Month: November 2018

Let Us Count the Ways in Which Jeff Sessions Sucked

On his way out the door yesterday, former Attorney General Jeff Sessions took credit for reversing an upswing in violent crime. “We prosecuted the largest number of violent offenders and firearm defendants in our country’s history,” he said in his resignation letter. “We took on transnational gangs that are bringing violence and death across our borders and protected national security. We did our part to restore immigration enforcement. We targeted the opioid epidemic by prosecuting doctors, pharmacists, and anyone else who contributes to this crisis with new law enforcement tools and determination. And we have seen results. After two years of rising violent crime and homicides prior to this administration, those trends have reversed—thanks to the hard work of our prosecutors and law enforcement around the country.”

It is true that the murder and violent crime rates went up in 2015 and 2016 before falling in 2017, but it is ludicrous for Sessions to suggest that he is responsible for that improvement. Leaving aside the limited role that the federal government plays in criminal justice, Sessions wants us to believe that things he did after taking office in February 2017 had an immediate, magical effect on violence, such that there were 3,341 fewer murders that year than in 2016.

So no, I will not remember Jeff Sessions as the attorney general who conquered violent crime in America. Instead I will remember him for much less admirable episodes like these:

1. The time Jeff Sessions told prosecutors to seek the harshest possible penalties against drug offenders. Federal drug penalties are based on weight, without regard to a defendant’s culpability or dangerousness. As a result, nonviolent, low-level drug offenders can qualify for draconian mandatory minimum sentences. In 2013, Eric Holder, Barack Obama’s first attorney general, tried to address that problem by urging federal prosecutors to omit drug weight from charges against nonviolent offenders who did not have leadership roles, significant criminal histories, or significant ties to large-scale drug trafficking organizations. Sessions reversed that policy, telling prosecutors to pursue the most serious provable charges.

2. That time Jeff Sessions opposed sentencing reform. Sessions adamantly resisted legislation aimed at making the criminal justice system slightly less mindlessly punitive, including reforms supported by conservative Republicans. He rejected the distinction between violent and nonviolent drug offenders, insisting that “drug trafficking is an inherently violent business.” He even argued that Holder’s modest restraint on the use of mandatory minimums, which affected something like 500 defendants a year and was not announced until August 2013, caused the 2015 increase in violent crime.

3. That time Jeff Sessions told pain patients to “take some aspirin” and “tough it out.” One way Sessions “targeted the opioid epidemic” was by demanding arbitrary reductions in prescriptions for pain medication, without regard to the impact on bona fide patients. Based on the conviction that “this country prescribes too many opioids,” he urged people suffering from severe pain to emulate White House Chief of Staff John Kelly, who stoically refused prescription analgesics after hand surgery. Although “it did hurt,” Sessions said, “you can get through these things.” People with severe chronic pain were flabbergasted. “I could not believe what I was reading,” one told me, “and I thought that has to be somebody who has never experienced really severe pain for any length of time.”

4. That time Jeff Sessions stopped the DEA from licensing new producers of marijuana. The federal government’s monopoly on the legal production of cannabis, which had for decades impeded studies of the plant’s therapeutic benefits, seemed to finally be cracking in 2016, when the Drug Enforcement Administration said it would start accepting applications from additional producers. But so far no licenses have been issued thanks to Sessions’ obstruction, which he has tried to justify with increasingly lame excuses. Sessions hated pot so much that he was prepared to stand in the way of research that could lead to breakthrough treatments for people with debilitating diseases such as epilepsy. Apparently he thinks they, too, just need to tough it out.

5. That time Jeff Sessions threatened to obliterate the newly legal cannabis industry. Sessions, who as a senator declared that “good people don’t smoke marijuana,” made noises about shutting down state-licensed cannabusinesses from the beginning of his tenure at the Justice Department. About a year later, he finally got around to withdrawing the Obama-era DOJ memos that discouraged federal prosecutors from targeting state-legal marijuana growers and distributors. Nothing much happened as a result of that shift, mainly because U.S. attorneys were not interested in a crackdown. Furthermore, Sessions’ desire to reverse marijuana legalization was inconsistent with his boss’s promise to respect state autonomy—a principle Sessions also claims to support.

