3 Reasons to Stop Freaking Out About a Tulsi Gabbard Third-Party Run

On Wednesday, third-tier but recently rising Democratic presidential candidate Rep. Tulsi Gabbard (D–Hawaii) published a Wall Street Journal op-ed under the aspirational headline “I Can Defeat Trump and the Clinton Doctrine.” The piece has re-triggered speculation, most visibly from New York‘s Jonathan Chait, that Gabbard is eyeing a third-party run at the White House.

“What is very clear…is that Gabbard is now working hand in hand with the Republican party,” Chait asserted, citing as evidence of that clarity the congresswoman’s appearances in conservative media and her comparative skepticism about the impeachment inquiry into President Donald Trump (which she nonetheless voted Thursday to support, sending Ann Coulter into a tailspin). “Gabbard’s Journal op-ed today is the clearest sign yet of her future course. There is no line in the piece committing Gabbard to running exclusively in the Democratic primary. It doesn’t even mention the primary.”

Instead, Gabbard writes stuff like: “Whether Mrs. Clinton’s name is on the ballot or not, her foreign policy will be, as many of the Democratic candidates adhere to her doctrine of acting as the world’s police, using the tools of war to overthrow governments we don’t like, wasting taxpayer dollars, costing American lives, causing suffering and destruction abroad, and undermining America’s security.” And also: “Why would Democrats think a Hillary 2.0 candidate would result in anything different?”

Chait deduces that such rhetoric “could…be turned into an argument for Gabbard as a second ‘Democratic’ candidate running against Trump, using a familiar Ralph Nader/Jill Stein case that the Democrats are going to fail, so you should vote instead for the superior alternative to the GOP.”

In fact, the Ralph Nader and Jill Stein arguments, in the 2000 and 2016 elections anyway, were less about their Democratic opponents failing and more about how Al Gore and Hillary Clinton too closely resembled the Republican nominees they had seemed likely to (though ultimately did not) defeat. But that is hardly the only hole in the logic of Chait, or Gabbard, or anyone else anxiously fearing or hoping for a Tulsi third-party run.

There are at least three reasons to pump the brakes on the freakout:

1) Post-“spoiler” elections are lethal for non-major candidates.

One of the most common failures of presidential political analysis is to constantly fight the last election, or at least to treat what happened four years ago as the starting line today. Electoral politics are way more dynamic than that, particularly when it comes to third parties and independent candidates.

Take what some people refer to as “spoiler” elections (keeping in mind that almost nobody who has studied the issue seriously concludes that Jill Stein cost Hillary Clinton the 2016 election, even if that common misapprehension hangs over the never-ending Tulsi/Hillary dispute like a fart in an elevator).

Over the past century, there have been four presidential contests in which the third-place finisher received more votes nationwide than the margin between Republican and Democrat nominee—2016, 2000, 1992, and 1968. What happened to those third-place candidates and their political parties four years later? They collapsed.

Nader in 2000 famously received 2.74 percent of the national popular vote, in one of the most razor-thin elections in American history. In 2004, the combined vote of the longtime consumer activist (who ran for president as an independent, though he eventually received the endorsement of the Reform Party) plus Green Party candidate David Cobb was a comparatively miniscule 0.48 percent.

Ross Perot, the protectionist deficit hawk and swaggering CEO, posted the best third-party result in 1992 since Progressive Teddy Roosevelt in 1912—18.91 percent of the popular vote, more than three times the winning margin of Bill Clinton over incumbent George H.W. Bush. Four years later, Perotmania hadn’t quite bitten the dust, but took a haircut down to 8.4 percent.

Segretationist law-and-order candidate George Wallace of the American Independent Party won an impressive five states and 13.53 percent of the national vote in 1968, in a race where the popular-vote margin of clear Electoral College winner Richard Nixon over Democrat Hubert Humphrey was less than a percentage point. In 1972, Wallace returned to the Democratic Party and failed to win the nomination. Meanwhile, his old third party nominated John Schmitz, who ended up with just 1.42 percent of the national vote, far less than Wallace received.

So history, albeit with a small sample size, suggests that support for third-party candidates after perceived spoiler presidential elections tends to plummet. Also, 2016 was the biggest year for non-major candidates in two decades. As I mentioned in January,

spike years in third-party voting tend to be followed by nosedives. The Strom Thurmond/Henry Wallace election of 1948 (5.38 percent for non-majors overall) was followed by 1952’s 0.5 percent. The John Anderson–led 8.14 percent in 1980 dwindled to 0.71 percent in 1984.

High-intensity, high-participation, high-polarization moments are deleterious to the electoral health of non-traditional politicians and parties. On the eve of an already Manichean impeachment process, just about every indicator shows that two-party political polarization is accelerating. Pre-election-year voter interest is at an all-time high, a year after the midterms set records for highest turnout in a century. And those 2018 elections were uncommonly brutal for Libertarians, Greens, and independents.

2) There’s no reason to assume the Green Party nomination is Gabbard’s to lose.

Former Barack Obama 2008 campaign manager David Plouffe, in his controversial October interview with Hillary Clinton, asserted that “one of the reasons [Trump] was able to win is the third party vote.” This theory, while not supported by available evidence, has nonetheless led to all sorts of conspiracy theorizing.

For instance, Clinton in the same interview predicted that Republicans are “also going to do third party again….[T]hey know they can’t win without a third-party candidate, and so I don’t know who it’s going to be, but I will guarantee you they’ll have a vigorous third-party challenge in the key states that they most need it.”

This claim implies that in 2016, a progressive environmental party that had been competing in presidential elections for two decades (including one contest with the same nominee) was either the brainchild or at least the manipulation-target of the GOP, and that Republicans in 2020 are “guaranteed” to organize around a left-bent presidential candidates in critical swing states. (Insert joke about Hillary’s non-campaigning in Wisconsin here.)

Major parties do sporadically find ways to encourage or make common cause on a case-by-case basis with third parties that are perceived to erode an opponent’s support. But such trickeries usually take the form of tweaking behind-the-scenes rules such as ballot-access laws. Only very occasionally do they involve encouraging voters to back non-major candidates.

If Jill Stein was the beneficiary of disproportionate swing-state Republican support, as Clinton is implying here, it did not leave footprints either in campaign finance records or election results. Between 2012 and 2016, Stein’s vote share nationwide increased by 297 percent, from 0.36 percent to 1.07. That’s lower than the 331 percent jump (from 0.99 percent to 3.28) over that same period by two-time Libertarian Party nominee Gary Johnson, who unlike Stein was not promoted in any meaningful way by Russian-backed troll farms. In the swing states that most haunt Clinton’s dreams, Stein’s increases were in line with her national totals—up 219 percent in Pennsylvania, 233 percent in Michigan, and 416 percent in Wisconsin (where Johnson’s increase was 534 percent).

