Month: October 2018

New Regulations Could Dry Up New Jersey’s Microbreweries

|||Kristen Prahl/Dreamstime.comNew Jersey Gov. Phil Murphy has taken issue with his state’s new regulations on microbreweries, saying he isn’t sure that they were the “right, sensible step to take.”

The Division of Alcohol and Beverage Control (ABC), which answers to the Department of Law and Public Safety, passed a special ruling in September that imposed new terms on licensed microbreweries. The enhanced regulations say the business cannot hold more than 25 special events each year. That includes trivia nights, televised sporting events, and classes for art and exercise. Breweries will receive just 12 special permits a year to sell their products offsite at beer festivals, music festivals, civic events, and the like. They’ll also be limited to hosting 52 private parties per year—and they must notify the ABC 10 days before each event.

When the ABC decided to let the micobreweries serve beer onsite, the ruling states, it didn’t intend to give them the “same privileges as a sports bar or restaurant.” To rectify that alleged error, the agency now wants to set rules for “what constitutes an appropriate tour and what constitutes permissible activities.”

As you’d expect, microbreweries have spoken out against the decision. A petition addressed to Murphy, his lieutenant governor, the president of the state senate, and the speaker of the general assembly notes that the ruling “severely harms the way breweries may interact with their customers and communities in their tap rooms”; it also argues that there is no “‘one size fits all’ mold for a craft brewery.”

Murphy has not specified what he plans to do about the regulations, but hopefully he’ll take strong action against them. New Jersey’s craft brews may hang in the balance.

Bonus link: Craft beer isn’t the only substance New Jersey officials want to limit. Just last year, the state legislature introduced a bill to ban flavored vaping liquid, hoping to keep kids away from e-cigarettes. But the state already prohibits the sale of e-cigarettes to people under the age of 19, so the chief effect of such a law will be for adult vapers to be stuck with a disgusting, flavorless liquid.

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US Gross National Debt Soars $1.27 Trillion In Fiscal 2018, Hits $21.5 Trillion

Authored by Wolf Richter via WolfStreet.com,

But wait — these are the Boom Times!

The US gross national debt jumped by $84 billion on September 28, the last business day of fiscal year 2018, the Treasury Department reported Monday afternoon. During the entire fiscal year 2018, the gross national debt ballooned by $1.271 trillion to a breath-taking height of $21.52 trillion.

Just six months ago, on March 16, it had pierced the $21-trillion mark. At the end of September 2017, it was still $20.2 trillion. The flat spots in the chart below, followed by the vertical spikes, are the results of the debt-ceiling grandstanding in Congress:

These trillions are whizzing by so fast they’re hard to see. What was that, we asked? Where did that go?

Over the fiscal year, the gross national debt increased by 6.3% and now amounts to 105.4% of current-dollar GDP.

But this isn’t the Great Recession when tax revenues collapsed because millions of people lost their jobs and because companies lost money or went bankrupt as their sales collapsed and credit froze up; and when government expenditures soared because support payments such as unemployment compensation and food stamps soared, and because there was some stimulus spending too.

But no – these are the good times. Over the last 12-month period through Q2, the economy, as measured by nominal GDP grew 5.4%. “Nominal” GDP rather than inflation-adjusted (“real”) GDP because the debt isn’t adjusted for inflation either, and we want an apples-to-apples comparison.

The increases in the gross national debt have been a fiasco for many years. Even after the Great Recession was declared over and done with, the gross national debt increased on average by $954 billion per fiscal year from 2011 through 2017.

And the regular debt-ceiling fights in Congress, rather than accomplishing something noticeable in terms of fiscal rectitude, are just political charades that leave some flat spots in the chart above followed by some dizzying spikes right afterwards.

But now we have even more profligacy: Increased spending combined with tax cuts. As a result, the surge in the debt in fiscal 2018 of $1.27 trillion was 33% more than the already mind-blowing average surge in the debt over the past seven fiscal years ($954 billion).

For the first 11 months of fiscal 2018, through August, total tax receipts inched up by only $19 billion, or by 1%, according to the CBO, though the economy, as measured by nominal GDP, grew at an annual rate of about 5.4% (none of the figures are adjusted for inflation).

