A Shaky Foundation

And so castles made of sand fall in the sea, eventually.
– Jimi Hendrix

There’s a widespread belief out there that the U.S. and the global economy in general is on much sounder footing ever since the financial crisis of a decade ago. Unfortunately, this false assumption has resulted in widespread complacency and elevated levels of systemic risk as we enter the early part of the 2020s.

All it takes is a cursory amount of research to discover nothing was “reset” or fixed by the government and central bank response to that crisis. Rather, the entire response was just a gigantic coverup of the crimes and irresponsible behavior that occurred, coupled with a bailout designed to enrich and empower those who needed and deserved it least.

Everything was papered over in order to resuscitate a failed paradigm without reforming anything. Since it was all about pretending nothing was structurally wrong with the system, the response was to build more castles of sand on top of old ones that had unceremoniously crumbled. The whole event was a huge warning sign and opportunity to change course, but it was completely ignored. Enter novel coronavirus.

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Visa Slashes Q2 Revenue Outlook By 2.5-3.5% On Lower Asia Travel; Microchip Pulls Guidance

Visa Slashes Q2 Revenue Outlook By 2.5-3.5% On Lower Asia Travel; Microchip Pulls Guidance

With stocks desperate to put the coronavirus crisis behind them, and pretend as if the earnings impact will be non-existant, moments ago the world’s largest payments processor, Visa, joined the guide-down crew including its competitor Mastercard which cut guidance just last week, when it announced that it now sees 2Q net revenue growth to be about 2.5% to 3.5% percentage points lower than the outlook shared just one month ago, on January 30.

In an announcement after the close, Visa said that “cross-border growth rates have deteriorated week by week since the coronavirus outbreak in China, and trends through February 28, 2020 do not yet fully reflect the impact of the coronavirus spreading outside of Asia.” As a result, Visa anticipates “that this deteriorating trend has not bottomed out yet.” Full statement below:

“Visa has been actively monitoring the coronavirus, or COVID-19, situation and its impact globally. Our priority has been the safety of our employees, including comprehensive plans to support employee wellness, as well as support for our clients and the communities affected.

Through February 28, 2020, the most significant impact has been on travel to and from Asia. This has resulted in a sharp slowdown of our cross-border business, in particular travel related spending in both card present and card not present. Cross-border eCommerce unrelated to travel has thus far not been significantly impacted, except in some Asian markets. In markets where Visa processes the majority of our transactions, domestic spending growth, both credit and debit, remains largely stable with the exception of some impact in Hong Kong and Singapore.

Cross-border growth rates have deteriorated week by week since the coronavirus outbreak in China, and trends through February 28, 2020 do not yet fully reflect the impact of the coronavirus spreading outside of Asia. As such, we anticipate that this deteriorating trend has not bottomed out yet. Because the situation remains fluid, it is not possible to accurately forecast the growth trend for the rest of our second fiscal quarter or the remainder of fiscal 2020.

Based on trends through the end of February, and assuming some continuing deterioration in March, Visa expects second fiscal quarter net revenue growth to be approximately 2.5-3.5 percentage points lower than the outlook we shared on our January 30, 2020 earnings call.

Given the uncertainty surrounding the magnitude, duration and geographic reach of the coronavirus impact, we will update our views for future quarters and the fiscal full year 2020 on our second quarter earnings call in April.”

Following the news, Visa shares slumped and were trading down about 2% after the close.

And just to make sure investor ire wasn’t targeted on Visa alone, Microchip Technology also pulled the corona card when it announced that it is withdrawing its prior EPS guidance, and now sees 4Q net sales about flat sequentially down sharply from the previous guidance which saw net sales up 2% to up 9%.