But we still haven’t even gotten to the most bananas thing Clinton said in that interview: “…and that’s assuming Jill Stein will give it up. Which she might not, because she’s also a Russian asset….Yeah, she’s a Russian asset, I mean, totally.” (Side note: That “also” came immediately after Clinton said that Gabbard [who she did not mention by name but confirmed later she was talking about] was “the favorite of the Russians.” So it is very plausible, Clinton-camp denials and fact-checker Pinocchios notwithstanding, that Clinton was suggesting that the congresswoman from Hawaii is also a Russian asset.)

Setting aside what at best is an allegation of useful idiocy and at worst is straight-up McCarthyism, what about Clinton’s analysis of third-party dynamics? They, too, are piss-poor.

For starters: Jill Stein is not running for the Green Party nomination. “Three times is a lot. It’s a lot for any one person and it’s a lot for a party,” Stein told The New York Times 14 months ago. “I would be kind of shocked if it came to that.”

The Green Party’s 2020 nominating season is already well underway, with four debates in the can (including one moderated by Stein), featuring a total of seven declared candidates. Howie Hawkins, the preliminary runaway leader in the fundraising race, has a pedigree sure to be impressive to the 400 party delegates who will select the nominee next July: He co-founded the Green Party and has been a serial candidate for elected office in New York, topping out in big-ticket races at 9.6 percent in a two-way election for Congress in 2004, while losing by as few as 4.2 percentage points in various city contests in Syracuse.

Hawkins, who has a claim on being one of the first developers of the Green New Deal concept, narrowly beat Libertarian Party up-and-comer Larry Sharpe in the 2018 New York gubernatorial race, 1.7 percent to 1.6 percent, despite being massively out-fundraised. He also last month received the Socialist Party’s 2020 nomination for president. And to the extent that some Greens are weary of Stein’s notoriety—consider that even her 2016 running mate, Ajamu Baraka, has opposed the candidate’s lucrative post-election fundraising drive to engineer a swing-state recount—Hawkins is encumbered by no such controversy.

The Green Party is reliably progressive on environmental, economic, military, and social issues. Tulsi Gabbard? A good deal less so. A 2017 polemic from the socialist rabble-rousers at Jacobin contains much of the brief against: “Tulsi Gabbard Is Not Your Friend.” She has an unorthodox history during her brief adult life of being anti-abortion, anti–gay marriage, militantly anti-“radical Islam,” and supportive of nationalists such as Indian Prime Minister Narendra Modi. (See John Stossel’s recent interview of Gabbard for a full airing of the candidate’s views.)

And then there was the most controversial part of Gabbard’s political resume. “Her meeting with Assad? I wouldn’t have done that,” Hawkins said in a July interview, describing Gabbard’s 2015 sit-down with the Syrian dictator “much worse” than what Jane Fonda once did in North Vietnam. Hawkins has also criticized Gabbard for not supporting free college for illegal immigrants, among other not-quite-left-enoughisms.

What about Gabbard’s own interest in running for the Green or any other party’s nomination? She says she has none. On August 29, before the Hillary fracas (and before she announced that she wouldn’t be seeking reelection in the House), Tulsi told CNN flatly, “I’ve ruled that out.” Nothing has publicly changed since then.

Yes, Gabbard could change her mind; yes, Greens could swallow their discomfort about her heterodoxies in exchange for her higher-than-Hawkins name recognition. But even if those two currently unlikely outcomes occur, Gabbard and the Green Party could face the problem of “sore loser” laws, which prevent candidates for a given office from appearing on the ballots of two different parties during the same election cycle.

3) The Democratic field is not a bunch of Hillary 2.0s, foreign policy–wise or otherwise.

Jill Stein, in lashing back at the “McCarthyism” of Hillary Clinton’s “Russian asset” smear, wrote an oddly dated passage in The Guardian:

Confronting the real reasons for Clinton’s loss would open a much-needed conversation about why the Democratic establishment opposes progressive policies that are broadly popular—such as Medicare for All, a Green New Deal, free public higher education, and other programs to improve working people’s lives. They would have to reckon with the unpopularity of their disastrous foreign policy of global military domination.

While I for one may agree about the reckoning part of the disastrous foreign policy (particularly when it comes to the Clinton/Samantha Power–led intervention in Libya, which the 2016 nominee actually described as “smart power at its best“), Stein’s complaints about Democratic domestic policy sound stale in a presidential field that Bernie Sanders has so successfully yanked to the left.

Medicare for All is the explicit position of two of the top three Democratic candidates, and Medicare for All Who Want It is the preference of most of the rest of the field. Rhetorical support for a Green New Deal, along with trillion-dollar plans to combat climate change, is now the Democratic default. Being against free college in the 2020 field is the exception, not the rule.

Al Gore—who was a centrist hawk for almost his entire career through 2000—and Hillary Clinton were both pre-ordained establishment candidates after two-term Democratic presidencies. You can see why progressives would get restive about their respective primaries being uncompetitive—why should we keep voting for the major party if they keep giving us the back of their hands, both in terms of policies and candidates? To an extent that anxious Democrats won’t fully grok until one year from now, 2020 isn’t anything like that.

That includes the main area of Tulsi Gabbard’s selling proposition: What to do (and not to do) with U.S. troops overseas. At the September Democratic presidential debate, five candidates were asked about what to do with U.S. troops in Afghanistan, and all five said to bring them home. (Yes, that includes Joe Biden.) “What seems to be the answer from the foreign policy establishment?” Sen. Elizabeth Warren (D–Mass.) said on MSNBC in January, regarding military presence in Afghanistan and Syria. “Stay forever. That is not a policy. We can’t do that.”

South Bend mayor and war veteran Pete Buttigieg, with whom Gabbard tangled over Syria at the October debate, has repeatedly stressed the need for having Congress authorize all military conflicts, and for such authorizations to contain automatic three-year sunsets. Former congressman Beto O’Rourke has long made similar noises, and both Sen. Cory Booker (D–N.J.) and entrepreneur Andrew Yang have been including the phrase “forever wars” in their stump speeches.

The biggest—really the only—case for there being a “Hillary 2.0” in the race is Joe Biden, who after all is the clear choice for those Democrats nervous about going too far left, has been in national politics for a half-century, served with Clinton in the Obama White House, voted as she did to authorize the Iraq War, and so on. And yet portraying Biden as another Clinton on foreign policy is a mistake.

In her new memoir, the Obama-era human rights honcho and ambassador to the United Nations, Samantha Power, described the 2011 White House deliberations over the Power/Clinton-backed intervention in Libya:

Vice President Biden and Defense Secretary Gates both voiced opposition to any plan that would involve the US military. Biden, who had advocated bombing Bostnian Serb Army heavy weapons back in the 1990s, had grown dubious about using US military force. He regretted having supported the invasion of Iraq and consistently advocated for winding down the war in Afghanistan.

Emphasis mine.

