Month: September 2018

Wells Tumbles As DOJ Launches New Probe After Review Found Widespread “Document Altering”

Another day, another scandal involving Warren Buffett’s favorite bank.

According to the WSJ, the DOJ is now probing whether employees committed fraud in Wells Fargo’s wholesale banking unit as a after revelations that employees improperly altered customer information. This follows a prior WSJ report that some employees in the unit added information on customer documents, such as Social Security numbers and dates of birth, without their consent.

Meanwhile, the bank’s own review discovered in recent months that in its wholesale banking group the problems were more widespread than previously thought: problems with altered documents initially centered in the part of the wholesale banking business called the business banking group, which focuses on companies with annual sales of $5 million to $20 million. Wells Fargo has found similar problems in its commercial banking division, which primarily serves middle-market companies, and its corporate trust services group, which helps with the administration of securities issued by companies and governments, one of the people said.

According to the Journal, employees altered the customer documents as Wells Fargo was rushing to meet a deadline to comply with a 2015 consent order from the Office of the Comptroller of the Currency.

The regulator had ordered the bank to beef up its anti-money-laundering controls, including its processes for ensuring that there are proper identification documents and that the bank has the ability to see client activities across a common database.

When the OCC issued the consent order, Wells Fargo had more than 100,000 customer accounts it needed to verify, the Journal previously reported. Wells Fargo in May formally asked the OCC for an extension beyond the initial June 30, 2018, deadline.

As a result, over the past year, the bank has been reaching out to thousands of clients requesting updated documentation on information such as relevant client addresses or dates of birth. Banks must have certain information, known as “know your customer” regulatory requirements, in order to keep banking their clients.

In other words, there was fraud everywhere, and then there was fraud to cover up the fraud..

As the WSJ adds, the Justice Department is trying to learn if there is a pattern of unethical and potentially fraudulent employee behavior tied to management pressure. The employees in the wholesale banking unit, the side of the bank that deals with corporate customers, mishandled the documents last year and earlier this year.

The latest probe adds to the problems at Wells Fargo, whose reputation has been crushed since a sales scandal in its consumer bank imploded two years ago.

It also underscores how bad behavior has emerged throughout the bank and has continued even after the 2016 blow-up over sales practices. The bank’s problems have cascaded since then, with issues related to lofty sales goals and improper customer charges emerging across all of its major business units, prompting a range of other federal and state investigations.

The news of the latest probe sent Wells stock tumbling as investors wonder just how “low can Fargo go.”

 

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Next Round of Tariffs Could Making Vaping More Expensive

Before the end of the week, President Donald Trump could order a new round of taxes on Chinese imports, and electronic cigarettes could be among the products targeted.

Those higher import taxes on e-cigarettes would raise prices for consumers, strike a blow against public health in America, and jeopardize the future of a vaping industry that may not have ever come into being without the free exchange of goods and ideas across international borders. While it remains unclear whether e-cigarettes will be included in any future round of tariffs, vaping industry representatives argue that raising taxes on vapers would be a serious mistake.

“The imposition of additional taxes via tariffs would most certainly have the consequence of raising the cost of vaping equipment quite significantly,” says Tracy Musgrove, the owner of two retail vaping shops in Williamsburg, Virginia.

In testimony to the Office of the United States Trade Representative—which held a series of hearings in late August on the Trump administration’s proposal to impose more tariffs on Chinese goods—Musgrove said many of her customers switch to e-cigarettes after years of using more dangerous methods of getting a nicotine hit.

“If the cost of vaping far outweighs the cost of smoking, many will be forced to go back to smoking due to financial concerns,” she said.

Higher prices on imported vaping products are not likely to benefit domestic manufacturers, because there really aren’t any. And there’s no way for e-cigarette businesses to re-route supply chains around China because 90 percent of all vaping products are made there.

“There is no alternative,” said Greg Conley, president of the American Vaping Association, a trade group.

The vaping revolution of the past decade is all about international trade. The first e-cigarette was invented in 2007 by a Hong Kong pharmacist named Hon Lik.

