencrypted 2G wireless channel. Other Stingray devices can plant malware on a phone.

Thousands of members of the military, the NSA, the CIA, the FBI and the rest of the national-security apparatus live and work in the Washington area. The surveillance-savvy among them encrypt their phone and data communications and employ electronic countermeasures. But unsuspecting citizens could fall prey. –AP

American intelligence and law enforcement agencies use similar eavesdropping equipment in the field, which can cost anywhere between $1,000 to around $200,000. The devices are typically the size of a briefcase but can be as small as a cell phone. Police use Stingrays to track down and implicate perpetrators of mainly domestic crimes.

The devices can be mounted in vehicles, drones, helicopters, and airplanes, allowing police to gain highly specific information on the location of any particular phone, down to a particular apartment complex or hotel room.

In his April letter, Krebs noted that the DHS lacks the equipment and funding for wide-scale detection of Stingrays – even though their use by foreign governments “may threaten U.S. national and economic security.”

Legislators have been raising alarms about the use of Stingrays in the capital since at least 2014, when Goldsmith and other security-company researchers conducted public sweeps that located suspected unauthorized devices near the White House, the Supreme Court, the Commerce Department and the Pentagon, among other locations.

The executive branch, however, has shied away from even discussing the subject.

Aaron Turner, president of the mobile security consultancy Integricell, was among the experts who conducted the 2014 sweeps, in part to try to drum up business. Little has changed since, he said.

Like other major world capitals, he said, Washington is awash in unauthorized interception devices. Foreign embassies have free rein because they are on sovereign soil. –AP

Turner says that every embassy “worth their salt” has a cell tower simulator installed, which they use “to track interesting people that come toward their embassies.” The Russians’ equipment is so powerful it can track targets a mile away, he said.

How to shut them down?

As AP notes, shutting down rogue stingray devices is an expensive prospect which would require the wireless industry to completely upgrade its infrastructure, which security experts say companies are loathe to pay for.

The upgrade could also lead to conflict with U.S. intelligence and law enforcement agencies. At least 25 states and the District of Columbia use the devices, according to the ACLU.

After the 2014 news reports about Stingrays in Washington, Rep. Alan Grayson, D-Fla, wrote the FCC in alarm. In a reply, FCC chairman Tom Wheeler said the agency had created a task force to combat illicit and unauthorized use of the devices. In that letter, the FCC did not say it had identified such use itself but cited media reports of the security sweeps.

That task force appears to have accomplished little. A former adviser to Wheeler, Gigi Sohn, said there was no political will to tackle the issue against opposition from the intelligence community and local police forces that were using the devices “willy-nilly.” –AP

“To the extent that there is a major problem here, it’s largely due to the FCC not doing its job,” said Laura Moy of the Center on Privacy and Technology at Georgetown University. Moy says that the agency should require wireless carriers to protect their networks, thus “ensuring that anyone transmitting over licensed spectrum actually has a license to do it.”

The FCC, however, said the agency’s only role is “certifying” that said devices don’t interfere with other wireless communications.

In other words, despite the prevalence of stingray devices throughout our nation’s capital and most assuredly in use across the rest of the United States, nobody seems to be able to do anything about it.

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Professor Writes Book Calling For “Marxist Education” In K-12

Authored by Toni Airaksinen via Campus Reform,

A University of Washington-Bothell professor who trains aspiring K-12 teachers is publishing a book that advocates for “Marxist and socialist ideas” in education.

A Marxist Education: Learning to Change the World will be published on June 5 by Haymarket Books, and is authored by Wayne Au, a long-time social justice educator who teaches classes in the UW-Bothell School of Educational Studies.

The forthcoming book – a preview of which was reviewed by Campus Reform – frames the adoption of Marxist and socialist values as a much-needed strategy for educators to help students resist capitalism, white men, the U.S. President, and much more.

“These dire times have sparked an upsurge in activism that is heartening and full of revolutionary potential, and I think a new generation of teachers could build upon this radical momentum by helping their students explore and consider Marxist ideas,” Au writes in the opening chapter.

“And here is the thing: after all these years, Marx and Marxism still provide the sharpest analysis of how capitalism functions at its most fundamental levels of production, profit, and exploitation,” he adds.