Tyler Durden

Mon, 03/02/2020 – 16:48

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DoubleLine Deputy CIO: “The Coronavirus Outbreak Is Way Beyond The Fed’s Control”

DoubleLine Deputy CIO: “The Coronavirus Outbreak Is Way Beyond The Fed’s Control”

Submitted by Christoph Gieger of TheMarket.ch, an NZZ publication

Jeffrey Sherman, Deputy Chief Investment Officer at DoubleLine, expects the Federal Reserve to give in to the pressure from Wall Street. He advises investors to keep their emotions in check and shares his best investment ideas in an environment of fear.

The Interview

It’s not for the faint-hearted: Due to the global outbreak of the Coronavirus epidemic, the US stock market has lost 12% in one week. International equities have suffered similar losses.  Despite the violent turmoil, investors shouldn’t be led by emotions, advises Jeffrey Sherman. “Make sure you are patient. No move is better than a bad move,” says the deputy chief investment officer at the renowned investment boutique DoubleLine.

In this in-depth interview, Mr. Sherman explains why markets are primarily driven by fear of the unknown. Despite the flight to high-quality assets, he believes US treasuries are overpriced after the strong rally in recent days. He also spots risks in supposedly safe US investment grade corporate bonds.

According to his view, there are better opportunities in the structured credit markets. He also likes corporate bonds in Latin American countries such as Mexico, Brazil and Peru. If the outlook clears up and fear recedes, he believes commodities are the best place to bet on a rebound.

Mr. Sherman, the US stock market had its worst week since the financial crisis, the yield on ten-year treasuries dropped to a record low. What is your assessment of the situation?

There has been a lot of complacency within the financial markets, especially in the U.S. Now, something exogenous has started to wake them up, and having stretched valuations, people got nervous: Rates have started to move down and the stock market started to fall apart. The whole idea of nothing bad can happen got eroded very quickly. All of a sudden, fear is ramping, and it’s fear of the “known unknown”: We know the coronavirus outbreak is bad, but we don’t know how bad it’s going to get.

What do you think will happen next?

Bull markets are not always dying because of their own demise. Exogenous factors tend to help end them. For instance, think about the tech boom back in the late nineties. People always say that tech stocks just blew up, but an important catalyst was Y2K. It was this idea of something exogenous that panicked people and then fed into a selling frenzy.

But the Nasdaq Composite Index didn’t peak until March 2000.

I’m not saying Y2K crashed the world, but when you have fragility, it’s typically these exogenous things that can cause a change in sentiment. Y2K caused people to take a second look at those very stretched valuations and made them skeptical. All of a sudden, they started asking themselves: “Wait, why do I own all this stuff?” I’m not saying, we should panic or this is the end of the bull market. We’ve had other pullbacks before. But the crux of the matter is that valuations have been stretched for a while, we have been building massive debt loads and the fragility is there.

What are the biggest risks with respect to the coronavirus epidemic?

We haven’t seen something like this in a long time. Back in 2003, we had SARS. That virus incubates quickly and you are only contagious when you show symptoms. But when you have a Coronavirus infection, you are contagious without showing symptoms for a long time. That’s what has panicked people. It’s fear more than anything. With treasury yields this low, it’s undeniably a flight to quality.

Yet, other safe haven assets like ten-year government bonds in Germany, Japan and Switzerland didn’t hit record highs last week. Why not?

If I want to hide in cash in Europe right now, I have to pay a negative yield. Here in the U.S, I have at last a chance to make some money: People are buying treasuries because it’s a high-quality asset with a positive yield. Interestingly, many international investors are not even hedging their currency risk at this stage. We believe this is also the reason why there was some resilience in the dollar last year and this year until recently.

What is going on in the credit markets? Do you see any signs of stress?

Down the capital stack, lower quality stuff is being sold. The pressure is significant on the high yield market where stress is coming from anything leisure related: hotels, gaming, and definitely energy. It’s a complete sentiment shift: People want to own quality. But for me, it’s hard to want to buy treasuries when the entire yield curve gives me a negative real yield. At DoubleLine, we think inflation will end the year at almost 1.9%. Today, that’s greater than yield on the long bond. If you go out and buy treasuries, you have to think we’re going to have a global pandemic which is going to lead to a global recession. But that’s way too early to tell.