This 1% increase in revenues was distributed as is to be expected:

  • Individual income and payroll tax receipts rose by $105 billion, or by 4%.

  • Corporate income tax receipts fell by $71 billion, or by 30%, due to the new corporate tax law.

  • Revenues from other sources fell by $16 billion or by 6%. This includes declines in the remittances from the Federal Reserve, which sends most of its profits to the Treasury Department, but now pays banks more on their excess reserves, and thus remits less to the Treasury Dept.

Outlays surged by $240 billion, or by 7%, over the first 11 months of fiscal 2018, compared to the same period in the prior year.

The CBO estimates that the “deficit” will be $895 billion in fiscal 2018. These annual “deficits,” based on government accounting, are almost always substantially smaller than the increase in the gross national debt. But it’s the debt that finally accounts for all the money the government spends minus the money it receives: The difference has to be borrowed, and that difference in fiscal 2018 between what it paid out what it received in revenues was $1.27 trillion.

The US is “on an unsustainable fiscal path, there’s no hiding from it,” explained Fed chairman Jerome Powell during the press conference.  Read…  The Fed’s Not Backing Off: Powell’s Standouts & Zingers at the Press Conference  

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Thanks to Rising Debt, Republican Tax Policy Is Now Anti-Growth

At the beginning of 2017, Speaker of the House Paul Ryan (R–Wisc.) teased the GOP’s tax cut legislation by promising that the eventual bill would be “revenue neutral” and not add to the deficit. When the bill came out later in the year, however, every single independent analysis, including those generally favorable to the overall goals of the legislation, found that it would raise the deficit, with most estimating an increase of more than $1 trillion over a decade.

Many estimates noted that the bill employed a number of gimmicks—in particular the expiration, in 2025, of all of the individual rate reductions—that artificially lowered the apparent deficit impact. In reality, the deficit increase would be far higher.

Republican leaders, however, dismissed these estimates, saying that economic growth spurred by the tax cuts would make up the difference. Nevermind that Republicans had made similar claims about the likely deficit effects of the tax cuts passed under George W. Bush, and those claims had proven wrong. This time would be different. As Ryan said last year while the tax plan was moving through Congress, “We believe that…with economic growth that gives us more revenue with where we need to be.” The tax bill passed. The deficit increased, and is now on track to hit $1 trillion years earlier than previously expected.

Last week, congressional Republicans provided a strong signal that the analysts who warned of the tax law’s deficit increase were probably right. The House GOP passed a follow-up bill making the individual rate cuts permanent. On paper, the bill scored as a $631 billion increase in the deficit. But that figure, too, is somewhat misleading, because it only accounts for the three years at the end of the 10-year budget window, after the 2025 expiration. Making the tax cuts permanent would raise the deficit by more than $3.1 trillion in the following decade, according to the Tax Policy Center.

Republicans in the Senate have signaled that the House tax bill probably won’t become law this year. But it is reasonably likely that the individual rate reductions from last year’s tax law will be extended before they expire, because neither Democrats nor Republicans want to be seen as allowing tax rates to increase for middle class families.

That has been the GOP’s intention from the beginning. Last December, at an event promoting the tax law, Speaker Ryan made this explicit: Republicans did not want or expect those cuts to expire. “Those are sunsets that will never occur, we don’t believe will ever occur, we don’t intend to ever occur,” he said.

And Republicans have once again dismissed concerns about the impact on the deficit while insisting that a second round of tax cuts would promote economic growth. Ways and Means Committee Chair Kevin Brady (R–Texas), a key figure in crafting GOP tax cut legislation, said making the tax cuts permanent was “important for growth and certainty.” Larry Kudlow, the top White House economic adviser, has similarly defended tax cuts on the basis of promoting economic growth.

Once again, there is scant evidence to support the notion that economic growth would compensate for the deficit effects of a second round of tax cuts. On the contrary, there is reason to believe the opposite. Although the Joint Committee on Taxation (JCT) projects that making those tax cuts law would produce a modest growth bump in the next decade, it would not come close to offsetting the total deficit increase. Even accounting for that growth, it would still leave a deficit impact of about $545 billion by 2028. That is in addition to the impact of last year’s tax law.