While you can never count on the intervention skepticism and withdrawal preferences of presidential candidates to be translated into White House action (see: the previous four occupants of 1600 Pennsylvania Avenue), you can and should pay attention to the real policy differences between politicians. Biden, unlike Clinton and Power, is “not a big fan of red lines.” And rusty political weather vane that he is, he can’t help but notice that the country and his party’s base are even more weary of war than it was eight years ago, when he tried to prevent U.S. involvement in one.

Tulsi Gabbard has been running against “regime change wars” since the moment she announced her candidacy, and good on her for doing so. Democratic voters, meanwhile, do not seem to be in the mood for encouraging cavalier hawkery this time around among their presidential candidates. Good on them for doing so. Perhaps one of the reasons Gabbard hasn’t climbed above an average of 2 percent in national polls, even after her recent spike, is that she is not surrounded by Hillary-caliber warmongers on the debate stage.

To sum up: If Tulsi Gabbard runs as a Green Party nominee for president and receives even 0.5 percent of the vote, I will wear a “Jonathan Chait Is Always Right” T-shirt the day after the election.

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Where The October Jobs Were: Who Is Hiring And Who Isn’t… And Those Amazing Restaurant Jobs

Where The October Jobs Were: Who Is Hiring And Who Isn’t… And Those Amazing Restaurant Jobs

As noted earlier, today’s payrolls report was a far stronger than expected 128K (exp. 85K), even with the negative impact of the GM strike and the unwind of census hiring, which subtracted 41,600 and 20,000 workers from the headline print. In any case, October marked the 109th straight month of U.S. job growth, the longest such streak on record; we for one, can’t wait to deconstruct this fabrication during the next recession when the truth behind these number will finally emerge but we digress.

And while the quantitative aspect of today’s jobs report was stronger than expected, what about the qualitative?

Here, as has been the case for much of the past decade, job gains were led by low-wage jobs in leisure and hospitality, education and health services as well as the somewhat better paying professional and business services. Construction and finance also posted modest gains. Even retail jobs rose, registering back-to-back gains for the first time in more than a year following seven straight declines.

While we present the full breakdown of jobs by sector below, it is worth noting that food services and drinking places added 48k jobs in October, as job growth in the industry has averaged 38k over the past three months, compared with an average monthly gain of 16k in the first seven months of 2019. And something even more remarkable: since February 2010 – a period covering nearly 10 years – the US “food service and drinking places”, i.e. restaurant industry, has added jobs every single month with just 4 exceptions!

Booming – supposedly – restaurant industry aside, this is who else hired in October and 2019:

  • In October, food services and drinking places added 48,000 jobs.
  • Employment in social assistance increased by 20,000 in October and by 139,000 over the last 12 months.
  • Employment in financial activities rose by 16,000, with gains in real estate and rental and leasing (+10,000) and in credit intermediation and related activities (+6,000). Financial activities has added 108,000 jobs over the last 12 months.
  • Employment in professional and business services continued to trend up in October (+22,000).
  • Health care employment continued on an upward trend in October (+15,000). Health care has added 402,000 jobs over the last 12 months.
  • Manufacturing employment decreased by 36,000 in October. Within manufacturing, employment in motor vehicles and parts declined by 42,000, reflecting strike activity.
  • Federal government employment was down by 17,000 over the month, as 20,000 temporary workers who had been preparing for the 2020 Census completed their work.

The chart summarizing the above is below, with the sharp drop in manufacturing jobs, a direct result of the GM strike, highlighted. It is expected that most of this drop will reverse in November.

Finally as Bloomberg notes, blow are the industries with the highest and lowest rates of employment growth for the most recent month. Additionally, monthly growth rates are shown for the prior year. The latest month’s figures are highlighted.

 

 


Tyler Durden

Fri, 11/01/2019 – 10:31

via ZeroHedge News https://ift.tt/2N9FWeB Tyler Durden

“Not One Penny In Middle-Class Tax Increases” – Warren Unveils Plan To Cover $52 Trillion Medicare-For-All

“Not One Penny In Middle-Class Tax Increases” – Warren Unveils Plan To Cover $52 Trillion Medicare-For-All

Senator Elizabeth Warren unveiled more details of her “Medicare for All” plan she swears won’t cost the middle class “one penny,” while raising federal spending by $20.5 trillion. Paying for the increases would be a wave of taxes on large corporations, the wealthy, cracking down on tax evasion, an $800 billion reduction in defense spending, and putting newly legalized immigrants on the tax rolls.

Warren has come under pressure from her Democratic rivals to release the details of her ambitious plans – and in particular, how she plans to pay for them. As the New York Times notes, “Her new proposal marks a turning point for her campaign, in which she will have to sell voters on a tax-and-spending plan that rivals the ambitions of the New Deal and the Great Society while also defending it against both Democratic and Republican criticism.”

At a cost of “just under $52 trillion” (about what the current system will cost over 10 years), Warren’s plan calls for the elimination of employer-sponsored health insurance, which over 50% of Americans now receive. It would be replaced by free government health coverage for all Americans.

To pay for the $20.5 trillion, Warren would require employers pay trillions of dollars to the government. For those who currently pay for employee coverage, this would replace much of that spending. Businesses who don’t currently cover healthcare costs would be exempt. Warren would also tax financial transactions such as stock trades, as well as boost taxes for investment gains for the top 1% of households. Her signature wealth tax proposal would also take a larger chunk from billionaires. Lastly, Warren wants to cut $800 billion in military spending.

Ms. Warren’s estimate for the cost of Medicare for all relies on an aggressive set of assumptions about how to lower national health care costs while providing comprehensive coverage to all Americans. Like Senator Bernie Sanders of Vermont, she would essentially eliminate medical costs for individuals, including premiums, deductibles and other out-of-pocket expenses.

Critically, her new plan would not raise taxes on middle-class Americans, a question she has been asked over and over but has not answered directly until now. When confronted on the campaign trail and debate stage, she emphasized instead that her plan would result in higher overall costs for wealthy people and big corporations but lower costs for middle-class families. –NYT

Democratic 2020 rivals such as Joe Biden and Bete Buttigieg have repeatedly criticized Warren for her failure to detail the specifics of her plan – with Buttigieg calling her “extremely evasive.”

“A key step in winning the public debate over Medicare for all will be explaining what this plan costs — and how to pay for it,” Warren writes in her plan. “We don’t need to raise taxes on the middle class by one penny.”

After the Trump administration and Republicans unsuccessfully attempted to repeal the Affordable Care Act, Warren and other Democrats have taken up healthcare as a central issue to compete for their party’s presidential nomination.

The Times suggests that responding to her rivals in such detail has opened her up to attack from the right.