6. That time Jeff Sessions expanded civil asset forfeiture. In 2015, Eric Holder limited the ability of local law enforcement agencies to enlist the Justice Department’s help in dodging state limits on the form of legalized theft known as civil asset forfeiture, which lets cops take money and other property by claiming it is connected to illegal activity even when the owner is never charged with a crime. No longer could run-of-the-mill forfeitures be “adopted” by the DOJ so local cops and prosecutors could benefit from federal rules that make it easier to take people’s stuff and allow them to keep a larger share of the proceeds. Sessions scrapped that reform, because “civil asset forfeiture is a key tool” for law enforcement.

7. That time Jeff Sessions threatened to kidnap the children of people who cross the border without permission. “If you cross this border unlawfully, then we will prosecute you,” Sessions said in a speech describing the Trump administration’s “zero tolerance” immigration policy. “If you are smuggling a child, then we will prosecute you, and that child will be separated from you as required by law. If you don’t like that, then don’t smuggle children over our border.”

8. That time Jeff Sessions violated the Constitution by threatening to withhold grants from sanctuary cities. Another way Sessions tried to “restore immigration enforcement” was by conditioning law enforcement grants on local cooperation with the Trump administration’s efforts to catch and expel people living in this country without the government’s approval. That tactic was immediately challenged in court, and Sessions lost over and over again, because the executive branch does not have the authority to unilaterally attach strings to federal grants approved by Congress.

Scott Shackford may be right that Sessions’ replacement will not be noticeably better. But I will be impressed if he manages to be worse.

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Goldman Warns “Margin Contraction Is Unlikely Without A Recession”

With Q3 earnings season winding down, it is safe to say that even though 3Q earnings came in sold, rising about 26% Y/Y, they are providing little support for the market. Companies that beat on both EPS and sales have seen scant rewards, while companies that missed have been viciously punished. The reason for this is Wall Street’s growing obsession with “peak earnings” which, in a time of stable revenues, means rising concerns about profit margins. Not surprisingly, Goldman’s chief equity strategist David Kostin dedicated his last Weekly Kickstart note to what companies laid out as the three main sources of margin pressure going into 2019, which were as follows: (1) increased tariff rates, (2) a tight labor market, and (3) rising debt costs.

Overnight, in a new note from David Kostin in which he explained why Goldman now expects decelerating EPS growth in the next two years, noting that he now “expects S&P 500 EPS growth will decelerate from 23% in 2018 to 6% in 2019 and 4% in 2020″…

… he focuses on the same, key variable, namely profit margins, and while he expects aggregate profit margins will plateau at 11.2% in 2019 and 2020, he – like Morgan Stanley last month – makes a notable warning: “History suggests that margin contraction is unlikely without a recession or negative sales growth.”

Which is not to say that Goldman is forecasting a recession yet: the bank’s baseline 2019 forecast is for roughly 2% real US GDP growth, 2% inflation, and sales growth of 5%, “which should support margin expansion.” However, Kostin writes that “this outlook is less favorable the further into the economic cycle we move, as a tighter labor market and slowing growth will eventually weigh on profitability.“

So what are the key risks of margin contraction, and my implication, recession?

According to Kostin, among the most imminent risks to profit margins is rising wages:

In October, the unemployment rate was 3.7% and average hourly earnings growth surprised to the upside (+3.1% year/year, the highest this cycle). Our Wage Survey Leading Indicator points to more wage pressure in the near term. Our previous analysis showed 13% of S&P 500 revenues are devoted to labor. Historically when labor costs are rising more than inflation (i.e., companies are unable to pass on costs to consumers), S&P 500 margins have contracted. We estimate that every 1 pp increase in labor cost inflation lowers S&P 500 EPS by roughly 0.8% ($1).

In addition to wages, another threat to margins is that materials and other inputs costs have been rising.

Oil prices have risen 8%YTD. During 3Q earnings calls, many companies have also discussed the headwind from higher input and logistics costs. 57% of respondents to NABE survey have reported rising wages and 55% have reported rising input costs, well above the share reporting higher prices charged. Gaps in this measure have typically preceded EBIT margin contraction and we expect these downside risks will persist in 2019.

