Month: September 2018

Authored by Ryan McMaken via The Mises Institute,

The FBI released new homicide data this week, and at the nationwide level, the 2017 homicide rate fell slightly, dropping to 5.3 homicides per 100,000 from 2016’s rate of 5.4.

According to the report, there were 17,284 homicides in 2017. For context: drug overdoses killed 63,632 Americans in 2016 and more than 37,000 people were killed in motor vehicle accidents in 2016.

The US homicide rate remains down considerably from the 1990s, when the homicide rate reached 9.8 per 100,000 in 1991:

Homicide rates had reached a 51-year low in 2014, but have climbed since then.

Nationwide, homicide rates also varied widely by state. The US states with the highest homicide rates in the new report were Louisiana, Missouri, Nevada, Maryland, and Arkansas. The states with the lowest rates were New Hampshire, North Dakota, Maine, Idaho, and Rhode Island. (I have added the most recent data from Canadian provinces for additional context.)

We can see some geographical patterns if we look at the data in map form:

Northern states tend to have much lower homicide rates overall with some of the lowest rates being found in New England, the northern plains, and the Pacific Northwest.

Interestingly, the legal environment for gun ownership can vary widely in states with similar homicide rates. Massachusetts, for example, which is considered a restrictive state in terms of gun ownership, has a homicide rate nearly identical to that in Wyoming — where gun ownership laws are extremely lax. New Hampshire, which is also notable for having very lax gun-ownership laws, has the lowest homicide rate in the nation.

Moreover, as noted in earlier articles on this topic, many of the states with the highest homicide are seeing their rates driven up by homicides in just a handful of cities and neighborhoods — many of which, like Chicago and Baltimore — have very restrictive gun-ownership laws.

Moreover, as total gun sales in the US have increased in recent decades, homicide rates look to continue a long-term decline. According to the New York Times:

Overall crime has been steadily decreasing for the last 30 years in the United States. Inimai Chettiar, director of the Justice Program at the Brennan Center, said the F.B.I.’s statistics — and her organization’s own projections — showed that the rise in crime in 2015-16 was most likely a blip in that trajectory, not the start of a crime wave.

Media pundits, however, have attempted to create a narrative in which there is increasing violence. For example, a current strategy employed by gun-control advocates is to fixate on “school shootings” as evidence of increasing violence, even as homicide rates decreased. However, much of the data used to support this narrative has been flawed. Last month, National Public Radio revealed that many school shooting incidents in a recent federal report had been exaggerated, or were completely false. This was a further blow to attempts to create a new narrative of mounting violence in the face of historical data showing that school violence overall, including school shootings, declined considerably after the mid-1990s.

But, for the sake of argument, let’s say that school violence is increasing in just the past two or three years — even while overall homicides fall. It’s not difficult to see what gun control advocates would fixate on school shooting in attempts to obtain more government restrictions on gun ownership. School shootings are dramatic events that make for good press conferences for politicians who pledge to “do something” for the children.

The fact that the overwhelming majority of homicides are a product of far more “mundane” factors, like gang violence and domestic violence, don’t make for nearly as exciting news events. Thus, the fact that progress is clearly being made on those fronts is ignored while attention is drawn repeatedly to school shootings — which are then themselves reported at higher rates than is actually the case.

Perhaps predictably, politicians have also attempted to take credit when falling homicide rates are acknowledged. As The New York Times reported, Jeff Sessions has attempted to portray the federal government as a key factor in falling rates: 

“But our work is not done,” he said. “While we have made progress, violent crime and drug trafficking continue to plague our communities and destroy the lives of innocent, law-abiding Americans.”

In truth, there is no evidence at all that the federal government has had any role in falling homicide rates. If anything, the federal government’s role in violent crime is a negative one as it continues to prosecute the war on drugs, making the illegal drug trade more lucrative and more violent.

Similarly, local police have shown little ability or willingness to confront homicides where they exist. As reported last month by USA Today, police are finding and prosecuting homicide suspects at lower and lower rates:

The national murder clearance rate — the calculation of cases that end with an arrest or identification of a suspect who can’t be apprehended — fell to 59.4 percent in 2016, the lowest since the FBI has tracked the issue.

The data tells a grim story of thousands of murders in which no one is held accountable, Adcock said.

“If we don’t address it, the issue is just going to get worse,” said Adcock, who recently started the Mid-South Cold Case Initiative , a nonprofit that aims to provide assistance to departments looking to bolster their cold case units. “The hole we’re in is just going to get deeper and deeper.”

The issue of murder clearance rates is in the spotlight as Chicago officials struggle to solve gun violence that’s plaguing the city. But the nation’s third-largest city, which only cleared 26 percent of its homicides in 2016, is just one among many big cities struggling to quickly solve gun crimes, according to FBI data and crime experts.

Part of this problem arises from the fact that police departments often prioritize going after petty drug violations and other minor crimes instead of homicides. Concentrating on drug offenses also bring financial rewards to police departments. Moreover, investigating drug cases offers numerous opportunities for making arrests and bringing revenue into the department via asset forfeiture laws. Given how police personnel are rewarded, drug investigations offer police staff more opportunities for professional advancement than does long hours devoted to homicide investigations that may or may not yield many promising leads.

On the other hand, it’s entirely possible that a lower “clearance rate” simply means that the police are being careful. It’s possible that, in the past, clearance rates were higher because police were less concerned about finding the right person. Clearance rates in themselves don’t tell us that the police actually arrested the rightperson.

In either case, the fact that the police in many major cities are only making arrests for one-quarter of homicides reminds us why private gun ownership is so important for self-defense.

