State police vehicles were outside a Turkish retreat center near Saylorsburg all morning Wednesday according to Fox43. The compound is the home of Turkish cleric Turkish cleric Fethullah Gulen who has been blamed on countless occasions by Turkey’s president Erdogan for masterminding the country’s “shadow state” and orchestrating the 2016 failed coup against the Turkish president.
Lots of State Police outside the Turkish compound near Saylorsburg. Investigators haven’t said why they are here. @WNEPpic.twitter.com/Hz67vrfSyy
State police did not disclose why they are there, only that they are investigating an incident at the retreat in Ross Township. They were parked at the front entrance of the retreat.
According to WNEP, a security guard at the compound fired a warning shot at a suspected armed intruder, forcing him to flee, and summoned the police afterward, a Gulen spokesman said; he added that no person was injured during the incident.
Turkish Islamic cleric Fethullah Gulen has resided in exile in the US for two decades as Ankara has demanded his extradition to Turkey.
As those who have followed Turkey’s recent history know too well, Gulen is one of Turkey’s most wanted “criminals” who has lived in exile in Monroe County for decades; Erdogan has repeatedly demanded the 77-year-old cleric’s extradition to Turkey so he can face various treason charges.
#BREAKING: PA State Police are currently respond to the Pennsylvania compound of Turkish cleric @FGulencomEN who Turkey has reportedly demanded by extradited out of the US. Compound is located in Monroe County, PA. pic.twitter.com/peGim2xU3C
Troopers were seen walking around the front of the center, with several cars since leaving the retreat although it is unclear who was in the cars.
UPDATE: State Police vehicles have left the Turkish retreat center in Ross Township. Investigators still have not said why they were there, other than they were “investigating an incident.” @WNEP
Fethullah Gulen is a Turkish imam and Islamic scholar who has been living in Pennsylvania in the Saylorsburg area in a compound just off Mount Eaton Road. It’s called the Golden Generation Worship and Retreat Center. After violent clashes in Turkey several years ago, protesters gathered near the compound denouncing Gulen and his followers.
Aerial view of the Golden Generation Worship and Retreat Center in rural Saylorsburg, Pennsylvania, where Fethullah Gulen has lived for more than a decade
In the past, the US has refused to even discuss a possible extradition of the aged cleric. While Turkey’s president and others condemn Gulen, others support him and the center.
Most people were baffled when they found out the terms of the original SEC settlement that Elon Musk turned down. Hearing that Musk had turned down a two-year director bar, leaving him as CEO, and just a $10 million fine, garnered a lot of attention in the industry and left many wondering why the CEO, and more importantly why Tesla’s board, would waste their time trying to fight the SEC instead of putting the matter behind them for such a pittance.
Now, a new report out from the New York Times explains this in depth. Apparently, the company was ready memorialize their carefully crafted settlement with the SEC, until Elon Musk reportedly called his board of directors and threatened to resign as CEO on the spot if the company entered into the prepared settlement. In addition, he demanded that the Board of Directors “publicly extol his integrity”. This led to the baffling statement that the Board of Directors made to the public, after Musk was sued, claiming at the time:
“Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful U.S. auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders, and employees.”
This type of negotiating not only speaks to Musk’s control over the Board of Directors, but is a dangerous game of Russian roulette with regulators.
Jeffrey Sonnenfeld, a professor at the Yale School of Management, stated on Friday: “What it tells us is this board, as a strategic plan, must be using the Jim Jones-Jonestown suicide pact. They are drinking the Kool-Aid of the founder. It is completely as self-destructive as Musk is.”
After the company refused the settlement at the last minute, the SEC was forced to file the lawsuit against Mr. Musk. It was only one day later that Tesla’s lawyers were reportedly back at the SEC “groveling for a second chance” at the behest of Mr. Musk.
Musk apparently changed his mind after watching Tesla stock get destroyed, losing 14% in the trading session that followed the SEC complaint. If true, this serves as further proof that Musk makes his major decisions based on what the stock price is doing.
Last weekend, Musk finally gave in and settled – not for a two year bar and a $10 million fine, but for a three year bar and a $20 million fine. Ah, the art of the deal.
As part of the SEC settlement, Tesla is required to being on two independent directors and appoint a new independent chairman. Everybody seems to be in agreement that Elon needs parental supervision now, including the SEC.
John C. Coffee Jr., a professor at Columbia Law School, stated:
“Rejecting such a favorable settlement is proof that he needs monitoring. He didn’t have a legal leg to stand on, and I’m sure his lawyer told him that. But he got very touchy about not being able to proclaim his innocence.”
And so with the suit now behind him, Tesla stock has rallied back to over $300 per share, where it was prior. The board is supposed to now be closely monitoring Musk’s interactions on social media and with investors, however it may not be working this far. The morning after the settlement was signed, Tesla blog electrek leaked an internal memo that Musk had sent to employees about being “very close” to profitability.
