United Gates of America: The Trump Administration’s Relentless Assault on Legal Immigration

While the country is fixated on the horrors of (ICE) Immigration and Customs Enforcement agents ripping infants from the arms of migrant parents, two people in the Piss TrumpTrump administration have been quietly but painstakingly plotting a comprehensive assault on legal immigration: Attorney General Jeff Sessions and White House aide Stephen Miller. Both formed a close bond around their shared ultra-restrictionist agenda when Miller served as Sessions’ communications director in the Senate. Miller was the brains behind Trump’s scheme to take Dreamers hostage to force Congress to enact a 40-plus percent cut in legal immigration. But even before that failed, he and Sessions had started looking for ways to achieve that goal through regulatory means, doing an end run around Congress.

And they seem to be succeeding: A recent Washington Post analysis of State Department data found that the number of people receiving immigrant visas to live in the country is on pace to drop 12 percent in just the first two years of the Trump presidency. Here is how they’re doing it.

Erecting Regulatory Barriers to the Asylum Process

Asylum seekers are especially in their crosshairs because Trump himself pledged to deport them without due process. Vox’s Dara Lind has obtained the final draft of a Department of Justice memo that calls for treating anyone found between ports of entry as an “illegal immigrant” and denying them asylum. The administration had already started charging migrants picked up between ports on criminal grounds instead of civil ones as had hitherto been the case—never mind that many of these hapless and helpless migrants had no intention of living in the United States illegally. Some of them were lost or misdirected by smugglers (who want to create a diversion for Customs and Border Patrol), or rebuffed by border agents when they tried to present themselves at legit entry points as they are supposed to do. That’s why, to date, despite facing criminal charges, they had still been allowed to claim asylum. Apparently even that small mercy will now be rescinded.

The administration knows that a blanket policy akin to an outright ban may run afoul of domestic and international law that requires asylum seekers to at least get a hearing and hence may not withstand legal scrutiny. Therefore, the memo includes a Plan B: It will instruct immigration judges to weigh the circumstances of entry as a major factor in their asylum decisions, making the rejection of their petition a fait accompli. In other words, the administration is gaming asylum laws to deny asylum seekers a fair shot—subverting the law in the name of the “rule of law!”

Showing the Back of the Hand to Refugees

But the administration is not just shutting the door on asylum seekers who land on our shores. It is also turning away refugees petitioning from abroad. Thanks to “extreme vetting,” refugee admissions are on track to fall by 75 percent from 2016 levels, according to federal data. The administration has already slashed the annual refugee quota from 110,000 to 45,000; now it won’t fill even half of that.

But it’s not just asylum seekers and refugees the Sessions-Miller duo is dinging—they are also going after family-based and employment-based immigrants.

Restricting Family-Based Immigration

America implemented a family-based immigration system that gives the immediate family members of Americans and green-card holders priority in order to advance its commitment to family unity. Hence, since 1965 when this system was implemented, about 60 percent of all immigrants every year come through this category. But Trump has been openly hostile to this.

He has barred Americans from sponsoring family members from any of the five Muslim countries listed in his travel ban. In theory, the State Department is supposed to hand waivers from the ban to close family members—spouses and children—on a case-by-case basis. But as Justice Breyer pointed out in his dissent in Trump vs. Hawaii, the travel ban ruling, the administration approved a measly 430 waivers out of 6,555 eligible applicants in the first four months of the ban.

So it is no surprise that WaPo found the number of new arrivals from these countries is on track to decline by a whopping 81 percent. But what is surprising is that virtually all of the top 10 countries that send immigrants America’s way, with the possible exception of El Salvador, are set to experience a decline. And around 15 percent fewer immigrant visas were handed to immigrants from African countries. (Interestingly, however, the flow of immigrants from European countries is showing a slight increase.)

How exactly is the administration accomplishing this reduction given that Congress pointedly refused to enact its requested cuts? Basically, by implementing “extreme vetting” for family members as well.

Miller has worked with the State Department to require American consular officers—whom he regards as the “tip of the spear” in pushing his draconian controls—to subject applications to inordinately long scrutiny and slow the approval process to a crawl. The upshot is far fewer visas approved every month.

The administration’s excuse for slashing family-based immigration is that this category is not “merit based” so it does not draw the “best and the brightest.” That’s something of a myth because over 50 percent of immigrants admitted under the family-based and the diversity visa categories—which Republicans are champing at the bit to eliminate—have college degrees, compared to 29 percent of natives.