Just a little over a decade later, vaping is a $5.5 billion (and growing) industry in America. While most e-cigarette devices and the batteries powering them are made in China, American companies produce the vast majority of the nicotine-laced liquids used to make the vapor that’s inhaled by users. No domestic consumer or producer would benefit these tariffs, save one: traditional cigarette makers.

“Tariffs on e-cigarettes don’t just represent an unnecessary cost to consumers. They are actually an active threat to public health,” Guy Bentley, a public health research associate for the Reason Foundation (which publishes this blog), told the U.S. Trade Representative’s tariff committee last month. “The winners from these tariffs are not domestic e-cigarette producers, but manufacturers of tobacco cigarettes.”

The tariffs would affect 10,000 U.S. businesses and over 10 million American consumers, according to the Vapor Technology Association, another trade group. With the addition of a 25 percent tariff, low-end vaping devices will cost around $40 and middle-of-the-road options could be well over $100, says Brittani Cushman, the group’s president. At the lowest end of the market, vaping devices can be bought for less than $30 today.

Higher costs for consumer goods would become the norm if the Trump administration goes ahead with plans to place tariffs on another $200 billion of Chinese goods. Earlier rounds of tariffs have so far targeted steel, aluminum, and other industrial goods, and while the consequences have been significant, economists warn that the next tranche of tariffs—aimed at a wide variety of items including furniture, clothing, and electronics—will sting Americans more directly.

A vape tariff would be the best example yet of how tariffs fly in the face of good policy.

Public health researchers at the Food and Drug Administration, the American Cancer Society, and the National Academy of Sciences have concluded that e-cigarettes are safer than combustible alternatives. In January, a Georgetown University study found that switching from cigarettes to e-cigarettes could prevent between 1.6 million and 6.6 million smoking-related deaths in the United States.

In other words, the stakes are high. All tariffs cause significant problems, but higher import taxes on vaping devices will prevent some smokers from being able to choose a healthier alternative for getting their nicotine fix—without providing any clear benefits for consumers, American industries, or the economy as a whole.

“Tariffs on e-cigarettes would directly penalize smokers,” said Conley, “for switching to massively less harmful products in order to save their lives.”

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Revenge: Trump Threatens “Deep State” With Declassification “To Find Additional Corruption” As GOP Allies Call For Release

One day after the New York Times published an anonymous op-ed alleging that a cabal of “resisters” within the White House is actively subverting the Commander in Chief, President Trump threatened to declassify documents which might uncover “Additional Corruption,” right as his GOP allies on Capitol Hill are calling on him to use his Presidential authority to declassify and release reams documents related to the DOJ’s Russia probe. 

“The Deep State and the Left, and their vehicle, the Fake News Media, are going Crazy – & they don’t know what to do,” Trump tweeted Thursday morning, adding: “The Economy is booming like never before, Jobs are at Historic Highs, soon TWO Supreme Court Justices & maybe Declassification to find Additional Corruption. Wow!”

In particular, Republican Reps. Mark Meadows, Jim Jordan, Matt Gaetz and Lee Zeldin have asked Trump to declassify more of the heavily redacted FISA surveillance warrant on former Trump campaign aide Carter Page in late 2016. They also want Trump to release all of the official notes filed by twice-demoted DOJ official Bruce Ohr, whose cozy relationship with former UK spy Christopher Steele has come under intense scrutiny in recent weeks. 

The GOP legislators are also seeking the declassification of “other relevant documents” according to Zeldin’s office. 

The GOP lawmakers intend to formally announced [sic] their push on Thursday at a press conference. Trump has long backed his allies’ complaints that the Justice Department has withheld sensitive documents that might expose bias behind the Russia probe, which was launched in July 2016 by the FBI. In January, he agreed to declassify a memo crafted by GOP staff of the House Intelligence Committee that officially confirmed, for the first time, the existence of the Page surveillance warrant. That document had been reported in media but not formally acknowledged by the FBI. –Politico

Wednesday’s anonymous Op-Ed, which the Times claims was written by a “senior official in the Trump administration,” has drawn harsh rebuke from both sides of the aisle and appears to be backfiring spectacularly. While Trump and his supporters have naturally rejected the Op-Ed as everything from “fake news” written by a “coward” (and possibly an outright fabrication by the Times), the editorial has received surprising pushback from notable left-of-center figures. 