Musk also, seemingly as a response to the SEC’s suit, Tweeted out a music video by “Naughty by Nature” on the following Monday with a “wink” emoji.
According to the Times report, James Murdoch is being considered as the possible new independent chair of the board. It hasn’t been reported that he has discussed it or that he is interested. A second person familiar with the matter stated that no serious discussions of who will be chairman have taken place yet. The board has 45 days to adopt a new Chairman.
Lucian Bebchuk, a professor at Harvard Law School and an expert in corporate governance, told the NY Times:
“Adding two independent directors can be expected to help, but its impact is likely to be limited. As courts and governance researchers have long recognized, the presence of a dominant shareholder is likely to reduce the effectiveness of independent directors as overseers of the C.E.O.’s decisions and behavior.”
Reportedly one of the biggest problems Musk had with the settlement was that he wasn’t going to be able to publicly proclaim his innocence after agreeing to it. Extolling his integrity, as he made the Board of Directors do and as he did with the Sierra Club months back, seems to be one of the things that Musk is great at getting people to do. Now, if he could only motivate his employees to manufacture quality vehicles with the same vigor…
Sen. Michael Bennet (D-Colo.) says the Office of National Drug Control Policy (ONDCP) has assured him that an upcoming report on marijuana legalization “will be completely objective and dispassionate.” That claim is hard to take seriously, since it contradicts the ONDCP’s statutory mandate to oppose marijuana legalization by any means necessary.
BuzzFeedreported in August that the ONDCP was coordinating an effort to collect “data demonstrating the most significant negative trends” that have followed marijuana legalization in states such as Colorado, with an eye toward illustrating the “threats” posed by that policy. That effort, which reportedly involves the Drug Enforcement Administration and 14 other federal agencies, seems to be aimed at encouraging President Donald Trump to reconsider his avowed commitment to marijuana federalism.
In an August 30 letter to ONDCP Acting Director James Carroll, Bennet expressed concern that the Trump administration is “cherry-picking data to support pre-ordained and misinformed conclusions on marijuana.” Carroll responded on September 21. “I assure you that the ONDCP seeks all perspectives, positive or negative, when formulating Administration policy,” Carroll wrote, according to a press release Bennet posted this week. “You have my full and firm commitment that ONDCP will be completely objective and dispassionate in collecting all relevant facts and peer-reviewed scientific research on all drugs, including marijuana.”
That promise leaves open the possibility that the ONDCP will be less than completely objective and dispassionate in presenting the relevant facts. Such evenhandedness would be hard to reconcile with a requirement imposed by the ONDCP Reauthorization Act of 1998, which Congress passed and President Bill Clinton signed two years after California became the first state to legalize marijuana for medical use. The provision, codified under 21 USC 1703, says the ONDCP director “shall ensure that no Federal funds appropriated to the Office of National Drug Control Policy shall be expended for any study or contract relating to the legalization (for a medical use or any other use) of a substance listed in schedule I of section 202 of the Controlled Substances Act” and “take such actions as necessary to oppose any attempt to legalize the use of a substance (in any form) that…is listed in schedule I” and “has not been approved for use for medical purposes by the Food and Drug Administration.”
Suppose the ONDCP’s “completely objective and dispassionate” research finds that legalization is working out pretty well. On the face of it, the agency would be legally obligated to obscure that fact. Even if a neutral presentation did not run afoul of the command not to use federal funds in support of legalization, it surely would violate the ONDCP’s duty to oppose legalization with whatever “actions” are “necessary.” That command might even require outright fabrication, assuming that lying would be an effective way to prevent marijuana legalization.
More likely, the product of the ONDCP’s efforts will resemble the reports on marijuana legalization in Colorado from the ONDCP-supported Rocky Mountain High Intensity Drug Trafficking Area. That task force poses as a dispassionate collector of facts but is committed to the position that legalization was a huge mistake, and every piece of information it presents is aimed at supporting that predetermined conclusion. Even when the task force does not simply make stuff up, it filters and slants the evidence to play up the purported costs of legalization while ignoring the benefits. We should expect nothing less from the ONDCP, which is legally required to mislead the public.
A trio of writers who describe themselves as left-leaning but decry the academic influence of political correctness, identity politics, and what they call “grievance studies” conducted an experiment: Could they fool scholarly journals into publishing hoax papers masquerading as legitimate scholarship?
The answer, it turns out, was yes. Seven journals accepted the fake papers, which were written by James Lindsay, a mathematician; Helen Pluckrose, editor of Areo; and Peter Boghossian, an assistant professor of philosophy at Portland State University.