More importantly, the JCT projects that adding to the debt would likely raise interest rates, especially in the following decade, resulting in adverse effects on the economy. According to the JCT, after 2028, under a second round of tax cuts, “while employment will continue to be somewhat higher than projected under present law, investment and GDP will be lower than under present law, and the budgetary feedback from this effect will become negative.” This is in line with a Penn-Wharton Budget Model analysis published earlier this year that found extending the individual tax cuts from last year’s bill would add $5 trillion to the debt by 2040 “and actually reduces GDP during the first 10 years and beyond.” Under the GOP’s preferred tax plan, in other words, the economy ends up smaller than it would be otherwise.

Over and over again, Republicans have claimed that their tax plans will reduce the deficit by increasing economic growth. But the promised deficit reductions have never materialized, thanks in part to the fact that the GOP has repeatedly paired revenue-reducing tax cuts with federal spending increases. Just last week, in addition to the tax bill, the House GOP passed an $853 billion spending bill. Under Republican control, Congress added $2.4 trillion to the national debt during the 2018 fiscal year.

Going forward, rising debt and deficits are likely to become a significant burden on the economy, and should a further round of deficit-financed tax cuts occur, it will only increase the drag. Yet that is what Republicans say they want. The available evidence suggests that in the long term, Republican tax policy is now anti-growth.

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Trump Warns It’s A “Very Scary Time” In America… For Men

Following his outspoken remarks on the Kavanaugh allegations and the confirmation process yesterday, President Trump stopped briefly to talk to reporters on the South Lawn before leaving the White House today.

“It’s a very scary situation when you’re guilty until proven innocent,” the president told reporters as he departed the White House on Tuesday.

“It’s a very scary time for young men in America when you can be guilty of something you may not be guilty of. This is a very difficult time.”

Trump explained that men whose behavior is “exemplary” for their entire lives are presumed to be guilty should women accuse them of sexual misconduct.

“What’s happening here has much more to do that even the appointment of a Supreme Court Justice…

You could be someone that was perfect your entire life, and someone could accuse you of something – doesn’t necessarily have to be a woman – and you’re now automatically guilty until proven innocent.“

“That’s one of the very very bad things that’s happening right now.”

As The Hill notes, Trump’s comments are likely to fuel the firestorm surrounding Kavanaugh’s nomination and renew questions about his attitude toward the “Me Too” movement.

Nineteen women have accused the president of sexual misconduct or said they’ve had an extramarital affair with him. Trump has denied all of the allegations.

Asked by reporters on Tuesday whether he had a message for American women, Trump said: “Women are doing great.”

The president concluded by noting that he hopes for a “positive” vote in the Senate this week for Kavanaugh, but it will “be dependent on what comes back for the FBI.”

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2 Hospitalized After ‘White Powdery Substance’ Discovered At Ted Cruz Campaign Office

Less than an hour after CNN reported that two envelopes tainted with the deadly poison ricin had been intercepted at a Pentagon Mail Facility (the pieces of mail were addressed to Defense Secretary Jim Mattis and Navy Admiral John Richardson), the Weekly Standard reported that an envelope containing a “white powdery substance” was received by Ted Cruz’s Houston campaign headquarters.

Multiple fire trucks and at least one hazmat truck responded to the scene after the letter was opened by campaign staff, who promptly reported it to authorities.

According to WS, two people were hospitalized following exposure to the powder, though the Houston Fire Department later confirmed that the substance didn’t test positive for anything harmful.

Still, that both Cruz’s office and the Pentagon received these envelopes on the same day seems like a most unusual coincidence.

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The ACLU Sponsors an Ad Comparing Brett Kavanaugh to Bill Cosby and Harvey Weinstein

The American Civil Liberties Union is not merely opposing Brett Kavanaugh’s confirmation to the Supreme Court. The group has also spent a million dollars to run attack ads in several states comparing Kavanaugh to convicted sexual predator Bill Cosby.

“We’ve seen this before: denials from powerful men,” says the ad’s narrator. We then see images of #MeToo villains: former President Bill Clinton, former talk show hosts Matt Lauer and Charlie Rose, former studio executive, Harvey Weinstein, Cosby, and finally Kavanaugh. The implication is clear: Kavanaugh is just like them.