As we noted Wednesday night, Jessica Roy of the Los Angeles Times responded to the NYT Op-Ed within hours, writing: “No, anonymous Trump official, you’re not ‘part of the resistance.’ You’re a coward” for not going far enough to stop Trump and in fact enabling him. 

If they really believe there’s a need to subvert the president to protect the country, they should be getting this person out of the White House. But they’re too cowardly and afraid of the possible implications. They hand-wave the notion thusly:

“Given the instability many witnessed, there were early whispers within the cabinet of invoking the 25th Amendment, which would start a complex process for removing the president. But no one wanted to precipitate a constitutional crisis.”

How is it that utilizing the 25th Amendment of the Constitution would cause a crisis, but admitting to subverting a democratically elected leader wouldn’t?

…

If you’re reading this, senior White House official, know this: You are not resisting Donald Trump. You are enabling him for your own benefit. That doesn’t make you an unsung hero. It makes you a coward. –LA Times

Meanwhile, Glenn Greenwald – the Pulitzer Prize Winning co-founder of The Intercept, also called the author of the op-ed a “coward” whose ideological issues “voters didn’t ratify.” 

Greenwald continues; “The irony in the op-ed from the NYT’s anonymous WH coward is glaring and massive: s/he accuses Trump of being “anti-democratic” while boasting of membership in an unelected cabal that covertly imposes their own ideology with zero democratic accountability, mandate or transparency.“

So with the left, right and center all calling the anonymous op-ed a coward, and President Trump suggesting everything from a pure fabrication to the “Deep State” using their “Fake News Media” vehicle against him, one has to wonder exactly what’s stopping him from releasing the very documents which would expose more of what many are convinced has been nothing more than a charade. 


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Analyst Who Predicted February Correction Warns Two More Rate Hikes Will Trigger Bear Market

Stifel’s Barry Bannister – head of the firm’s institutional equity strategy – was one of the few strategists who correctly called the February VIXtermination slump that knocked the major indexes from all-time highs.

Fast forward to today when Bannister is out with a new note, according to which investors could be in trouble heading into next year as the Federal Reserve continues to tighten monetary policy, and keeps hiking rates. Specifically, Bannister claims in a new note that just two more rate hikes would put the central bank above the so-called neutral rate – the interest rate that neither stimulates nor holds back the economy. The Fed’s long-term projection of its policy rate has risen from 2.8% at the end of 2017 to 2.9% in June.

And, as the following chart, every time this has happened, a bear market has inevitably followed.

That said the Fed has a choice: it may not hike, which leads to the following dilemma: “cross the neutral rate in 2019 to forestall late cycle inflation or remain below neutral and foster speculative bubbles.” Fed Chair Powell has yet to tip his hand whether he leans more toward controlling inflation or avoiding the bursting of the biggest ever asset bubble.

“Although some say the neutral rate is difficult to observe, stocks see the barrier quite clearly,” Bannister wrote. “A ‘maximum tolerable peak’ for the fed funds above the neutral rate has been associated with bear markets since the late-90s global-debt boom.” He shows this dynamic in the following chart in which Bannister notes that assuming two more rate hikes would lead the Fed to crossing the bear market trigger point some time before the start of 2019.

“Timing the next 20 percent bear market is difficult due to policy distortion, but ‘within 6-12 months’ seems assured,” Bannister wrote according to CNBC. Worse, “history indicates that the next bear market may be quite rapid, probably exceeding the reaction time of the Fed.“

Having already hiked rates twice this year, the market is virtually certain the Fed will hike again at the end of this month; meanwhile estimates for another rate hike in December are at 72%, suggesting that according to Bannister’s methodology the recession could begin as soon as the new year.

And yet, with both the labor market and inflation now on the verge of overheating, Bannister says the Fed has no choice but to continue tightening.