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First it was Christine Blasey Ford who will testify tomorrow alongside Brett Kavanaugh whom she accused of sexual assault in 1982; then it was Deborah Ramirez, the second accuser who claims Kavanaugh exposed himself to her at a drunken party when they were freshmen at Yale University; then on Wednesday Julie Swetnick, defended by pop lawyer Michael Avenatti, said that Kavanaugh took part in efforts during high school to get girls intoxicated so that a group of boys could have sex with them. Kavanaugh rejected the latest claim Wednesday as “ridiculous and from the Twilight Zone.”

Then, late on Wednesday an anonymous fourth woman accuser emerged when NBC reported that the Senate Judiciary Committee was inquiring about at least one additional allegation of misconduct against Supreme Court nominee Brett Kavanaugh. Republican Senate investigators asked Kavanaugh about an anonymous complaint alleging that he physically assaulted a woman in 1998, according to a transcript from that phone call.

The complaint was originally sent to Sen. Cory Gardner (R-Co.). Gardner’s office did not immediately respond to The Hill’s request for comment. An investigator during the phone call read parts of the complaint to Kavanaugh, who denied the allegation.

“I will remain anonymous, but I feel obligated to inform you of this 1998 incident involving Brett Kavanaugh,” the complaint says, according to the transcript. The complaint’s author, who wished to remain unnamed, wrote that the incident involved her daughter and several other people.

“[My daughter’s] friend was dating him, and they left the bar under the influence of alcohol,” the complaint reads. “They were all shocked when Brett Kavanaugh shoved her friend up against the wall very aggressively and sexually.”

“There were at least four witnesses, including my daughter,” it continues. “Her friend, still traumatized, called my daughter yesterday, September 21, 2018, wondering what to do about it. They decided to remain anonymous.”

The letter’s author did not provide any names. According to NBC, Kavanaugh said he had read the letter and denied the account.

“Did the events described in the letter occur?” one investigator asked.

“No, and we’re dealing with an anonymous letter about an anonymous person and an anonymous friend,” Kavanaugh said. “It’s ridiculous. Total twilight zone. And no, I’ve never done anything like that.”

* * *

Excluding the latest accusation, Kavanaugh had been publicly accused of sexual misconduct by three women, two of whom allege he violated them while under the influence of alcohol. In a statement published earlier on Wednesday, he denied all of the allegations.

In prepared testimony to the Judiciary Committee, Kavanaugh said he “categorically and unequivocally” denied Ford’s allegations. “I have never done that to her or to anyone. I am innocent of this charge.” Kavanaugh called other allegations against him “last-minute smears” and “grotesque and obvious character assassination.”

Senators say they’ve gotten multiple alleged incidents, ranging in credibility, brought to their staffs’ attention since Ford went public with her allegation earlier this month.

Sen. Dick Durbin recalling how his staff found out about a second woman, Deborah Ramirez’s allegation, told reporters that “people call with rumors.”

“Some of these are completely incredible and the staff dismisses it,” he said. “I asked the same thing [about the Ramirez allegation], ‘Why did you tell me this?’ They said, ‘Do you know how many calls we get?’ You’ve got to be careful because it is it not above someone to plant some stupid idea, then have us say it, and have it blow up in our face.”

* * *

Trump, defending his nomination of Kavanaugh, told reporters on Wednesday that Senate Republicans “could’ve pushed it through two and a half weeks ago, and you wouldn’t be talking about it right now, which is frankly what I would’ve preferred, but they didn’t do that.”

A spokesman for Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, said Wednesday morning that while attorneys for Ford have provided them with the sworn declarations supporting Ford’s allegations, the therapist’s notes and the polygraph results cited in the original report by The Washington Post had not yet been turned over.

“They were conspicuously absent although they were both requested,” George Hartmann told NBC News.

According to The Hill, Grassley told reporters Wednesday that his committee looks into any allegation about Kavanaugh brought to their attention as long as they could find the name of the accuser or the lawyer.

“All I can tell you is we’re handling it exactly like we’ve handled every newspaper report or everybody contacting our office or anonymous even, if we can get the name and or the lawyer we’ve followed up with the usual staff interrogation,” Grassley added asked about the latest allegation from a woman represented by lawyer Michael Avenatti.

Grassley said on Twitter he has about 20 investigators, including agents on loan from federal agencies, “tracking down all allegations/leads & talking to all witnesses & gathering all evidence.” Second-ranking Senate Republican John Cornyn of Texas said the committee has asked Avenatti to produce his client for a sworn interview.

* * *

All 10 Democrats on the Judiciary Committee called on Trump in a statement to withdraw Kavanaugh’s nomination or order an FBI investigation into all allegations against him.

And so with new accusers emerging by the day, if not the hour, Senator John Thune of South Dakota, a member of Republican leadership, said party leaders still intend to hold the Judiciary vote on Friday, stay through the weekend and confirm Kavanaugh on the Senate floor next week. He declined to say if there are 50 votes for Kavanaugh at this point, though he predicted the nominee will “get confirmed in the end.”

It was unclear if there would be rioting if Kavanaugh was confirmed early next week.

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Authored by Yves Smith via NakedCapitalism.com,

We’ve been writing for some time that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. Even though the widespread underfunding at public pension plans is in many cases due to government officials choosing to underfund them (New Jersey in the early 1990s is the poster child), in many cases, the bigger perp is the losses they took during the crisis, followed by QE lowering long-term interest rates so much that it deprived investor of low-risk income-producing investments. Pension funds and other long-term investors had only poor choices after the crisis: take a lot of risk and not be adequately rewarded for it (as we have shown to be the case with private equity).

