Month: November 2018

Weekend Reading: The Powell Put

Authored by Lance Roberts via RealInvestmentAdvice.com,

All it took was two 10% stock market corrections in a single year and some heavy “browbeating” from President Trump to reverse Jerome Powell’s hawkish stance on hiking interest rates.

On Wednesday, Powell took to the microphone to give the markets what they have been longing for – the “Powell Put.” During his speech, Powell took to a different tone than seen previously and specifically when he stated that current rates are “just below” the range of estimates for a “neutral rate.” This is a sharply different tone than seen previously when he suggested that a “neutral rate” was still a long way off.

Importantly, while the market surged higher after the comments on the suggestion the Fed was close to “being done” hiking rates, it also suggests the outlook for inflation and economic growth has fallen. With the Fed Funds rate running at near 2%, if the Fed now believes such is close to a “neutral rate,” it would suggest that expectations of economic growth will slow in the quarters ahead from nearly 6.0% in Q2 of 2018 to roughly 2.5% in 2019.

Such will also correspond with a drop in inflationary pressures, as we noted previously, which is already occurring with the drop in energy prices.

“More importantly, falling oil prices are going to put the Fed in a very tough position in the next couple of months as the expected surge in inflationary pressures, in order to justify higher rates, once again fails to appear. The chart below shows breakeven 5-year and 10-year inflation rates versus oil prices.”

But here was the key comment that suggests the recent blasting by President Trump hit home:

“Powell says moving too fast would risk shortening U.S. expansion, moving too slow could risk higher inflation and destabilizing financial imbalances.”

President Trump has been adamant that Powell’s aggressiveness was jeopardizing the economic recovery.

More interesting was when Powell reiterated they see “no major asset class, however, where valuations appear far in excess of standard benchmarks” 

I am not sure which benchmarks the Fed looks at exactly.

The real risk to the market is not valuations at historically high levels by virtually every measure, but rather the risk of a credit related event due to the impact of higher rates on an abundance of lower-rated corporate debt.

Nonetheless, in the short-term, the “bulls” got their Christmas wish as noted by Bloomberg economists

“Tim Mahedy and Yelena Shulyatyeva:

‘Powell’s comment that rates are just below neutral is a step back from his comments earlier in the fall implying the FOMC still has a ways to go. This could be the first sign that the pace of rate hikes is set to slow next year.’

However, not all economists got the same dovish message as noted by Greg Robb via Marketwatch.

“I really don’t think he was dovish, not really. He didn’t say inflation was weaker or the economy was weaker than we thought. It is a bit of a market overreaction.” -Paul Ashworth, chief U.S. economist at Capital Economics.

“The Fed has said they wanted to go above neutral. If they wanted to be neutral, they could have walked that back. He gave no hint of a pause in December.” – Avery Shenfeld, chief economist at CIBC

All the “bulls” need now is for President Trump to “cave in” on his demands on China, a problem he created in the first place, at this weekends G-20 summit. I would expect a deal that is well short of any original objective as China agrees to issues which are economically unimportant to them. However, such will “look like a win” for the Trump administration and should clear the way for “Santa to visit Broad and Wall.” 

After that, it’s anyone’s guess, but the real issues plaguing the economy and the markets have not been resolved.

Just something to think about as you catch up on your weekend reading list.

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“There is nothing like price to change sentiment.“ – Helene Meisler

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Federal Workers Warned Against Talk of ‘Impeachment,’ ‘the Resistance’

Employees of the federal government were warned this week that both praising and criticizing the Trump administration while on duty may be considered illegal. Federal workers are specifically barred from “advocating” for or against impeachment and from expressing support for the so-called “resistance” to President Donald Trump.

Such expressions could be considered violations of the Hatch Act, a 1939 law that largely prohibits federal workers from engaging in political activity while on the clock or in their official capacity as a government employee. In a memorandum released Tuesday, the Office of Special Counsel (no relation to Robert Mueller’s Russia probe) Hatch Act unit explains what kind of speech should be avoided.