Although she is not proposing broad tax increases on individuals, her proposal will still allow Republicans to portray her as a tax-and-spend liberal who wants to dramatically expand the role of the federal government while abolishing private health insurance. Her plan’s $20.5 trillion price tag is equal to roughly one-third of what the federal government is currently projected to spend over the next decade in total. –NYT

Warren has aligned herself with Sen. Bernie Sanders, one of her top rivals who has long championed single-payer healthcare. Not only did she co-sponsor his Medicare for All legislation in the Senate, she declared “I’m with Bernie” regarding healthcare during her first primary debate in June.

According to the report, Warren’s financing plan is based on cost estimates that are on the low side. Her estimate that the plan will cost $20.5 trillion over 10 years is based on a recent cost model by the Urban Institute, except she inserts her own assumptions which reduce their estimate of $34 trillion over the same period.

Warren’s plan would create a new “employer Medicare contribution” which would total $8.8 trillion over a decade. Moreover, states would pay the federal government much of what they already spend to insure state workers and low-income residents covered by Medicaid.

$3 trillion of the plan would be raised via two proposals to tax the richest Americans. Previously, Warren floated a 3% annual tax on net worth over $1 billion. She is now raising that to 6%. The second proposal would alter how gains are taxed for the top 1% of households.

In addition to imposing a tax on financial transactions, she would also make changes to corporate taxation. She is counting on stronger tax enforcement to bring in $2.3 trillion in taxes that would otherwise go uncollected. And she is banking on passing an overhaul of immigration laws — which itself would be a huge political feat — and gaining revenue from taxes paid by newly legal residents. –NYT

On the medical side, Warren’s plan would put ‘substantial downward pressure on payments to hospitals, doctors and pharmaceutical companies,’ according to the Times. Instead, Warren assumes that aggressive negotiations could lower spending on generic medications by 30% vs. current levels, and that spending on prescription drugs could plummet by 70%. Payments to hospitals would be around 10% higher than what Medicare currently pays – which would lead to big cuts for some hospitals, while helping others. Doctors would be paid less under Warren’s plan vs. what Medicare currently pays.


Tyler Durden

Fri, 11/01/2019 – 10:28

via ZeroHedge News https://ift.tt/2qWnEob Tyler Durden

Gold & Stocks Surge To Post-Powell Highs After ISM Miss, Endless Jawboning

Gold & Stocks Surge To Post-Powell Highs After ISM Miss, Endless Jawboning

The level of desperation among monetary policy makers and administration officials to keep the stock market higher is becoming farcical.

Dow futures have rallied since payrolls, pushing above the China trade rumor losses and testing post-Powell highs…

And this is what it took to create that 200 point rally…

0830ET Jobs Beat – Dow +100

0915ET Fed’s Kashkari dovish: “we’re not at maximum employment.. in free lunch zone” – Dow +20

0920ET Mnuchin: “constructive talks, working hard” – Dow +30

0930ET Fed’s Rosengren hawkish: further monetary accommodation not needed – Dow unch

0935ET Fed’s Clarida neutral: “we will be data-dependent, economy/consumer in good place” – Dow unch

0936ET Fed’s Kaplan dovish: “growth in US is decelerating, need skills-based immigration” – Dow unch

0937ET Kudlow: White House wants tax cuts for middle class, Trump optimistic on trade deal – Dow unch

0945ET Kudlow: “enormous progress on IP theft” – Dow +30.

0950ET Record high for S&P and Nasdaq

0955ET Kudlow: “US-China trade call may be happening now, Ag & FX parts virtually completed” – Dow +20

1000ET ISM Manufacturing MISS, 3rd month of contraction – Dow +50

And all that managed to achieve was to run overnight stops.

Don’t get carried away though, gold and bonds are the biggest gainers since Powell’s inflation comments…


Tyler Durden

Fri, 11/01/2019 – 10:14

via ZeroHedge News https://ift.tt/36ni3aN Tyler Durden

Aaron Sorkin, Mark Zuckerberg Feud Over Political Ads. Here’s Why Sorkin’s Wrong.

Aaron Sorkin versus Facebook: The West Wing and Social Network director scolded CEO Mark Zuckerberg in an “open letter” in The New York Times yesterday. Essentially, Sorkin accused Zuckerberg of contributing to the decay of American democracy and being a hypocrite about free-speech principles, after Facebook chose not to remove an untruthful Trump campaign video and said it wouldn’t be in the business of policing truth in candidate ads.

The dustup comes the same week that Twitter CEO Jack Dorsey announced that his company will stop accepting paid ads for political campaigns or political issues at all.

Both mark a growing culture war over how social media content should be moderated and regulated.

The Sorkin op-ed in the Times was notable for several reasons. First, it featured the preening moral indignance and self-righteous scolding Sorkin is known (and loved or hated) for. For instance:

I admire your deep belief in free speech. I get a lot of use out of the First Amendment. Most important, it’s a bedrock of our democracy and it needs to be kept strong.

But this can’t possibly be the outcome you and I want, to have crazy lies pumped into the water supply that corrupt the most important decisions we make together. Lies that have a very real and incredibly dangerous effect on our elections and our lives and our children’s lives.

It also needed three factual corrections, including one on a relatively significant point about American consumption of news from Facebook. (Also, Sorkin got the year of the release of his Facebook film wrong.)

Sorkin’s piece makes an oblique reference to Section 230, alleging (falsely) that there’s no way to hold digital sites and services accountable for user-generated content. (“The law hasn’t been written yet—yet—that holds carriers of user-generated internet content responsible for the user-generated content they carry, just like movie studios, television networks and book, magazine and newspaper publishers.”) It thus continues the Times‘ apparent inability to cover Section 230 and the moderation of user-generated content without having to issue corrections.

For the record, Facebook makes a lot of decisions that I disagree with and some that I loathe, but I think it’s right not to set itself (and its massive force of low-paid content moderators) as the arbiters of online truth. Decentralization of knowledge production and information dissemination is one of the greatest gifts of the internet, and it can still be accomplished to greater or lesser degrees even within closed systems (such as Facebook or Twitter).

Twitter’s decision to bad paid political content may sound sensible at first—that’s the company’s own ad money to lose, after all—but the logistics will be a nightmare. What makes an issue or idea “political”? Who decides?

Private internet companies can of course “censor” and censure and deplatform pretty much whomever they wish. But tough-on-content policies, attempts to censor ideas (not just obviously illegal content), and many of the excessively hands-on approaches that people advocate these days are a recipe for ensuring that grassroots voices, minority communities, and outside-the-status-quo ideas stay marginalized.

As an example: I help run a small, basically no-budget, nonprofit group called Feminists for Liberty. Since Facebook implemented its policies to crack down on “foreign influence” and fake political actors, we’ve had to jump through increasing hoops to have our Facebook page even exist. So far, we’ve been prevented from promoting events on the platform because we didn’t have the right government form to submit to Facebook’s inspectors. There must be many groups (and candidates, and causes) like ours, getting blocked by policies ostensibly meant to help promote freedom of expression and ideas online.