While Au notes that his father was a communist, he cites time spent at The Evergreen State College as especially crucial to his development as a “radical” teacher, saying the school introduced him to books such as Pedagogy of the Oppressed.

The book’s penultimate chapter – “Curriculum to Change the World: Developing a Marxist-Feminist Standpoint in the Politics of Knowledge” – elucidates strategies that educators can adopt to teach in the Marxist tradition.

One of these strategies is the adoption of “Marxist-feminist standpoint theory,” writes Au.

Standpoint theory, he explains, “comes from the basic understanding that power and knowledge are inseparable,” and is predicated on an acknowledgement of how the “ruling capitalist class” shapes what children learn and are expected to learn.

“As an orientation towards understanding the world, standpoint theory thus openly acknowledges that the social location of the oppressed…is the best vantage point for understanding society because it can provide a clearer, more truthful view of how society functions,” he asserts.

According to the author, acknowledging this can help teachers decide what should be taught to students in place of curricula that have historically been shaped by “the interests of capital as well as white men in universities.”

A Marxist Education will be published in print by Haymarket Books, a “radical, independent, nonprofit” Chicago-based book publisher.

Campus Reform reached out to Wayne Au by email, but did not receive a response in time for publication.

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Anti-Robot Las Vegas Hotel Workers Prepare to Strike

Las Vegas’ hotel industry is teetering on the edge of a strike by hotel workers worried their jobs will be automated away.

Today is the deadline for the operators of 34 Las Vegas casinos and resorts to agree on a new contract with the Culinary Workers Union Local 226, which represents some 57,000 hotel workers, including cleaners, porters, and servers.

The Caesars Entertainment Corporation, which owns the famous Caesars Palace and seven other hotels in the city, was able to reach an early morning agreement with the union. But the rest have yet come terms.

One major sticking point is the union’s demand that they get a say in any new technology implemented by hotels, and that workers who lose their jobs to automation receive both financial compensation and the offer of alternative jobs.

“We support innovations that improve jobs, but we oppose automation when it only destroys jobs. Our industry must innovate without losing the human touch,” said Geoconda Argüello-Kline of the Culinary Union in a press release from last week, when 25,000 culinary union members voted to authorize a strike.

“I voted yes to go on strike to ensure my job isn’t outsourced to a robot. We know technology is coming, but workers shouldn’t be pushed out or left behind,” added Chad Neanover, a prep cook at the Margaritaville, in the same release.

Johannes Moenius, an economist at the Redlands University, says he understands the tech fears.

“Las Vegas is pretty much of the epicenter of a potential wave of automation,” Moenius explains. According to Moenius’ research, about 65 percent of the current jobs in Vegas may be automated within the next 20 years, the most of any large city in the United States. Up to 73 percent of today’s hotel workers could see their jobs automated, he tells Reason.

Moenius stresses that his 65 percent figure is a technical one, describing jobs that could be farmed out to robots, not jobs that necessarily will.

“Think of your high-end restaurant in Vegas,” he says. “They are not going to have robot servers running around and bussing tables. But a lot of stuff that can be done in the kitchen and the back office is up for grabs.”

Already hints of the automation to come are popping up. The Renaissance Hotel has at least two full-time robot butlers that schlep towels and toiletries to hotel guests. The Tipsy Robot, a bar, has swapped out its human bartender for two large cocktail-mixing robotic arms. Less flashy but no less disruptive are the self-check-in kiosks being rolled out in several hotels, and the voice recognition technology that many guests can now use to order room service.

The spread of this new technology is a boon to guests—a majority of whom of whom expressed a preference for a more automated hotel experience in one survey—and to hotel owners themselves, who can save on labor and benefit costs.

This Culinary Workers Union in a less appealing position, given that they represent the lower-skilled support staff whose jobs are at risk. Unfortunately, its other demands may give hotel operators an incentive to embrace automation faster.

The union has been demanding a pay bump of 4 percent a year for the next five years, boosts to health and retirement benefits, and the extension of union membership to currently non-unionized restaurant and arena workers. Whatever the merits of those demands, they add expenses that hotel owners could largely avoid through automation: Robots don’t demand pay increases, nor do they require health benefits. Even an unobjectionable demand that hotels offer better protections against sexual harassment on the job has an automation angle. In these pre-Westworld days, robots are hard to sexually harass.