There are quite a few nuances. Employees aren’t necessarily barred from praising or criticizing a presidential administration’s policies. “Whether a particular statement constitutes political activity depends upon the facts and circumstances,” the memo reads. But in general, on-duty employees must “avoid making statements directed toward the success or failure of, among others, a candidate for partisan political office.”

That’s where talk of “impeachment” comes in. The Office of Special Counsel says it’s operating under the assumption that federal officials who are impeached and later removed are disqualified from holding office again. As a result, voicing support for impeachment is considered political activity. “Advocating for a candidate to be impeached, and thus potentially disqualified from holding federal office, is clearly directed at the failure of that candidate’s campaign for federal office,” the memo states. The same goes for employees who speak out against impeachment, though the directive does not apply to speech about people who aren’t running for “partisan elected office.”

The memo goes on to warn against activity related to such words and phrases as “#resist,” “the resistance,” and “#resistTrump.” Such terms, the memo points out, are clearly associated with efforts to oppose the Trump administration’s policies. Since Trump has already announced his reelection bid, the Office of Special Counsel assumes that “the use or display of” those terms “and similar statements is political activity unless the facts and circumstances indicate otherwise.” The agency notes that there’s nothing wrong with using those words in a clearly apolitical context.

Some experts have expressed concern that the new directive could infringe on free speech. “This goes beyond past guidance about what partisan political activity is, and is more restrictive of speech of federal employees than past guidance that I’ve been able to find,” Kathleen Clark, a law professor at Washington University in St. Louis, tells The New York Times. “I think their legal analysis is wrong in this attempt to outlaw all discussion of impeachment of Trump in the federal workplace. Maybe that is a good idea, maybe that is a bad idea, but I don’t think that is what the Hatch Act requires.”

Former Office of Special Counsel employee Nick Schwellenbach, who currently serves as director of investigations at the Project on Government Oversight, also thinks the directive “goes too far.” He tells The Washington Post that “once you start talking about more-general political views, you’re starting to infringe upon people’s rights.”

But Roger Pilon, vice president for legal affairs at the Cato Institute, isn’t so sure. “This appears to be simply an effort to draw the distinctions that the Hatch Act requires, and that often involves close calls,” Pilon tells Reason. He acknowledges that the directive regarding “resistance” could “involve closer calls.” But “the distinction is drawn with reference to periods when President Trump was not and then, later, was a candidate for office.”

Ana Galindo-Marrone, who leads the Hatch Act unit, doesn’t think this directive is that different from policies already in place. “To me, it’s no different from the language we’ve used before,” she tells NPR.

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Fed & FOMO Rescue Stocks But Bond Yields, Bitcoin, & Black Gold Collapse

Trump better deliver…

China stocks eked out a modest gain on the week thanks to a late Friday liftathon ahead of this weekend’s uncertainty…

 

But Shanghai Composite closed down on the month (2nd month lower in a row)

 

European markets were oddly quiet all week aside from the buying panic at the open on Monday…(but Italy handily outperformed)

But on the month, a mixed bag with Italy and Spain green and the rest of the majors red…

 

US equities soared on the week, with Nasdaq up 5.6% leading – the best week since Dec 2011…

 

Trannies soared in November and thanks to the last few days of Powell and Trade hope, stocks were rescued from another ugly month…

 

On the day, equity moves were dominated by optimistic headlines from Buenos Aires from both Trump and Xi sources…

 

Best week for S&P since Dec 2011 and barekly managed to get above its 50DMA…

 

November was all about two big short-squeezes…

 

Goldman Sachs plunged again today to fresh 2-year lows, erasing all post-Trump gains – worst month since Sept 2011

 

FANG Stocks closed lower for the 3rd month in a row…(longest losing streak since Feb 2016)… despite panic-buying this last week…best week since January

 

Credit markets tumbled for the 2nd month in a row – the worst 2-month drop since Jan 2016 for HY and IG (wider for 4 straight months). IG Credit compressed 5bps this week – best week since June (and HY CDX biggest weekly spread compression since February).