A third source of margin uncertainty are Tariffs:

The US has imposed tariffs on $200 bn of imports from China and our political economist assigns a 60% likelihood tariffs on an additional $267 bn will be imposed. Conservatively assuming no substitution of suppliers and no pass-through to consumers, these tariffs could lower S&P 500 EPS by as much as 7%. However, the ultimate impact is likely to be smaller. Firms have indicated that they plan to reorganize supply chains and pass through higher costs to customers. We estimate that S&P 500 firms would need to raise prices by just 1% to offset the potential 7% negative EPS impact from tariffs.

Finally, rising interest rates will likely increase borrow costs for companies.

The 10-year US Treasury yield has surged from 2.4% at the start of the year to 3.2% currently. Our economists forecast a bear flattening of the yield curve as the Fed hikes the funds rate five times to 3.25-3.5% by year-end 2019 but 10-year bond yields rise by only 20 bp to 3.4%. With leverage for the median company near record highs, companies will face higher borrow costs in coming months. However the median interest coverage ratio, which accounts for disproportionate balance sheet strength of some large-cap technology stocks, remains healthy and suggests some ability to withstand rising interest rates. Similarly, changes in 10-year US Treasury yields have a minimal net impact on S&P 500 EPS in our top-down model. Earnings of Financials benefit from higher rates, while other sectors experience downward margin pressure. While the aggregate risk from interest costs on S&P 500 EPS appears limited, stocks with weak balance sheets will be more vulnerable.

While Goldman does not find the above risks to be sufficiently material to cause the company to project a margin contraction, instead expecting no margin growth 2020, reading between the lines one finds that Kostin’s next move – should the economic situation deteriorate in the coming months – will be to do just that, and predict the first margin contraction since the oil and manufacturing recession of 2015.

As a result, Kostin concludes that “the rapid EPS growth rates of 2018 are unlikely to continue into 2019 and 2020 as the US economy moves later into the cycle. We have already seen signs of a tighter labor market, rising wages and input costs, and a stronger trade-weighted US dollar, which represent headwinds to profit growth.“

So with Kostin now having warned that “margin contraction is unlikely without a recession”, the moment corporate margins are expected to post a negative Y/Y print in 2019 or certainly in 2020 when they are already forecast to not grow as of this moment, is when Goldman will join the bears and throw in the towel on the US economy.

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With Midterms Done, Are We Going To Get Serious About Policy, or Continue the Clown Show?

Regardless of affiliation or ideology, the aftermath of Tuesday’s elections presents us all with a stark choice: We can either be serious about politics and policy, or we can be frivolous.

Given the immense amount of energy being directed at such non-events such as Acosta-gate—did the CNN reporter manhandle a White House intern during a post-midterm press conference?—it’s likely we as a country are choosing the latter.

This is unfortunate for an infinite number of reasons, but chief among them is the simple idea that whether we pay attention to it or not, the federal government continues to function, to pass laws and regulation, and to spend more money that we don’t have. Donald Trump’s brilliance in many ways is to make the mundane seem somehow important and out of the ordinary.

Hence, he pretends his minor (though, in most ways, slightly to significantly worse) rewriting of NAFTA as The United States-Mexico-Canada Agreement (USMCA) is a big deal, and his opponents and the press follow suit. Everything Trump does is oversized and off the charts. His firing of Attorney General Jeff Sessions isn’t a predictable outcome after months of administration infighting and recriminations, it “shows how Trump is eroding democracy.” The only people attributing superhuman powers to Trump other than his own partisans are his enemies.

The reality is less sensational (which is a good thing). When you strip away the media noise and the self-generated acclaim, Trump has governed not so differently than what came before, whether we’re talking Bill Clinton, George W. Bush, or Barack Obama, all of whom at times deported massive numbers of immigrants, put up trade barriers, and spent stupidly. Trump has some real achievements from a libertarian angle, such as deregulating aspects of education, the FCC, the FDA, and the EPA. The Republican tax cuts are a decidely mixed bag (it’s good that they changed corporate taxes and ended the deduction for state-and-local taxes; it’s terrible that they massively increased debt and deficits), but there’s no question he was instrumental to their passage. His immigration and trade policies are not simply ill-informed but deeply disturbing from a moral perspective (the United States shouldn’t be keeping out refugees and asylees from countries we helped to destroy).