The ad is running in Nebraska, Colorado, West Virginia, and Alaska, and it is aimed at persuading fence-sitting senators to vote no on Kavanaugh.

The ACLU’s decision to formally oppose Kavanaugh was an unusual move for the organization, which almost never takes a position on judicial nominees. The decision to actively fight Kavanaugh by linking the uncorroborated allegations against him to the much more definitive, actually proven misbehavior committed by Cosby and others is something else: nakedly partisan.

It’s one thing to say that Kavanaugh is not the best choice for the Supreme Court. It’s quite another to prematurely lump him in with Clinton, Cosby, and Weinstein. I would have thought such tactics were beneath the ACLU. This is a shameful moment for a once-great organization.

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Kavanaugh Carnival Continues: Exposing Ford’s Paper On “Creating Artificial Memories”

Authored by Mike Shedlock via MishTalk,

The carnival continues with interesting twists such as Ford’s paper about using self-hypnosis to create memories…

The Federalist reports Kavanaugh Accuser Co-Authored Study Citing Use of Hypnosis to Retrieve Memories.

Christine Blasey Ford, a California woman who has accused Supreme Court nominee Brett Kavanaugh of attempted rape in the 1980’s, co-authored an academic study that cited the use of hypnosis as a tool to retrieve memories in traumatized patients. The academic paper, entitled “Meditation With Yoga, Group Therapy With Hypnosis, and Psychoeducation for Long-Term Depressed Mood: A Randomized Pilot Trial,” described the results of a study the tested the efficacy of certain treatments on 46 depressed individuals. The study was published by the Journal of Clinical Psychology in May 2008.

While the paper by Ford and several other co-authors focused on whether various therapeutic techniques, including hypnosis, alleviate depression, it also discussed the therapeutic use of hypnosis to “assist in the retrieval of important memories” and to “create artificial situations” to assist in treatment.

Ford’s paper cited a controversial 1964 paper on the use of hypnosis to treat alcoholics and claimed that “hypnosis could be used to improve rapport in the therapeutic relationship, assist in the retrieval of important memories, and create artificial situations that would permit the client to express ego-dystonic emotions in a safe manner.” The study by Ford and her co-authors also used “self-hypnosis” to help treat their randomized sample of patients.

The 2004 text by Spiegel and Spiegel referenced by Ford and her fellow researchers discusses in detail the use of hypnotism, and even self-hypnotism, to recover memories from traumatic episodes.

“Remember that all hypnosis is really self-hypnosis,” the authors of the referenced 2004 text on hypnotism wrote. “[T]herefore, therapists are only tapping into their patients’ natural ability to enter trance state.”

The authors noted that hypnosis as a means of recovering traumatic memories could also lead to the “contamination” of those memories.

“Patients are highly suggestible and easily subject to memory contamination,” they noted.

Carnival Continues

With nearly everyone’s mind made up, despite the inconsistencies, the carnival will continue culminating in a final vote later this week or next.

This Week Says McConnell

Senate Majority Leader Mitch McConnell (R-Ky.) said the Senate will hold a Vote on Brett Kavanaugh’s Supreme Court Nomination This Week.

If the Vote Fails?

Why not start the process all over? With a new candidate?

Don’t be silly!

Lindsey Graham says If Kavanaugh Vote Fails, Trump Should Re-Nominate Him.

Demagoguery Zoo

Were Trump to renominate Kavanaugh, I believe that would constitute the ultimate political circus.

Strike that. This is neither a circus nor a carnival.

This is a purposeful media- and politically-sponsored demagoguery zoo with no cages and no zookeeper.

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State Department Demands Spouses of Gay Diplomats, U.N. Staff Get Legally Married to Visit—Even if They Can’t

Gay United Nations flagThe State Department has implemented a new policy requiring gay foreign diplomats and United Nations staffers to be legally married in order to get visas for their spouses. This is sparking a bit of anger, because some of them simply can’t do that.

After legal recognition of gay marriages became the law of the land, states, companies, and institutions began winding down programs providing benefits for the “domestic partnership” systems they had set up as an alternative. Gay couples would now need to tie the knot if they wanted to be treated the same as straight couples.