Four of the papers have been published, according to The Wall Street Journal:
One of the trio’s hoax papers, published in April by the journal Fat Studies, claims bodybuilding is “fat-exclusionary” and proposes “a new classification…termed fat bodybuilding, as a fat-inclusive politicized performance.” Editor Esther Rothblum said the paper had gone through peer review, and the author signed a copyright form verifying authorship of the article. “This author put a lot of work into this topic,” she said. “It is an interesting topic, looking at weight and bodybuilding. So I am surprised that, of all things, they’d write this as a hoax. As you can imagine, this is a very serious charge.” She plans to remove the paper from the Fat Studies website.
A hoax paper for the Journal of Poetry Therapy describes monthly feminist spirituality meetings, complete with a “womb room,” and discusses six poems, which Mr. Lindsay generated by algorithm and lightly edited. Founding editor Nicholas Mazza said the article went through blind peer review and revisions before its acceptance in July, but he regrets not doing more to verify the author’s identity. He added that it took years to build credibility and get the Journal of Poetry Therapy listed in major scholarly databases. “You work so hard, and you get something like this,” he said. Still, “I can see how editors like me and journals can be duped.”
Affilia, a peer-reviewed journal of women and social work, formally accepted the trio’s hoax paper, “Our Struggle Is My Struggle: Solidarity Feminism as an Intersectional Reply to Neoliberal and Choice Feminism.” The second portion of the paper is a rewrite of a chapter from “Mein Kampf.” Affilia’s editors declined to comment.
In addition to the papers on fat studies, feminism spirituality, and neoliberal choice feminism, Lindsay, Pluckrose, and Boghossian also found a home for a fourth paper, “Rape Culture and Queer Performativity at Urban Dog Parks.”
This paper, which was published in Gender, Place and Culture, attracted my attention in June. While the title sounded absurd on its face, its author, the fictitious “Helen Wilson,” purported to have compiled an impressive amount of data regarding her observations of canine sexual aggression at dog parks. Wilson claimed to be affiliated with the Portland Ungendering Research Initiative, which had a domain name but no operating website. As I wrote at the time, many of Wilson’s conclusions were unwarranted, and the whole thing was written in incomprehensible social-justice gobbledygook, but the underlying data seemed to have some potential meaning, even if the author was applying it poorly:
Wilson spent 100 hours in three dog parks, where she made note of a whole bunch of times when one dog humped another. When the humping was male-on-male, owners intervened in the overwhelming number of cases. But when the humping was male-on-female, owners were far less likely to stop it. This, the study suggests, might say something about the owners’ internalized homophobia and their willingness to overlook female victims of sexual assault.
At Areo, the authors claim that the dog park study’s shortcomings should have been glaringly obvious because the statistics were “improbable,” and advanced “highly dubious ethics including training men like dogs.” The statistics may have been improbable enough that the journal should have asked for raw data, but it’s not unthinkable that a very determined researcher obsessed with this topic could have done what Wilson claimed. As for the ethics involved, we-should-train-men-like-dogs is indeed a silly proposition, but researchers should feel comfortable exploring and testing crazy premises. Now who’s being too P.C.?
My point is that I’m not sure this proves what Pluckrose, Boghossian, and Lindsay think it proves. They seem to believe they have shown that academic journals will accept complete garbage as long as it’s intersectional progressive garbage. But at least in the case of the dog park study, this was well-disguised garbage.
This is not the first time Boghossian and Lindsay have declared victory after finding a home for shoddy scholarship. In 2017, they succeed in publishing a nonsense paper, “The Conceptual Penis as a Social Construct.” But the chosen venue was essentially an academic vanity press that would only take their work if they paid a fee. Ultimately, this said more about the quality of pay-to-publish journals than it did about the gullibility of academic publishers.
The new scam is a lot more impressive: Seven hoax papers accepted for publication is a lot. This raises legitimate concerns about the academic publishing process, and much of the ridicule the “grievance studies” attract is deserved.
But it’s also true more generally that if you work very, very hard at fooling people, you will often succeed—and not just in academia.
One week after JPMorgan’s head quant Marko Kolanovic laid out a surprisingly gloomy outlook for the future of the world’s reserve currency, warning in no uncertain terms that Trump’s “unilateral policies” are the biggest risk “of bringing major powers of China, Europe and Russia closer”, an alliance which “could profoundly impact the USD-centric financial system”, ultimately threatening the reserve status of the US dollar, Kolanovic takes on a different topic in his latest note to clients, namely a look at the implied moves and market reaction from Fed releases this year, and what these mean.
Responding to client requests, Kolanovic and Bram Kaplan analyzed the reaction of the equity market to Fed Chair Powell’s speeches and unexpectedly found that they “resulted in equity market declines this year.” Unexpectedly, because this is a material change from the popular “FOMC drift” observed over the past decade, in which stocks levitated before and just after the Fed press conference.
For his analysis, Kolanovic divided speeches into 2 categories: FOMC Press Conferences and Other Speeches. The average performance and hit rate for S&P 500 declines was as follows
FOMC Press Conferences – average negative return -44bps, 3 out of 3 negative
Testimonies and Other Speeches – average negative return -40bps, 5 out of 9 negative
Putting these declines in context, the JPM quant also notes that the average market return (on any given day this year) was positive +5bps. He further notes that the speeches in many cases represented intraday price turning points, “indicating probable causality”, i.e. they were indeed the catalyst for market sentiment shifts.
