Month: October 2018

Alex Jones’s company, Free Speech Systems, LLC, has sued PayPal for the its ban of Infowars because the controversial website “promoted hate and discriminatory intolerance against certain communities and religions.”

In the complaint filed by Jones’s lawyers, Randazza Legal group, they accuse PayPal of banning Infowars “for no other reason than a disagreement with the message plaintiff conveys” and call ban “unconscionable” because PayPal has never advised users that “it might ban users for off-platform activity.”

Here’s what happened in Jones’ own words:

On September 21, 2018, after 18 years of service, and without any prior warning, Defendant PayPal notified Plaintiff in a phone call that, in 10  business days, it would issue a “permanent limitation” on Plaintiff’s PayPal accounts. This limitation will be permanent, and cannot be appealed.

The limitation will prevent Plaintiff from withdrawing, sending, or receiving money through PayPal, effectively preventing it from using the PayPal accounts at all. The loss of the PayPal accounts and future ability to use PayPal will significantly reduce Plaintiff’s income in an amount that is not susceptible to calculation, but more importantly PayPal deciding to kick Plaintiff off its platform has harmed the legitimacy of Plaintiff as a news organization in the eyes of the general public and has already led to a loss of good will.

The purported basis for the permanent limitation PayPal provided is that content on the News Sites violated PayPal’s so-called Acceptable Use (“AU”) Policy.  Specifically, a PayPal representative stated that, after extensively looking at the News Sites, PayPal determined instances that “promoted hate and discriminatory intolerance against certain communities and religions.”

The AU Policy provides four categories of “Prohibited Activities.” Notably, the prohibited activities only provide that a user “may not use the PayPal service for activities that” fall into one or more of the categories. Sub-paragraph 2 of the Prohibited Activities section provides that a user may not use PayPal for activities that “relate to transactions involving . . . (f) the promotion of hate, violence, racial or other forms of intolerance that is discriminatory or the financial exploitation of a crime . . . .

These terms are purposely vague, and could conceivably (and unconscionably) be applied to any speech at all, given the opaque manner in which PayPal has applied them. The AU Policy mentions nothing about valuating a user’s off-platform activities as the basis for a finding that the user has violated the policy

For those asking, this is how Infowars describes Infowars in the lawsuit:

The News Sites contain content that expresses negative views against politically liberal people, communists, socialists, and religious fanatics. Contributors to the News Sites, including Mr. Jones, have often criticized specific members of political parties, including former President George W. Bush and former candidate Hillary R. Clinton.

On information and belief, it is this highly political content that PayPal claims constitutes a violation of its AU Policy.

Jones then claims that “it is at this point well-known that large tech companies, located primarily in Silicon Valley, are discriminating against politically conservative entities and individuals, including banning them from social media platforms such as Twitter, based solely on their political and ideological viewpoints.”

Plaintiff has been the victim of this recently, as it has been banned from various online platforms based solely on the viewpoints expressed on Plaintiff’s programming.

Jones also alleges that Paypal banned him from its payment-processing platform “for no reason other than disagreement with the messages Plaintiff conveys. PayPal engaged in this viewpoint-based censorship despite stating that, in determining whether a user violated its acceptable use policy, it would only consider conduct actually involving the use of PayPal. PayPal’s decision to kick Plaintiff off its platform had nothing to do with such activities.”

While one can claim that PayPal, as a private company, has every right to ban whomever it wants, even if it results in outright discrimination, Jones disagrees and to plead his case invokes the California Unruh Civil Rights Act:

PayPal discriminated against Plaintiff based on its political viewpoints and politically conservative affiliation, thus violating the California Unruh Civil Rights Act. PayPal is engaged in unfair business practices by enforcing its contractual terms in an unconscionable manner, namely arbitrarily banning Plaintiff from its platform for off-platform speech despite never claiming it might ban users for off-platform activity. In doing so, it also violated the implied covenant of good faith and fair dealing with Plaintiff.

What is Unruh?

The Unruh Civil Rights Act (“Unruh”) guarantees that “all persons” are “entitled to full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.”

Although the Unruh Act specifically forbids business establishments from discriminating based on “sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status”, this statutorily enumerated list is illustrative, and not exhaustive, of the characteristics on which business establishments may not discriminate.

Discrimination based on political affiliation or ideology is forbidden under Unruh, as it is a personal characteristic.

So as Jones finds his business impaired as a result of the ban…

PayPal is restraining Plaintiff’s commerce because it is politically conservative and sells to a conservative audience. PayPal’s actions amount to discrimination based on political viewpoint and affiliation, which is forbidden under Unruh.

… a ban which is not justified based on the acceptable use policy:

The UA provides several examples of situations where PayPal might issue a limitation, including “[i]f we reasonably believe you have violated the Acceptable Use Policy.” None of these examples allow PayPal to issue a limitation based on off-platform activity, and all the examples are geared towards activity that involves risky, fraudulent, or illegal financial transactions.

… Jones also throws in allegations of PayPal being a monopoly (which is not too far off) and thus once banned, he is effectively precluded from online commerce.

There is no adequate payment alternative to PayPal for Plaintiff’s business model, as PayPal has eliminated competitors and has taken a dominant market position in online payment processing. Having effectively cornered the market, it is now using that market power to restrain conservative trade and commerce.