What are the chances of a global recession?

China’s contribution to the global economy is four times of what it was during SARS. Also, it’s hard to believe the Chinese data. We just don’t know if people are really getting back to work. Supposedly, Shanghai is almost back to full employment, but we won’t see it until the data comes through for another couple of months. We were recovering from the bad economic data of the summer, and this looks like another wrench in it. That’s why you see German data deteriorating once again, even if the latest PMI headline number went up. So here’s an outlandish idea of what the Coronavirus does: Maybe what you start to see is fiscal stimulus in Europe. The Germans may say: “We don’t have to run a surplus right now; we need to get money in people’s hands”. Maybe this is a catalyst for Europe to start stimulating the economy on the fiscal side, because the ECB cutting rates is not going to solve the problem.

With the financial markets in turmoil, all eyes are on the Central Banks. What are your expectations when it comes to monetary policy?

The market is bullying the Federal Reserve. Absent the Coronavirus outbreak, the Fed would have no reason to cut interest rates. Economic data was improving, the job market is strong, and wage growth is back at 3%. So I feel really bad for Mr. Powell. At the FOMC meeting on March 18th, he was hoping to go out there with bravado, pounding on his chest like King Kong and say: “Man, I saved the economy”. Now, the Fed has another challenge, but this is something way beyond its control. The Coronavirus can’t be fought with interest rates. This is a matter of confidence.

How about the chances of an emergency meeting?

I don’t think they have an emergency meeting to cut interest rates. But they are going to have to look at how fearful the market is. And, if there is still a lot of fear, they will cut interest rates because the market needs it. If it gets worse, the Fed may even give you a 50-basis-point cut. As of now, we’re running a death toll of less than 3000 people globally. That’s very unfortunate, but that doesn’t make it a pandemic. So if sentiment changes, bond yields could move up thirty or forty basis points in a month. That’s why we’re worried about duration. Maybe you want to own treasuries against fear. But at this stage, it’s hard to really want to buy more.

What is the Fed going to do in terms of its “Not-QE”-program?

We criticize the Fed a lot, but they did what they had to do. They had a problem back in September when the effective Fed Funds Rate was outside of their target range. So they came in quick and heavy. The liquidity facilities have undeniably got the market back in line. But after the Fed’s balance sheet is back up again, they’re not going to rewind it; not in this type of market. Then again, we also have an election coming up and the Fed doesn’t want to be perceived as helping President Trump.

We’re heading right into Super Tuesday with no less than fourteen states voting on March 3th. How will the presidential election impact the financial markets?

Both sides are kind of crazy: We got crazy Bernie, and we got crazy Donald. So the Democrat’s plan is to fight crazy with crazy. I don’t think Bernie can get his socialist agenda done, but I don’t know how to read him. Bernie is true to his roots and he has a very big fan club, also here in California. And, his supporters are sticky, like Trump’s people. So it’s very hard to predict what’s going to happen at this stage. The market thinks Bernie is going to win the Democratic nomination, but that he can’t beat Trump – and “can’t” is a very dangerous game. In investing, it’s like thinking “I can’t lose”. It’s gambling at that point. Remember, a lot of people couldn’t see Trump winning in 2016, either. It’s way too early to tell and more importantly: You wouldn’t want to bet your portfolio on it, either way.

What’s your outlook for the U.S. economy against this backdrop?

A big-time slowdown in China will also hurt the U.S. But if we grow at 1% instead of 2%, that’s not going to kill us. It’s all about the job market and jobless claims where we are still very near the lows of the cycle. Also, you’re talking of a budget expansion of about 4.5% of GDP. That’s an eerie number since it’s essentially where nominal GDP came in last year. So this is a financed scheme: All of our growth is coming from the expansion of public sector debt, and I don’t even bring in private sector debt or personal loans like mortgages. Since the financial crisis, the whole economic expansion was fueled on debt. It’s been a completely financed ride. I don’t see that stopping. Trump wants to spend more money, and the Democrats are good at spending as well.