And while Kolanovic acknowledges that it is not possible to attribute the market impact of each speech with certainty, “simple math indicates that ~$1.5 trillion of US equity market value was lost this year following these speeches.”
So what does the market’s reaction to Powell’s speech convey?
To answer that question, Kolanovic first gives a simple definition of what is a “market”, which he defines as a “wisdom of the crowd” system (likely the most sophisticated one in existence).
It is made up of a broad range of participants with skin in the game, and it incorporates natural selection. Participants who are wrong in their forecast lose assets, i.e. input weight, and those that are correct see their input weight increase.
With that in mind, the question is the following: why was the market reaction on Fed speeches negative this year?
To Kolanovic, the most likely answer is that the equity market’s assessment of the economy and various risks is not aligned with that of the Fed, and “specifically, the equity market likely implies that the Fed is underestimating various risks, and hence is increasing the implied probability of the Fed committing a policy error in the future.”
And since the higher probability of a policy error translates into lower equity prices on the news, Powell’s speeches which hint that the Fed is indeed on the verge of policy error, are increasingly greeted with a market selloff.
Taking this one step further, the next logical question is where does the market disagree with the Fed? To JPM, several places where markets may be diverging from the Fed are the following, paraphrased from recent Fed comments:
“Equity valuations are at the high end” – this statement may not be accurate as forward looking estimated P/E of the equity market this year averaged 16.4, which is exactly the average P/E over the last 25 years (and slightly above the historical median of 15.8, i.e. at 60th %ile). Trailing P/E multiples, which are significantly higher, are currently less relevant in our view given that earnings re-based on tax reform this year (i.e., the new rather than old tax rate is relevant for future profits). By repeatedly stating that valuations are high, the Fed may be causing equity markets to re-price the risk of a policy error higher.
“Multiple rate hikes are needed/appropriate” – equity markets see tightening of financial conditions and increased risks in 2018 compared to 2017: the USD is higher, market liquidity is lower, volatility (e.g. VIX) is higher, oil prices are higher, and political risks around trade wars, EM and Europe are all significantly greater. From an equity market perspective, these developments would not warrant higher interest rates. Higher interest rates would likely create further headwinds for consumer, housing, business financing and lending, and leverage of various trading strategies – thus increasing the potential risk of a policy error and a recession.
Finally, perhaps the most interesting Fed comment is that “equity sell-off warrants attention if sustained.” Here, Kolanovic notes that the equity market liquidity profile and microstructure has significantly changed over the past decade (computerized liquidity, systematic and passive strategies, etc.). This means that if fundamental investors start questioning the cycle – and start selling – “a technically driven selloff could be more violent and more likely to deliver a knock-out punch to the economic cycle.”
In other words, the new microstructure of financial markets would be brutal, violent and instantaneous, and not leave enough time for the Fed to react.
With these three considerations in mind, Powell may want to be especially careful what words he picks for his future public statements, because if he stretches the rubber band between what the Fed believes and what the market believes the Fed should believe, the outcome
Researchers from Johns Hopkins University recommended this week that psilocybin, the active ingredient in psychedelic mushrooms, be removed from the federal government’s list of Schedule 1 drugs, which are allegedly the most dangerous.
According to an analysis published by researchers at the Department of Psychiatry and Behavioral Sciences, “psilocybin can provide therapeutic benefits that may support the development of an approvable New Drug Application.” Mounting evidence suggests mushrooms can help treat depression. Johns Hopkins has been at the forefront of research into the potential therapeutic effects of psychedelic mushrooms, and the researchers believe its low potential for abuse could warrant a rescheduling.
According to their report in the Journal of Neuropharmacology,
“There is no clear evidence of physical dependence and withdrawal in preclinical or clinical studies, or among those who chronically used illicit products.”
As The Hub, Johns Hopkins news publication explained:
“Studies in animals and humans both show low potential for abuse, the researchers say. When rats push a lever to receive psilocybin, they don’t keep pushing the lever like they do for drugs such as cocaine, alcohol, or heroin. When it comes to human studies, people who have used psilocybin typically report using it a few times across their lifetime.”
Though the researchers caution that more research is needed and that psilocybin still poses risks, those risks are far lower than other drugs, and there is no known “overdose” amount. According to Matthew Johnson, associate professor of psychiatry and behavior studies and co-author of the analysis:
“We should be clear that psilocybin is not without risks of harm, which are greater in recreational than medical settings, but relatively speaking, looking at other drugs both legal and illegal, it comes off as being the least harmful in different surveys and across different countries.”
In order for psilocybin to be rescheduled, Phase III clinical trials would have to be completed. If it were to be rescheduled, it would be in the same category as prescription sleep aids and benzodiazepines.