“The fed funds rate has been held below the neutral rate for a decade,” he said. “Weighing stability versus mandate, we believe the Fed has no realistic option other than follow its projected dot-plot path, eventually revealing the speculative excesses created in the past decade.”

Translation: crashing the market.

Bannister says another indicator also points to a bear market: the equity risk premium (ERP). This measure is the market’s earnings yield (inverse of the P/E ratio) minus the current yield on the 10-year Treasury. It’s another way of showing what stocks are worth vs. bonds and currently it is showing stocks at levels of valuation that have triggered bear markets in the past, including in 2000 and 1987.

Incidentally, that’s similar to Goldman’s latest warning: recall that yesterday we showed that the bank’s proprietary Bear Market Indicator is now above the level last seen in 1987 and 2000, suggesting a bear market is imminent.

Bannister’s recommendation? Get defensive and go with stocks that benefit historically when the dollar and bond prices rise. His recommends buying utility stocks such as Sempra Energy, biotechs like Amgen, and household products companies such as Procter & Gamble.

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India Realizes Victorian Era Is Over, Decriminalizes Homosexuality

Consensual gay sex is no longer a criminal offense in India after the nation’s supreme court struck down a Victorian-era ban on the act.

“Any consensual sexual relationship between two consenting adults—homosexuals, heterosexuals or lesbians—cannot be said to be unconstitutional,” Chief Justice Dipak Misra of the Supreme Court of India said in court today as he announced the ruling.

Hinduism—India’s dominant religion—actually has a history of accepting the LGBT comunity. As The New York Times notes, illustrations in ancient Hindu temples show people engaging in same-sex acts. Some Hindu myths even honor transgender people.

That all changed under British rule in the colonial era. In 1861, the British imposed a law criminalizing voluntary “carnal intercourse” that goes “against the order of nature.” The law, officially known as Section 377 of the Indian Penal Code, meant gay sex was punishable by up to 10 years in prison.

In recent years, the law was rarely enforced. But activists say it encouraged a culture of fear. The Washington Post reports:

While the statute was rarely used as a basis for prosecution, its presence meant that gay people faced threats, harassment and blackmail. It also served as a constant reminder to the gay community that the state considered their sexuality illegal.

According to Misra, the law clearly discriminated against gay people. “Constitutional morality cannot be martyred at the altar of social morality,” Misra said in court. “Social morality cannot be used to violate the fundamental rights of even a single individual.”

The high court’s ruling represents the culmination of a years-long battle to achieve equal rights for gays and lesbians. A 2009 ruling from the Delhi High Court decriminalized homosexuality, but the supreme court reversed that ruling in 2013, saying it was “legally unsustainable” to repeal Section 377 since only a “minuscule fraction of the country’s population constitute lesbians, gays, bisexuals or transgenders.” Then last August, the supreme court said privacy is a fundamental right. That ruling may have served as a precursor to today’s decision.

Activists celebrated the five-judge panel’s ruling on homosexuality, but India still has work to do. Gay people can’t get married, and many people in the conservative nation don’t quite accept them. “This is the end of the beginning,” gay activist Harish Iyer tells The Guardian. “It’s the beginning of many more battles we have to fight.”

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Brett Kavanaugh Dodges Question About the 9th Amendment and Unenumerated Rights

The U.S. Constitution enumerates a number of individual rights that the government is barred from violating, such as the right to free speech and the right to keep and bear arms. At the same time, the Constitution also refers to rights that it does not expressly list. The Ninth Amendment, for example, says, “the enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.” Likewise, the 14th Amendment declares, “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law.”

Although the U.S. Supreme Court has recognized a number of unwritten rights over the years—such as the right to privacy, the right of parents to educate their children in private schools, and the right to gay marriage—some legal conservatives maintain that the federal judiciary has no business protecting unenumerated rights at all. The late conservative legal scholar Robert Bork, for instance, totally rejected the idea that there could be anything like a constitutional right to privacy. “When the Constitution has not spoken,” Bork wrote, referring to privacy, “the only course for a principled Court is to let the majority have its way.” In other words, because the Constitution does not specifically enumerate the right to privacy, the Supreme Court must not enforce that unwritten right against legislative enactments.