On the other hand, if the union is able to raise the costs of automation—through financial compensation for displaced workers, and by mandating that the union get a say before new technologies are adopted—their demands will look a lot more sustainable.

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Step Aside Uber, Tesla: Waymo Will Launch World’s First “Self-Driving Transportation Service” This Year

In the race for autonomous driving and “autonomous driving as a service,” Google’s Waymo is lapping its competitors including Uber and Tesla.

According to media reports, Waymo is going to be launching 62,000 Chrysler Pacifica minivans, which it will be adding to its fleet in anticipation of launching its self driving transportation service as soon as this year. These minivans will be equipped with the company’s autonomous driving software, which puts Waymo ahead of companies like Uber and Tesla, both of which are also working on pushing into the new, burgeoning self-driving industry.

The push to launch these vans comes as a result of a partnership with Chrysler and as the company looks to create an autonomous ride sharing program that can be hailed with an app. The Daily Mail reports:

Google-owned Waymo is adding as many as 62,000 Fiat Chrysler minivans to its autonomous fleet in an expanded collaboration announced by the companies on Thursday. Delivery of the Chrysler Pacifica minivans was expected to begin later this year, with the automaker also exploring the potential to build Waymo technology into a self-driving car it might add to its model line-up for consumers.

‘FCA is committed to bringing self-driving technology to our customers in a manner that is safe, efficient and realistic,’ chief executive officer Sergio Marchionne said. ‘Strategic partnerships, such as the one we have with Waymo, will help to drive innovative technology to the forefront.’

The article then notes that Waymo will likely be the first company, before Uber and Tesla, to launch the first truly self-driving vehicle later this year, and that Uber and Waymo could eventually wind up working together to get Waymo’s software into Uber vehicles:

Waymo plans to launch the ‘world’s first self-driving transportation service’ this year, with people able to summon rides from driverless vehicles using a smartphone application. The announcement came a day after Uber chief executive Dara Khosrowshahi reportedly said at a Code technology conference that the company is speaking with Waymo about putting its cars to work at the smartphone-summoned ride service.

Uber early this year negotiated a settlement with Waymo over trade secrets purportedly purloined from the self-driving unit of Google-parent Alphabet. Uber suspended its own autonomous car testing in April after an accident that killed a woman pushing a bicycle in a street in Arizona.

Waymo CEO John Krafcik has publicly contended that the fatal accident involving a self-driving Uber car would not have occurred with his company’s technology.

In addition to Waymo working on its partnership with Chrysler, the company is also collaborating with Jaguar Land Rover, which is said to be toying with the idea of launching a higher-end, self-driving electric car service (just in case not everyone wants to be seen being ushered around in a Chrysler Pacifica):

Fiat and Waymo first announced a self-driving car partnership two years ago, and said that engineers from their companies have been working together since then. Fiat has delivered 600 Pacifica Hybrid minivans to Waymo so far, the companies said. Earlier this year the companies said ‘thousands’ more would be added.

Waymo and Jaguar Land Rover in March announced they have joined forces on a posh, self-driving electric car tailored for a ride-hailing service run by the Google-owned firm.

…

Waymo and Jaguar said they aim to develop a ‘premium self-driving electric vehicle’ based on a new I-PACE model.

The news about Waymo’s surprising progress comes in the wake of recent disturbing headlines from Tesla and Uber regarding their cars‘ self driving capabilities. Tesla has been dealing with the media fallout from several deadly accidents linked to the the “autopilot”, while Uber has reportedly suspended its self-driving tests after a woman was killed in Arizona some months back after being stuck by an autonomous vehicle.

Waymo has so far been luciky to sidestep any bad press and has been silently executing on this partnership and pushing its software forward.

Meanwhile, the great race to be the first to roll out a truly self-driving vehicles is only accelerating, and just yesterday SoftBank announced that it would make a $2.25 billion investment into General Motors’ autonomous driving technology. On Thursday morning, tech-investing giant SoftBank Vision Fund announced it would invest $2.25 billion in General Motors Co.’s driverless-car unit valuing it at $11.5 billion, creating a new player in the ongoing fierce battle between tech companies and startups to become the first to commercialize autonomous vehicles.