 

Bonds and Stocks were bid in the last hour today…

 

Extending their divergence post-Powell…

 

On the week, 2s and 30s are unchanged with the belly lower in yield…

 

Treasury yields tumbled in November – 10Y yields dropped over 13bps – the biggest monthly drop since Aug 2017

10Y Yields closed the week with a 3.00% handle…

 

The short-end of the UST yield curve collapsed in November (biggest flattening since March)…7th flatter month in the last 9 (note that the curve accelerated its flattening post 10/17 FOMC Mins from Sept, and after the 11/08 FOMC statement)…

 

with 2s5s almost inverted

The dollar index ended the month practically unchanged (hovering at its highest since May 2017)

 

It was a serious rollercoaster ride of a week as Powell’s dovishness pummeled the dollar and pre-G20 trade chatter seemed to spark buying…

 

Bitcoin was down for the 5th week in a row but the 37% collapse in November is the worst month since August 2011 (Bitcoin Cash fell 60% on the month as it forked)

 

With Bitcoin back below $4000 to end the week…

 

Copper and Gold managed gains on the month, silver small losses, but crude collapsed…

 

Gold managed to close higher for the 2nd month in a row

 

But was unchanged against the yuan…

 

But WTI collapsed to its worst month since 2008…

 

Blowing back below $50 again today before spurious old news OPEC headlines sparked another ramp…

 

As it seems 5 Oz of Silver for a barrel of WTI Crude was just too much again…

 

Finally, we note that rate-hike expectations for 2019 have now collapsed to less than one!! just 22.25bps for the year (The Fed is still at 3 or 4 hikes)…

And as Gluskin Sheff’s David Rosenberg notes, this hypersensitive market is anything but healthy…

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The Fed Cheat Sheet Revealed

Authored by Eric Cinnamond,

In a recent post I noted, “…barring a consequential decline in asset prices, I believe the Federal Reserve will be forced to continue increasing rates and unwinding their bloated balance sheet.”

While I did not have a number in mind when I used the word “consequential”, I certainly didn’t believe a flat YTD number on the S&P 500 would cause the Fed to alter their plans.

And that, of course, is what markets were led to believe yesterday after Jerome Powell stated the funds rate is “just below” the Fed’s theoretical neutral rate.

Now that we have a better understanding of the Federal Reserve’s tolerance for financial instability (not much), I believe investors are in a better position to gauge future policy responses related to further declines in equity prices.

I put my best guess together in the Federal Reserve Cheat Sheet below:

S&P 500 YTD          Policy Response
5%+                    Gradually raise rates
+5% to -5%          Hint at a pause
-5% to -15%         Pause
-15% to -20%       Hint at rate cut/ending QT
-20% to -25%       Cut rates and end QT
-25% to -30%       Hint at QE4
-30% or worse      Implement QE4

Source: Conversation with myself on the way home from grocery store, Margin of error: +/- a lot

So there you have it. Of course this is just a wild guess from an unqualified guesser of monetary policy. And I’ve certainly been wrong in the past. In fact, before this week, I thought Chairman Powell might be different. Not Paul Volcker different, but possibly less willing to backstop the financial markets relative to Greenspan, Bernanke, and Yellen.

However, after his speech this week, I’m now leaning towards more of the same. And I suppose I can’t blame him. Powell inherited a tremendous amount of asset inflation.

Similar to a banker with a large book of loans, no one wants to see the loans go bad on their watch (especially if they weren’t the underwriter).

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George R.R. Martin’s Nightflyers Gets Lost in Space: New at Reason

'Nightflyers'The success of Game of Thrones has finally sent Hollywood nosing back into the earlier works George R.R. Martin, who wrote the novels on which the series is based. That could have resulted in a screen adaptation of one of two excellent horror novels: Either 1982’s Fevre Dream, in which vampires ply their trade in a 19th-century riverboat, or 1983’s Armageddon Rag, a ghost story in which the phantom is not the spirit of a person but an era, the 1960s.