Here’s some really good news: Median household income in the United States is at a record-high, inflation-adjusted $61,372. When you factor in the fact that today’s households contain fewer people, the news is even better. In 1975, for instance, average income per person per household was just $19,500 in 2017 dollars. Now it’s $34,000.
And get a load of this: There’s no evidence that income inequality has grown since the 1990s, or that the ability to move up and down the income ladder has shrunk in that time period. More people than ever live in households pulling down $100,000 (again, adjusted for inflation) than ever. Fewer households make less than $35,000 (adjusted for inflation).
All of this comes courtesy of the U.S. Census, as compiled and analyzed by economist Mark J. Perry. Perry works at the American Enterprise Institute and the University of Michigan (Flint), and he runs the blog Carpe Diem.
Do you feel happy yet? On today’s Reason Podcast, I talk with Perry both about his findings and why we don’t feel richer, happier, or more secure than we do. Perry isn’t a Trump booster by any means, but he suggests that some of the president’s policies—particularly the reductions in certain taxes and regulations—are helping to keep an economic expansion that started under Barack Obama moving along. At the same time, he worries about accumulating debt and trade wars that can raise prices and introduce wild uncertainty into the economy. When investors “see that there’s uncertainty about policy,” he says, “that starts to distort decision making and capital spending.”
Perry suggests one reason we don’t feel more satisfied with economic improvements is that they are a feature and not a bug of a free enterprise system. “The benefits of a market economy and the march of progress are so constant and so gradual that either we don’t appreciate it or don’t notice it,” he says. “So we have an under-appreciation of how much better things get all the time. If it happened all at once, we’d probably just be amazed.”
After Fed Chair Powell’s latest FOMC presentation, and also following his speech yesterday, the general market consensus was that the Fed is on auto-pilot for the conceivable future, at least until something changes. But what could make the FOMC speed up the pace of tightening? What would make it pause? And how will the Committee know when it’s done? While comments from Chairman Powell offered some answers to these questions, Goldman has conducted an analysis on the FOMC’s decisions to accelerate, pause, or conclude the 1994-1995, 1999-2000, and 2004-2006 hiking cycles offer additional clues.
First, a quick reminder of what Powell said in his press conference following the September FOMC meeting: first, Powell offered some guidance on what it would take for the Fed to deviate from its projected policy path, when he said that potential triggers for a pause include either a “significant and lasting correction in financial markets or a slowing down in the economy that’s inconsistent with our forecast.” The main trigger for raising rates more quickly, Powell said, would be if “inflation surprises to the upside.”
So far so good; however for some additional clues about what the Fed would need to see to accelerate, pause, or conclude its hiking cycle, Goldman looked back at the last three hiking cycles, and identified moments where the Fed accelerated, temporarily paused, or concluded its rate hikes during the last three (1994-1995, 1999-2000, and 2004-2006) hiking cycles, as shown in the chart below. Goldman then investigates the rationale for these policy decisions below by looking back at the statements, minutes, and transcripts from FOMC meetings at the time.
1. Accelerating the hiking cycle
While hardly a realistic outcome this time around absent a surge in average hourly income above 3.0%, the 1994-1995 hiking cycle provides one example where the Fed picked up the frequency of rate hikes (an intermeeting hike in April 1994) and two where it increased the size of its rate hikes (50bp in May and 75bp in November 1994).
According to Goldman, transcripts from FOMC meetings at the time indicate that the Committee worried that strong growth would eventually raise inflationary pressures and responded with a faster pace of tightening in order to avoid falling behind the curve and secure its inflation-fighting credibility. Exhibit 2 shows real-time economic data at the time of these meetings.
Here are Goldman’s thought on the rate hike acceleration triggers:
At the end of the 1999-2000 hiking cycle, the FOMC delivered a larger 50bp hike in May 2000. Core inflation was around 2%, but growth was extremely strong and participants were concerned about a dip in the unemployment rate to 3.9%, a 30-year low, and an acceleration in wage growth that former Chairman Greenspan considered “unambiguous” and Governor Meyer saw as a clear inflection point.
As Goldman’s economists conclude, the Fed was sufficiently worried about inflation to not only tighten somewhat preemptively, but to accelerate the pace of tightening. In this context, “Powell’s comment suggests that today the FOMC would need to see more of a realized inflation overshoot too—roughly a core PCE reading above 2.5%, in our view—but history suggests that concerns about the eventual consequences of persistently strong growth momentum or high wage growth could tip the scales in a close call.”
Pausing the hiking cycle
The far more realistic option for the Fed, especially if full-blown trade war with China breaks out and hit global growth (even if it means higher inflation) is for the Fed to pause the rate hike cycle. The mid-cycle pauses in 1994-1995 reflected a different approach to tightening in which the FOMC used large moves to catch up quickly and demonstrate its commitment to fighting inflation, then skipped a meeting to gradually assess the impact.