The deal will provide not only a major financial backer – a la what Uber tried to do with Warren Buffett and failed – but will also “afford GM increased flexibility with respect to capital allocation” as it plows more money into developing a network of autonomous ride-share vehicles, targeted for sometime next year, GM said.

Opening the Cruise subsidiary to SoftBank’s giant fund allows it to access capital that investors have been reluctant to grant the 110-year-old auto maker. GM will retain an 80.4% stake in GM Cruise and invest $1.1 billion in the business.

During a press conference Thursday morning, GM Chief Executive Mary Barra called it a “landmark” investment that gives GM Cruise the capital it needs to get its driverless-car business to market.

With the Softbank investment and the news that Waymo is working with Chrysler and could be working with both Uber and Jaguar, there is no doubt that the race for full autonomous has now officially been put into high gear.

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Weekend Reading: Just A Pause That Refreshes?

Authored by Lance Roberts via RealInvestmentAdvice.com,

On Tuesday, the market tumbled on concerns over Italian debt. (A problem, by the way, I discussed a couple of years ago.) However, on Wednesday, the market reversed course and apparently the crisis was over. Make no mistake, nothing was fixed or resolved, investors just chose to ignore the problem under the belief that Central Bankers will unite in some form of bailout.

It isn’t just Italian debt, which is magnitudes larger than Greece’s debt crisis, but it is also Spain and a host of other smaller European countries that continue to ramp up debt in hopes that economic growth will someday bail them out. However, sustained economic growth has failed to appear.

As long as interest rates remain low and negative in some cases, debt can continue to be accumulated even with weaker rates of economic growth. More importantly, as long as rates remain low, the banking system can continue to play the “hide-the-debt game” through derivatives, swaps and a variety of other means.

But rates are rising, and sharply, on the shorter-end of the curve.

Historically, sharply rising rates have been a catalyst for a debt related crisis. As long as everything remains within the expected ranges, the complicated “math” behind trillions of dollars worth of financial instruments function properly. It is when those boundaries are broken that things “go wrong” and quickly so.

People have forgotten that in 2008 a major U.S. financial firm crashed as its derivative based exposure “blew up.” No, I am not talking about Lehman Brothers, the poster-child of the financial crisis, I am talking about Bear Stearns.

In just 365-days, Bear Stearns stock went from $159 to $2, with about half of the loss occurring within a few weeks.

Bear Stearns was the warning shot for the financial markets in early 2008 that no one heeded. Within a couple of months, the markets dismissed Bear Stearns as a “non-event” and rallied to a higher level than prior to the event, and almost back to highs for the year.

Remember, there was “nothing to worry about” at the time, even though the Fed was increasing interest rates, as the “Goldilocks economy” could handle tighter monetary policy. Sure, housing had been slowing down, mortgage delinquencies were rising, along with credit card defaults, but there wasn’t much concern.

Today, we are seeing similar signs.

Interest rates are rising, along with delinquencies, defaults, and a slowing housing market. But no one is concerned as the “Goldilocks economy” can clearly offset these mild risks. And no one is paying attention to, what I believe to be, one of the biggest risks to the global financial markets – Deutsche Bank.

Deutsche Bank is clearly showing signs of financial trouble. More importantly, it is magnitudes larger, in terms of derivative-based exposure, than Bear Stearns and Lehman Brothers combined. Bear Stearns and Lehman Brothers were not banks and did not hold deposits. As such, they posed significantly less risk to the financial system.

As Doug Kass recently noted:

“The collateral risks to Europe are large – most notably to ECB and to Germany. In it’s extreme it could mean Italy separates from the rest of the EU. To me, as I have written in the past, Deutsche Bank is particularly exposed.

But, to this observer, who has consistently warned about Deutsche Bank being the next Black Swan and the imbalances in the European banking system (particularly in Italy), the risks of a possible negative multiplier effect on other European financial intermediaries and on the region’s economic prospects is profoundly real.”