…

Defendant’s method of enforcing the AU Policy and UA is an unfair business practice under the UCL. It is fundamentally oppressive, unethical, and injurious to customers because it allows PayPal to lie to parties who use its services by claiming that terminations and restrictions due to violations of the AU Policy will be limited to activities that actually use the PayPal service, while in fact looking at the user’s off-platform activity.

As a result, “PayPal’s actions go far beyond any reasonable interpretation of the language of its policies, and it is apparent that PayPal is using its policies as a pretext to engage in political discrimination without actually saying so. “

For its part, PayPay explained its rationale for banning Infowars in a statement on its website Sept. 21: “We undertook an extensive review of the Infowars sites, and found instances that promoted hate and discriminatory intolerance against certain communities and religions that run counter to our core value of inclusion.”

Will Jones be successful in getting PayPal to “unban” him? Probably not, but whatever the outcome the case will likely be closely watched by other members of the media, and especially other conservatives, to see if they have any legal claims in similar situations, because for all his other faults, Jones is correct in accusing Silicon Valley of cracking down on the “right” as both Twitter and Google have admitted on various occasions in recent weeks. And since it is the tech companies that are the true mass media of our times, what, if any, legal remedies the general public – or targeted entities – has against them is increasingly becoming a critical question.

* * *

The full complaint, California Northern District, Case 18-cv-06013, is below

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Third Kavanaugh accuser Julie Swetnick just validated claims that she should be criminally prosecuted for lying in her initial sworn account alleging that Trump SCOTUS pick Brett Kavanaugh participated in “gang rapes” with his high school buddies back in the early 1980s.

In an interview with NBC news, Swetnick said that while she saw Kavanaugh aggressively hit on women at parties, she denied that she actually witnessed him participate in the rapes. She also said Kavanaugh wasn’t a member of a group of boys who assaulted her during one of these parties.

“I cannot specifically say that he was one of the ones who assaulted me,” Swetnick told Snow. “But, before this happened to me, at that party, I saw Brett Kavanaugh there, I saw Mark Judge, and they were hanging out about where I started to feel disoriented and where the room was and where the other boys were hanging out and laughing.”

She added that Kavanaugh is an “admitted blackout drunk and drug addict.”

Swetnick did not confirm that she saw Kavanaugh spike punch, one of the claims from her affidavit, she instead said that she merely “saw him around punch containers,” and that she wouldn’t have accepted a glass of punch if he were to hand it to her.

“I don’t know what he did,” she added.

NBC was unable to corroborate Swetnick’s claims after she provided four names to NBC News of people whom she said would confirm her accounts of the parties in the 1980s. After contacting all four, NBC reported that one said they did not remember Swetnick, one was dead and two did not respond. 

Swetnick’s interviewer, Kate Snow, noted this before the interview and added that some details of Swetnick’s account differed from her sworn affidavit.

“NBC News, for the record, has not been able to independently verify her claims. There are things she told us on camera that differ from her written statements last week.”

However, after the interview, Snow clarified that “we’re not discounting what she said in any way. We’re just doing our reporting…There are a lot of people working on this.”

In her sworn statement, Swetnick claimed that Kavanaugh “consistently engage(d) in excessive drinking and inappropriate contact of a sexual nature with women in the early 1980s.”

During his testimony before the Senate Judiciary Committee last week, Kavanaugh described Swetnick’s allegations as “a joke.” 

Meanwhile, President Trump said Monday that Swetnick “has very little credibility,” but added that if she has any credibility, she should be interviewed by the FBI. As of Monday, the FBI hadn’t reached out to her or her lawyer Michael Avenatti.

Still, Avenatti has insisted that his client has been 100% truthful…

#Truth #Facts #Courage #Justice pic.twitter.com/pZN3CsHH91

— Michael Avenatti (@MichaelAvenatti) October 1, 2018

…and that she has offered to take a polygraph test.

My client Julie Swetnick has offered to take a polygraph test, meet with the FBI and be cross examined by Kavanaugh’s lawyers. He has refused to do the same. All of these women cannot be lying. And women who are lying do not push to meet with the FBI. Why the coverup by Trump?

— Michael Avenatti (@MichaelAvenatti) October 1, 2018

Though Avenatti has insisted that he’s “under no obligation” to produce any evidence of her claims.

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Authored by Kevin Muir via The Macro Tourist blog,

Although the financial press is all lathered up about the last minute trade agreement reached between the Americans and the Canadians, I am left asking, “what’s the big deal, eh?”

Did we really expect anything different? Sure, Trump blustered about how much he didn’t like the Canadian negotiating team and that we had been taking advantage of Americans for far too long. He assured his base that this would change under his leadership. But this is how Trump negotiates. He takes extreme stances. He insults his counterparties. He appears unrelenting and unwilling to compromise. And then, at the last minute, he makes the best deal he can. It’s par for the course.

Does this work? Who knows? I certainly don’t have a clue about its effectiveness and I don’t really care. All I know is that the market seems awfully slow at figuring this game out.

But the real question on my mind is whether today’s Canadian dollar strength is merely a sell-the-rumour-buy-the-news type event, or the start of a larger move higher.

The CAD buying started late Friday afternoon, and has continued all day today.