And as we’ve also pointed out, if you think public pension plans are having a rough time, imagine what it is like for ordinary people (actually, most of you don’t have to imagine). It is very hard to put money aside, given rising medical and housing costs. Unemployment means dipping into savings. And that’s before you get to emergencies: medical, a child who gets in legal trouble, a car becoming a lemon prematurely. And even if you are able to be a disciplined saver, you also need to stick to an asset allocation formula. For those who deeply distrust stocks, it’s hard to put 60% in an equity index fund (one wealthy person I know pays a financial planner 50 basis points a year just to put his money into Vanguard funds because he can’t stand to pull the trigger).

The Financial Times turns to this topic today with a solid piece, Legacy of Lehman Brothers is a global pensions mess, that includes useful data. As many others have, we’ve pointed out that one of the effects of the post-crisis regime was to move risks out of the banking system and into the hands of savers. As the pink paper describes it:

Pension funds have taken on many of the risks that were once held by banks. Low bond yields, which make it more expensive to guarantee an income, have forced them to take extra risks. They now hold assets, such as hedge fund and private equity investments, with much concealed leverage. And many companies have transferred the risk of bad investment performance from their shareholders to savers – and savers are not usually well-equipped to deal with them.

The result: the risk of a sudden banking collapse, which almost happened 10 years ago, has reduced. But the risk of social crisis, as people enter retirement without enough money, is rising.

And betting wrong can make a big difference:

All the central bank activity spurred widely varying returns on assets around the world. US stock markets enjoyed arguably their longest bull market on record. Real assets, such as real estate (which benefits from low interest rates), have also fared well.

But markets outside the US fared far worse, burdened by worries about China, and by the sovereign debt crisis in Europe, which was followed by a severe economic slowdown. While the S&P 500 gained 175 per cent after Lehman fell, stocks in the rest of the world gained only 55 per cent, equivalent to a nominal annual return of barely 4 per cent.

Recall that we’ve pointed out how CalPERS’ returns have lagged those of other large public pension funds, and in particular, those of CalSTRS. One of the big reasons is that its peers have a much lower allocation to foreign stocks. I would assume their aim is to be in more asset classes to reduce risk, while as CalPERS’ consultant Wilshire recounted yesterday, CalPERS objective is to participate in global growth. That hasn’t been working out all that well.

Back to the Financial Times:

The key insight is this: the biggest factor determining a return on your asset in the future is the price you pay for it now. If it is expensive when you buy it, your likely return is lower than if you buy it cheap.

Again from the pink paper:

Abandoning DB [defined benefit] plans reduces the risk that companies will face bills that they cannot pay. But it opens the greater risk that individual savers, far less sophisticated than the actuaries who run company pension plans, will fail to save enough for retirement – particularly as many suffer stagnating wages and have difficulty meeting their current commitments.

The evidence from the US is alarming…. Most Americans with DC [defined contribution] plans do not have anything like enough money saved to support them in retirement….

If you want a decent chance of an income of two-thirds of your final salary for the rest of your life, you will need a retirement fund worth more than 10 times that final salary. Only a tiny proportion of Americans are on course for achieving this.

The article drily notes that countries that are introducing defined contribution plans should not expect them to fare better than they have in the US. I wonder how Australia’s superannuation scheme, which had just been put in place when I was there, is doing. It initially required workers to put 9% of their pay in a superannuation fund, and I believe is now 9.5% Employees get tax breaks if they make additional voluntary contributions. “Super” gave me the willies because it looked like there were way too many paid advisors and fund fees in the system.

This picture makes clear why so many Americans are interested in moving to lower-cost countries when they retire, particularly given the horrible costs of American healthcare. And don’t think Medicare is a magic bullet. A friend was hit with a $25,000 bill for her stay in a rehab facility after a bad leg break. But the flip side is a quite a few people uproot themselves, only to wind up coming back to the US because they find themselves unable to adapt to a new country. So there are no easy answers, individually and collectively.

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While the rest of the market remains remarkably stoic about the potential threat from a long-lasting, escalating trade war with China, the world’s arguably biggest money manager is not so sure: according to Bloomberg, the man running the world’s biggest sovereign wealth fund is scrambling to figure out how much damage an all-out global trade war might do to his portfolio.

And with good reason: Yngve Slyngstad, the 55-year-old chief executive officer of Norwegian sovereign wealth fund, oversees investments in more than 70 countries and 9,000 companies across the globe; he also manages a total of just around $1 trillion, or 1.4% of global stocks.

And with that kind of exposure to the global economy, he’s understandably analyzing the signal – and noise – coming from the U.S. and China more closely than most (and with the S&P trading at all time highs, it is safe to say that most aren’t analyzing it at all).

“It’s quite possible there will be a rupture in trade,” Slyngstad told Bloomberg TV in an interview, his caution predicated by his massive exposure everywhere, which would make it hard to avoid disruptions to the global economy when they hit.

While Slyngstad is especially concerned about the fate of China in this new world order, he also questions the future of the global supply chains that make manufacturing tick and on which companies such as Apple rely to make iPhones in China.

“The interesting part long-term is if the global supply chains will become reconfigured,” he said. “Whether that’s actually going to become two regional ones, one centered on the U.S. and another centered on China, or are we still going to have a globalized supply chain as we have today.”

One month ago we profiled the worst that could happen should supply-chains break down when he discussed the “calamitous chaos” that hit Brazil’s shipping industry as a result of a series of concurrent logistical strikes, which paralyzed domestic trade and left foreign trade partners in a state of limbo.