But, while “everyone loves a good bullish thesis,” let me restate the reduction in the markets previous pillars of support:

The Fed is raising interest rates and reducing their balance sheet.
Short-term interest rates are rising rapidly.
The yield curve continues to flatten and risks inverting.
Credit growth continues to slow suggesting weaker consumption and leads recessions
The ECB has started tapering its QE program.
Global growth, especially in Europe, is showing signs of stalling.
Domestic growth has weakened.
While EPS growth has been strong, year-over-year comparisons will become challenging.
Rising energy prices are a tax on consumption
Rising interest rates are beginning to challenge the equity valuation story.

“While there have been several significant corrective actions since the 2009 low, this is the first correction process where liquidity is being reduced by the Central Banks.”

Oh, and just one last chart. During 2007, and into 2008, the S&P 500 traded sideways in a 150-point range. That range was extended to 300-points before the crash actually occurred.

It was believed to be just a “pause that refreshes.”

Since January of this year, the S&P 500 has been trading in a 300-point range (similar in percentage terms to the period preceding Bear Stearns).

It is also believed to just be a “pause that refreshes.”

Just something to think about as you catch up on your weekend reading list.

Economy & Fed

Is A “Job Guarantee” Program The Best Dem’s Can Offer by John Tamny via Forbes
The Fed’s Verbal Gymnastics Includes Back Flips by Caroline Baum via MarketWatch
Trumponomics Is Working by Stephen Moore via The Washington Times
One Side-Effect From Trump’s Trade War Could Last For Years by Pedro Da Costa via BI
People Are Less Selfish Under Capitalism by Barry Brownstein via FEE
Don’t Worry About Rate Hikes Next Year by Danielle Wiener-Bronner via CNN Money
Europe Has A Big Problem by Macromon via Global Macro Monitor
Whither The Economy by Mark Mellman via The Hill
How To Defend Capitalism by Wayne Crews via Forbes

Markets

Biggest Pain For Trades Since WWII by Tyler Durden via ZeroHedge
Efficient Markets, Not So Much by Kevin Muir via The Macro Tourist
China’s Yuan No Threat To The Dollar by Simon Constable via Forbes
Key Test Developing For Global Equity Rally by Dana Lyons via The Lyons Share
Mobius: Expect A 30% Drop In U.S. Stocks by Evenlyn Chang via CNBC
Passive, Private Market Force by Seth Levine via The Integrating Investor
Next Recession Might Not Be So Bad…Maybe via Upfina
Consistency, The Playground Of Dull Minds by Anshul Khare via Safal Niveshak

Research / Interesting Reads

NIRP’s Revenge by Wolf Richter via Wolf Street
Retirement Myths Vs. Reality by Robert Powell via USA Today
How Much Have 30-Somethings Saved by Alessandra Malito vis MarketWatch
How To Reduce Your Investment Risk by Dan Caplinger via Motley Fool
4-Ways To Cut Spending In Retirement by Paul Katzeff via IBD
The 4-R’s That Built The West by Art Carden & Deirdre McCloskey via FEE
Work 275 Years To Earn The CEO’s Wages by David Gelles via NYT
Next Recession? Some Haven’t Recovered From The Last by David Dayen via The New Republic
Time To Worry? by John Cochran via The Grumpy Economist
Why Markets Are Worried By Italy Again by Victor Reklaitis via MarketWatch
2018-Internet Trends Report by Josh Constine via Tech Crunch

“Government is one of the five evils – along with fire, floods, thieves and enemies.” ― Jeffrey Friedland, All Roads Lead To China

It could never happen again, right?

via RSS https://ift.tt/2HckejE Tyler Durden

US Stocks, Bonds, Dollar Bid After Quitaly Chaos, Rajoy’s Rout, & Trade War Turmoil

US Bonds Up, US Stocks Up, US Dollar Up… Everything is awesome!

Here’s why:

New anti-establishment Italian government? Check.
New anti-establishment, socialist Spanish government? Check.
Trade war between the US and Europe, Mexico, & Canada? Check.
Deutsche Bank (most systemically risky bank in the world at one point) downgraded to a B-handle? Check.
Fed Tightening as rate-hike odds rise after good jobs data trumps EU risk? Check.