Yet will this flame out in the coming days? Or will the break below 1.2925 support prove to be the technical breakdown Loonie bulls are looking for?

To answer that question, let’s have a look at two of the most important factors in Canadian dollar price level determination.

The first being the difference between US and Canadian interest rates. The part of the curve that seems to do the best job at tracking USDCAD movement is the two year, so here is a chart of the US-Canada 2-year government yield spread versus the Canadian dollar (priced in CADUSD terms):

Even with the NAFTA worries of the past six months, the Canadian dollar has outperformed the 2-year spread differential. According to this simple model, we should expect the Loonie to be almost a nickel lower given the yield spread.

So much for the idea that this free trade deal will be the start of a new bull move in the Loonie… But wait – what’s the other factor I mentioned earlier?

Crude oil – of course! Canada is heavily dependent on energy revenues and our currency has even being described as a petro-currency. With good reason. Have a look at this chart of the 12th-month perpetual WTI future versus the Canadian dollar.

Much to almost everyone’s surprise, crude oil just keeps going up, and up, and up. I contend oil is one of the most hated markets out there, yet it has been one of the best performing.

Yet the Canadian dollar has not participated with this good fortune. Why?

Well, that’s an easy one. Although Brent and WTI is rallying, energy in Canada is hampered with the ability to get to international markets by lack of pipelines and therefore is trading at record-wide differentials.

So it’s not surprising this relationship between oil and CAD is breaking down and not doing a good job at predicting the Loonie’s level. The other aspect to keep in mind is that currencies are relative values. Canada used to have a lot more oil production than the US, but that’s changed over the past decade. Therefore as oil rallies, the Loonie should rally, but so too might the US dollar. Therefore the USDCAD versus oil relationship might become less and less reliable.

Where does that leave us? The Loonie is expensive when it comes to interest rate differentials, but cheap when it comes to relative energy levels. Yet, Canadian energy is suffering from a transportation crisis, making this indicator less effective.

Seems like it is easy to argue this free trade deal announcement should be a sell-the-news-type-event for the Canadian dollar.

Going with it

I am usually the first one to fade some technical breakout. And not only that, as a Canadian prone to our British-inherited-habit-of-self-loathing, I often let the time honoured tradition of being bearish on my country’s fate overwhelm my decision-making process.

But this time I will push back against those tendencies.

David Scanlan from Bloomberg tweeted out this report last night (click here for the article):

From the article:

Royal Dutch Shell Plc and its four partners have agreed to invest in a multibillion-dollar liquefied natural gas project in western Canada – the largest new one of its kind in years that would carve out the fastest route to Asia for North American gas.

LNG Canada – comprised of Shell, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. – is set to announce a final investment decision on the C$40 billion ($31 billion) project as early as Monday, said people with direct knowledge of the plans, who asked not to be identified because the matter isn’t public. The exact timing still hasn’t been decided. PetroChina and Korea Gas announced approvals of their share of the investment on Friday. The others partners declined to comment.

The project marks a turning point for Canada and the gas industry. Set to be the nation’s largest infrastructure project ever, LNG Canada augurs a new wave of investments for major gas export projects after a three-year hiatus forced by a global supply glut. LNG Canada will be able to send cargoes from Kitimat, British Columbia to Tokyo in about eight days versus 20 days from the U.S. Gulf.

Can you imagine if we ever smarten up and start making reasonable energy policy in this country? Brent is trading $85 a barrel for Pete’s sake! We should be rolling in it.

My Canadian bearish pals will tell me all the reasons why housing is set to collapse, why America is going to eat our lunch, why taxes are too high and we will continue to suffer from brain-drain. Yeah, I get it. I know all the negatives.

But I get the sense that so does everyone else. It feels like Canada has been forgotten. The currency has been shunned for being a commodity currency in a period where commodities are getting hammered. The Loonie has also suffered from the fact that Trump chose Canada to make an example of.

We have finally gotten the NAFTA monkey off our back, and the market seems to be waking up to the fact that oil will not be going down nearly as fast as the bears predict, going long the Loonie might be a good trade in here. Combine it with the fact that I am a US dollar bear, I have a hard time not seeing the break down in USDCAD and say, “giv’er, eh.”

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If markets have been blissfully ignorant of potential fallout from the simmering US-China trade dispute (even if corporate executives are bracing for the worst), just imagine how they would react to the reality of a military confrontation.

Which brings us to an ABC News report published Monday evening detailing just how close Chinese ships came to actively confronting the USS Decatur while the US ship was carrying out yet another in a series of “freedom of navigation” operations – or “freeops” – in the South China Sea. The Navy destroyer had to maneuver to avoid a Chinese ship that came within 45 yards of its bow while the Decatur was sailing through the Spratley Islands on Sunday in what was the closest direct confrontation between US and Chinese ships since Trump’s inauguration (after which the Navy began conducting these freeops with increasing frequency).

The encounter, which comes at a time of strained relations between the world’s two largest economies driven largely by Trump’s aggressive trade policy, was characterized as “unsafe and unprofessional” by Navy officials.

“At approximately 0830 local time on September 30, a PRC LUYANG destroyer approached USS DECATUR in an unsafe and unprofessional maneuver in the vicinity of Gaven Reef in the South China Sea,” said Capt. Charlie Brown, a U.S. Pacific Fleet Spokesman.