Shutting Out Skilled Immigrants

But if the administration is so concerned about merit-based immigration, surely it would be opening the doors wide to skilled foreigners, right? Especially when the country has record low unemployment and jobs are going a-begging. A recent Federal Reserve survey found worker shortages in various industries and various skill levels all across the country. The situation is particularly dire in STEM-related industries, where unemployment among Americans is about three percent, and in certain specialized professions—such as computer network architecture—near one percent. In other words, fullest of full employment! So it would stand to reason that the administration should be relaxing things for high-skilled, H-1B visas, especially since every high-skilled immigrant supports about 3.1 American jobs on average.

Think again.

The administration is applying the same basic strategy of smothering this program in red tape as it has done with asylum seekers and family-based immigrants. In particular, the administration is

  • issuing many more “requests for evidence” from employers sponsoring foreign workers. This means that companies have to submit even more paperwork than they currently do to prove to the government that they really need the immigrant’s services and couldn’t find a qualified American to do the job. Worse, even as it is requiring employers to jump through more hoops, it is denying more H-1B requests. (The policy gamble is that if the government makes the process too fraught and onerous, employers will think twice before even thinking of hiring foreigners.)
  • no longer allowing H-1Bs to renew their visas every three years as a matter of routine, which has been the case to date. They are forcing the visa holder and the sponsoring employer to re-file all the paperwork, as if they were applying for the first time. The horrendousness of this cannot be exaggerated. Most H-1Bs aspire to update their visas to green cards. But employment-based green cards are backlogged for decades, especially for Indians and Chinese. So if these folks can’t renew their H-1Bs automatically and their green cards are stuck in limbo, they basically have to live in fear of losing their jobs and being thrown out of the country after buying homes, building families, and putting down roots. This is massively disruptive for those already here, of course. But it also has a chilling effect on aspiring high-skilled immigrants. It may not be a coincidence that H-1B applications have dropped two years in a row (although they still vastly exceed the minuscule annual 85,000 annual quota, which Congress, in its infinite wisdom, set with no regard to the actual economic demand).
  • significantly tightening the definition of a specialty occupation for which it is legit for companies to hire H-1Bs. For example, no longer might a bachelors in Computer Science be enough for Microsoft to hire a foreigner. A masters—or more—might be required.
  • preparing to scale back the Optional Training Program for foreign students that allowed them to stay and work in the country after graduation (12 months for non-STEM students, three years for STEM students), giving them crucial work experience and time to find jobs. Considering how much time and expense foreign students invest to obtain an education in the United States, if this door is shut, they will simply opt for other more hospitable destinations like Canada and Australia. Indeed, the harsh, anti-immigration rhetoric was already turning off foreign students from American universities. Squeezing the OTP program will repel even more.
  • scrapping work authorization for the highly qualified spouses of H-1B holders. This will essentially freeze many of them out of the labor market permanently, making America a very unattractive destination for talented married foreigners.

Spurning Foreign Entrepreneurs

If the visa options for high-skilled foreign workers are limited, they are almost non-existent for foreign entrepreneurs. The Obama administration took a small stab at fixing this situation when it passed the International Entrepreneur Rule—the so-called entrepreneur startup visa. This rule allows foreign entrepreneurs who launch businesses in the U.S. to live in the country for a renewable 30-month term, provided they can secure $250,000 in private venture capital funding or $100,000 in public grants. About 3,000 applications were expected under this rule each year. Other advancing countries such as Canada, Australia, the United Kingdom, South Korea, and even communist China, are already offering similar incentives to attract innovative businessman.

But the Trump administration has issued notice to rescind this rule even though it was expected to help create hundreds of thousands of high-quality jobs in Midwestern cities between the coasts, not just in Silicon Valley.

We shouldn’t be making legal immigration harder than it already is

For many years now, restrictionists have weaponized the unauthorized immigrant issue and rallied Americans around the notion that those who want to come to America need to do so legally.

But as Reason’s 2008 pictorial representation shows this wasn’t easy even before Trump. Low-skilled foreigners who don’t have blood relatives or spouses in America to sponsor them have no legal options to permanently live and work in the country. Just to obtain temporary work permits such as H-2A and H-2B visas, they—and their employers—have always had to endure the bureaucratic equivalent of waterboarding. (For example, these visas require poor migrants to prove that they have a job or property to return to after their assignment in the United States is completed, basically closing off the American labor market to the people who need it the most. Such Catch-22 rules are the core cause of America’s unauthorized “problem.”)