Instead, Syfy has chosen to go with Nightflyers, a cultish 1980 novella (and some subsequent short stories) about what amounts to a haunted spaceship that Martin wrote to prove that horror and science fiction don’t have to be two separate genres. Authoring a book to settle a feud between rival gangs of genre fanboys is probably not the most uplifting artistic inspiration. And nothing about this messy TV series is likely to challenge that assumption. Television critic Glenn Garvin details the show’s problems.

View this article.

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Carlos Ghosn’s Detention Extended By 10 Days

Carlos Ghosn better get comfortable in his austere, 52-square-foot cell. Because he’s going to be staying there for at least another two weeks. That’s because – as was expected – Tokyo prosecutors have been granted permission by a local court to hold Ghosn for an additional ten days past, meaning that he can now be held for up to three weeks before being formally charged (or before prosecutors announced their intention to bring charges), according to the Wall Street Journal. 

But if their hope is to convince the Japanese public that Ghosn is guilty of abusing his power as Nissan’s chairman, they are going to need to publish more concrete evidence of wrong doing – and do it quickly. Because as one former prosecutor told the Washington Post, the prosecutors’ case is beginning to look “haphazard”. Meanwhile, suspicions that Ghosn’s detention – which led to his ouster from Nissan and Mitsubishi – was the result of internal politics and resentments against his leadership at Nissan have continued to fester.

Ghosn

Ghosn and former Nissan representative director Greg Kelly were arrested Nov. 19 on suspicion of conspiring to underreport Ghosn’s income in reports to the Tokyo Stock Exchabge. The alleged underreporting is said to have taken place over five fiscal years ending in March 2015. Prosecutors have said Ghosn’s suspected underreporting amounted to ¥10 billion ($88 million) over those five years, about twice the amount stated in the reports.

Both Ghosn and Kelly have denied wrongdoing, with the latter claiming that deferred retirement payments that have been cited by prosecutors as an example of the underreporting were never formally implemented, and thus there was nothing to report.

Prosecutors’ lengthy interrogations of both Ghosn and Kelly have been criticized by the outside world, given that, in accordance with the rules of the Japanese legal system (which has an overwhelming conviction rate), neither man is in the company of a lawyer. And while the investigation into the wrongdoing is ongoing, one Japanese legal commentator said charges are almost guaranteed, given the high-profile nature of the case.

Nobuo Gohara, a lawyer and former prosecutor, says almost everyone in Japan who is arrested is treated as if they are guilty, including by the media. And conviction rates are so high, he added, that most people plead guilty once they have been indicted.

“In Japan, prosecutors are extremely powerful; such is the relationship between the court and the public prosecutors,” he told the Foreign Correspondents’ Club of Japan this week.

“In cases such as this one, in cases where prosecutors themselves are involved in investigating, they almost always indict suspects,” he said. “The point of no return has been reached as far as the prosecutors are concerned. That leads to media coverage which seems to assume a suspect being guilty.”

In addition to underreporting his income, Japanese media have reported that Ghosn is suspected of improperly using company funds to buy six luxury properties, which he and his family used for personal purposes, misusing resources like the corporate jet for personal vacations, securing a no-show job for his sister and shifting personal trading losses on to Nissan.

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FOMO

The frequent repetition that “something could maybe possibly happen” at the Trump-Xi dinner this weekend appears to have sparked full-scale buying panic in stocks as FOMO replaces fear…

Good luck.

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Bottom Of 9th, Bases Loaded, Full Count, Xi On The Mound…

Authored by Peter Tchir via Academy Securities,

…and the Mighty Trump at bat.

The game is on the line.  The entire world is watching. 

The count is 3 & 2.  Xi just missed catching on the corner on those three pitches. 

The first strike?  Well that will go do in the history of baseball.  The pitch was so far outside, it was almost a wild pitch, but the Mighty Trump swung and missed.  The ball was so far outside, no one could have hit it.  Was a momentary lapse in judgement? Erratic behavior? Did the Mighty Trump want the glory of a hit rather than forcing the tying run with a walk?  Or was it some brazen strategy to get the upper hand in the mental game with Xi?