What should investors do in this environment?

Make sure you are patient. No move is better than a bad move. Sure, this correction makes things more attractive, but you don’t have to step in after week one. These are just things you can’t really forecast. For instance, think about what happened with 9/11. That hurt travel for about three years. Heck, we still have to take off our shoes and keep our plastics in there at the airport. So keep watching, reassess the situation and don’t get caught in emotions which is the hardest thing to do. Assume this is going to take longer than you think. If you didn’t chase this latest rally, you’re in a good position. That’s my advice: Just make sure you don’t feel you have to check your portfolio every day. If you have to, you are off-sides.

Where do you want to be extra careful?

Don’t chase the investment grade market. There’s a hidden risk in there called duration. For the U.S. Aggregate Bond Index, the duration is north of eight years. That’s the longest since its inception. What scares me about Corporate America is that we have extended the leverage out very high. Today, leverage ratios in the investment grade space commensurate with a recession: They’re not foretelling of a recession, but today’s leverage levels are typical to what you see in the middle of a recession. Usually earnings have to collapse to get you to these levels. So the leverage continues to get higher, the yields get lower and the quality of the asset compared to the leverage doesn’t look as good. Interest coverage is fine, but interest coverage will deteriorate in a recession because earnings go down. So I’m not scared of defaults, I just don’t like the risk-return tradeoff.

Where do you spot better opportunities for investors?

There’s a lot of ways to still bet on the U.S. The securitized credit market is one area where we’re taking those bets. It performed decently last year, but lagged other credit markets. The interesting thing about the securitized market is that the bulk of it has physical assets behind it. Think about solar, wind farms or hydroelectric plants. You can invest in freight, cargo or shipping deals. There’s a lot of stuff out there with physical assets that back the cash flows, the leverage is a lot lower and there is more flexibility if we get some inflation. You can also go into the residential mortgage market: You have people that need to buy, that need to move and there’s physical property behind it.

Where else are good places to invest right now?

Another thing that we look at as a credit play is emerging markets. Here, you want to focus more on corporates because the sovereigns have too much duration. You can take dollar denominated investment grade debt for a commensurate credit risk versus a U.S. company, and you get a yield pickup of hundreds of basis points with less duration. So if you look at EM corporates, you can buy a decent quality investment grade portfolio with attractive yields, and maybe even put 20% of it below investment grade.

On which countries are you focusing on in the emerging markets world?

I would not try to catch a falling knife right now. So I would not be in Hong Kong or in Korea. Looking at companies that have good businesses, you are going to have to buy some commodity producers just because they have been really beaten up. Our EM team feels like Mexico, Brazil and Peru are the places to be right now. They have a little exposure to Eastern Europe, but they are not heavily invested in Eastern Asia.

Based on the Barclays Shiller Cape Sector Index, you’re also managing a fund which invests in stocks. What are the most attractively valued sectors right now?

Since we’ve just rebalanced the fund, I can only name two of the sectors that have been in there for a long time: Tech and communications, and they will continue to be in there for sure. We’re not owning energy. Even though energy is cheap, the momentum is horrible. I think the U.S. needs to wake up to the idea that it is the new swing producer. Despite all these OPEC output cuts, the U.S. still sets new records in terms of production. We need to learn to dial the spigot back a little bit, but these E&P companies are levered and have problems. So you can easily see crude going down to $40 which will cause even more trouble for these companies.

And how about commodities in general?

It’s hard to be in the commodity space today. But fear can subside or erase too – and that would be a good time to look at commodities again. If there is a place that should see the rebound it is commodities. We also like them for the anti-dollar play, but we have to get through this global turmoil right now. I want to see some stabilization globally to be more constructive. What’s more, you should own precious metals for a “what if”-scenario. But I’m not a buyer of gold here. Unless the world is going to get more dire, I wouldn’t add to gold at this point.