But post-Trump, legally immigrating to the U.S. has become infinitely more difficult. Miller and Sessions are subjecting every immigrant in every category—refugees, asylum seekers, family-based, employment-based and entrepreneurs—to the same treatment. What has been listed above by no means exhausts everything the duo has up its sleeve. There is much, much more coming, including a plan to make it difficult for immigrants to upgrade their visa status if they or their American-born family use a whole slew of public services—not welfare, mind you—and even if they pay the same taxes as Americans.

As the Migration Policy Institute puts it, the administration “has initiated several small but well-calibrated actions through regulations, administrative guidelines, and immigration application processing changes” to severely slash overall legal immigration.

Even as Trump is having difficulty ginning up funds for his wall on the southern border, his two minions, with great ingenuity, are erecting a bureaucratic fortress all around the country.

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One More Hike To Inversion – Treasury Curve Plunges To Flattest Since July 2007

One more rate hike and it would appears the entire curve out to 10Y maturity will be inverted

2s30s is testing down towards 40bps, but 2s5s dropped well below 20bps

And 2s10s is now below 30bps for the first time since July 2007

Remember 9 of the last 10 curve inversions have rapidly presaged a recession (and the last two curve inversions saw the stock market cut in half).

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WTI/RBOB Slammed On Surprise Crude Build

API reported a significant crude draw yesterday and after last week’s record US exports and biggest crude draw in two years, DOE reported a surprising crude build of 1.245mm barrels and sent WTI/RBOB tumbling.

 

API

  • Crude -4.5mm

  • Cushing -2.6mm

  • Gasoline -3.00mm

  • Distillate -438k

DOE

  • Crude +1.245mm (-5mm exp)

  • Cushing -2.113mm (-2mm exp)

  • Gasoline -1.505mm (-750k exp)

  • Distillate +134k

Following last week’s massive crude draw (biggest in 2 years) and API’s 4.5mm draw, DOE reported

“The acute shortage at Cushing is creating an additional headache,” Energy Aspects analysts say in note. “The priority for the physical market right now is to refill Cushing in August as we will reach tank bottoms at the hub in July”

 

All eyes were on US crude production once again to see if the Permian pipeline bottlenecks were still holding back output…and for the 3rd week in a row production was unchanged.

 

WTI-Brent spread has collapsed from its double-digit levels but in recent days has started to widen once again (not helped by threats to shut Middle East transport channels).

 

WTI (down) and RBOB (up) were mixed heading into the data but the surprise crude build sparked instant selling…

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“It Just Makes Me Cry”: Investors Hit David Einhorn’s Greenlight With Redemption Requests

Over the weekend, when reporting on David Einhorn’s latest monthly performance, we said that “every month this year we have said it couldn’t possibly get any worse for David Einhorn’s Greenlight, and the very next month we are proven wrong.” The reason: in June, Einhorn’s Greenlight tumbled another 7.7% bringing the YTD loss to -18.7% after an 11.3% drop in 2017, an unprecedented collapse for the fund whose longs have slumped, but whose “short basket” has ripped amid what recently was a record short squeeze.

We concluded by saying that:

“the worst news for David Einhorn is that for Greenlight’s LPs enough may be enough, and after losing 28% since the end of May, “investors have bolted”, pulling almost $3 billion out of the firm in the last two years. With only $5.5 billion in assets, Greenlight, like Pershing Square, is now well less than half the hedge fund it was at its peak.”

Now, according to the WSJ’s Greg Zuckerman, the worst case scenario for Einhorn is starting to unfold, as one after another prominent LPs are either pulling their capital, or warning they “will exit if results don’t rebound.” But what is most surprising, is that they are doing so on the record, with a series of quite embarrassing – for Einhorn – soundbites. Here are some examples:

“My patience is wearing thin,” said Morten Kielland, chairman of investment-management firm Key Family Partners SARL and an early Greenlight investor, who said he has withdrawn much of his firm’s money from the fund. “This is unbelievable.”

For his part, Einhorn is unhappy: “We are obviously frustrated by our results,” Greenlight admitted in its latest letter to investors, and yet the Greenlight founder hasn’t clearly explained the losses, “pointing to the market’s shift away from the less expensive value stocks he favors.”