That is, on the surface, what appears to be happening with the State Department. In a letter sent in July, which attracted more widespread notice after former U.S. Ambassador to the U.N. Samantha Power tweeted about it last Friday, the State Department announced that it is ending a nine-year-old program allowing nonimmigrant travel visas for same-sex domestic partners to join their loved ones in the United States. Starting yesterday, if these partners want come to the U.S., they have to be legally married in order to qualify for the visas.

But gay marriage is still not legally recognized in most countries. Just 28 countries legally recognize gay marriages, either across the whole nation or in certain jurisdictions within them. And letter makes it clear that a marriage must be legally recognized in the couple’s home country to count. They can’t come to America, tie the knot here, and then get visas.

There is an exception, and it’s a bit strange. If a country doesn’t recognize gay marriages, but nevertheless treats same-sex couples from the United States the same as married heterosexual couples, the State Department will issue a visa:

As a matter of principle and reciprocity, in countries where same-sex marriage is not legally available and the sending State is unable to accept the accreditation of the same-sex spouses of members of the U.S. diplomatic and consular posts abroad, the same-sex domestic partner would not be eligible for the derivative A-1 or A-2 visa and will not be accepted for accreditation as a member of the family forming part of the household, eligible for the same privileges and immunities as a spouse while the principal serves in the United States.

Partners have until the end of the year to get married or go home.

When the Washington Blade (a gay publication in D.C.) took note of the letter in August, a State Department official told it that the change is about “promoting fairness.” The people affected don’t see it that way. Alfonso Nam—the president of UN-GLOBE, an advocacy group for gay and transgender U.N. employees—told the Blade this policy of “fairness” will make it very difficult, if not impossible, for the partners of some gay diplomats and U.N. staffers to remain in the United States.

“With this decision, the U.S. State Department is imposing the standard of marriage over all other forms of legal unions,” Nam told the Blade. “This will have a negative impact on same-sex couples working for the U.N. who already face limited choices when it comes to being able to get married.”

Foreign Policy reports that the change will affect at least 10 United Nations employees. Such a small number highlights how weirdly cruel and unnecessary the policy change is. There is not some big flood of foreigners in fake gay relationships using their jobs with the United Nations to sneak their way into the country. And if the intent is to try to encourage other countries to recognize marriage too, there certainly aren’t enough people being affected to be influential in any way.

Instead it comes off as a pointless, petty change designed to hurt a handful of gay families from other countries. It’s another piece of evidence that President Donald Trump’s administration isn’t just waging some war on illegal immigration; it is hostile even to legal immigration—and even, in this case, to long-term foreign visitors.

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US Threatens To Destroy Russian Nuclear-Capable Missile System If Necessary

U.S. Ambassador to NATO Kay Bailey Hutchison on Tuesday warned that the U.S. could be forced to “take out” missiles Russia is developing that violate a Cold War-era treaty. If completed, the 9M729 Russian missile system could give it the capability to launch a missile strike on Europe with little or no notice, the Associated Press reported.

“It is time now for Russia to come to the table and stop the violations,” Hutchison told reporters in Brussels, where US Defense Secretary Jim Mattis would later meet his NATO counterparts. She added that if the system became operational, the U.S. “would then be looking at the capability to take out a missile that could hit any of our countries in Europe and hit America.”

The Novator 9M729 missile system

Hutchison also urged Russia to cease development of the missile system, which fits into a class of banned weapons under the 1987 Intermediate-range Nuclear Forces Treaty. 

“There will come a point in the future in which America will determine that it has to move forward with a development phase that is not allowed by the treaty right now,” Hutchison said.

Earlier in the day, NATO Secretary General Jens Stoltenberg urged Russia to be more transparent, and explain its alleged breaches of the INF Treaty.

She also noted that the US had no intentions of violating the 1987 Intermediate-Range Nuclear Forces Treaty (INF), adding, however, that it might occur because of Russia. The pact bans countries from developing land-based cruise missiles with a range of between 310 and 3,410 miles. NATO officials have said the nascent Russian system fits into that category, the AP reported.

According to the US, the new Russian 9M729 missile systems violate the conditions of the pact, as they give Russia the possibility of launching a nuclear strike in Europe with little or no notice.