Gaven Reef is located in the Spratly Islands chain in the South China Sea where China claims seven man-made islands as its own.

The close encounter with the Chinese warship occurred as the American destroyer was carrying out a freedom of navigation operation (FONOPs) in the Spratlys, the U.S. said.

The U.S. Navy routinely undertakes FONOP missions worldwide to challenge excessive territorial claims of international shipping lanes.

USS Decatur had sailed within 12 nautical miles of Gaven and Johnson Reefs in the Spratly Islands when it was approached by the Chinese destroyer.

During the brief encounter, the Chinese destroyer’s aggressive maneuvers were accompanied by demands that the Decatur leave the area.

The Chinese Navy “destroyer conducted a series of increasingly aggressive maneuvers accompanied by warnings for DECATUR to depart the area,” Brown added.

“The PRC destroyer approached within 45 yards of DECATUR’s bow, after which DECATUR maneuvered to prevent a collision,” said Brown.

A U.S. defense official characterized the close encounter as having been of short duration.

Chinese vessels have approached U.S. Navy ships during previous FONOPs in the South China Sea, but Sunday’s encounter appears to the be the closest one yet.

“U.S. Navy ships and aircraft operate throughout the Indo-Pacific routinely, including in the South China Sea,” said Brown. “As we have for decades, our forces will continue to fly, sail and operate anywhere international law allows.”

Earlier Monday, reports surfaced that China had called off a security conference with US officials. The cancellation was later confirmed by the US. This latest sign of a deteriorating relationship came after the US Air Force flew a B-52 bomber on a mission through the East China Sea while two other B-52 flights were carried out through the South China Sea.

While the the notion of a shooting war between the US and China may seem remote to casual observers, some market observers have noted the time honored progression of economic tensions like trade wars and currency wars eventually leading to a full-on hot war.

At the very list, it’s a risk that certainly deserves attention.

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Authored by James Rickards via The Daily Reckoning,

The U.S. trade war with China and China’s daunting debt problems are well understood by most investors. Coming U.S. sanctions on Iran and Iran’s internal economic problems are also well understood.

What is not understood is how these two bilateral confrontations are intimately linked in a three-way tangle that could throw the global economy into complete turmoil and possibly escalate into war. Untangling and understanding these connections is one of the most important tasks for investors today.

Let’s begin with the China debt bomb. As is apparent from the chart below, China has the largest volume of dollar-denominated debt coming due in the next 15 months.

The chart shows China with almost $100 billion of external dollar-denominated liabilities maturing before the end of 2019. But this debt wall is just the tip of the iceberg. This chart does not include amounts owed by financial institutions nor does it include intercompany payables and receivables. China’s total dollar debt burden is over $200 billion and towers over other emerging-market economy debt burdens.

This wall of maturing debt might not matter if China had easy access to new finance with which to pay the debt and if its economy were growing at a healthy clip. Neither condition is true.

China has entered a trade war with the U.S., which will reduce the prospects of many Chinese companies and hurt their ability to refinance dollar debt. At the same time, China is trying to get its debt problems under control by restricting credit and tightening lending standards.

But this monetary tightening also hurts growth. Selective defaults have already emerged among some large Chinese companies and certain regional governments. The overall effect is tighter monetary conditions, reduced access to foreign markets and slower growth all coming at the worst possible time.

The situation in Iran is even more fraught. The U.S. waged a financial war on Iran from 2011–13. The first step was to impose sanctions on Iranian individuals and entities. Then Iran was banned from using the U.S.-controlled Fedwire system to send or receive U.S. dollars.

Iran responded by switching its oil shipments to payment in euros cleared through the SWIFT system, based in Belgium. Next the U.S. leaned on its SWIFT partners to ban Iran from using that system, a process known as “de-SWIFTing.”

This move effectively cut Iran off from receiving hard currency for its oil. Iranians smuggled dollars into Iran from Iraq and ran a black market to get dollars to pay Dubai-based smugglers to bring in consumer goods. There was a run on the Iranian banks, interest rates were moved to 20% to stop the run and the Iranian rial collapsed. Inflation soared and anti-government demonstrations emerged. Iran was halfway to regime change without a shot being fired.

Obama declared a truce in the financial war at the end of 2013 in exchange for negotiations on the Iranian nuclear program. This resulted in the 2015 Joint Comprehensive Plan of Action, JCPOA, a multilateral agreement on Iran’s pledge to stop uranium enrichment. Obama paid billions of dollars in cash and gold to Iran as a bribe to secure this agreement.

After the agreement, Obama ended many economic sanctions on Iran. Direct foreign investment, mostly from Europe, started up again.

Last May, Trump tore up the JCPOA and resumed sanctions under a doctrine of “maximum pressure.” The difference now is that Iran wasted the Obama bribe money on foreign adventures and terrorism in Iraq, Yemen, Syria, Lebanon, Gaza and Sinai. The situation in Iran today is even worse that it was in 2013.

A new round of severe sanctions is set to go into place on Nov. 4, 2018. These new sanctions will result in a near complete shutdown of Iranian oil sales and an end of direct investment in Iran. Trump is on the path to regime change in Iran unless a new agreement is reached that is much stronger from the U.S. perspective than the JCPOA.