“It is difficult to explain what caused the results,” he said in an April investor letter. “To some extent, this quarter’s result stems from the continued extreme outperformance of growth over value.”

Pragmatics know that this divergence, which is shown in the chart below…

… is the direct result of central bank intervention in capital markets, which has made a mockery of traditional, fundamental investing while forcing investors to chase after either growth, momentum or bad balance sheet stocks, as those are the only strategies and factors that outperform in a time in which the Fed is fully intent on perpetuating zombie companies with low interest rates, while making the cost of capital for growth companies virtually nil, allowing them to capture market share from legacy businesses.

According to Zuckerman, some attribute Mr. Einhorn’s troubles in part to his unconventional ways, such as “sticking to value stocks, for example, and keeping clients at a distance—which he hasn’t changed even as investors bolt.”

“He’s stubborn,” said Peter Weiss, a Boston-area investor who said he withdrew hundreds of thousands of dollars this year. “He’ll never admit he’s made a big mistake…It just makes me crazy.”

When clients asked Mr. Einhorn for his views on investments, he often chafed, several investors said. While he revealed the firm’s five largest “disclosed long positions” monthly, he wouldn’t say whether there were other large positions or significant bearish bets in the portfolio, nor would he give midmonth updates as many funds do, these investors said.

* * *

Once, Greenlight wouldn’t tell an investor what shares it was buying, only for the investor to learn days later what it was doing in a media report, frustrating him. “You call them and try to have a substantive conversation,” the investor said, “and they’re almost obnoxiously closed-door.”

For his part, Einhorn said in a statement that “when we recognize a mistake we exit the position and own up to it in our quarterly letters.” Many seem to disagree, but have little choice due to the fund’s draconian lock ups:

Greenlight could be difficult to deal with, some current and former investors said. While most hedge funds let clients withdraw money once a quarter, Greenlight in 2005 began requiring a three-year commitment with one chance a year to withdraw after that.

And yet, despite his famous poker face (Einhorn is also a pro-tour poker player) the pressure of Einhorn’s underperformance and the redemption requests appear be getting to the one-time investing wunderkind, according to the WSJ:

With the media, Mr. Einhorn was soft-spoken and generous with his time. Behind closed doors, he sometimes showed a darker side. At “idea dinners,” where he and other hedge-fund managers regularly met to debate stocks, he could be insulting to those who questioned him, some participants said.

Meanwhile, perhaps with the aid of some disgruntled LPs, the WSJ digs far back in the past to disclose embarrassing incidents such as this one:

In 2001, John Burbank, who was starting a research service and later became a hedge-fund manager, pitched Mr. Einhorn on refiner Valero Energy Corp. , said a person familiar with the meeting. Mr. Einhorn dismissed the idea and spent half an hour lambasting him for not doing his homework.

“You really should go for better businesses,” Mr. Einhorn said, according to this person, telling Mr. Burbank to steer clients to one of Greenlight’s largest holdings at the time, WorldCom Inc., the person said. A year later, WorldCom declared bankruptcy. Valero’s stock more than doubled over the next three years.

Which is not to say that Einhorn is a bad manager: he is far better known for his hits than his misses, which is also why iInvestors have tolerated his “quirks”: results were great, and annual gains were as high as 58%.

Some of his biggest hits came from public battles with companies whose stock he shorted, betting against them by selling borrowed shares. In 2002, he began a protracted spat with Allied Capital Corp., a lender he said was overvaluing its holdings. Allied called his claims unfounded, but its shares fell and it was acquired in 2009 at a fraction of its 2002 price, resulting in millions in profits for Greenlight.

In May 2008 at a conference, he criticized Lehman Brothers Holdings Inc.’s accounting practices, asking why it took only a $200 million write-down on $6.5 billion of collateralized debt obligations. Lehman filed for bankruptcy that year.

“Kind David”, as he was also known during his better days, also had a bit of a nightlife habit:

Einhorn and his employees gained reputations among some investors​ for enjoying themselves after hours. His team gambled in Atlantic City, N.J., annually and sometimes hit New York nightclubs until early morning, spending thousands of dollars a person on food and drinks, said people who attended some such events. Greenlight hosted an annual Friday-night poker tournament for employees, friends and clients, where alcohol flowed and thousands of dollars changed hands.