With the fund spending recent years trying to spread its investments more evenly across the world, “building a roughly 10% stake in emerging markets and even moving into frontier markets”, the fallout of the trade war was hard to miss in its second-quarter report, when the fund lost 5.7% in emerging market stocks and 4% on Chinese equities, the two sectors most impacted by trade war so far.

The fund has few places to hide from a trade war, but it remains committed to its goal of spreading investments. “We just invest an equal slice all over the world,” Slyngstad said.

The silver lining for Slyngstad is that unlike most of his peers he does not have window of opportunity in which to reverse his underperformance, and thanks to its very long term investment horizon, it can easily absorb losses for far longer than most funds; instead it builds on an expectation that ethical choices here and now actually make good economic sense further down the road.

That said, the operation is not some green hipper commune and there’s no conflict for the fund between saving the environment and chasing good returns, according to Slyngstad.

In fact, in the long-term, it has only aim: “That’s trying to make money.:

“We just think about it in a very long term,” he said “That’s why we kind of look at the bigger risk picture.”

That philosophy can be observed in the fund’s UK investments: despite Brexit and the growing threat of hard divorce, the investor has continued to invest in the U.K. and London, where it owns large swaths of real estate, including much of Regent Street.

“Our confidence in London is strong,” Slyngstad said. “Not first of all as a financial center but as a world capital. There’s a lot of activity that goes on there that is key and crucial for the world economy so we will be long-term investors in London and the U.K. in general.”

The same is not the case everywhere else; as its expansion into global cities around the world has slowed down a bit in recent years. The fund has a $26 billion real estate portfolio that it wants to build up to about 7% of its assets.

Echoing Buffett, Slyngstad said that “we haven’t really found pricing that attractive these days so we haven’t invested that much for the last couple of years.”

As for whether or not the sov wealth fund’s investment horizon is truly “long-enough”, it will depend on the duration of the trade war, which increasingly more on Wall Street are worried my last far longer than most had initially expected.

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In what The Hill called  a “wild”, and others dubbed “surreal” press conference, that lasted 1 hour at 16 minutes and at times bordered on the absurd – at the president’s own doing – Trump covered a lot of ground, starting with his fierce defense of Brett Kavanaugh, by forcefully denying the sexual misconduct accusations against his embattled Supreme Court nominee.

Describing the allegations as part of a Democratic “con job'” and admitting that his own experience with sexual assault allegations has impacted his view of Kavanaugh’s accusers, Trump called Kavanaugh “one of the highest quality people I’ve ever met” and reiterated his belief the three women who have come forward against the judge are making “false accusations.”

Trump however declined to answer if he thought the women were liars: “I won’t get into that game I will only tell you this – this is one of he highest quality people I ever met,” he said. Earlier Wednesday, when asked if the woman were liars, Trump responded: “What’s your next question?”

“I can’t tell you whether or not they’re liars until I hear them,” Trump told reporters in New York where he was attending the United Nations General Assembly. “It’s possible they could be convincing.” Trump called the women’s allegations part of “a big, fat con job” being played by Democrats to prevent him from putting a conservative judge on the Supreme Court.

“These are all false to me,” he said when pressed on the accusations lobbed at Kavanaugh.

Still, despite his stated skepticism over the allegations, Trump said if the testimony against Kavanagh from his first accuser, Christine Blasey Ford, convinced him that Kavanaugh did commit misconduct, he would withdraw his nomination.

“If I thought he was guilty of something like this, yeah, sure,” Trump said when asked if there were any circumstances he would name a new person to the Supreme Court.

It was the first time Trump has publicly raised the possibility of pulling Kavanaugh from consideration and is likely a sign that he is unsatisfied with the judge’s efforts to defend himself from the charges. “I look forward to watching her,” he said of Ford. “I can be persuaded of anything.”

But the overall message from Trump on Wednesday was that there was little reason to believe the women accusing Kavanaugh of sexual misdeeds.

Trump also explained that his attitude was rooted in his own experience of facing similar accusations, which he said are all false. Nineteen women have claimed that Trump had extramarital affairs with them or accused him of sexual misconduct.

“I’ve been a famous person for a long time,” Trump said. “When I see it, I view it differently than someone at home watching television. … It’s happened to me many times. I’ve had many false accusations.”

Trump said such accusations could be made against any man, including apparently the US founding fathers:  “If we brought George Washington here, and we say this is George Washington, the Democrats would vote against him,” Trump said. “He may have had a bad past. Who knows?”

And not just man: Trump argued he could pick a woman for the job and she could have allegations against her.

“Whether it’s a man or a woman – it can happen the other way also. I could pick a woman and she could have charges made from many years ago,” he said.

One thing that was certain is that Trump is not a fan of Michael Avenatti, whom he slammed on several occasions after it emerged that the lawyer is representing a third women accusing Kavanaugh of being present during her “gang rape” at a high school party in the 1980s. The president called that allegation “another beauty” and accused Avenatti of being disreputable.

“This other con-artist, Avenatti, come out with another beauty today,’ the president said of the latest allegation. ‘I can tell you her lawyer is a low life.”

“Bad reputation. Take a look at his past,” Trump said of the lawyer, who also represents adult-film actress Stormy Daniels in her lawsuits against the president.