Not all congressional races have been called yet, but as of right now, the Democrats have taken the majority in the House of Representatives by gaining 30 seats. They will likely pick up a few more. The average number of seats an opposition party wins in midterms in 37, so Tuesday’s results are largely unremarkable. Yet Trump made everything about himself. “Those that worked with me in this incredible Midterm Election, embracing certain policies and principles, did very well,” he tweeted. “Those that did not, say goodbye!” As Trump loyalists such as Rep. David Brat (R–Va.) could tell you, that simply isn’t true. Brat, who was MAGA to the max, especially regarding immigration, got beat in red-state Virginia. In fact, as the Brookings Institution points out, the president backed a lot of candidates, many of whose contests were in areas that strongly favor Republicans. Yet Trump’s stats are pretty spotty:

Trump endorsed 75 candidates, of whom 21 or 28 percent won. This was the lowest win rate of the other national figures—nearly 50 percent of Vice President Pence’s endorsements won, and over 50 percent of [Barack] Obama’s and [Joe] Biden’s endorsees won. [Bernie] Sanders does the best, as his endorsees won 66 percent of the time.

As Reason‘s Peter Suderman put it, the midterms were “surprisingly normal,” and for the most part, “our political contests still revolve around essential policy and governing decisions that matter to the people casting their votes.” You wouldn’t know that from the way most of us are talking about politics.

It seems likely that House Democrats will spend more time investigating the president than pushing legislation. Rep Jerry Nadler (D-N.Y.) is already calling for an investigation of Trump’s firing of Sessions. Back in October, Nadler, who is set to become chairman of the House Judiciary Committee, promised to re-investigate Brett Kavanaugh if the Dems took the House. Rep. Nancy Pelosi (D-Calif.), who is likely to reprise her past role as Speaker of the House, has said she’s not interested in impeaching the president immediately but her party is gearing up for multiple investigations about Trump’s tax returns, business dealings, immigration policy, and more. Given all that, it seems highly unlikely that the Democrats will be serious about legislation, especially since the Republicans control the Senate.

The media, too, are playing a Trump-centric game, giving maximum exposure to every tweet the president emits as if they are new versions of the Gettysburg Address. Former Daily Show host Jon Stewart recently said that many if not most mainstream journalists are taking Trump’s presidency as an affront to everything they hold near and dear.

They’re personally wounded and offended by this man. He baits them and they dive in, and what he’s done well, I thought, is appeal to their own narcissism, to their own ego….

It’s all about the fight. He’s able to tune out everything else and get people just focused on the fight and he’s going to win that fight.

Stewart is on to something here. The main way that Trump controls conversations—and elections—is by making everything about him, even when few things actually are. While we all spend time tracking every gesture and tweet the president makes, the fact is that our national debt is growing, and so-called mandatory spending on entitlements proceeds apace. The military budget grows, too, with bipartisan support. The trajectory is onwards and upwards.

These are the issues that the federal government needs to deal with, especially since runaway debt and spending is a clear threat to long-term economic growth, which is itself the best way to not simply to make America great again, but to make the country a nicer, more peaceful place to live. As everything becomes about the 2020 election, we’d be better off focusing more on substance and less on circus.

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Larry King: “CNN Stopped Doing News A Long Time Ago”

Ex-longtime CNN talk show host Larry King dropped a bomb on his former network of 25 years, telling Russian state-owned RT America that “CNN stopped doing news a long time ago.” 

King’s comments came just one day before CNN White House correspondent Jim Acosta engaged in a verbal altercation with President Trump over a northbound Central American migrant caravan – batting a young White House intern’s arm away as he refused to relinquish the microphone. 

“You know, CNN should be ashamed of itself having you working for them. You are a rude, terrible person,” said President Trump. “You shouldn’t be working for CNN,” adding “The way you treat Sarah Huckabee is horrible.” 

Acosta’s White House credentials were pulled later that evening. White House spokeswoman Sarah Huckabee Sanders said: 

“President Trump believes in a free press and expects and welcomes tough questions of him and his Administration. We will, however, never tolerate a reporter placing his hands on a young woman just trying to do her job as a White House intern…

This conduct is absolutely unacceptable. It is also completely disrespectful to the reporter’s colleagues not to allow them an opportunity to ask a question. President Trump has given the press more access than any President in history. “

Maybe he shouldn’t have “Acosta’d” that woman? 