Einhorn flew with staffers to Las Vegas each year, sometimes in a private jet, for the World Series of Poker, visiting nightclubs and spending as much as $20,000 each, said one of the people who attended such events. In 2012, Mr. Einhorn finished third in the tournament, taking in $4.35 million, and another time won nearly $660,000, all of which he donated to charity.

“We worked hard and played hard,” said the WSJ source. “There was a celebratory feel.” Indeed there was, and until 2013, Greenlight seemed unstoppable, as it moved into investments such as gold, derivatives and debt, gaining 19.8% that year. Einhorn ported over his success into 2014, when things started to change: maybe his fame and fortune started getting to his head:

In 2014, for the first time in years, Mr. Einhorn opened Greenlight to more investors, some of his clients said, drawing $1 billion in new cash and increasing assets under management to $12 billion.

That year, he bought a small piece of the Milwaukee Bucks basketball team. In 2015, he became chairman of the board of the Robin Hood Foundation, the hedge-fund industry’s unofficial charitable arm. He often coached baseball and softball teams for his three children, said former employees.

This is the time when some investors showed early signs of “becoming wary of Mr. Einhorn’s methods, including Gregory Horn, who runs Persimmon Capital Management LP.”

Mr. Horn said he worried that Mr. Einhorn’s public appearances to promote his holdings could make him a possible target of rivals hoping to drive up stock prices.

“We like our managers investing, not promoting,” said Mr. Horn, whose firm says it pulled its money from Greenlight in 2014. “We didn’t like him going out to the press and were concerned about people picking off his trades.”

That is also the time when things started going south.

Einhorn’s downturn hit mid-decade. Greenlight dropped more than 20% in 2015, hurt in part by a 74% collapse in shares of solar and wind producer SunEdison Inc., one of Greenlight’s largest holdings at the time; the S&P 500 returned 1.5%. Investors hoped it was a blip, and Mr. Einhorn seemed to take it in stride.

At his annual investor dinner that winter, he featured a slide of the now-imprisoned pharmaceutical executive Martin Shkreli, who had once unsuccessfully pitched the firm on an investment. Mr. Einhorn’s message: It could be worse—Greenlight could have invested with Mr. Shkreli. Many in the room laughed, said a person who was present.

However, the downward streak was just starting, and as Greenlight’s tumble accelerated, so did concern among investors about Einhorn’s value-oriented approach, which avoided popular tech stocks that were part of what he called a “bubble basket” that he predicted would fall.

He told investors in an early 2018 presentation, one investor said, that he had been shorting stocks including Amazon.com Inc., Athenahealth Inc. and Netflix Inc., stocks that are up more between 19% and 103% this year—a short position loses value when the underlying stock rises. Brighthouse Financial Inc., Greenlight’s second-largest holding as of March 31 according to its securities filings, is down 31% this year.

We shows previously what happened next: it wasn’t pretty:

According to Zuckerman, some investors caught a case of Loeb envy, saying they wished Einhorn had embraced high-growth stocks as did Third Point’s Daniel Loeb, and which bought two million shares of Netflix last year.

But Einhorn had bigger problems on his mind, chief among which a divorce:

Adding to distress among some investors is Mr. Einhorn’s pending divorce. “If someone goes through a divorce, I usually get out,” said Mr. Kielland, Mr. Einhorn’s early backer. “I made an exception with David, but I made a mistake…He has to be distracted: I’m convinced that’s 30% to 40% of” why Greenlight has been underperforming.

Kielland said he has withdrawn three-fourths of his firm’s money and may take out the rest. Several other investors said they withdrew, or are considering withdrawing, money in part because of the divorce. Einhorn countered:

“This Europe-based investor has almost no contact with me and has no basis for his statement. Our investment team and I are solely focused on the portfolio.”

Of course, the final chapter of the story has not been written, and Einhorn could very well have the final laugh: after all, his bet is merely one against central bankers, and readers know well, the world’s central banks begin to drain liquidity in earnest in just a few months time; at that moment – when the tech bubble has a high chance of finally bursting – all of Einhorn’s pain may be validated:

Some rivals say Mr. Einhorn’s avoidance of expensive stocks could prove prescient. General Motors Co. shares, among Greenlight’s largest holdings, gained 10% last month on news of an investment from SoftBank Group Corp.’s SoftBank Vision Fund, though GM remains down 5% this year.