Where does Supreme Court nominee Brett Kavanaugh stand on this fundamental constitutional matter? Sen. Ted Cruz (R-Texas) gave Kavanaugh the opportunity to explain his views during yesterday’s round of confirmation hearings before the Senate Judiciary Committee.

“What do you make of the Ninth Amendment?” Cruz asked. “Robert Bork famously described it as an ‘ink blot.’ Do you share that assessment?”

Here’s what Kavanaugh said in response:

So I think the Ninth Amendment, and the Privileges and Immunities Clause, and the Supreme Court’s doctrine of substantive due process are three roads that someone might take that all really lead to the same destination under the precedent of the Supreme Court now, which is that the Supreme Court precedent protects certain unenumerated rights so long as the rights are, as the Supreme Court said in the Glucksberg case, rooted in history and tradition. Justice Kagan explained this well in her confirmation hearing, that the Glucksberg test is quite important for allowing that protection of unenumerated rights that are rooted in history and tradition, which the precedent definitely establishes, but at the same time making clear that when doing that judges aren’t just enacting their own policy preferences into the Constitution.

In other words, Kavanaugh dodged the question by simply describing the caselaw.

For comparison, here’s how Supreme Court nominee Neil Gorsuch handled a similar question about unenumerated rights in his confirmation hearings last year:

Sen. Chris Coons (D-Del.): “Do you believe the Constitution contains a right to privacy?”

Neil Gorsuch: “Yes, Senator, I do.”

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US Factory Orders Tumble In July As War-Spending Slumps

Despite all the exuberance at survey-based data and record-er highs in US stocks, US Factory Orders tumbled in July (down 0.8% MoM – it’s biggest drop since January).

 

The driver of the slump was a plunge in defense aircraft and parts spending…

Welcome to the AmericanMilitary-Industrial economy!!

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Take Your Pick America – ISM/PMI See US Economy Rebounding/Slumping

After yesterday’s incredibly mixed manufacturing survey data, today’s Services sector data was just as Schizophrenic.

Markit’s Services Sector PMI survey missed expectations and dropped to 4-month lows as output, new orders, and employment growth all slowed notably.

Although still solid, Markit’s PMI suggests the rate of job creation dipped to a seven-month low in August. Firms commonly reported difficulties finding suitable candidates, while greater business requirements and a sustained rise in new orders led many to increase employment. Input prices paid by service sector firms continued to increase at a strong rate in August. The pace of inflation nonetheless softened to a five-month low. 

ISM’s Services Sector survey tumbled in July and expectations were for a big rebound in August, and it did from 55.7 to 58.5 (just like its manufacturing cousin). New Orders accelerated according to ISM (slowed per PMI), Employment rose according to ISM (slowed according to PMI), and Export Orders soared according to ISM (slowed according to PMI).

 

So take your pick America – US Manufacturing and Services slumping together or rebounding aggressively…

Respondents were ebullient and thankful to government…

“Business for August is surprisingly higher for our company compared to last month and YOY [year over year]. Based on current trends on customer quote requests and conversions to orders, we are trending for this month to be the best August in the history of our company.” (Management of Companies & Support Services)

“Business activity is markedly higher now that the government is in the fourth quarter of its fiscal year and agencies need to obligate their fiscal year 2018 funds. Many contracts expiring in this time frame require renewal.” (Public Administration)

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

“The weaker PMI numbers indicate that the third quarter is unlikely to see the pace of economic growth match the 4.2% clip seen in the second quarter, though it’s clear that domestic demand remains strong, helping companies raise prices at a near-record rate.

Additionally Williamson notes,

“The survey data so far for the third quarter signal annualised GDP growth of just under 3.0%. However, further momentum was lost in August, and the weakest rise in new orders for goods and services for eight months suggests growth could wane further in September.