* * *

There were many other topics covered during the at time surreal conference including:

• China: Trump said that his personal friendship with President Xi Jinping of China may be over. There is no sign that the trade war between the U.S. and China is slowing down, as Trump upped the ante by also accusing China of trying to meddle in the election.
• Trade War: Trump made the claim that his trade war with China has had no negative economic impact in the U.S. This is not what Republicans campaigning in the Midwest want to hear. Farmers, auto manufacturers and other key industries have said the trade war is hitting them hard in their pockets—and Trump seems to be telling them that everything is fine.
• Canada: Trump said openly that he rejected a meeting with Canada’s Prime Minister Justin Trudeau. To this, the Toronto Star responded that Trudeau did not request a one-on-one meeting with Trump on the sidelines of the United Nations meeting. As Bloomberg notes, “that display of open disrespect for a U.S. ally in the middle of tough trade negotiations does not portend good things for renegotiating NAFTA.”
• The Fed: Trump again criticized the Fed eserve for raising interest rates, a departure from presidential norms governing the independence of the Fed.
• Fake News: Trump continued to bash the media—calling reporters “fake” and dishonest – while giving praise to Fox News multiple times. He took questions from 17 different reporters during a press conference that lasted for 1 hour 16 minutes, showing that he very much cares about dominating the news cycle.
• Various: Trump claimed that he won the female vote, that President Obama was planning to go to war with North Korea, that his personal intervention had saved millions of lives and that news outlets made up phony stories to attack him.
• Various #2: the president joked that he wanted to leave on a high note like the musician Elton John. He also joked that although The New York Times is “failing,” “I still love the paper,” and called on a Kurdish journalist by referring to him as “Mr. Kurd.”

Watch the full press conference below:

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Drivers who work for Lyft and Uber have seen their earnings cut in half from where they were just four years ago, according to a new study, which found that drivers earned 53% less in 2017 than they did in 2013.

The report was prepared by the JPMorgan Chase Institute and was based on payments that were directed to 2.3 million families. Drivers made $783 per month in 2017 versus $1469 per month in 2013. On a per month basis, about half of drivers who worked for Uber and Lyft made $900 or more in the first quarter of 2014. However, in the first quarter of 2018, less than 25% of drivers were able to earn $900 per month.

The report concludes that the drop is either due to less hours driving or a growing number of drivers, i.e. competition: “These declines in monthly earnings among drivers may reflect the fact that the growth in the number of drivers could have put downward pressure on hourly wages; they may also reflect a potential decline in the number of hours drivers are driving.” 

Another report, published by the Economic Policy Institute, claimed that Uber drivers typically end up earning just $9.21 per hour after fees and other expenses were accounted for.

The convenience of being able to work whenever drivers want has so far continued to outweigh the decline in salary, it seems.

And the far reaching effect of these less regulated on-demand driving services still seems to be prominent. We’ve reported over the last few years about a number of taxicab driver suicides in New York as a result of the cost of medallions dropping. Medallion prices have plummeted as a result of the popularity of services like Uber and Lyft. 

In June, we reported that Abdul Saleh, a 59 year old cabbie, hung himself in his Brooklyn apartment. Like many other New York taxi cab drivers, Saleh was having trouble paying for the cost of his medallion – the value of which has likely collapsed in recent years. His business partner, who had reportedly ditched him to drive for Uber, stated that though he had been short in his weekly medallion payments in the past, one of his payments prior to his suicide fell much shorter than the others.

Later, in August, we followed up with a report that the city had approved a cap on Uber drivers and had set a minimum wage. 

New York’s city council dealt a political blow to Uber and other app-based car-for-hire companies by approving a one-year industry-wide cap on new ride-hail licenses and giving the city Taxi & Limousine Commission authority to set minimum pay standards for drivers.

The council voted against a similar cap proposed by Mayor Bill de Blasio three years ago after Uber mounted a television ad campaign and mobilized drivers and customers to oppose it. App-based licenses have since increased to more than 80,000 from 12,600 and provide 17 million rides per month, according to the city Taxi & Limousine Commission.

Council Speaker Corey Johnson said earlier that the regulations are intended to protect drivers, fairly regulate the industry and reduce congestion.

“We are not taking away any service that is currently being offered to customers,” Council Speaker Corey Johnson said at a City Hall news conference. “This is about supporting and uplifting drivers.”

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Authored by Toni Airaksinen via Campus Reform,

Tulane University now requires all incoming students to enroll in a “Race and Inclusion” course, a new addition to the curriculum that has been condemned by some students for its lack of acknowledgment of viewpoint diversity. 

In a recent press release, Tulane announced that all new enrollees will be mandated to enroll in a course that focuses at least 60 percent of it content on “race and inclusion” to help students understand the  “increasingly diverse society” they live in.

Courses such as “Dear White People,” “Critical Race Theory,” “Introduction to Fiction: Race and Inclusion,” and “Difference and Inequality” all fit the “Race and Inclusion” course requirement, according to the school’s course search and Campus Reform’s phone calls with to professors.

Professor Michael Cunningham, who advocated for the new requirement but won’t be teaching any of the classes, told Campus Reform that the new requirement was partially prompted by students’ disappointment with the lack of diversity engagement on campus. 

“One of the reasons that students reported a desire to attend to Tulane was because of the perceived diversity,” wrote Cunningham by email on Wednesday. “Many students reported that their perceptions were not met when they got to campus.” 

The new requirement will also prepare Tulane students for working with a diverse workforce, he added. 

“By the year 2044, the U.S. population will be comprised of [a] majority of people from racial, ethnic, and linguistic diverse backgrounds…  Thus, the ‘normal’ experience of growing up in the U.S. is inclusive of the experiences from racial and ethnic minority populations.”