In the end of the day, those who have stuck with Einhorn, have made their money, and supporters point to Greenlight’s stellar annual returns since inception: 15% versus 8.7% for the S&P 500 and 7.5% for the average stock-focused hedge fund, according to HFR.

Zuckerman concludes that, for better or worse, Einhorn is showing no signs of changing his ways.

At an April conference, he unveiled his latest bearish pick, Assured Guarantee Ltd., warning that its business was more challenged than investors realized. Einhorn’s warning didn’t move the stock much that day, but he remained hopeful.

“Bubbles do pop, you know,” he told the crowd. “Or at least they used to.”

We, for one, are hopeful that even if he is wrong on everything else, “King David” will be right with that prediction.

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He Was Assaulted by Three Teens at Work, But He’s Going to Prison for Defending Himself

Jeffrey SumpterJeffrey Sumpter, 21, was attacked by three juveniles at the Dunkin’ Donuts where he worked in Norwalk, Connecticut, last October. On Monday he was convicted and sentenced to 18 months in jail because he decided to defend himself.

Nobody seems to dispute that Sumpter is not the aggressor here, but the victim. Three juveniles entered the bakery and attacked Sumpter. The fight spilled outside and Sumpter, who had a knife, stabbed one of his attackers.

And that’s where things went wrong for Sumpter. Connecticut does allow citizens to defend themselves. But its law also includes a “duty to retreat” from attackers if it’s feasible to do so. There are several important exceptions—people don’t have to retreat from their home or from their place of work. If Sumpter had stayed in his Dunkin’ Donuts he could have been covered.

But he went outside, and so according to the letter of the law in Connecticut, what happened was first-degree felony assault. According to the Connecticut Post, Judge John Blawie even said he believed Sumpter’s version of the events and that he was defending himself. But the law is the law, the judge says. Off to jail.

As if that’s not bad enough, the judge noted that because Sumpter’s conviction was for a violent felony, he will receive longer sentences if he’s convicted of a crime in the future. That means Connecticut law essentially punishes victims in perpetuity for defending themselves.

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Tesla Tumbles Back Below $300 As Musk Attacks Analysts’ “Poor Track Records”

It seems Tesla bonds were on to something after all…

After trading higher in the pre-open, bouncing after Tuesday’s tumble, investors have resumed aggressively selling Tesla stock this morning (not helped by news of a new probe into the carmaker), sending it back below the $300 Maginot Line… down over 18% from its post-Model 3-production-goal spike…

TSLA also broke below its 50DMA…(having already broken below its 100DMA and 200DMA)…

This has obviously upset Elon Musk, who is now taking aim at analysts on CNBC…

Time for another audacious goal announcement to distract from the carnage.

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The Debt Clock Keeps Spinning: New at Reason

In June, the Congressional Budget Office issued a grim forecast.

Federal debt now equals 78 percent of gross domestic product, the highest since we had just finished fighting World War II. The CBO says that under current policies, it can be expected to “approach 100 percent of GDP by the end of the next decade and 152 percent by 2048. That amount would be the highest in the nation’s history by far.”

The Trump administration pretends that its policies will unleash such rapid economic growth that the treasury will get a flood of new revenue. But as Steve Chapman observes, the administration’s beliefs are at odds with economic reality.

View this article.

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The Gathering Storm

Authored by Charles Hugh Smith via OfTwoMinds blog,

The gathering storm cannot be dissipated with propaganda and bribes.

July 4th is an appropriate day to borrow Winston Churchill’s the gathering storm to describe the existential crisis that will envelope America within the next decade. There is no single cause of the gathering storm; in complex systems, dynamics feed back into one another, and the sum of destabilizing disorder is greater than a simple sum of its parts.

Causal factors can be roughly broken into two categories: systemic and social/economic. The central illusion of those who focus solely on social, political and economic issues as the sources of destabilization is that tweaking the parameters of the status quo is all that’s needed to right the ship: if only Trump were impeached, if only GDP hits 4% annual growth rate, if only the Federal Reserve started controlling the price of bat guano, etc., etc., etc.

The unwelcome reality is the systemic issues cannot be reversed with policy tweaks or shuffling those at the top of a crumbling centralized order. The systemic problems arise from the structures of centralization and monopoly capital, the institutionalization of perverse incentives and the depletion of natural capital: soil, water, fossil fuels, etc.