Meanwhile, bigger players (including those with nefarious goals) have little problem complying with new policies like these, and they can usually pay to find workarounds for major shifts. From search engine optimization to increasing social reach to building brands on TikTok and whatever’s next, big players (in politics, business, entertainment, or whatever) have employed—and will continue to—whole teams of scientists, journalists, consultants, and others to figure out how to game algorithms, increase the appearance of “organic” reach, and so on.

On Twitter, major political players will find ways to get their messages seen regardless of whether they can promote posts. Smaller and less mainstream voices who may need a little paid promotion to get started or to stand a chance against massive entrenched industry groups or political parties will be the ones who lose out.

As Nick Gillespie notes, both Facebook and Twitter “are clearly responding to threats by legislators seeking to regulate social media.” (See, for example.)

“The differing approaches to the issue of paid speech provide a good opportunity to discuss not just how political communications work in a post-broadcast world but also how the internet is falling short of its promise to radically alter the way people communicate and connect,” writes Gillespie. Twitter’s policy “represents a near-complete lack of faith in users to function as critical consumers of information” and “a fundamental betrayal of the ideals that helped build the internet into an unparalleled, open system of knowledge and information.”


QUICK HITS

  • The historic St. Regis hotel in New York City was just sold to Qatar.
  • Huh:

  • Here’s your periodic reminder that Section 230 (the federal law shielding online operators from some liability for some types of user-generated content) has repeatedly kept people from winning lawsuits like these:

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Aaron Sorkin, Mark Zuckerberg Feud Over Political Ads. Here’s Why Sorkin’s Wrong.

Aaron Sorkin versus Facebook: The West Wing and Social Network director scolded CEO Mark Zuckerberg in an “open letter” in The New York Times yesterday. Essentially, Sorkin accused Zuckerberg of contributing to the decay of American democracy and being a hypocrite about free-speech principles, after Facebook chose not to remove an untruthful Trump campaign video and said it wouldn’t be in the business of policing truth in candidate ads.

The dustup comes the same week that Twitter CEO Jack Dorsey announced that his company will stop accepting paid ads for political campaigns or political issues at all.

Both mark a growing culture war over how social media content should be moderated and regulated.

The Sorkin op-ed in the Times was notable for several reasons. First, it featured the preening moral indignance and self-righteous scolding Sorkin is known (and loved or hated) for. For instance:

I admire your deep belief in free speech. I get a lot of use out of the First Amendment. Most important, it’s a bedrock of our democracy and it needs to be kept strong.

But this can’t possibly be the outcome you and I want, to have crazy lies pumped into the water supply that corrupt the most important decisions we make together. Lies that have a very real and incredibly dangerous effect on our elections and our lives and our children’s lives.

It also needed three factual corrections, including one on a relatively significant point about American consumption of news from Facebook. (Also, Sorkin got the year of the release of his Facebook film wrong.)

Sorkin’s piece makes an oblique reference to Section 230, alleging (falsely) that there’s no way to hold digital sites and services accountable for user-generated content. (“The law hasn’t been written yet—yet—that holds carriers of user-generated internet content responsible for the user-generated content they carry, just like movie studios, television networks and book, magazine and newspaper publishers.”) It thus continues the Times‘ apparent inability to cover Section 230 and the moderation of user-generated content without having to issue corrections.

For the record, Facebook makes a lot of decisions that I disagree with and some that I loathe, but I think it’s right not to set itself (and its massive force of low-paid content moderators) as the arbiters of online truth. Decentralization of knowledge production and information dissemination is one of the greatest gifts of the internet, and it can still be accomplished to greater or lesser degrees even within closed systems (such as Facebook or Twitter).

Twitter’s decision to bad paid political content may sound sensible at first—that’s the company’s own ad money to lose, after all—but the logistics will be a nightmare. What makes an issue or idea “political”? Who decides?

Private internet companies can of course “censor” and censure and deplatform pretty much whomever they wish. But tough-on-content policies, attempts to censor ideas (not just obviously illegal content), and many of the excessively hands-on approaches that people advocate these days are a recipe for ensuring that grassroots voices, minority communities, and outside-the-status-quo ideas stay marginalized.

As an example: I help run a small, basically no-budget, nonprofit group called Feminists for Liberty. Since Facebook implemented its policies to crack down on “foreign influence” and fake political actors, we’ve had to jump through increasing hoops to have our Facebook page even exist. So far, we’ve been prevented from promoting events on the platform because we didn’t have the right government form to submit to Facebook’s inspectors. There must be many groups (and candidates, and causes) like ours, getting blocked by policies ostensibly meant to help promote freedom of expression and ideas online.

Meanwhile, bigger players (including those with nefarious goals) have little problem complying with new policies like these, and they can usually pay to find workarounds for major shifts. From search engine optimization to increasing social reach to building brands on TikTok and whatever’s next, big players (in politics, business, entertainment, or whatever) have employed—and will continue to—whole teams of scientists, journalists, consultants, and others to figure out how to game algorithms, increase the appearance of “organic” reach, and so on.

On Twitter, major political players will find ways to get their messages seen regardless of whether they can promote posts. Smaller and less mainstream voices who may need a little paid promotion to get started or to stand a chance against massive entrenched industry groups or political parties will be the ones who lose out.

As Nick Gillespie notes, both Facebook and Twitter “are clearly responding to threats by legislators seeking to regulate social media.” (See, for example.)

“The differing approaches to the issue of paid speech provide a good opportunity to discuss not just how political communications work in a post-broadcast world but also how the internet is falling short of its promise to radically alter the way people communicate and connect,” writes Gillespie. Twitter’s policy “represents a near-complete lack of faith in users to function as critical consumers of information” and “a fundamental betrayal of the ideals that helped build the internet into an unparalleled, open system of knowledge and information.”


QUICK HITS

  • The historic St. Regis hotel in New York City was just sold to Qatar.
  • Huh:

  • Here’s your periodic reminder that Section 230 (the federal law shielding online operators from some liability for some types of user-generated content) has repeatedly kept people from winning lawsuits like these:

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Trump’s Near-Zero Presidency

Candidate Donald Trump memorably promised to “bomb the s—” out of ISIS in 2015. And on that single count, President Trump has delivered: Although the Islamic State was already on the run before he assumed office, U.S. Special Operation Forces this past weekend killed ISIS leader Abu Bakr al-Baghdadi, dealing a body blow to the outfit. (Getting Baghdadi was never a stated priority of Trump’s, but let’s be generous.)

Unfortunately for Trump, bombing ISIS is one of the rarest of Trump phenomena: a vow he has actually delivered on. The Republican National Committee has created an entire website touting Trump’s “promises made, promises kept.” Surely it jests.

Trump pledged to boost growth, balance the books, build a wall, slash America’s trade deficit (particularly with China), renegotiate the Iran deal, and denuclearize North Korea. To the extent that he has delivered on the first, it is by cheating. On all the rest, he’s failed miserably. That’s not necessarily bad for the country, but it does confirm he’s a fake.