We may never know the truth.

The second strike was equally memorable.

A long, long, long, long, long foul ball.  The Mighty Trump got a hold of Xi’s delivery and knocked it out of the park.  Heads are still shaking at how far that ball went, but unfortunately for the Mudville 9, it was just foul.

Xi checks the runners, goes into the wind up, and here’s the pitch…

I have spent this week in constant dialogue with my best contacts on trade.   Here is what I am hearing

  1. President Trump may have a plan, but few are privy to it and there is a lot of concern whether he will stick to a plan or wing it

  2. Many senior people in the Republican party blame weaker than expected showings in some regions as directly attributable to trade policy and tariffs, so there is a push to back away from that strategy.

  3. Allegedly the president’s reaction to GM closing plants was to express a desire to double down rather than back-off (which seems to be supported by @realDonaldTrump tweets.

  4. The Mueller investigation seems to be generating a lot of headlines again (and I’m hearing a lot more going on behind the scenes).  In the past, there is some evidence, the president reacted to Mueller actions and leaks by lashing out with policy of his own.  It does also set the stage for the President wanting a major victory heading into the new year as the Democrats take over the House and fears of a subpoena war take hold.  The President is a firm believer that a good offence is a good defense (which is good for those hoping for a trade).

Now, back to the pitch

I see three basic scenarios playing out

  1. We walk in a run.  The game goes on, possibly to extra innings.  The real-world equivalent is some promise by China to reduce the trade deficit, us putting on hold any new or increased tariffs and both sides agreeing that Intellectual Property rights are important and that both sides agree to focus on a plan to protect intellectual property rights.  and when coupled with a less dogmatically hawkish Fed, we can get the year-end risk on rally, though people will be looking to fade that rally well ahead of January 1st.  This is my highest probability scenario.  I think if we get to the dinner, there is a decent chance some formal progress announcement is made.  How strong that announcement is will determine the strength of the market reaction.

  2. A wild swing and a miss.  Game over – we lose.  In the real-world, we don’t even get to the dinner. We’ve already cancelled on meeting with Putin (for good reason, but it does show, we aren’t afraid to cancel).  We are supposedly bringing Navarro to the dinner, which doesn’t seem like the best idea for a cordial dinner.  Chinese papers seem to be downplaying the G-20 as a whole, and the Trump dinner.  Could something happen between the sides or to the President’s agenda between now and Saturday that derails the event?  Certainly, if the President doesn’t feel we are getting treated as we should, it seems within his nature.  It could even be a good negotiating ploy to show China that we are deadly serious.  Markets will hate that.  I view this as a low probability outcome, but certainly a non-zero probability. 

  3. Boom!  A Grand Slam!  A walk-off for the Mighty Trump.  China is being hurt more than we know.  Xi needs to focus on domestic issues and this trade war with the U.S. isn’t helping him as it is hurting the economy and distracting his focus from urgent matters at home.  Leader for life is a good thing until you consider what would end it.  Okay, that was over the top, but he has domestic economy that is declining rapidly, possible credit bubbles and wealth inequality at an extreme scale.  They need soybeans.  They need LNG.  Stop being stubborn and agree to buy what you need form us, your largest consumer.  Intellectual Property protection might be easier to give up on than we believe, as it can be very difficult to prove and at this point China may believe they have enough IP of their won that they want to protect that too.  I don’t think either side has done enough talking to get to this sort of a deal, so it is also a low probability event.

Does it even matter…

It wouldn’t be the first time that the market fixates on something only to decide that it doesn’t really matter in the end.

Maybe a less hawkish Fed, one that is going to slow the pace of hikes and might leave the balance sheet larger (ending QT sooner than later) is all that matters near term for risk?  A little bit depressing if nothing else matters, but making me less depressed about what the market reacts to seems low on the Fed’s or the markets’ list of priorities.

Have a good month-end, many will be happy to see November done, and I look forward to chatting with many of you on Sunday night as futures open.