We can create “money” out of thin air but we can’t print fresh water, productive soil or affordable energy out of thin air.

Regardless of their ideological labels, centralized socio-economic systems follow an S-Curve of rapid expansion during a “boost phase,” a period of stable expansion (maturity) and then a period of stagnation and decline as the system’s participants do more of what’s failed, as they cannot accept that what worked so well in the past no longer works.

A successful model traps those within it; escape becomes impossible. That’s the lesson of the S-Curve:

The Ratchet Effect is another key reason why meaningful reform of the status quo is impossible. In flush times, budgets expand as easily as waistlines, ratcheting up to consume ever-higher revenues. But once revenues start declining, the administrative/consumerist status quo is fiercely resistant to any reduction.

Like a body which has grown fat from excessive consumption and a decline in vitality/ functionality, the status quo resists any reduction in staffing or spending, sacrificing muscle to keep its layers of fat untouched.

In other words, the social crises, the constitutional crises, the financial crises–all of these are to some degree mere manifestations of the failure of centralized systems that arose to benefit from conditions that no longer exist.

Our centralized institutions and systems are failing, and shuffling the management and tweaking the parameters cannot stave off collapse.

What nobody gorging at the trough of the status quo dares admit is the system is failing most of its participants, and this is the source of populism and other manifestations of social disorder. I often publish this chart, as it crystallizes and encapsulates the verboten reality of 21st century America: the few are skimming the vast majority of the rewards of the system, at the expense of the many.

The many are politically powerless and divested of capital. Our centralized system concentrates wealth and power into the very apex of the wealth-power pyramid. In this apex, wealth, power, and control of media and surveillance all mix easily: thus Bezos controls Amazon and The Washington Post and has long-established ties to the National Security State in what’s been aptly described as Surveillance Capitalism, a term that also describes Facebook and other quasi-monopolies of social media.

Amazon’s Fusion With The State Shows Neoliberalism’s Drift To Neo-Fascism.

Rather than admit the failure of our socio-economic system, those benefiting from the system’s gross imbalances are pursuing a multi-pronged strategy of control:

1. Propaganda. The basic idea here is simple: ignore what your own experience is telling you about the failure of our socio-economic system and believe a carefully tailored host of interconnected narratives that all is well and this is most prosperous, wonderful system in the galaxy, nay, the universe.

Anyone who challenges these narratives is quickly attacked and marginalized:a highly centralized state goes hand in hand with a highly centralized media. Anything outside this apex of wealth and power is dismissed as “fake news.”

For example, anyone who dares measure real-world inflation is quickly attacked and marginalized, least the restive masses finally awaken to the reality that the unprotected are being ravaged by 6% to 8% annual inflation in big-ticket items while the protected elites bask in subsidies that protect their self-serving fiefdoms from the harsh reality of rising inflation (i.e. loss of purchasing power).

2. Bribery and buy-offs such as debt forgiveness, tax breaks and Universal Basic Income (UBI). To calm the restive masses who have been disenfranchized, exploited and transformed into tax donkeys, those in the apex of power offer bribes and buy-offs: hey, let’s “forgive” student loan debt–but of course it’s not actually forgiven; the losses are simply transferred to the taxpayers.

Tax breaks and subsidies are used to mask the ever-greater share of the nation’s wealth being skimmed by junk fees, useless licencing, compliance penalties, and taxes on everything.

Universal Basic Income (UBI) is the ultimate systemic bribe. Having stripmined the unprotected non-elites of opportunity and capital, those at the top of the wealth-power pyramid are promoting basic material survival as the substitute for actually having a stake in the system.

The unspoken reality is that UBI is designed to give debt-serfs just enough income to keep servicing their debts. Why not bypass the charade of “helping the powerless” and transfer the taxpayers’ money directly to the banking sector?

The gathering storm cannot be dissipated with propaganda and bribes. The status quo is only hastening its demise with its strategy of misdirection and distraction.

*  * *

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Stagflation Signals Flash Red As US Composite PMI Dips, Bucks Global Trend

June’s final Composite PMI was higher than the flash print but slowed from May’s multi-year highs as business expectations slip to 3-month lows as input prices soar; but ISM’s Services survey printed better than expected at 59.1 (vs 58.3 exp and 58.6 prior).

Take your pick of hoiw the US economy is doing…

  • Both Markit’s Manufacturing & Services PMIs slipped in June.