“Similarly, while the survey employment readings remain roughly consistent with a non-farm payroll gain of just under 200,000, the rate of job creation may likewise start to slow. Backlogs of work barely rose for a second successive month in August, indicating that existing operating capacity levels are broadly sufficient to cope with current demand growth.

“However, despite the signs of slower growth, companies continued to report strong pricing power, underscoring the on-going buoyancy of domestic demand in particular. Average prices charged for goods and services rose at a rate only slightly below July’s nine-year survey record high.”

And while US Composite PMI is still the highest of the majors, it is sliding fast…

 

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Oil’s Next Hotspot: The Cowboy State

Authored by Haley Zaremba via Oilprice.com,

As the crude powerhouse that is Texas’ Permian Basin becomes old news, oil explorers are looking for the next big thing–and they have found it in the more-than 4000 feet of stacked pay in Wyoming’s Powder River Basin. In Powder River, Big Oil has found less-congested pipelines, cheaper land, and more importantly, a whole lot of oil.

It’s not the first time that the Powder River Basin has garnered industry attention. In 2014, when oil prices were soaring, many industry players were already eyeing the basin as the next big thing, but when oil prices waned in the following years many drilling plans in Powder River were abandoned for established operations. Now, as United States crude prices ballooned by nearly 50 percent over the last year, there has been a renewed rush for land deals in oil rich areas, and the Powder River Basin is no exception. Although the deals are largely undisclosed, we know that there have been a number of deals in Wyoming, bringing industry-wide interest to the conventional and shale formations found there.

In the last month the state of Wyoming has seen Oklahoma-based firm Rebellion Energy pay more than $100 million for 19,000 acres, Vermilion Energy spend $150 million for 55,000 acres, and Navigation Powder River LLC spend about $10 million for 3,000 acres. Not bad for a month’s work.

Another potential catalyst for growth in Wyoming oil is currently underway just south in neighboring Colorado, where votes will decide on November 6th whether to further limit the drilling of oil by increasing the buffer zone between dwellings and oil and gas wells to 2,500 feet. If the Colorado electorate votes to increase the buffer, drilling will become impossible in much of the state, a development that with almost certainly push even more investors over the state line into Wyoming, where the laws are friendlier to oil and gas extractors. To highlight this fact, Wyoming gubernatorial candidates were tripping over each other to proclaim their love for fossil fuels, the state’s major jobs creator, in the run-up to the August 21st election, and winner Mark Gordon is strongly backed by Peter Wold of Wold Oil Properties, a prominent figure in Wyoming oil.

Now, just this week, the major NPL gas project has finally been greenlit, and its 3,500 wells are soon to follow (much to the dismay, it must be said, of many environmentalists and wildlife activists). The NPL is projected to bring in as much as $17 billion to the Wyoming economy–a particularly large price tag when considering the fact that Wyoming has the smallest population of any state in the nation.

A representative for Juniper Capital Advisors, the financial backer of Navigation Powder River LLC, told Reuters that Powder River is in much the same position that the Permian Basin was in a few years ago, just before it exploded into the fastest growing oil region in the world. Now, the Permian has more oil than they know what to do with, and real estate is at a premium, whereas in Powder River, things are still affordable and accessible–for now.

In large part due to the Permian’s smashing success, the US has quickly become the world’s largest crude oil producer, with soaring export rates, but the production level has far outpaced the infrastructure. The problem is particularly marked in the Permian, forcing producers like ConocoPhillips and Noble Energy to relocate their rigs and even pause production until there is more pipeline volume available. Even as oil prices have risen in the last year, Permian producers have had to undersell their oil to pipelines in Cushing, Oklahoma. Now, as a result, oil from the Rocky Mountains and Midwest is more than $17 per barrel more expensive than Permian oil.

Now that the Permian has reached its limits, Wyoming can expect a major uptick in drilling. The conditions are perfect, as neighboring Colorado pushes to move away from oil-friendly policy, the oil prices are high, and the incoming Wyoming governor has shown himself to be wide open to drilling expansion. Wyoming’s oil rush has already begun, and unlike in 2014, this time the tide shows no signs of receding.