Trump boasts that America’s economy is “incredible” and “setting records on virtually every front.” In his telling, his combination of tax cuts and deregulation—what he refers to as his “magic wand”—has stimulated both the GDP and job growth.

But Michael Strain of the conservative American Enterprise Institute points out that Trump’s economy is a continuation of Barack Obama’s. The GDP grew at 4 percent during several quarters while Obama was president, although it had slowed to around 2.2 percent by the time he left office. After Trump arrived, the pace picked up, reaching 3.5 percent last year before falling to 2 percent this summer. As for jobs, during the final 19 months of the Obama presidency, the economy added 208,000 on average each month, compared to 189,000 jobs per month under Trump’s first 19 months in office. (The jobs report this morning shows that the U.S. economy is continuing its job-growth streak.)

It is true that the country has enjoyed the longest economic expansion perhaps ever and dodged a recession under Trump’s watch. But just like Obama, Trump has accomplished much of this through an artificial fiscal stimulus that is busting the national budget. Obama’s stimulus consisted of a trillion dollars in straight-up government spending at a time when the economy was in a recession. Trump’s consists of unpaid-for tax cuts and increased government spending at a time when the economy was already growing.

Indeed, government spending has jumped 22 percent on Trump’s watch. He has boosted America’s obscene level of military spending. And to get Democratic buy-in, he has signed off on most of their spending demands.

The upshot is that instead of eliminating the budget deficit “fairly quickly,” as he had promised, Trump has grown it to nearly a trillion dollars, putting America even further down the road to bankruptcy, just as he has done with many of his businesses. Stunningly, the deficit is now 50 percent higher than when he assumed office. America’s total government debt, meanwhile, has touched a whopping $22 trillion, bigger than the entire U.S. economy, which means that future generations will have to pay for Trump’s tax-cut-and-spend policies.

The budget deficit is not the only deficit that Trump has widened. The trade deficit is ballooning as well.

Unlike a budget deficit, a trade deficit is not necessarily a bad thing. But Trump believes that it is a scorecard that determines whether a country is “winning” or losing—with a big deficit indicating that other countries are making more money because they are selling us more. This is hilariously wrong. Everyone has a trade deficit with their local grocer, because they only buy from him and don’t sell anything back. But that does not mean they’re poorer for it. It only means they prefer to not starve rather than horde their cash. Furthermore, foreign exporters reinvest their dollars in America, by buying either the country’s ginormous debt (which lowers the cost of financing it) or private assets (fueling economic expansion).

So the trade deficit that Trump is obsessed about cutting has been very good for America. Yet Trump is hell-bent on eliminating it, even launching his ill-advised trade war with China to do so.

Has it worked? No. The opposite.

America’s deficit has widened from $503 billion to $628 billion since Trump assumed office. America has a bigger trade deficit with virtually every trading partner, but especially China. The Middle Kingdom has responded to Trump’s tariffs on Chinese goods with its own tariffs on American goods, slowing America’s exports even more. Trump’s tax cuts meanwhile have stimulated demand for cheap Chinese goods.

If there is less than meets the eye to Trump’s allegedly stellar economy and trade policy, there is virtually nothing to see when it comes to his “big, beautiful” wall. He dropped his pledge to make Mexico pay for it right off the bat. And his every subsequent scheme to gin up wall funding has failed.

The brilliant negotiator overplayed his hand with Congress and torpedoed a deal on the table that would have given him money for the wall in exchange for legalizing the DREAMers (people who have grown up in this country as Americans without proper papers). But Trump demanded a 40 percent cut in legal immigration, prompting Democrats to walk. He then tried to declare an emergency on the border to justify raiding military funds for his wall. But the courts have put the kibosh on that scheme for now. All in all, he has managed to replace 57 miles of existing “barrier” and build nine miles of a new secondary barrier, a far cry from the 2,000 miles he’d said he’d build in the first year of his presidency.

And then there is Trump’s disastrous diplomacy.

He tore up Obama’s nuclear deal with Iran, denouncing it as “defective to its core,” and embarked on a strategy of “maximum pressure.” This involved reimposing an economic embargo barring Iran from selling oil, its main export, not only to the United States but to other countries as well. Trump even withdrew the waivers that a few countries had received to purchase Iranian crude oil. Trump’s hope was that such economic warfare would either bring the mullahs back to the negotiating table to settle for some tougher terms or prompt the Iranian people to overthrow them.

Neither has happened.

What has happened is that Iran has started re-enriching uranium beyond the limits allowed under the Obama deal. This means it could acquire a nuclear weapon much faster, thanks to Trump. Iran has also shot down an American drone, sabotaged several oil tankers passing through the Strait of Hormuz, which it controls, and, then, in a dazzling display of its potential for destruction, attacked major Saudi oil facilities, knocking out that country’s supply for several days.

All of this has brought the two sides close to the brink of war. Trump has himself admitted that he called off a retaliatory military strike against Iran literally from mid-air. But last week he once again warned that “if Iran does something, they’ll be hit like they’ve never been hit before.”

Nor are things going much better with North Korea’s Kim Jong Un, whom Trump had once threatened with “fire and fury” but is now feting and flattering. But the only tangible result of this perplexing switch in tactics is that Kim has fired off about 18 missiles. And these aren’t “very standard” short-range missiles, as Trump makes them out of be. They are new, mobile-launched, fast-moving projectiles that fly very low and are super maneuverable, making it more difficult to spot them or shoot them down. Since his last love fest with Trump in Singapore last year, Kim has also generated enough fuel for roughly a dozen new nuclear weapons.

So to recap: Trump has made America’s economy better by making its fiscal incontinence worse, he has grown the trade deficit, he has made little progress on building his wall, he is on a warpath with Iran, and his charm offensive with Kim Jong Un has generated personal love letters but not stopped that brutal dictator from proceeding apace with his nuclear ambitions.

Trump deserves some credit for getting al-Baghdadi. But otherwise, on his own terms, Trump’s presidency is shaping up to be a near zero.

A version of this column originally appeared in The Week.

 

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US Manufacturing Contracts For 3rd Straight Month As Production, Imports Plummet

US Manufacturing Contracts For 3rd Straight Month As Production, Imports Plummet

Following Chicago manufacturing’s survey collapse, September’s plunge in ISM Manufacturing, and October’s weakness in the Services ISM, all hope-filled eyes were on Manufacturing survey data this morning.

  • US Manufacturing PMI 51.3, up from 51.1 in September (missed expectations of 51.5)

  • US Manufacturing ISM 48.3, up from 47.8 in September (missed expectations of 48.9)

This is the third straight month of contraction (sub-50) for ISM, and this is after a surge in actual economic data in September and collapse in October.