  • Both ISM’s Manufacturing & Services surveys soared in June.

Rather confusingly, ISM managed to surge despite 7 of the 10 components declining??

Even more ridiculous, ISM’s gauge of prices paid decreased to 60.7, lowest since December, from 64.3; employment is salso hovering near its lowest in a year.

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

Another month of solid business activity growth means the second quarter saw the strongest performance from the service sector for three years. Coming on the heels of a robust manufacturing expansion in the second quarter, the survey data add to indications that the economy has picked up considerable growth momentum since the first quarter.

“June also saw further impressive job gains, with the manufacturing and services surveys indicating that the last two months have seen business hiring increase at the steepest rate for just over three years. At this level, the survey’s employment indices are historically consistent with a non-farm payroll rise in the order of 230k.

But, Williamson flashes a big fat stagflation warning:

“On the downside, price pressures remained elevated, and are likely to feed through to higher consumer price inflation in coming months.

There are also signs that growth could weaken in the third quarter: business expectations about future growth have pulled back from recent highs, and new order flows have slowed for two successive months. However, all indicators remain at sufficiently high levels to suggest that any slowdown may only be modest.”

Interestingly, while China, Europe, and Japan saw their composite PMIs rise in June, US saw a reverse…

 

 

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Credit Suisse: “Our Risk Appetite Index Is Near Panic”

Sure, it’s been a bad year for investors, with the S&P posting the smallest of gains in the first half (all of which thanks to tech stocks) after several hair-raising, monthly incidents including February’s vol-spike, April’s real yield scare, May’s Emerging Market massacre and June’s trade war fears as shown in the following Citi chart…

… but it’s hardly been apocalyptic: in fact, most of the shocks that took place were well telegraphed to those who paid attention. And yet, according to Credit Suisse, after the first six months of the year investors are in a state of near shock.

According to Credit Suisse economist James Sweeney, “our Global Risk Appetite Index is near panic” and adds that “our equity-only (relative performance across EM and DM countries) and credit-only (relative performance of US IG sector/rating/maturity buckets) versions are already there.”

What is causing paralysis? According to the second largest Swiss bank, the investor “panic” can be attributed to:

Trade disputes, the Italian budget, Fed tightening, and emerging market turbulence are contending to be the main driver of this risk appetite slump. However, growth concerns have featured too, as European data in particular have disappointed. Meanwhile, many investors claim that widening credit spreads and a flattening yield curve portend the cycle’s end.

To Sweeney, who focuses mostly on economic developments, “there is a significant chance that our global risk appetite index falls below -3 in the coming months, which we define as “panic”.

Panics have historically coincided with periods of weak IP momentum. Since 1990, there are only two examples of global IP momentum growing faster than its current rate when risk appetite entered panic: July 2002 and August 2011. In 2002, IP momentum weakened almost immediately. In 2011, an IP slump did not occur until 12  months later, when risk appetite had recovered.”

Indeed, as the chart below shows, IP is nowhere near “panic” territory, suggesting that there is something well beyond economic sentiment to spook investors and traders.

And yet, one specific region poses significant risk to the future global economy: Europe. According to Sweeney, “at the end of last year European business surveys hit multidecade highs and IP momentum reached 7%. Such growth was unsustainable but the abruptness of the slowdown has been extreme.”

That’s putting it mildly, because after Europe’s cliff-like divergence in Q1 when the Citi eco surprise index plunged to near record low, “broad signs of a Q2 rebound did not emerge, contrary to our expectations. Whether we should “give up” on European growth is a central question now, which we try to answer by addressing what went wrong in the first place.”

Sweeney’s take: “for global growth to stay strong in the second half of 2018, European growth must improve.”

Which in a time of escalating protectionism and trade war for the export heavy continent, could be a major problem. However, there is a silver lining: if and when investors panic, and the projected IP rebound fails to materialize, central banks will have no choice but to respond, effectively voiding any ECB plans to not only end QE but to hike rates, whether in the summer of 2019 or the last months of the year.

In short: global investors panicking is the best possible thing that could happen to, well, global investors as it means another bailout from central banks.

Unless of course, central banks refuse to get involved this time, and leave markets to their own devices. Which could be a problem: with 40% of today’s traders never living through a real market crisis where central banks did not step in, the next time price discovery takes place without a central bank backstop, investors may just learn what panic really means.

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