One of the classes that fulfill the requirement this semester is “Introduction to Fiction: Race and Inclusion.” Joel Dinerstein, the professor who will teach the course,  told Campus Reform that he compares it to a “bootcamp course on race.” 

The goal is for “students to read non-white authors critiquing American society (and race) in order to open them up to new perspectives outside of American mythologies of equality and freedom,” Dinerstein said.

The class, which is an addition to the previously 16 required classes students must take,  has drawn mixed reactions from the student body. 

Peyton Lofton, president of the Turning Point USA chapter at Tulane, argued that there are better ways to help minorities on campus. 

“If Tulane truly wants to address the racial homogeneity of the student body, they need to focus on the biggest barrier preventing students from disadvantaged groups from attending Tulane: cost,” he told Campus Reform on Wednesday. 

“Tulane’s cost of attendance is $72,236 per year, and that cost increases by an average of 2-3% annually,” Lofton said, citing the school’s Undergraduate Admissions website. 

Marcus Maldonado, president of the Young Americans for Liberty chapter at Tulane, said he supports the “Diversity and Inclusion” requirement, but worries that it might “promote progressive views on the differences between certain racial or gender communities rather than promote open discussion about these differences.”

“Diversity of opinion and thought ought to be promoted in any class focused on inclusion,” Maldonado added. 

Rachel Altman, vice president of Young Americans for Liberty at Tulane, said she wishes the classes would focus on religious and political diversity too.

“I’ve noticed problems at Tulane with people making blanket statements about people with different political views and refusing to engage in open discussions,” she said. 

But while some students criticized the new requirement, others who spoke with Campus Reform were delighted. 

“Requiring all students to study cultures differing for their own is crucial to inspiring a little more critical thinking, a little more open-mindedness, and a little more compassion across Tulane,” said Isabell Lian, secretary of the Asian American Student Union. 

“While it won’t make an immediate impact, I at least hope that each of my peers will take one thing away from the course they choose and use it to contribute to a kinder, more equal world,” Lian added. 

Rey Arcenas, treasurer of the Asian American Student Union, acknowledged “moaning and groaning” about the class. 

“I’m sure that there are plenty of students and professors who may have a qualm with the new requirement. No one wants to take classes they’re not necessarily interested in especially as a requirement but I think that it’s plenty necessary especially if we want to make the new students of color more welcome here at Tulane,” Arcenas said. 

In response to concerns raised by some students about the narrow scope of the “Race and Inclusion” requirement, Campus Reform asked Tulane if they’d consider incorporating political and viewpoint diversity into future classes for the requirement. The school did not immediately respond, but this article will be updated if and when the school does. 

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A Chinese national and US Army reservist living in Chicago was arrested Tuesday for allegedly funneling biographical information on eight American defense contractors targeted for recruitment to a Chinese intelligence officer, according to the Justice Department. 

Ji Chaoqun, 27, was arrested for violation of the Foreign Agents Registration Act (FARA) – while his handler at a regional arm of China’s Ministry of State Security (MSS) was also arrested, according to the DOJ affidavit. “The MSS has maintained both a clandestine and overt human source collection capability though a network of defense attaches, academics, and spies operating in and out of China,” reads the filing. 

While working from 2007 through late 2017 at an unnamed defense company described only as “among the world’s top aircraft engine suppliers for both commercial and military aircraft,” Chaoqun used the Apple iCloud to secretly communicate with the MSS about the eight individuals – all naturalized US citizens born in Taiwan or China now living in the United States – who were under consideration for recruitment. 

“The Apple iCloud SMS database included approximately 36 messages between Intelligence Officer A and JI, from on or about December 19, 2013 to July 9, 2015” reads the affidavit. 

According to the search warrant return, on or about August 30, 2015, an email was sent from JI, using Subject Account 1, to an email address hosted by “qq.com,” stating, “eight sets of the midterm test questions for the last three years,” which email was forwarded from Subject Account 1 to Intelligence Officer A. The subject line for the email was “Midterm test questions.” Eight separate pdf documents were attached to the email. The eight separate pdf documents are background reports on eight US-based individuals generated by US-based companies Intelius, Inc., Instant Checkmate, and Spokeo. 

The eight individuals are current or former technologists, “including several individual specializing in aerospace fields.” 

Chaoqun was born in China and arrived in the US from Beijing in August 2013 on an F1 Visa, before receiving his Master’s Degree in Electrical Engineering at the Illinois Institute of Technology in 2015. In May, 2016 he joined the US Army Reserves under the Military Accessions Vital to the National Interest program (MAVNI), which authorizes the US Armed Forces to recruit certain legal aliens whose skills are considered to be vital to the national interest. 

He traveled to China on three occasions since his arrival in the US to meet his handlers in a hotel room, messaging: “Hi Big Brother, I’m JI Chaoqun. I’m taking the G203 [train] and will arrive at Nanjing South Station at 22:37” 

Choaqun was arrested after an undercover FBI agent met with him on April 25 of this year, during which he “made multiple statements that corroborated the information revealed during the course of the investigation.” 

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Authored by Christopher Cole via Artemis Capital Management,

Read Part 1: Fragility In The Market’s Medium, here…

Read Part 2: Volatility Reflexivity and Liquidity, here…

Read Part 3: The Medium Is Liquidity… And It’s Vanishing, here…

Flows over fundamentals…

When you are a fish swimming in a pond with less and less water, you had best pay attention to the currents. The last decade we’ve seen central banks supply liquidity, providing an artificial bid underneath markets. Now water is being drained from the pond as the Fed, ECB, and Bank of Japan shrink their balance sheets and raise interest rates. 