Here’s where the China and Iran stories converge. Iran has one and only one lifeline to keep its economy going — oil sales to China. And China desperately needs the Iranian oil to keep its own economy growing so it can pay or roll over its debts. The chart below tells the story:

Iran’s oil sales to South Korea, Italy, Japan, the UAE, Spain, France and Greece are likely to be shut down or greatly curtailed by the new Trump sanctions. That leaves China, India and Turkey as Iran’s only large customers. Turkey and India are facing financial crises of their own and may not have the hard currency to pay Iran. That leaves China as Iran’s only source of hard currency going forward.

China will not stop buying Iranian oil; they need the oil desperately. Iran will not stop selling oil to China; they need the hard currency desperately. Still, Trump’s sanctions will force China and Iran into financial and logistical gymnastics to avoid interdiction by Trump.

Iran will use its own tanker fleet to ship the oil because third-party countries won’t allow their tankers to violate the sanctions. China will have to cheat on SWIFT message traffic notices to avoid appearing to credit Iran with hard currency.

Even with these workaround methods in place, the two-way flow of oil and currency will become more difficult. The impact on China and Iran will be to slow both economies even if the oil and currency keep flowing.

China is between a rock and a hard place because it’s trying to control the increase in debt while trying to borrow more and pay its debts at the same time. Iran is in even worse condition because its foreign investment currency lifelines are being cut one by one even as the government struggles with hyperinflation, bank runs and social unrest.

Both of these situations could be alleviated if China would give Trump the trade deal he wants and if Iran would give Trump the nuclear deal he wants. Both outcomes are unlikely in the near term because of the confrontational geopolitics standing in the way.

Markets have been notably docile lately despite crises in Argentina, Turkey, Indonesia, Iran, China, Venezuela and elsewhere. Political crises related to Brexit and U.S. political dysfunction have not roiled global markets so far. The calm and low volatility are about to end.

The China-Iran nexus in confrontation with the U.S. is the last straw.

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In David Kostin’s latest note to clients, the Goldman strategist warned that market complacency over escalating US trade war with China may have gone too far, and warned that rising tariffs represent a growing threat to corporate earnings through higher costs and lower margins.

Coming on the same day that JPMorgan revised its “new baseline“, turning increasingly bearish and now predicting that the US will impose 25% tariffs on all Chinese imports in the near future, Kostin similarly warned that a 25% tariff on imports from China could erase earnings growth for S&P 500 companies in 2019.

Goldman also explained that the way higher tariffs would be transmitted to corporations was by a reduction in corporate earnings through higher costs and lower margins. He calculated that roughly 15% of cost of goods sold (COGS) is imported. And given S&P 500 constituent firms are more global in nature and have more complex supply chains than overall industry, Goldman estimated that imports account for roughly 30% of S&P 500 COGS. This estimate is consistent with the 30% share of S&P 500 sales generated outside the US (imports from China account for 18% of total US imports).

What this means according to Goldman is that as the boost from tax reform fades some time over the next 2 quarters, pressure on corporate margins is about to ratchet up and most companies will suffer margin erosion as trade war ramps up. Meanwhile, firms with the ability to maintain or expand profit margins will become increasingly scarce and will likely be rewarded by investors. In other words, companies with a high pricing power are well-positioned to pass through input cost pressure to consumers, preserving high margins. Kostin explains:

The market typically rewards companies with high margins when the outlook for corporate profitability worsens. This pattern occurred in 2017, when high-margin stocks outperformed throughout most of the year as the labor market tightened and commodity costs rose. However, as investors embraced the likelihood of tax reform in late 2017, that scarcity premium evaporated and low-margin stocks rebounded, but that recent outperformance seems unlikely to last.

This relative outperformance of high margin companies is shown in the chart below.

How to uncover these “trade war” diamonds in the rough? According to Goldman, one way to identify firms with a high likelihood of maintaining margins going forward is to look for demonstrated records of margin strength. High and stable gross margins are typically an indicator of high pricing power.

Kostin analyzed companies based on the average level and standard deviation of gross margins during the past five years. By these measures, firms in industries at the bottom right of the chart below would be best-positioned to withstand rising input costs and other margin pressures, such as companies in Software & Services.

At the same time, some industries with histories of strong gross margins have seen their competitive positioning weaken in recent years. The Household and Personal Products industry group, for example, has historically enjoyed among the highest and most stable gross margins across the Russell 1000. But during the last two years, the median stock in the industry group has experienced a gross margin decline of 75 bp. In contrast, Software & Services has high and stable gross margins and has seen margins expand by 56 bp during the past two years

To make life easier for investors who are worried about the market impact from the next trade war, Goldman has compiled a list of 33 companies with gross margins that are high and stable, and which have outperformed a group of firms with weak and variable gross margins by more than 18 pp YTD (+12% vs. -6%).

Firms on the list comprise Russell 1000 stocks ranking in top quintile of their sector based on the level and stability of gross margins during the past five years. According to Goldman, the stocks have all also experienced steady or expanding gross margins during the past one and two years. Firms in six different sectors are represented in the list. The 10 stocks meeting the screening criteria with the lowest coefficient of variation in gross margins: NATI, WAT, VMW, IDXX, XYL, AZO, FLO, SIRI, EXPE, and ADBE.