Twitter user Kyle (@HNIJohnMiller) provides some background on Abilio James “Jim” Acosta:

Partial transcript of King’s comments (via Josh Caplan @ Breitbart) 

HOST RICK SANCHEZ: You know it’s interesting. As I listen to you I’m thinking that both you and I are old enough to remember that there was a lot of antagonism during the 1960s. There was a lot of antagonism during Watergate. There was certainly antagonism during the Clinton years. But there is something, maybe it’s an undercurrent, that is different now. Can you put your finger on it? What is it?

KING: Two things, Rick — the internet and cable news. Could you imagine cable news in Watergate? And they don’t do news anymore. In fact, RT is one of the few channels doing news. RT does news. CNN stopped doing news a long time ago. They do Trump. Fox is Trump TV and MSNBC is anti-Trump all the time. You don’t see a story — there was vicious winds and storms in the Northeast the other day – not covered on any of the three cable networks, not covered. Not covered! So when CNN started covering Trump — they were the first — they covered every speech he made and then they made Trump the story. So, Trump is the story in America. I would bet that ninety-eight percent of all Americans mention his name at least once a day. And when it’s come to that, when you focus on one man, I know Donald 40 years — I know the good side of Donald and I know the bad side of Donald — I think he would like to be a dictator. I think he would love to be able to just run things. So, he causes a lot of this. Then his fight with the media and fake news. I’ve been in the media a long time, like you — longer than you, Rick. And at all my years at CNN, in my years at Mutual Radio, I have never seen a conversation where a producer said to a host “pitch the story this way. Angle it that way. Don’t tell the truth.” Never saw it. Never saw it.

SANCHEZ: You know it’s funny, just quick because you know these producers are telling me you guys have to start wrapping this up … you said something interesting about how CNN played along with Trump. I think they only played along or at least gave him that much airtime in many ways because they didn’t think he was going to win, correct?

KING: I guess it’s to their regret. But, they covered him as a character. They carried every speech he made. They carried him more than Fox News, at the beginning. And so they built the whole thing up and the Republicans had a lot of candidates and they all had weaknesses. When I saw Senator Cruz hug Donald Trump the other day I said, “this is what America has become.” He said that Cruz’s father helped kill Kennedy!

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Deploying Troops to the Border Is Expensive and Unnecessary, but at Least They’re ‘Getting Training Out of’ It

Deploying 8,000 troops to the southern border to “protect” the nation from a caravan of Central American migrants might very well be a ridiculously expensive solution to a problem that doesn’t actually exist. But at least the soldiers themselves are getting a valuable experience out of it, says Army Secretary Mark Esper.

Speaking at the conservative American Enterprise Institute today, Esper argued that sending troops to the border has not put an unnecessary strain on the military, according to the Washington Examiner. “They are getting training out of that. They are deploying. They are putting their equipment on trains and whatnot or convoying and deploying to a location, and they are offloading,” Esper said.

That’s certainly some expensive training. The Washington Post estimated last week that the deployment could cost $200 million, depending on how long they stay and whether more are sent. On Monday, CNBC reported the cost could actually reach $220 million.

So where is all that money going? Many troops are setting up barbed wire fences or training for what to expect when the migrants arrive. Army Col. Rob Manning, a spokesperson for the Pentagon, wouldn’t elaborate on the exact type of training. He did tell Stars and Stripes that “the [training] vignettes cover a range of scenarios that could occur,” noting that he doesn’t “anticipate” troops firing on migrants.

That’s probably a good thing, though it’s worth wondering why Trump still insists on calling the migrant caravan an “invasion.” In any case, the Pentagon doesn’t seem to be all that worried. As CNBC reported:

A Pentagon risk assessment found that the caravan did not pose a threat to the United States, according to a person with direct knowledge of U.S. intelligence. This person also said that the caravan would take about a month and a half to get to the U.S. border.

It’s hard to see the justification in spending hundreds of millions of dollars to send thousands of U.S. soldiers to deal with the caravan. Esper is probably right—the troops are gaining good training out if it. But that’s not reason enough. Besides, the U.S.-Mexico border is not a place for American soldiers to practice making war.