Despite this trend, U.S. equities will very likely escape 2018 without a crisis or volatility regime shift because of the onetime wave of corporate liquidity unleashed by tax reform. Expect a crisis to occur between 2019 and 2021 when a drought caused by dust storms of debt refinancing, quantitative tightening, and poor demographics causes liquidity to evaporate.

The first signs of stress from quantitative tightening are now emerging in credit, international equity, and currency markets. Financial and sovereign credits are weakening and global cross asset correlations are increasing. Meanwhile, China is executing a stealth devaluation of the Yuan which, since 2015, has been a reliable signal of turbulence in global markets. 

Artemis predictive models have been consistently bearish through June and July, and as a result we have tactically increased tail exposure in S&P 500 index options and VIX. A higher than average exposure to tail risk has contributed to negative performance the last few months as volatility has remained in the low-teens. 

Equity volatility is underperforming credit risk trend by some of the widest margins in history in both the U.S. and in Europe (see below).

The year-to-date performance of global equity markets shows one outlier country in the sea of red (see chart). The US is now the only developed market in the world that has a positive year-to-date return (+3.22 % for S&P 500 and +11% for NASDAQ).

U.S. equities have risen for nine years and the economy is entering its 10th year of expansion, the second longest bull-market in history, even as China as slipped back into a bear market.

What is keeping the U.S. afloat while the rest of the world is struggling to find water?

The earthquake of one-time Trump tax reform has resulted in a multi-trillion dollar tsunami in repatriated assets and corporate activity that will make any sizable correction in U.S. equities highly unlikely in 2018. U.S. companies are poised to spend an all-time record $2.5 trillion on share buybacks, dividends, and mergers and acquisitions in 2018. This amounts to 11% of the total capitalization of the overall market. In the first two months alone, U.S. companies spent almost $200 billion on share buybacks, more than all of 2009, effectively erasing the February swoon.  As Artemis has discussed at length, buybacks serve as a price insensitive buyer underneath markets, dampening volatility and encouraging additional buying pressure from implicit short volatility strategies such as volatility control funds, risk parity, and low volatility factor investing.

Naturally, the ebb and flow of volatility tracks the corporate buyback cycle as evidenced by the chart to the below.

The historic volatility collapses occurring between August-September 2015, June 2016, and February 2018 all coincided with heavy resumption of buyback activity. It is well-known that in 2016 and early 2018 buybacks were the major flows causing the market to rebound from sharp losses. Despite systemic risks building in the market, it is very hard to see a meaningful decline in equities (-10% of more) with sustained volatility in 2018 so long as this wall of money in there. 

Beyond buybacks, venture capital funds are spending cash at the highest levels since the dotcom era with $58 billion invested this year alone. Another dot-com era retro stat, 76% of the IPOs in 2017 were unprofitable, the highest level since 2000.

When does this all end?

If or when the collective consciousness stops believing growth can be created by money and debt expansion the entire medium will fall apart, otherwise it is totally real… and will continue to be real. 

A crisis-level drought in liquidity is coming between 2019 to 2022 marked by a perfect dust storm of unprecedented debt supply, quantitative tightening, and demographic outflows. 

Quantitative easing has caused the natural relationship between corporate debt expansion and default rates to break down. U.S. debt is at an all-time high of $14 trillion (45% of GDP) and high yield default rates are near all-time lows at 3.3% (MarketWatch, 13d). This is not sustainable. Years of cheap money has led scores of investors to buy debt at levels that do not reflect credit risk. The poster child is the 2017 issuance of 100-year Argentina bonds (USD denominated) that were oversubscribed 3.6x with a 7.9% yield. It is hard to find a decade where Argentina has not defaulted, much less a century. That medium of bond market demand has already begun to show signs of cracking.

Starting in 2019-2021 a dustbowl of debt re-financings will hit markets when they are most vulnerable to a liquidity drought. Annual combined U.S. government and corporate debt supply is expected to exceed $2 trillion each year between 2019 and 2022 (Deutsche Bank). Leveraged corporations will need to roll $1.2 trillion of high yield debt starting in 2019 and peaking in 2023 (Bank of America). For the first time in modern history the U.S. government will require a massive supply of debt to finance fiscal deficits during a period of tighter monetary policy. The irony is we are simultaneously pursuing trade wars with the main foreign buyers of that debt (China and Japan).

As if all that is not enough, demographics will become a major factor driving outflows from financial markets for first time in modern U.S. history further exacerbating the liquidity drought. The Baby Boom generation that formed after World War II (Mid-1940s to 1962) drove massive in-flows into financial markets when they starting working and saving in the 1980s. Following 30 years of financialization all that Baby Boomer money will now start flowing out of markets to support their golden years. As Boomers age, they will draw down on their retirement assets and spend less, and this includes redemptions of about $17 trillion in 401(k) and IRA accounts. The U.S. tax code requires 401(k) account holders to begin selling assets at 70 ½ years old, and the first wave of Baby Boomers began these forced redemptions starting last year. In 1980 there were 19 U.S. adults age 65 and older for every 100 citizens. By, 2017 the number of older adults increased to 25 for every 100, and this number is expected to climb to 35 for every 100 by 2030, and 42 by 2040. Deteriorating demographics is a global phenomenon and by 2030 Canada will have 40 retirees for every 100 people, Germany 44, Japan 58, and China 22.  Social Security is now reaching into the trust fund for the first time since 1982.

Demographics in the developed world will have a major negative impact on capital market flows right as passive investing, which relies entirely on flow, becomes dominant.