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New Orleans D.A. Complains About Community Bail Funds Releasing Low-Level Offenders

Trapped in jailSome criminal justice reformers aren’t waiting for court systems to “fix” bail so that poor people aren’t stuck behind bars even when they’re not flight risks or community threats. Some charitable people have launched community bail fund organizations that collect donations and then use that money to bail out people who cannot afford to cover the costs themselves. If those defendants behave and return to court as promised, the money is returned to the community group and can be used again for others.

One such group is the New Orleans Bail and Safety Fund, whose members say they’ve paid bail for about 200 people since it was founded a year ago.

New Orleans District Attorney Leon Cannizzaro isn’t happy about that. Accusing the group of being naïve about the folks it’s dealing with, he tells New Orleans’ Fox affiliate that the fund is “playing a very dangerous game with public safety.”

What drew this sudden attention to the group? It put up the bond for a guy named DeQuan Ayers, who was arrested for possessing two and a half pounds of marijuana. His bond was set for $3,500. Though Ayers’ crimes may seem like small potatoes here, he had a lengthy criminal background and a history of not showing up for court. He was later arrested for allegedly beating up and robbing a tourist in the French Quarter. A magistrate subsequently increased his bond to $50,000.

But when you start looking at the two sides in this debate, they are not entirely opposed to each other. Cannizzaro’s concerns appear to be that the fund is overly reliant on the magistrate’s evaluation of the defendant’s risk. The folks behind the fund say they get recommendations for who to bond out from public defenders and deliberately choose only those with bonds below $5,000, meaning that they are looking for low-risk candidates themselves.

Both sides are fundamentally arguing the same thing: that judges (magistrates, in this case) are not really doing the work of assessing risk when deciding the conditions of release for somebody who has been charged (but not convicted) of a crime, and that they are overly reliant on fixed schedules based on charges. Cannizzaro sees the bail amounts that are too low, making it possible for dangerous people to be able to get out to commit more crimes. The people behind the bail fund see judges relying on these schedules and thus keeping poor people stuck behind bars even though they’re not dangerous.

These concerns are not contradictory. Both problems can be happening at once. They originate with the same underlying problem of lackluster risk assessments and a court system focused on churning through pretrial hearings as quickly as possible.

Bail fund member Jennifer Schnidman Medbery has started speaking out publicly in response to the critique. She says that the fund has seen a 92 percent success rate in getting the people they help to return to court.

More importantly, representatives of the New Orleans Bail and Safety Fund say that in about 65 percent of the cases they take on, prosecutors subsequently refuse the charges. That number matters because criminal justice experts who want to see bail reform note that people who are unable to pay for bail are more likely to plead guilty and more likely to face harsher penalties for crimes. People stuck in pretrial detention have little leverage or negotiating power and feel pressured to accept bad plea deals or even plead guilty if it will end the case. Louisiana, remember, has the second-highest incarceration rate in the country. (For a long time it had the highest, but it was recently overtaken by Oklahoma.)

Cannizzaro disputed the organization’s numbers in that Fox interview, claiming that his office only refuses the charges in 15 percent of felonies. Note that, again, this isn’t actually a contradiction, and both Cannizzaro and the bail fund may be telling the truth. Cannizzaro is referring to a larger pool of arrests (and felonies at that). The bail fund’s representatives are talking about a pool of about 200 people, carefully selected because they seem to be low-risk candidates.

The fund is keeping its pool of beneficiaries under wraps. We don’t know whether the charges would have been dropped anyway or if prosecutors specifically dropped charges because they lost leverage over the freed defendants. If that’s the case, it puts some more perspective on Cannizzaro’s complaining.

Recall as well that two federal judges have ruled in separate cases that the Orleans Parish bail system and its systems of fines and fees are violating defendants’ constitutional rights by being arbitrarily high. The cases also highlighted the fact that the money from these high bails is being used to fund the court system itself, which creates a disincentive for the courts to release people, making the bail fund’s work all the more necessary.