So for those who are convinced it is only a matter of time before the market turns, one pair trade idea would be to go long a basket, or all, of the names below, while shorting the broader market (although maybe excluding the FANGs which have been the backbone of the S&P’s ascent so far in 2018).

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Authored by Robert Bridge via The Strategic Culture Foundation,

With the termination of a YouTube account, or simple tweak of an algorithm, the tech company monsters – Google, Facebook, YouTube and Twitter – are able to deprive millions of Americans of conservative news sources, undermining both the Constitution and the spirit of democracy.

In a perfectly wired world, the gatekeepers of the Internet would limit themselves specifically to the technical aspects of their job, ensuring that a well-oiled matrix runs smoothly and effectively for the end user. But alas, we do not inhabit a perfect world.

Political bias runs far and deep inside of Silicon Valley, and following the defeat of Hillary Clinton in the 2016 presidential election, the tech giants are now poised to make life very difficult for conservatives. That much was plain to see in a shocking video of a Google meeting, chaired by the company’s founders Larry Page and Sergey Brin, just days after U.S. voters sent Donald Trump to the White House.

Brin kicked off the cry fest by stating, “Let’s face it, most people here are pretty upset and pretty sad because of the election…As an immigrant and a refugee I certainly find this election deeply offensive and I know many of you do too.”

What followed from there was one Google executive after another describing their disappointment with the election, some actually shedding tears, interspersed with bold promises to better “advocate for our values,” which is just another way of saying that Conservative values are worthless and the Democrats now have a moral duty to fulfill. 

Now had this been an Alcoholics Anonymous meeting, or a get together of Democratic political pollsters, such lamentations would have been understandable. But coming from Google, the world’s premier search engine of news and information, it was downright creepy.

There were already calls of despair coming from inside the Google fortress before this very cringe-worthy meeting. James Damore, an engineer at the tech company, made headlines with a 10-page memo he wrote entitled, “Google’s Ideological Echo Chamber,” which exposed the ‘discriminatory’ hiring practices Google allegedly endorses.

Damore, together with another former Google engineer, David Gudeman, followed up on the memo with a lawsuit that accused Google of cultivating a corporate culture that regularly admonishes “politically conservative white men”.

“Google’s management goes to extreme — and illegal — lengths to encourage hiring managers to take protected categories such as race and/or gender into consideration as determinative hiring factors, to the detriment of Caucasian and male employees and potential employees at Google,” the suit reads.

“Not only was the numerical presence of women celebrated at Google solely due to their gender, but the presence of Caucasians and males was mocked with ‘boos’ during company-wide weekly meetings.”

Perhaps most explosive, Damore and Gudeman’s lawsuit goes on to claim that the company maintains “blacklists,” which are allegedly designed to prevent employees with conservative views from obtaining promotions within Google, which also, incidentally, owns YouTube.

Earlier this month, Google, which came under attack by Donald Trump for “suppressing voices of Conservatives,” refused to attend a Senate Select Committee on Intelligence. This would have given lawmakers the chance to grill the company over claims of bias, which does seem to have a tendency to skew algorithms against white males.

To illustrate the point, as The Unz Review reported, I would encourage the reader to perform a quick Google search for ‘American inventors’ and see where famous white innovators rank in Google’s world.  Of the top ten names on the list, only Thomas Edison represents the white Caucasian males, the other nine are African Americans. Clearly, something is very wrong with that picture.

While the black community certainly had their share of innovators, how is it remotely conceivable that the Wright Brothers, Henry Ford, Albert Einstein, Nikola Tesla, Bill Gates and Steve Jobs – and so many other creative white guys – fail to rank not just in the top ten, but in the top twenty?  

What seems to be happening is that the aversion to the “white male conservatives” that Damore and Gudeman spoke of inside of Google is starting to radically impact search results, gradually denying white males their proper place in the history books. This is nothing less than the deliberate rewriting of history. Personally speaking, these efforts must be challenged before it gets completely out of control and reality is turned on its head by a ‘private company’ with a noxious, biased and prejudiced worldview.

In any case, it seems James Damore became an inspiration to other right-leaning (or simply ‘freedom leaning’) Silicon Valley employees, and not just those getting bean bag chairs, neck massages and free lunches while they sell out white male Conservatives down the river on Google’s sprawling campus. Last month, Brian Amerige, a senior Facebook engineer, disseminated on Facebook’s internal message board a memo entitled,“We Have a Problem With Political Diversity,” which was obtained by The New York Times.

“We are a political monoculture that’s intolerant of different views,” Amerige proclaimed. “We claim to welcome all perspectives, but are quick to attack – often in mobs – anyone who presents a view that appears to be in opposition to left-leaning ideology.”

Since news of the letter went viral, more than 100 Facebook employees joined Amerige in a call for more diversity inside of the social media titan. However, that is a tiny fraction of the company’s some 25,000 employees, which don’t seem ready to declare mutiny against its founder and chief executive, Mark Zuckerberg. Indeed, just after publication of the memo, Alex Jones, founder of InfoWars, was banned from Facebook, Youtube and Twitter, as the internet inquisition against conservative voices ratcheted up, and just as the momentous midterm elections approaching fast.