How is the water over there?

An entire generation of investors takes the medium of liquidity for granted, and the rest may be experiencing cognitive dissonance. It is odd but understandable, if you are paid a flat salary as a portfolio manager at a highly political investment institution, it doesn’t behoove you to know what water really is… you are incentivized to adopt the largest and cheapest institutionally accepted practices regardless of any greater reality. As social animals, we are punished for calling out any abstraction that is not confirming to status quo reality. Contrarians are punished economically and socially. A common refrain for any contrarian position is, “how can you be right if you’ve been wrong all along”. It’s a stupid argument if the regime shift happens, but the same reason why irrational exuberance can continue for extended periods.

For a fish it is very difficult to perceive a world beyond the water… if you want to change you have to crawl out of the ocean… find a way to breath… and evolve into a new reality. 

“The immediate point of the fish story is that the most obvious, ubiquitous, important realities are often the ones that are the hardest to see and talk about.”  

Volatility is the failure of the medium… the crumpling of a reality we thought we knew.

What is water in markets? Here are my best guesses…

Exchange traded markets are liquid and safer than over-the-counter derivatives

Technology is disrupting the world so the old rules of valuation no longer apply

Stocks and bonds are anti-correlated and provide excellent diversification

Stocks and real estate will always go up if you hold them for long enough

Passive investing offers higher returns at lower cost

Central banks can support markets indefinitely 

Volatility accurately measures risk

Liquidity will always be there

Debt can be refinanced  

Money creates value

 

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Just a few months after the IMF announced in June what was a record-setting $50 billion, 36-month bailout agreement with Argentina, the International Monetary Fund said it would expand the credit line to $57 billion in an attempt to halt the economic and financial crisis that has sent the country’s currency plunging over 50% this year, and pummeled the third-largest Latin American economy. In exchange, Argentina will set a “no intervention” zone for the peso from 34 to 44, meaning the exchange rate will be flexible but not floating.

The revised standby agreement is “aimed at bolstering confidence and stabilizing the economy,” IMF chief Christine Lagarde said Wednesday in a joint statement with Argentine Economy Minister Nicolas Dujovne.

The agreement, which is subject to IMF Executive Board approval, “front loads IMF financing, increasing available resources by US$19 billion through the end of 2019, and brings the total amount available under the program to US$57.1 billion through 2021,” according to statement.

Argentina had started renegotiating the terms of the bailout deal last month when it became obvious that the original funds would be insufficient, and when President Mauricio Macri asked to speed up payments in the original agreement. Meanwhile, as part of the deal, Argentina would be required to fulfill certain stipulations under the agreement, which would need congressional approval by way of the 2019 budget. In exchange, the IMF would cover a significant portion of Argentina’s financing through next year, according to Moody’s.

As part of the government’s efforts to cut its debt, which is projected to reach 70% of GDP next year. Macri and finance minister, Nicolas Dujovne unveiled economic reforms earlier this month, including highly unpopular spending cuts and export tax increases demanded by the IMF. However, balancing the budget as Buenos Aires has promised, will prove difficult for Macri as elections near and the program will be frowned upon by all local politicians. According to the local media, with an approval rating that tumbled below 40% this year, there’s a possibility the conservative, whose campaign focused on free-market reforms, may not be re-elected.

Meanwhile, Argentina is expected to slide into recession this years as a result of the currency collapse and the economic slowdown. GDP has already tumbled in the second quarter, marking the first economic contraction in more than a year, and is expected to continue to slide in coming quarters. With the economy sliding 2.7% Y/Y in July, Capital Economics predicted that the full year GDP drop would be 4% in 2018. 

Meanwhile, Lagarde said that “a central element of the authorities’ plan will be to reach budgetary balance by 2019, one year earlier than previously intended, and to move to a 1 percent primary surplus in 2020.” She added that “to tackle inflation, the authorities will shift towards a stronger, simpler, and verifiable monetary policy regime, replacing the inflation targeting regime with a monetary base target.”

“This new framework will contain the supply of money, and keep short-term interest rates at their currently high levels, aiming to bring down inflation and inflation expectations decisively and rapidly” said the IMF head.

But while the IMF expects the economy will stabilize by the end of the year and begin a recovery as soon as 2019, analysts are skeptical: “The worsening of the situation in Argentina despite the rate hikes and government efforts to restore market confidence confirms our view that the situation is far from being solved,” Craig Chan of Nomura wrote in a research report.

Making matters worse, Argentina’s labor unions have already called for a nationwide strike to protest austerity measures and economic conditions, which will further slowdown the economy. Many citizens have spoken out against involvement with the IMF, which was criticized for its involvement in Argentina’s 2001 crisis which culminated in a sovereign default.

But what is the biggest question is how the market will respond: the $7 billion tack-on to the bailout fund may be seen as insufficient as the expectation had been for an increase in the range of $5-$20 billion, with some calling for as much as $30 billion, according to Bloomberg.

As part of the revised bailout agreement, the Central Bank of Argentina will adopt a floating exchange rate regime without intervention as long as the Argentine Peso is in the 34-44 range. In the event of extreme overshooting of the exchange rate, the BCRA may conduct limited intervention in foreign exchange markets to prevent disorderly market conditions.

It is unclear if the flexible exchange rate will be seen as a positive. While the central bank will be able to intervene under extreme conditions to control volatility, it would also be a drain on reserves, and the market will likely push the currency low enough on short notice.

Keep a close eye on the ARS tomorrow when it opens for the market reaction: if it is negative, the IMF may have to quickly expand its bailout yet again.

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