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Kellyanne Conway’s Husband Blasts Trump’s Interim AG Pick As “Unconstitutional, llegal”

Authored by Ronn Blitzer via LawAndCrime.com,

President Donald Trump‘s pick for interim Attorney General, Matthew Whitaker, has been met with harsh opposition in the form of a New York Times op-ed co-authored by none other than George Conway. That’s right, the same Conway who is married to counselor to the president Kellyanne Conway and regularly trolls the president on Twitter.

The piece argues that Whitaker’s selection violates the Appointments Clause of the Constitution, a similar argument that Trump supporters have made about Robert Mueller‘s appointment as Special Counsel. The other author of the op-ed just so happens to be Neal Katyal, who helped draft the regulations under which Mueller was appointed.

Their argument is based on the idea that the Attorney General is a “principal officer,” and therefore must be confirmed by the Senate. The authors, both of whom are attorneys, claim that not only is Whitaker’s appointment improper, but anything that he does in the role is also by definition improper.

“President Trump’s installation of Matthew Whitaker as acting attorney general of the United States after forcing the resignation of Jeff Sessions is unconstitutional,” they wrote.

“It’s illegal. And it means that anything Mr. Whitaker does, or tries to do, in that position is invalid.”

In his new role, Whitaker’s responsibilities include overseeing Mueller’s investigation. That job formerly belonged to Deputy Attorney General Rod Rosenstein because now-former AG Jeff Sessions had recused himself. With Sessions out, his replacement takes over.

The argument against Conway and Katyal, as pointed out by University of Texas Law Professor Steve Vladeck, is that Whitaker has not been named as Sessions’ permanent replacement, merely the interim AG until someone else is selected and confirmed. The Vacancies Act gives the president some flexibility in choosing a temporary replacement. Still, Vladeck noted, the fact that a counterargument is being made here indicates Democrats could very well try to fight this anyway.

Conway and Katyal did make mention of “all sorts of technical points about the Vacancies Reform Act and Justice Department succession statutes,” that have been used to support Whitaker’s appointment, but they did not go into any detail as to why these points are incorrect. Instead, they went on to focus more on the Appointments Clause and how the president should not be allowed to select everyone in the government.

Recognizing that sometimes interim appointments are necessary, Conway and Katyal suggested that Rosenstein or Solicitor General Noel Francisco slide up in the ranks instead of Whitaker, as they were confirmed for their current roles. Until recently, Whitaker was Sessions’ chief of staff, a position that does not require confirmation.

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Will There Ever Be a Morning After the Midterms?: Podcast

Mangu not pictured ||| Warner Bros.Political attention has already migrated to Acostagate, the sacking of Jeff Sessions, and that insane press conference from yesterday, but there was an actual election of some note on Tuesday, and much to talk about from a libertarian perspective. So we convened an irregular assembly of the Reason Podcast, editors’ roundtable edition, to deliver some preliminary findings.

Katherine Mangu-Ward, Nick Gillespie, Peter Suderman, and Matt Welch debate the permanent hysteria of presidential politics, the electoral role and legislative future of health care policy, third-party sadnesses, and some happy news peeking through the usual woe.

Subscribe, rate, and review our podcast at iTunes. Listen at SoundCloud below:

Audio production by Ian Keyser.

Relevant links from the show:

“A Surprisingly Normal Election,” by Peter Suderman

“Three Cheers for the Return of Divided Government,” by Eric Boehm

“2018 Midterm Election Results Include a Lot for Libertarians to Like,” by Elizabeth Nolan Brown

“After the Midterms, Trumpism Is the Dominant Force in the GOP,” by Eric Boehm

“Florida Approves Ballot Amendment to Restore Voting Rights of 1.4 Million People With Felony Records,” by C.J. Ciaramella

“Justin Amash and Thomas Massie, Two of the Most Libertarian Members of Congress, Re-Elected,” by Elizabeth Nolan Brown

“Bigfoot Erotica Aficionado Denver Riggleman Beat Olivia Wilde’s Mom in Virginia Congressional Race,” by Eric Boehm

“Michigan Becomes the 10th State to Legalize Recreational Marijuana,” by Jacob Sullum

“Ex-Nevada Brothel Owner Dennis Hof Wins Assembly Seat Despite Being Dead,” by Joe Setyon