Speaking of Twitter, last month its Jack Dorsey admitted the company has a problem when it comes to making sure its politics, which are left-leaning, do not manipulate profiles.

“I mean, we have a lot of conservative-leaning folks in the company as well, and to be honest, they don’t feel safe to express their opinions at the company,” Dorsey told Recode in an interview.

“They do feel silenced by just the general swirl of what they perceive to be the broader percentage of leanings within the company, and I don’t think that’s fair or right.”

But it’s not just Twitter employees who are feeling silenced.

This month, actor James Woods, who has over 1 million followers on Twitter, was locked out of his Twitter account over a humorous meme he sent out months ago that the social media company said “has the potential to be misleading in a way that could impact an election.”

In an interview with The Associated Press, Woods said he was told he’d be allowed back on Twitter only if he deletes the tweet. Woods said he would not comply.

“Free speech is free speech — it’s not Jack Dorsey’s version of free speech,” the actor said.

Given this oppressive, anti-conservative mindset that now dominates the major tech firms – which only appears in rare and very brave manifestations of employees risking their jobs and reputations to get the truth out, or from conservative voices getting censored – the need for some sort of ‘Internet Constitution’, which promotes the rights of every man, woman and child to express themselves as they feel appropriate, seems to be the only answer.

In the meantime, we can be sure that the grand myth being peddled by our politicians and tech firm CEOs about how the Russians are destroying our democratic institutions will only get louder. 

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Though US media has largely ignored the trend, military tensions between Washington and Beijing have continued to escalate in 2018, aggravated by the US’s trade-war push, the US’s insistence on selling arms to an increasingly emboldened Taiwan, US sanctions against a Chinese military unit and the ever-more-frequent “freedom of navigation” operations in the South China Sea, which China views as a challenge to its “indisputable sovereignty” over the South China Sea. Just yesterday, the guided-missile bearing USS Decatur, a Navy warship, sailed within 12 miles of two Chinese military outposts situated on the parts of the disputed Spratly Islands, elicited nothing but a discomforting silence from Beijing. One week earlier, China accused the US of staging a “provocative” flight of B-52 bombers over the South China Sea, which also served to heighten tensions.

And with what appears to be China’s response to these latest transgressions, Chinese officials have canceled a security meeting with US Secretary of Defense Jim Mattis which had been planned for October, the New York Times reported, citing an anonymous senior US official. The cancellations comes just days after a top Chinese official said there was no reason to panic over tensions between the world’s two largest economies. According to the NYT, the Chinese government told US officials on Friday, just before the beginning of China’s Golden Week holiday, that the summit would not happen.

China told the Trump administration on Friday that a senior Chinese military official would not be meeting Mr. Mattis, the American official said, who spoke on the condition of anonymity per diplomatic norm.

At last year’s security and diplomatic dialogue, the chief of the People’s Liberation Army, Gen. Fang Fenghui, attended the sessions held in Washington. (General Fang was purged shortly afterward, for unrelated reasons.)

Whether the accumulation of last week’s episodes, or one in particular, provoked the decision to scuttle the dialogue is not clear, the American official said.

While the announcement came out of the blue, in some respects, Beijing’s decision to cancel the talks wasn’t a surprise.

In some respects, Beijing’s move to abandon the dialogue, at least for the moment, was not surprising. The Foreign Ministry signaled last week that the arms sale to Taiwan threatened to cause “severe damage” to relations with the United States, including “bilateral cooperation in major fields.”

Aside from Sunday’s freeop, China was incensed by US Ambassador Terry Brandstad’s decision to take out an advertisement in the Des Moines Register to push back against claims that the Chinese government made in that newspaper, which it hoped would anger Iowan farmers, a key part of Trump’s base, by pointing out how his trade war would negatively impact them.

Last Tuesday, China refused a request by an American warship to make a port visit to Hong Kong in October.

China began a weeklong holiday Sunday. Government officials were not available for comment on the cancellation of the meeting.

On another front that could add to the sour feelings, the United States Ambassador in Beijing published a strongly worded opinion article on Sunday in his hometown newspaper, the Des Moines Register.

The opinion piece, a reply to a four-page advertorial paid for in the Register by the Chinese government last weekend, accused China of bullying and of unfair trade practices. It also complained about China’s state-controlled press.

Last year’s security meeting in Washington was relatively productive (though the official who represented China was later purged), according to the NYT.

At last year’s security and diplomatic dialogue, the chief of the People’s Liberation Army, Gen. Fang Fenghui, attended the sessions held in Washington. (General Fang was purged shortly afterward, for unrelated reasons.)

To be sure, this isn’t the only sign that the US and China are settling “into a newly chilly relationship.” Trump recently accused China of meddling in US elections, while Vice President Mike Pence is expected to lay out the US’s “negative views of China’s international behavior” in a “major speech” later this week.

Tensions between the US and China are manifesting elsewhere. One bellweather that reflects trade and military tensions with China is the US relationship with North Korea, which took yet another turn toward the chilly over the weekend as North Korea’s foreign minister denounced the US for “deepening the mistrust” between the two sides.