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Most Nutrition Research Is Bunk

FoodGroupsCharnalakSuwannateDreamstimeGovernment nutrition advice based on decades of “research” by nutrition epidemiologists has now been shown to be mostly unwarranted scaremongering, writes Stanford University statistician John P.A. Ioannidis, who has been at the forefront of criticizing the misuse and abuse of statistics to justify the publication of shoddy and just plain wrong research in numerous disciplines.

In his justly famous 2005 PLoS Medicine article, “Why Most Published Research Findings Are False,” Ioannidis concluded that “for many current scientific fields, claimed research findings may often be simply accurate measures of the prevailing bias.” As the co-director of the Meta-Research Innovation Center at Stanford (METRICS) Ioannidis has turned his attention to what passes for nutrition science in a recent analysis, “The Challenge of Reforming Nutritional Epidemiologic Research,” in the Journal of the American Medical Association.

As an example of how badly nutritional research violates good scientific principles, Ioannidis parses the results of a recent meta-analysis of nutritional studies that aimed to “synthesize the knowledge about the relation between intake of 12 major food groups, including whole grains, refined grains, vegetables, fruits, nuts, legumes, eggs, dairy, fish, red meat, processed meat, and sugar-sweetened beverages, with risk of all-cause mortality.”

In his critique of the meta-analysis, Ioannidis points out, “Assuming the meta-analyzed evidence from cohort studies represents life span–long causal associations, for a baseline life expectancy of 80 years, nonexperts presented with only relative risks may falsely infer that eating 12 hazelnuts daily (1 oz) would prolong life by 12 years (ie, 1 year per hazelnut), drinking 3 cups of coffee daily would achieve a similar gain of 12 extra years, and eating a single mandarin orange daily (80 grams) would add 5 years of life. Conversely, consuming 1 egg daily would reduce life expectancy by 6 years, and eating 2 slices of bacon (30 g) daily would shorten life by a decade, an effect worse than smoking.” These inferences are implausible to say the least.

So what is going on here? Most nutrition research are observational studies that often rely on surveys in which participants unreliably recall what they eat. And since eating is a complex activity researchers are very likely to miss confounding data that would call their epidemiological speculations into question.

Consider the notorious 1981 Harvard study that found that drinking coffee was associated with a higher risk of pancreatic cancer. The effect entirely disappeared when the confounder of smoking was taken into account. As it happens, a 2016 meta-analysis found that “high coffee consumption is associated with a reduced pancreatic cancer risk.” Ioannidis is surely right that pervasive nutritional research flip-flops “may have adversely affected the public perception of science.”

Instead of performing yet more dodgy observational studies, Ioanndis suggests that “large-scale, long-term, randomized trials on nutrition may be useful.” And yet he immediately follows up with a devastating critique of a prominent recent study that purportedly identified beneficial effects from eating a so-called Mediterrean diet.

The Prevención con Dieta Mediterránea (PREDIMED) study supposedly compared three randomized groups: the first was given free supplies of extra virgin olive oil; another a supply of mixed nuts; and the third a bit of advice on what constituted a Mediterranean diet. The researchers were aiming to see if there were any significant differences with regard to the incidence of heart attacks and strokes between the groups.

The initial publication did find some beneficial effects from consuming olive oil and nuts. However it had to be withdrawn and re-analyzed after outside researchers showed that it was actually not randomized. The rejiggered study still found that eating nuts and olive oil reduced by a tiny amount the risk of experiencing a cardiovascular event. On the other hand, there was essentially no difference between the groups with respect to the risk of dying from any cause.

Ioannidis calls for reforming the field of nutritional epidemiology by adopting such measures as requiring that researchers make all of their data available for re-analysis by independent investigators and that results should be presented in their totality for all nutritional factors measured.

Until nutritional epidemiology is radically reformed, we should all keep in mind Ioannidis’ observation that the “implausible estimates of benefits or risks associated with diet probably reflect almost exclusively the magnitude of the cumulative biases in this type of research, with extensive residual confounding and selective reporting.”

In the meantime, it’s probably best to follow your parents’ advice with respect to diet and health: Eat and drink in moderation.

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