“Clint Bolick, Arizona’s Libertarian Supreme Court Justice, Wins Judicial Retention Election” by Damon Root

“Harsh Republican Restrictionism Loses Bigly in the Midterms,” by Shikha Dalmia

“Jeff Sessions Is Out, 2020 Speculation Is In,” by Elizabeth Nolan Brown

“Jeff Sessions Was a Terrible Attorney General. His Successor Will Do More of the Same.,” by Scott Shackford

“CNN’s Jim Acosta Was Rude, but He Did Not Assault a White House Intern,” by Robby Soave

“Threatening Cable News Hosts Doesn’t Help Anyone,” by Joe Setyon

Don’t miss a single Reason Podcast! (Archive here.)

Subscribe at iTunes.

Follow us at SoundCloud.

Subscribe at YouTube.

Like us on Facebook.

Follow us on Twitter.

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Why The Hawkish Spin: Wall Street Reacts To The FOMC Statement

While there were virtually no surprises in today’s FOMC statement – at least relative to expectations, with Goldman’s redline statement laid out earlier a carbon copy of what the Fed eventually published – the oddly hawkish market reaction suggests that the Fed did in fact say something that was unexpected.

To answer what that may be, here are several reactions from sellside analysts.

BMO rates strategist Jon Hill expects further curve flattening;

  • “Thursday’s FOMC statement further cemented expectations that the Fed will continue on its hiking path, which will contribute to upward pressure on front-end yields and help to flatten the curve in coming weeks“
  • “December remains a nearly done deal, absent an extremely sharp and unexpected deterioration in economic conditions”
  • The statement was “very similar to our baseline expectation” and showed very little that was not apparent before

Scotia’s FX strategist Shaun Osborne says the hawkish tint is due to the Fed “talking hikes” despite Trump criticism

  • Gains in the dollar following the Federal Reserve’s decision to keep rates unchanged may be tied to the fact from the central bank discussed further interest-rate hikes even after recent criticism of increases by U.S. President Donald Trump,
  • Scotia repeats BMO’s take, saying the Fed’s decision was “pretty much as expected,” keeping things on pace for a rate hike in December
  • “This hasn’t really moved the dial in terms of rate expectations. It doesn’t really do anything to dissuade the view that another hike in December is still quiet likely.”
  • Still, he doesn’t see USD range extending too far as future rate expectations were essentially unchanged

Bleakley’s CIO Peter Boockvar said the FOMC was a “snoozefest”

  • “If Fed Chair Jerome Powell’s aim was to avoid committing any views to paper ahead of a planned December rate hike, this statement was a success” says Boockvar, adding that it “could have been the most boring, dull and uneventful one I’ve read in a long time,” interesting only in its omissions.
  • “Nothing was said about tariff-induced higher inflation and certainly no mention of higher wages,” Boockvar wrote adding that “there was not one mention about the slowing housing and auto sector”
  • The only notable change, a reference to the moderating pace of business investment, was seen in the Q3 advance GDP report
  • “Go back to sleep, and assuming all else equal, the fed funds rate will shift to 2.25%-2.5% next month, and Powell’s press conference will give us color on his 2019 intentions which as of now remain as is”

Citi’s Fraser King agreed, saying the statement was a “non-event”

  • “As expected, no market moving changes from the Fed. Rates are on hold, everything is proceeding according to plan ahead of an expected December hike” King wrote.
  • “In terms of the statement, very little has changed from the September 26 text”
  • One comment that stands out a litte: “Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year”. This is a little interesting (“rapid pace”) but the market probably isn’t that fussed about this nuance.
  • Acording to King it is “worth highlighting perhaps that they did not refer to any financial volatility and refrained from communicating any decisions on operational issues” and finally “nothing here to suggest any risk to the expected December hike”

Reading between the lines it is difficult to explain the oddly hawkish response in the market, which has seen the BBDXY spike to 1205 while 10Y yields are just shy of session highs, if perhaps to note that Scotia may be closest: the Fed is telegraphing more hiking in the face of growing opposition from Trump.