Source: Bloomberg

Under the hood ISM is not pretty:

  • Production fell to 46.2 vs 47.3, lowest reading since April 2009

  • Imports fell to 45.3 vs 48.1, lowest reading since May 2009   

  • New orders rose to 49.1 vs 47.3

  • Employment rose to 47.7 vs 46.3

  • Supplier deliveries fell to 49.5 vs 51.1

  • Inventories rose to 48.9 vs 46.9

  • Customer inventories rose to 47.8 vs 45.5

  • Prices paid fell to 45.5 vs 49.7

  • Backlog of orders fell to 44.1 vs 45.1

  • New export orders rose to 50.4 vs 41.0 ?

Chris Williamson, Chief Business Economist at IHS Markit said:

Tentative signs of renewed vigor are appearing in the US manufacturing sector, with the survey’s production gauge having now risen for three successive months to suggest that the soft patch bottomed out in July. Growth of new orders hit a six-month high, fuelled in part by a renewed increase in exports, prompting producers to take on more staff, with payroll numbers rising at the quickest pace since May.

“The improvement in current conditions was matched by a lifting of business optimism about the year ahead to the highest seen since June. It was also encouraging to see this optimism feed through to an upturn in demand for investment goods, such as plant and machinery, as this hints that firms are moving back into expansion mode, albeit only tentatively so far.

However, while the outlook has improved, further growth is by no means assured. Survey respondents continue to report widespread concerns over issues such as tariffs, the auto sector’s ongoing malaise, a lack of pricing power amid weak demand and uncertainty about the economic and political situation over the coming year. While the survey data are moving in the right direction, the overall picture therefore remained one of only very modest growth and guarded optimism.”

So who do we believe? ISM or PMI?


Tyler Durden

Fri, 11/01/2019 – 10:04

via ZeroHedge News https://ift.tt/34kbl3n Tyler Durden

Trump’s Near-Zero Presidency

Candidate Donald Trump memorably promised to “bomb the s—” out of ISIS in 2015. And on that single count, President Trump has delivered: Although the Islamic State was already on the run before he assumed office, U.S. Special Operation Forces this past weekend killed ISIS leader Abu Bakr al-Baghdadi, dealing a body blow to the outfit. (Getting Baghdadi was never a stated priority of Trump’s, but let’s be generous.)

Unfortunately for Trump, bombing ISIS is one of the rarest of Trump phenomena: a vow he has actually delivered on. The Republican National Committee has created an entire website touting Trump’s “promises made, promises kept.” Surely it jests.

Trump pledged to boost growth, balance the books, build a wall, slash America’s trade deficit (particularly with China), renegotiate the Iran deal, and denuclearize North Korea. To the extent that he has delivered on the first, it is by cheating. On all the rest, he’s failed miserably. That’s not necessarily bad for the country, but it does confirm he’s a fake.

Trump boasts that America’s economy is “incredible” and “setting records on virtually every front.” In his telling, his combination of tax cuts and deregulation—what he refers to as his “magic wand”—has stimulated both the GDP and job growth.

But Michael Strain of the conservative American Enterprise Institute points out that Trump’s economy is a continuation of Barack Obama’s. The GDP grew at 4 percent during several quarters while Obama was president, although it had slowed to around 2.2 percent by the time he left office. After Trump arrived, the pace picked up, reaching 3.5 percent last year before falling to 2 percent this summer. As for jobs, during the final 19 months of the Obama presidency, the economy added 208,000 on average each month, compared to 189,000 jobs per month under Trump’s first 19 months in office. (The jobs report this morning shows that the U.S. economy is continuing its job-growth streak.)

It is true that the country has enjoyed the longest economic expansion perhaps ever and dodged a recession under Trump’s watch. But just like Obama, Trump has accomplished much of this through an artificial fiscal stimulus that is busting the national budget. Obama’s stimulus consisted of a trillion dollars in straight-up government spending at a time when the economy was in a recession. Trump’s consists of unpaid-for tax cuts and increased government spending at a time when the economy was already growing.

Indeed, government spending has jumped 22 percent on Trump’s watch. He has boosted America’s obscene level of military spending. And to get Democratic buy-in, he has signed off on most of their spending demands.

The upshot is that instead of eliminating the budget deficit “fairly quickly,” as he had promised, Trump has grown it to nearly a trillion dollars, putting America even further down the road to bankruptcy, just as he has done with many of his businesses. Stunningly, the deficit is now 50 percent higher than when he assumed office. America’s total government debt, meanwhile, has touched a whopping $22 trillion, bigger than the entire U.S. economy, which means that future generations will have to pay for Trump’s tax-cut-and-spend policies.

The budget deficit is not the only deficit that Trump has widened. The trade deficit is ballooning as well.

Unlike a budget deficit, a trade deficit is not necessarily a bad thing. But Trump believes that it is a scorecard that determines whether a country is “winning” or losing—with a big deficit indicating that other countries are making more money because they are selling us more. This is hilariously wrong. Everyone has a trade deficit with their local grocer, because they only buy from him and don’t sell anything back. But that does not mean they’re poorer for it. It only means they prefer to not starve rather than horde their cash. Furthermore, foreign exporters reinvest their dollars in America, by buying either the country’s ginormous debt (which lowers the cost of financing it) or private assets (fueling economic expansion).

So the trade deficit that Trump is obsessed about cutting has been very good for America. Yet Trump is hell-bent on eliminating it, even launching his ill-advised trade war with China to do so.

Has it worked? No. The opposite.

America’s deficit has widened from $503 billion to $628 billion since Trump assumed office. America has a bigger trade deficit with virtually every trading partner, but especially China. The Middle Kingdom has responded to Trump’s tariffs on Chinese goods with its own tariffs on American goods, slowing America’s exports even more. Trump’s tax cuts meanwhile have stimulated demand for cheap Chinese goods.

If there is less than meets the eye to Trump’s allegedly stellar economy and trade policy, there is virtually nothing to see when it comes to his “big, beautiful” wall. He dropped his pledge to make Mexico pay for it right off the bat. And his every subsequent scheme to gin up wall funding has failed.

The brilliant negotiator overplayed his hand with Congress and torpedoed a deal on the table that would have given him money for the wall in exchange for legalizing the DREAMers (people who have grown up in this country as Americans without proper papers). But Trump demanded a 40 percent cut in legal immigration, prompting Democrats to walk. He then tried to declare an emergency on the border to justify raiding military funds for his wall. But the courts have put the kibosh on that scheme for now. All in all, he has managed to replace 57 miles of existing “barrier” and build nine miles of a new secondary barrier, a far cry from the 2,000 miles he’d said he’d build in the first year of his presidency.

And then there is Trump’s disastrous diplomacy.

He tore up Obama’s nuclear deal with Iran, denouncing it as “defective to its core,” and embarked on a strategy of “maximum pressure.” This involved reimposing an economic embargo barring Iran from selling oil, its main export, not only to the United States but to other countries as well. Trump even withdrew the waivers that a few countries had received to purchase Iranian crude oil. Trump’s hope was that such economic warfare would either bring the mullahs back to the negotiating table to settle for some tougher terms or prompt the Iranian people to overthrow them.