At the time the Committee feared, as New York Fed President McDonough put it, that 25bp hikes might be misperceived as indicating “timidity” or a compromise. These pauses have less relevance today, as does the December 1999 pause motivated by Y2K fears. More interesting today is the October 1999 pause, when the FOMC was split on whether to hike. Although the unemployment rate was 1pp below the Committee’s estimate of the sustainable rate or NAIRU, Greenspan led a slight majority for a pause by arguing that rising productivity growth might prove to be a lasting feature of the new high-tech economy that would dampen inflationary pressures. In his view, a major breakout of inflation was a “non-credible prospect at this point.”
Ending the hiking cycle
The final option, and the one which the market until recently was pricing in for late 2019/early 2020, was that the Fed would finally end the rate hike cycle as it surpassed its (inaccurate) estimate of the neutral rate. How has the Fed passed this threshold in the past?
As Goldman notes, an interesting quirk emerges when looking at the historical record at the meetings where the FOMC concluded these three hiking cycles by taking no action which – at least initially – were little different from a pause. Specifically, in most cases, the Committee did not necessarily think it was done hiking. In 1995, the Fed made its usual 50bp hike in February followed by the usual pause in March, but then held off in May as well. The key reason was that the unemployment rate had risen 0.4pp to 5.8%, close to the Fed’s structural rate estimate, that growth had slowed meaningfully, and that the policy stance was already well into restrictive territory in the views of most participants. In fact, within a couple of months of the end, that “extra braking action” was seen as unnecessary and the Committee retreated to a “more neutral stance,” as then-Fed governor Yellen put it.
Fast forward to the time of the dot com bubble, when in June 2000 the unemployment rate was still more than 1pp below the staff estimate of NAIRU. Why stop there? There were several reasons: doubts about whether estimates of NAIRU should be a guidepost for policy; strong productivity growth kept inflation contained; and most importantly, as the Committee noted in its statement, demand growth seemed to be moderating toward roughly the economy’s potential, meaning that at least the labor market overshoot wouldn’t grow further. With a policy rate already above neutral at 6.5%, that was good enough.
The most famous ending of the rate hike cycle took place in August 2006 when the 2004-2006 cycle ended after 17 consecutive 25bp hikes in a contentious decision. At the time, core inflation remained about ½pp above target and the labor market was slightly overheated. But the FOMC held off because it by then expected weakness in the housing sector to spill over to a broader slowdown in consumption, leading to a rising unemployment rate in staff projections. At the time, the funds rate was in the middle of staff estimates of the neutral rate. Also of note: the yield curve had inverted and the economy was about to enter the biggest financial crisis since the Great Dperssion.
* * *
From these observations, Goldman draws the following three lessons.
First, accelerating the pace of tightening would likely require a meaningful inflation overshoot, though history suggests that a large pick-up in wage growth would strengthen the case.
Second, a mid-cycle pause during an ongoing labor market overshoot occurred only in the context of a historic productivity boom that reduced inflation concerns, a condition we are far from today.
Third, past hiking cycles ended either with growth near potential and an already-restrictive policy stance or with growth already below potential and a roughly neutral stance, in either case reassuring the FOMC that the labor market overshoots at the time wouldn’t grow further.
For its part, Goldman – which has been bullish on the US economy, accusations by Trump that it is a Democratic operative notwithstanding – continues to expect five more rate hikes through the end of 2019, “with risks tilted to the upside.” Furthermore, the guidance from Chairman Powell and the historical lessons noted above suggests that upside risk could take the form of either a faster pace of hiking if inflation surprises to the upside, or a longer hiking cycle if growth remains stronger than expected in 2020, especially since that would be inconsistent with the gradual reversal of the labor market overshoot shown in the FOMC’s latest Economic Projections.
That said, no matter what the future of the rate hiking cycle brings, it is worth reminding readers of the following chart…
… which shows that every single tightening cycle ends with a financial crisis, as Deutsche Bank’s Alan Ruskin explained back in May:
Every Fed tightening cycle creates a meaningful crisis somewhere, often external but usually with some domestic (US) fall out. Fed tightening can be likened to the monetary authorities shaking a tree with some overripe fruit. It is usually not totally obvious what will fall out, but that there is ‘fall out’ should be no surprise.
Going back in history, the 2004-6 Fed tightening looked benign but the US housing collapse set off contagion and a near collapse of the global financial system dwarfing all post-war crises.
The late 1990s Fed stop start tightening included the Asia crisis, LTCM and Russia collapse, and when tightening resumed, the pop of the equity bubble.
The early 1993-4 tightening phase included bond market turmoil and the Mexican crisis.
The late 1980s tightening ushered along the S&L crisis.
Greenspan’s first fumbled tightening in 1987 helped trigger Black Monday, before the Fed eased and ‘the Greenspan put’ took off in earnest.