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Saudi Arabia Is Evaluating A Break Up Of OPEC

In potentially groundbreaking news – which failed to generate a market response as it hit at the same time as the FOMC statement – Saudi Arabia’s top government-funded think tank is said to be studying the possible effects on oil markets of a breakup of OPEC, a research effort which the WSJ called “remarkable” for a country that has dominated the oil cartel for nearly 60 years.

The OPEC study aims to “assess the short/medium-term consequences of a dissolution of OPEC,” according to an overview reviewed by The Wall Street Journal. It is intended to determine how the global oil market, and Saudi finances, would look “if coordination between oil producing countries disappear,” according to the overview.

The overview describes two scenarios to investigate, if OPEC isn’t in the picture:

  1. All big oil producers, including Saudi Arabia, act competitively—fighting each other for market share;
  2. Saudi Arabia, instead, attempts to leverage its massive oil output alone to help balance global supply and demand in an attempt to keep oil prices steady—similar to the role that members say OPEC plays today.

The timing of the report, which is hardly a arbitrary, coincides with rising pressures on the Saudi government, including from the U.S., where President Trump has accused the cartel of pushing up oil prices, and from investors who distanced themselves from the kingdom after the brutal killing of a U.S.-based Saudi journalist.

Just as remarkably, while the think tank’s president, Adam Sieminski told the WSJ that the study “hadn’t been triggered by Mr. Trump’s statements”, a senior adviser familiar with the project said it provided an opportunity to take into account the criticism from Washington.

Depending on the findings, the study could offer a defense of the cartel and the Saudi role in it; alternatively it could potentially advocate for a repeat of November 2014, when the cartel was effectively dissolved for a period of time.

The research project doesn’t reflect an active debate inside the government over whether to leave the Organization of the Petroleum Exporting Countries in the near term, according to people familiar with the matter.

Careful not to further aggravate political relations with the US, and other nations, senior Saudi officials said the study – which was seen as a high priority economic-policy inquiry, was ordered by Sieminski and “that the analysis isn’t unusual and explores topics his researchers normally delve into.”

The concern is that the optics of Saudi Arabia contemplating exiting OPEC at a time when the US crackdown on Iran may remove over 1 million b/d from the market – once the waivers to 8 nations expire – will hardly go unnoticed.

To avoid political overtones, the report is reportedly part of a wider rethinking among senior government officials in Saudi Arabia about OPEC, according to the people familiar with the matter. Officials are grappling with the assumption—shared increasingly in the oil industry—that oil demand will one day peak, the senior Saudi adviser said.

In this context, the study is seen among senior officials as an exercise in gaming out how markets might react if demand falls so much that OPEC loses sway and disbands, the adviser said.

“The kingdom knows demand for oil won’t last forever…so you need to think past OPEC,” the senior adviser said. “You also have a NOPEC act being considered” in Washington.

The think tank, Riyadh-based King Abdullah Petroleum Studies and Research Center, or Kapsarc, bills itself as an independent research institution. Its staff advises dominant Saudi agencies such as Saudi Aramco and the Saudi energy ministry.

Sieminski said the study was building on previous research that looked at the role of OPEC’s spare capacity in stabilizing oil markets. The earlier work concluded that the absence of such a cushion “would lead to a more volatile price environment and be negative for the global economy,” he said.

Meanwhile, even though there is no debate in the Saudi government about disbanding OPEC soon, senior government officials have recently started to question the longer-term rationale for the cartel because of the clout that Saudi Arabia and Russia alone can have on markets, according to another senior Saudi adviser.

Two prominent Saudi government advisers, both central to the formation of the kingdom’s oil policy, are scheduled to meet researchers on the project weekly, according to the overview. Sieminski said contacts with the Saudi energy ministry were to provide data for the study.

While oil has failed to move so far on the report, WTI has dropped for 9 days in a row, and is now in a bear market, down 21% from its October highs…

… as expectations of oil output being removed from the market have been doused after the Trump admin provided critical oil import waivers to Iran’s biggest trade partners, thereby having virtually no impact on the price of oil.

 

 

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Dollar Jumps After Hawkish Fed Statement; Bonds, Stocks, Gold Unch

The market took the ‘almost exactly as expected’ hawkish-leaning Fed statement with ease as the only real movement is seen in the dollar (strengthening)…

Dollar up after FOMC…

Stocks, Gold, and bonds are all unchanged… for now…

 

 

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