With this in mind, we’d like to once again bring up this handy chart, which should serve as a reminder: Currency and trade wars have a well-established history of preceding hot wars. Investors who are making long-term allocations would do well to remember that.

 

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Authored by Michael Pento via PentoPort.com,

Investors are experiencing huge moves in commodities, currencies, equities and in sovereign debt across the globe. And now the fall has arrived. Expect the volatility currently witnessed in markets to only surge.

This is because global central banks have overwhelmingly turned hawkish in a vain attempt to gradually let the air out of the massive bubbles they have spent the last decade recreating. Unfortunately, that is not the nature of asset bubbles—they don’t end with a whimper–and they are about to burst in violent fashion.

First off, our central bank hiked rates for the 8th time since December 2015 at the September FOMC meeting. While the Fed did remove the word accommodative from its policy statement, it also raised the neutral rate to 3%, from 2.9% on the Fed Funds Rate. And, most importantly, predicted it would stay above that neutral rate for two years—keeping it at the 3.4% level. It also indicated that December would be the next rate hike and that three more hikes are on the agenda for 2019.

Nevertheless, the Fed is now caught in a hydraulic press of its own making; and is completely unaware of the predicament it is in. An inflation rate of 2% has been its goal for the past decade. And now inflation, when measured by core CPI, is up 2.2% y/y and is up 2.7% y/y on the headline rate. Even though the Fed emphasizes the Personal Consumption Expenditure inflation rate rather than Consumer Price Inflation, it is still aware that inflation is rising above its target.

Therefore, its own inflation models – however irrelevant and useless they may be – are compelling the Fed to keep on raising rates. But because inflation is a lagging indicator, the Fed will keep on hiking rates until the next economic downturn is well underway. However, since asset bubbles and debt levels have never been more disconnected from reality, the next economic downturn should quickly morph into a depression rather than just a normal recession.

The sad truth is that the global economy has become so unstable due to a humongous level of debt (up over 40% since 2008) that there is no R*, or neutral rate for the Fed to reach. One of the fatuous goals of central banks is to place interest rates at a level that is neither stimulative to inflation or a depressant to job growth—the real interest rate where the economy is at an equilibrium. The only problem with this exercise is that the Fed has no idea what level this R* rate should be. Only a free-floating and market-based interest rate can accomplish this task. For a central bank to usurp this process is both futile and dangerous.

But the Fed has already hiked to the point in which the global economy has started to falter. The discrepancy between U.S. interest rates and those of foreign markets has put upward pressure on the dollar and is putting debt service payments on the $11 trillion of dollar-based foreign loans under extreme pressure.

The current chaos in Emerging Markets would have started years ago if it were not for the Bank of Japan and the European Central bank’s massive ventures into money printing. The Fed’s ending of QE back in October of 2014 was merely offset by those other central banks’ purchases. Thus, delaying the deflationary impact of reverse QE.

However, the pace of global QE is crashing from a peak of $180 billion per month during 2017, to $0 by the end of this year. Also, 14 of the most important global central banks are in a rate hiking mode, while only 5 currently hold a dovish monetary policy stance. This means the gargantuan pile of $250 trillion worth of global debt, which is up $70 trillion since 2007, along with the surging level of annual deficits, to a great degree must now stand on its own. In other words, the private sector must step in to supplant government purchases or interest rates will simply skyrocket.

The amount of Publicly Traded Debt in the U.S. at the start of the Great Recession in December 2007 was $5.1 trillion dollars; and the Fed’s balance sheet totaled around $800 billion. That amount of Treasury issuance has now surged to $15.8 trillion today (not counting intra-governmental debt). And yet, the Fed’s balance sheet now totals $4.2 trillion. Therefore, that $4.2 trillion worth of Fed assets—an increase of $3.4 trillion–is trying to support nearly $16 trillion of publicly traded debt–an increase of 10.7 trillion!

Not only this, but the fed is no longer buying any of our deficits, which have surged 33% y/y. And in fiscal 2019 (starting this October) will total well over $1 trillion per year. Indeed, rather than buying all of the annual deficits, as it did during the QE periods, the Fed is adding to the deficit by selling $600 billion of debt per year as part of its reverse QE process. When you add $50 billion per month of QT to the four rates hikes per annum you end up with an extremely hawkish Federal Reserve.

Meanwhile, central banks will keep on hiking rates until asset prices and economic growth come crashing down around the globe.

The truth is the global economy has become one giant central bank shell game; consisting of perpetually rising asset prices that have been supported by consistently falling interest rates. Interest rates that hover around zero percent have become mandatory to support surging debt loads. Now that QE is ending and interest rates are rising, the whole artificial construct has started to implode.

It is now very likely that the NYSE will suffer through one or more of what is known as circuit breaker days. The NYSE rule 80B, stipulates that there will be a 15 minute pause if the market falls by 7%. It will then reopen until the market drops by a total of 13%; in that case it will shut down for another 15 minutes. And then, if the market drops by a total of 20% intraday, it will close for the remainder of that day.

With trillions of investment dollars being moved from the active management style of investing to the passive and indexed ETF variety over the past few years, there is virtually nothing to offset the avalanche of sell orders and plunging stock prices once the panic begins. Time is running out to garner an active strategy that hedges your investments and seeks to protect your wealth from the coming deflationary wipeout.

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