The early 80s included the LDC/Latam debt crisis and Conti Illinois collapse.
And a post-script from Ruskin’s colleague at DB, Jim Reid:
A reminder that our note from last September suggested that financial crises have been a very regular feature of the post-Bretton Woods system (1971-) and that based on history we’d be stunned if we didn’t have another one in some form or another by around the end of this decade/turn of the next one.
The most likely catalyst was the “great unwind” of loose monetary policy/QE around the world at a time of still record debt levels.
We would stand by this and I suppose the newsflow and events this year so far makes me more confident of this even if we’re still unsure on the timing or the epicentre.
So for all those curious when the next crisis will finally strike, just ask the Fed, because every prior crash was manufactured by the Federal Reserve. This time won’t be different.
Longer-term yields have recently shown a feat of strength not seen in more than seven years.
As shown in the LPL Chart of the Day,the 10-year Treasury yield has closed at or above 3% for 10 consecutive trading days, the longest such streak since May 2011.
Still, non-hedging traders have built on a record net short position in 10-year Treasury futures (a trend we’ve covered in a previous blog), projecting lower prices and higher yields.
Fixed income investors have reason to expect higher yields.
The Federal Reserve (Fed), the biggest buyer of fixed income since the financial crisis, is in the process of reducing assets from its $4.2 trillion balance sheet. Policymakers have also projected five rate hikes between now and the end of 2020, implying that rates will continue to move up as monetary policy tightens.
However, we think gains in U.S. government debt yields may be limited by valuations and relatively low wage inflation. Yields around the world remain at depressed levels, so we expect global fixed income investors to continue turning toward U.S. Treasuries for diversification, valuation, and income.
“We think Treasury yields may experience only modest increases through the end of this year and into next year,” said LPL Chief Investment Strategist John Lynch.
“Pricing and wage pressures remain at manageable levels, and U.S. yields remain attractive to global investors.”
Trade tensions and currency turmoil have also weighed on global equity prices. With no U.S.-China trade resolution in sight, we expect renewed Treasury buying if trade talks sour and tariffs increase.
A recently uncovered U.S. government document published by WikiLeaks has revealed that the U.S. directly advocated for undermining “democratic” elements of the so-called Syrian “revolution” of 2011 in order to ensure the dominance of authoritarian, sectarian Sunni groups within the Syrian opposition.
The document, written by the United States Marine Corps (USMC) Intelligence Department in late 2011, further asserts that empowering these radical Sunni groups over democratic and secular ones would be ideal for the United States and its regional partners, as ensuring the decline of the current Syrian government, and with it a secular Syria, would harm Iran’s regional clout.
In other words, the U.S. openly supported undermining democratic opposition forces in Syria in order to challenge Iranian influence and, with it, the influence of the Middle East’s “resistance axis” that obstructs the imperialistic agendas of the U.S. and its regional allies such as Saudi Arabia and Israel.
The 2012–2013 Stratfor email leak was the public disclosure of a number of internal emails between geopolitical intelligence company Stratfor’s employees and its clients.
According to the document, which was buried in a previous WikiLeaks release and recently uncovered by journalist Dr. Nafeez Ahmed, U.S. military intelligence was well aware that the Syrian opposition movement in 2011 did not pose “a meaningful threat against the [Syrian] regime,” given that it was “extremely fractured” and “operating under enormous constraints.”
It also noted that “reports of protests [against the Syrian government] are overblown,” even though “the exiled [Syrian] opposition has been quite effecting (sic) in developing a narrative on the Syrian opposition to disseminate to major media agencies.”
That narrative — which was subsequently promoted by several foreign governments, including the U.S., the U.K., Turkey and France — falsely claimed that the protests were massive and involved largely peaceful protestors “rising up” against the “autocratic” government led by Syrian President Bashar al-Assad.
This document, as well as substantial evidence that has emergedover the last several years, shows that this narrative, of a “peaceful uprising” seeking to establish a secular and “democratic” Syria, has never been true, as even U.S. military intelligence knew that the reports regarding these “peaceful” protests were highly exaggerated.
U.S. calling on Turkey to do its dirty work
Given that the USMC intelligence considered the Syrian opposition movement in 2011 to be an ineffective force for effecting change in Assad’s status as Syria’s leader, the document notes that it was in the U.S.’ interest for Turkey to “manage” efforts to destabilize the Assad-led government, as Turkey “is the country with the most leverage over Syria in the long term, and has an interest in seeing this territory return to Sunni rule.”
Those Turkish-led efforts would involve gradually building up “linkages with groups inside Syria, focusing in particular on the Islamist remnants of the Muslim Brotherhood in trying to fashion a viable Islamist political force in Syria that would operate under Ankara’s umbrella.” This ultimately came to pass, as the Turkey-backed Free Syrian Army – previously promoted as the main force of the “democratic” Syrian opposition but now well known to be a radical, sectarian group – still takes its marching orders from Ankara.