Neither has happened.

What has happened is that Iran has started re-enriching uranium beyond the limits allowed under the Obama deal. This means it could acquire a nuclear weapon much faster, thanks to Trump. Iran has also shot down an American drone, sabotaged several oil tankers passing through the Strait of Hormuz, which it controls, and, then, in a dazzling display of its potential for destruction, attacked major Saudi oil facilities, knocking out that country’s supply for several days.

All of this has brought the two sides close to the brink of war. Trump has himself admitted that he called off a retaliatory military strike against Iran literally from mid-air. But last week he once again warned that “if Iran does something, they’ll be hit like they’ve never been hit before.”

Nor are things going much better with North Korea’s Kim Jong Un, whom Trump had once threatened with “fire and fury” but is now feting and flattering. But the only tangible result of this perplexing switch in tactics is that Kim has fired off about 18 missiles. And these aren’t “very standard” short-range missiles, as Trump makes them out of be. They are new, mobile-launched, fast-moving projectiles that fly very low and are super maneuverable, making it more difficult to spot them or shoot them down. Since his last love fest with Trump in Singapore last year, Kim has also generated enough fuel for roughly a dozen new nuclear weapons.

So to recap: Trump has made America’s economy better by making its fiscal incontinence worse, he has grown the trade deficit, he has made little progress on building his wall, he is on a warpath with Iran, and his charm offensive with Kim Jong Un has generated personal love letters but not stopped that brutal dictator from proceeding apace with his nuclear ambitions.

Trump deserves some credit for getting al-Baghdadi. But otherwise, on his own terms, Trump’s presidency is shaping up to be a near zero.

A version of this column originally appeared in The Week.

 

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The Restaurant Industry Is Saddled With Debt And Facing A Reckoning

The Restaurant Industry Is Saddled With Debt And Facing A Reckoning

The consequences of the last decade of cheap capital and artificially low interest rates are rearing their ugly head in the restaurant industry – and they’re just in time for a nice global consumer spending slowdown. 

Debt relative to earnings among companies in the Russell 2000 Restaurants Index is now near the highest on record, according to Bloomberg. And this trend looks as though it is only going to get worse as a result of new accounting rules that require more leases to now be recorded on company balance sheets. 

In addition to these accounting rule changes, growth in the industry is slowing as labor costs rise. 

Rob Hunziker, whose company Advanced Restaurant Sales provides brokerage services to the industry, said: “The debt has been so cheap the last four or five years. Now cash flows are starting to decline, and that debt is getting scary looking. There’s a problem, and it’s getting worse.”

Restaurant industry sales are estimated to grow 1.6% this year and 1.4% in 2020, comparing with average gains of 3.4% over the last five years. Additional data shows that while sales have risen modestly in recent years, customer visits are declining. The slowdown in growth will also undoubtedly mean that competition will intensify. 

Concern about the industry is visible in the loan market. For instance, NPC International, the world’s biggest operator of Pizza Hut franchises, saw its loans fall to distressed levels in August after quarterly results showed the company inching closer to breaching some of its debt covenants. 

When Burger King’s largest franchisee, Carrols Restaurant Group, took out a loan and credit line this year to expand, it came with restrictive covenants on the company’s leverage. The company is now forced to try and grow enough to boost sales, while not violating terms of its loan. The company’s stock is down 22% this year. 

The company’s credit line prevents it from expanding if its debt exceeds 4.75x annual EBITDA. This compares to a loan the company took out in 2012, when their limit was 6x EBITDA. 

SunTrust Robinson Humphrey analyst Jake Bartlett doesn’t see an issue, however. He said: “Carrols appears comfortably above its debt covenants.” Let’s see how long that lasts…

Michael Halen, restaurant analyst for Bloomberg Intelligence, said: “We expect very modest industry same-store sales gains in
the next few years as the aging of the baby boomers and weak immigration curtail demand growth.”

In some cases, companies took on debt to make payouts to shareholders. For instance, Lee Equity Partners acquired Taco Bell restaurants last year and boosted leverage to more than 6x EBITDA to issue a $96 million dividend. 

Yum Brands and other restaurant operators have grown increasingly concerned with franchisee debt loans, but in many cases the parent corporation is also guilty of running up huge tabs. Taco Bell, Dunkin Brands, Domino’s and Jack in the Box have all tapped the market for “whole-business securitizations”, a type of debt that allows companies to issue bonds backed by franchise fees and intellectual property. These types of financings usually help a company save on interest payments, as the securitization affords them an investment grade rating. 

But after pledging everything as collateral, parent corporations may not be keen to bail out franchisees by lowering royalty payments. 

Greg Grambling, head of restaurant investment banking at PJ Solomon, said: “When you have simultaneous excess leverage at both the franchisor and franchisee, that results in additional risk, and potentially unintended consequences.”

Pizza Hut operator NPC was downgraded in September by Moody’s and also had its rating cut twice by S&P this year. The cuts were due to the company’s leverage and spending requirements. S&P projects the company’s debt to EBITDA to move above 7x next year. 

And, of course, this all means rising prices for the consumer.

Yum is allowing Pizza Hut owners to offset higher costs with menu price hikes. During the summer, the chain added to its $5 lineup of fare to include calzones for $6. And on the West Coast, franchisees are allowed to charge as much as $7 because of rising wage costs. 

Chief Executive Officer Greg Creed said on a Q2 conference call: “We feel like our franchisees are generally in good health. At the same time, we’ll need to directly address franchisees who are burdened with too much debt, don’t have access to capital or aren’t committed to the long term. Some of these businesses will need to be restructured in the near term to address capital structure and leverage issues.”

Higher prices mean that restaurants run the increased risk of driving away business. 

In addition to allowing franchisees to hike prices, some parent companies are helping with procuring cheaper commodities and cutting remodel costs. McDonald’s, for instance, allowed some franchises to delay store remodels that cost between $150,000 and $750,000 by two years. We documented this in an article we wrote earlier this month about the company’s shift to a more “futuristic” model. 

This help still wasn’t enough for some franchisees. Greenville, SC based Dream Big Restaurants, a McDonald’s franchisee, filed for bankruptcy on September 27. The company owed McDonald’s about $600,000 in back rent, service fees and taxes.

However, average franchisee cash flow has been up for the last 11 months, according to McDonald’s CEO Steve Easterbrook. 

While the company claims to be “supporting franchisee health”, S&P analyst Diya Iyer notes that a changing customer environment presents a continued challenge.

“There is more pressure on these companies in terms of execution, performance and competition,” she concluded.


Tyler Durden

Fri, 11/01/2019 – 09:51

via ZeroHedge News https://ift.tt/2Nz9h0C Tyler Durden