Meanwhile, Russia’s Foreign Ministry has said that the 9M729 missiles correspond to Russia’s obligations under the INF Treaty and have not been upgraded and tested for the prohibited ranges. Moscow also noted that Washington had never provided any evidence that Russia had violated the agreement because such proof does not exist. Earlier in July, Russian Defense Minister Sergei Shoigu claimed that the United States is violating the treaty by deploying in Europe missile defense systems with launchers, which might be used for firing Tomahawk cruise missiles.

Hutchison’s comments come a day before Defense Secretary James Mattis was scheduled to meet with other NATO officials. Mattis said he intends to bring up the missile issue during the meeting according to the AP.

Concerns over the missile system mark the latest sign of tensions between Russia and the rest of the world. Most recently, the U.S. imposed sanctions on Russia after the intelligence community determined that Russia interfered in the 2016 election. Multiple Russians have since been charged in special counsel Robert Mueller’s investigation into election meddling.

 

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Junk Bond Spreads Just Dropped To The Lowest Since 2007

The incredibly shrinking junk bond spread just passed a historic landmark when the Bloomberg Barclays U.S. Corporate High Yield index broke below the lowest spread since before the financial crisis this morning, dipping to 309bps, the tightest level since late 2007. This means that the extra yield over U.S. Treasuries that investors demand to own USD-denominated junk debt collapsed to the least in more than a decade.

The key reason cited by analysts has been the accelerating shrinkage in high-yield supply, as last month was the slowest September for junk bond issuance since 2011, while the high yield market as a whole has been contracting as investors have shifted their focus to leverage loans where demand, as discussed recently, has been unprecedented.

Meanwhile, fed hikes have been rising all boats, pushing debt yields across the fixed income space higher, however unlike investment grade bonds, they have a more nuanced impact on junk which is another reason why the spread has been contracting. That said, once the time comes to refinance, these issuers may feel pain as they find themselves rolling debt into notably higher interest rates. Meanwhile, thanks to the strong economy, earnings even for the distressed sector have been solid with no unexpected blow ups (think the energy sector in the aftermath of the oil recession in late 2015/early2016).

The biggest winners in the half were pharmaceutical names, but virtually every other industry group has outperformed with the obvious exception of department stores. The picture for automakers has been mixed too, although here the catalyst has been rising costs due to tariffs and confusion over Brexit: Jaguar Land Rover bonds have done worse than Tesla’s, while Fiat Chrysler’s have outperformed the broader index, according to Bloomberg.

The collapse in spreads has been a boon to hedge funds, with distressed debt investors generating a 6.6% return through August, outperforming the overall 0.3% gain for the broader industry and the negative total return for Investment Grade bonds.

For some of them, today’s event is a sell signal: “It’s a good time to monetize,” said Victor Khosla, founder of the $8.5 billion U.S. fund Strategic Value Partners LLC, which invests in distressed debt. “When high-yield spreads get to be this tight, when markets are this strong, you’re not buying as much as you’re selling.”

To be sure, the collapse in spread has taken place even as overall junk bond leverage has risen to all time highs.

Others have noted that the last time spreads were this tight, the recession was about to start.

Meanwhile, for those willing to call it a day on US junk, the next big opportunities may be cropping up in emerging markets. Argentina and Brazil are among potentially promising markets as a mix of rising interest rates, currency devaluations and exiting foreign capital puts companies under pressure, according to David Tawil, co-founder and president of Maglan Capital.

Others looking for distressed opportunities will look to Asia, where widening spreads on Indonesian junk dollar bonds, accelerating defaults on Chinese corporate bonds and nonperforming loans in India suggest that there will be plenty of choices to pick from.

Not everyone is convinced that the party in US junk is over: some have said that energy names, a key component of the High Yield index, are benefiting from oil prices at 4 year highs. Others, such as Bloomberg’s Sebastian Boyd, observe that there is a seasonal pattern of outperformance in the month after quarter-end leading up to results season: “If it holds, we could keep grinding tighter for another couple of weeks.”

The question is just how much tighter can spreads collapse as soon return on simple cash will provide a higher return than risking capital on stressed companies that have never been more leveraged.

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