The document advocates for these efforts to mold the “fragmented” elements of the 2011 Syrian opposition into an “Islamist” puppet force of Turkey in order to support the gradual “weakening of the Alawite [i.e., Assad] hold on power in Syria,” as well as because “Turkey, the United States, Saudi Arabia, Egypt and others have a common interest in trying to severely under[mine] Iran’s foothold in the Levant and dial back Hezbollah’s political and military influence in Lebanon.”
Also notable is the fact that USMC intelligence at the time knew that these efforts to undermine the current Syrian government would have a disastrous impact on the country and its civilian population. Indeed, the document notes this on two separate occasions, stating first that “any political transition in Syria away from the al-Assad clan will likely entail a violent, protracted civil conflict” and later adding that “the road to regime change will be a long and bloody one.”
Thus, not only was U.S. military intelligence advocating for the undermining of democratic and secular forces within the Syrian opposition, it was also aware that the U.S.-backed efforts to undermine Assad would have “bloody” consequences for civilians in Syria.
Classified Marine Corps Intelligence memo circulated in September 2011: “the reports of protests are overblown.”
These admissions dramatically undercut past and present U.S. claims to be concerned with Syrian civilians and their “call for freedom” from Assad, showing instead that the U.S. preferred the installation of a “friendly” authoritarian, sectarian government in Syria and was uninterested in the fate of Syrian civilians so long as the result “severely under[mined] Iran’s foothold in the Levant.”
For much of the last two decades, but especially since the 2006 war between Israel and Lebanon’s Hezbollah, the “resistance axis” — led by Iran — has emerged as the greatest threat to the hegemony of the United States and its allies in the Middle East.
A power bloc composed of Iran, Iraq, Syria, Hezbollah, and Hamas in Palestine, the “resistance axis” as a term first emerged in 2010 to describe the alliances of countries and regional political groups opposed to continued Western intervention in the region, as well as to the imperialist agendas of U.S. allies in the region like Israel and Saudi Arabia. Iran’s role as the de facto leader of this resistance bloc makes it, along with its main allies like Syria, a prime target of U.S. Middle East policy.
Sunni-stan
Washington’s support for a future authoritarian Syria may come as a surprise to some, given that the U.S. has publicly promoted the narrative of a “democratic revolution” in Syria from 2011 to the present and has used calls for the establishment of a “new” secular democracy in Syria as the foundation for its agenda of overthrowing the current Assad-led government.
However, powerful individuals in Washington have long promoted an “authoritarian” and “Islamist” state in Syria with the goal of countering Iran, much like the plan detailed in the USMC intelligence document.
US military intelligence in 2011: “a viable Islamist political force in Syria that would operate under Ankara’s umbrella.”
I think our objective should be a new Sunni state out of the western part of Iraq, the eastern part of Syria, run by moderates or at least authoritarians who are not radical Islamists.
A few months later, Bolton – this time in a New York Times op-ed – detailed his plan to create a sectarian Sunni state out of northeastern Syria and western Iraq, which he nicknamed “Sunni-stan.”
He asserted that such a country would have “economic potential” as an oil producer, would serve as a “bulwark” against the Syrian government and “Iran-allied Baghdad,” and would help ensure the defeat of Daesh (ISIS). Bolton’s mention of oil is notable, as the proposed territory for this Sunni state sits on key oil fields that U.S. oil interests, such as ExxonMobil and the Koch brothers, have sought to control if the partition of Iraq and Syria comes to pass.
Bolton also suggested that Arab Gulf States like Saudi Arabia “could provide significant financing” for the creation of this future state, adding that “the Arab monarchies like Saudi Arabia must not only fund much of the new state’s early needs, but also ensure its stability and resistance to radical forces.”
Furthermore, the ultimate goal outlined within the USMC Intelligence document of undermining Iran’s regional clout continues to be the guide for the U.S.’ current Syria policy, which recently changed yet again to include regime change in Damascus as part of its goal. For instance, earlier this year, Bolton – in his capacity as National Security Adviser – stated thatU.S. troops would remain in Syria “as long as the Iranian menace continues throughout the Middle East.”
More recently, the Trump administration “redefined” its Syria policy to include “the exit of all Iranian military and proxy forces from Syria” as the administration’s top priority, while also calling for the installation of “a stable, non-threatening government” that would not have Assad as Syria’s leader.
Thus, while seven years have come and gone since the leaked document was written by USMC intelligence, little has changed when it comes to the U.S.’ long-standing goals in Syria and its callous disregard for the will of the Syrian people and Syrian democracy.
Sen. Michael Bennet (D-Colo.) 
A trio of writers who describe themselves as left-leaning but decry the academic influence of political correctness, identity politics, and what they call “grievance studies” conducted an experiment: Could they fool scholarly journals into publishing hoax papers masquerading as legitimate scholarship?