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FBI Raids Home Of New Clinton Foundation, Uranium One Whistleblower

The FBI conducted a six-hour raid on the home of a recognized Justice Department whistleblower who had confidentially submitted documents related to the Clinton Foundation and Uranium One to a government watchdog, according to the Daily Caller, citing the whistleblower’s attorney. 

The Justice Department’s inspector general was informed that the documents show that federal officials failed to investigate potential criminal activity regarding former Secretary of State Hillary Clinton, the Clinton Foundation and Rosatom, the Russian company that purchased Uranium One, a document reviewed by The Daily Caller News Foundation alleges.

The delivered documents also show that then-FBI Director Robert Mueller failed to investigate allegations of criminal misconduct pertaining to Rosatom and to other Russian government entities attached to Uranium One, the document reviewed by TheDCNF alleges. Mueller is now the special counsel investigating whether the Trump campaign colluded with Russia during the 2016 election. –Daily Caller

“The bureau raided my client to seize what he legally gave Congress about the Clinton Foundation and Uranium One,” said the whistleblower’s lawyer, Michael Socarras – adding that he considered the FBI raid on his client, Dennis Nathan Cain, an “outrageous disregard” of whistleblower protections. 

Cain – a former FBI contractor, was faced with sixteen federal agents during the November 19 raid on his Union Bridge, Maryland home, according to Socarras. The raid was authorized on November 15 after federal magistrate Stephanie A. Gallagher of the US District Court for Baltimore signed a court order. 

The special agent who led the raid alleged that Cain possessed stolen federal property, and demanded entry to his home, Socarras added. 

“On Nov. 19, the FBI conducted court authorized law enforcement activity in the Union Bridge, Maryland area,” said FBI spokesman Dave Fitz, adding that the agency had “no further comment.” 

Cain told the agents at his doorstop that he was a recognized and protected whistleblower under the Intelligence Community Whistleblower Protection Act, and that DOJ Inspector General Michael Horowitz had recognized his status, according to Cain’s attorney. 

Cain further told the FBI agent the potentially damaging classified information had been properly transmitted to the Senate and House Intelligence committees as permitted under the act, Socarras said. The agent immediately directed his agents to begin a sweep of the suburban home, anyway.

Frightened and intimidated, Cain promptly handed over the documents, Socarras told TheDCNF. Yet even after surrendering the information to the FBI, the agents continued to rummage through the home for six hours. –Daily Caller

“After asking and getting my approval to do so, DOJ IG Michael Horowitz had a member of his staff physically take Mr. Cain’s classified document disclosure to the House and Senate Intelligence committees,” Socarras told the Caller, adding “For the bureau to show up at Mr. Cain’s home suggesting that those same documents are stolen federal property, and then proceed to seize copies of the same documents after being told at the house door that he is a legally protected whistleblower who gave them to Congress, is an outrageous disregard of the law.” 

According to Socarras, Cain came across “potentially explosive information while working for an FBI contractor,” after which he met with a senior member of Horowitz’s office at a church close to the White House, where he delivered a cache of documents. 

Cain sat in a pew with a hoodie and sun glasses, Socarras said. Cain held a double-sealed envelope containing a flash drive with the documents. The IG official met him and, without saying a word, took the pouch over Cain’s shoulder and left. –Daily Caller

The Whistleblower Protection law requires the Inspector General to share potentially damaging information with the attorney general, who at the time was Jeff Sessions. According to Socarras, two law enforcement officials directed the documents to the Senate and House Intelligence committees for review, which were hand delivered by an IG official. 

“I cannot believe the Bureau informed the federal magistrate who approved the search warrant that they wanted to search the home of an FBI whistleblower to seize the information that he confidentially disclosed to the IG and Congress,” said Socarras. 

The FBI has yet to discuss the matter with Cain’s attorney despite the raid. 

“After the raid, and having received my name and phone number from Mr. Cain as his lawyer, an FBI agent actually called my client directly to discuss his seized electronics,” said Socarras. “Knowingly bypassing the lawyer of a represented client is serious misconduct.“

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