Tyler Durden

Mon, 03/02/2020 – 16:45

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Will Tennessee Finally Reform Its Draconian Drug-Free School Zone Laws?

A bill moving through the Tennessee state legislature would reform the state’s harsh drug-free school zone laws, which were the subject of a 2017 Reason investigation.

The Tennessee House Judiciary Committee advanced a bill last Wednesday, sponsored by Republican state Rep. Michael Curcio, that would reduce the sizes of the zones. They currently cover the area within 1,000 feet of any school, park, library, or day care; the legislation would reduce that to 500 feet. It would also remove the mandatory minimum sentences for drug offenses within the zones and give judges discretion to waive sentencing enhancements in certain circumstances.

Tennessee’s laws blanket large swaths of the cities, turning minor drug violations into mandatory sentences that rival—and sometimes exceed—punishments for rape and murder.

“While this was well-intentioned, unfortunately this policy has not been accomplishing the outcome that the legislature intended,” Curcio said during Wednesday’s committee hearing. “The main reason for this failure is that drug offenders are not often affected by deterrence-based policies.”

“It would also be my argument today that these zones cast far too wide a net in our communities,” Curcio continued. “While 1,000 feet might not sound like a lot, over a quarter of the state’s total land area within city limits are within a zone.”

Curcio cited Reason‘s data showing that more than a quarter of the state’s total land area within city limits is covered by drug-free zones. For example, drug-free zones cover 38 percent of Memphis and 58 percent of East Knoxville.

Drug-free zones spread across all 50 states throughout the 1980s and ’90s, as legislators clamored for ways to keep drugs away from children. But civil liberties groups, and even some prosecutors, say the laws are rarely if ever used in actual cases of dealing drugs to minors. 

In Tennessee the laws apply even when school is out of session, when the defendant is in a private residence, or he or she just happens to be driving through a zone.

“The unintended consequence of such a large zone is that the law affects more individuals than the general assembly meant to target,” Curcio said.

One such case was Calvin Bryant, who at age 20 was sentenced in 2008 to 17 years in Tennessee state prison—15 of them mandatory—for selling ecstasy to a confidential informant out of his Nashville apartment, which happened to be within 1,000 feet of a school.

If Bryant had been convicted of second-degree murder, he would have been eligible for an earlier release. That crime carries a minimum 15-year sentence but includes a possibility for release within 13.

After serving 10 and a half years in prison, Bryant was released in 2018 after prosecutors struck a deal to release him on time served. Bryant now mentors inner-city youth through a nonprofit organization he started.

“I hold myself accountable for participating in a drug transaction, but do I feel like I should have gotten 17 years?” he testified at Wednesday’s hearing. “I don’t.”

Reason found another case of 20-year-old first-time offender who was sentenced to a mandatory 15 years in prison for selling psychedelic mushrooms to a confidential informant for $80.

Bryant told lawmakers that while he was incarcerated, he and other drug-free school zone offenders were ineligible for classes or other educational programming because of their mandatory minimum sentences.

“There were no chances for me to take classes with this charge because I was serving 100 percent, a mandatory minimum,” Bryant testified. “Due to us not earning good time, we don’t get to participate in classes, so it’s hard to better yourself in that kind of situation.”

Currently, 358 Tennessee inmates are serving sentences for drug-free school zone offenses, according to data from the Tennessee Department of Corrections obtained by Lauren Krisai, a senior policy analyst at the Justice Action Network. (Krisai is also the former criminal justice director of the Reason Foundation, which publishes this website, and she co-authored Reason‘s 2017 investigation.)

That number does not include cases where prosecutors dropped school zone charges in exchange for a guilty plea. The threat of a drug-free school zone charge gives prosecutors enormous leverage to extract plea deals.

“With the enhancement, what was happening was somebody might have a couple grams of cocaine, and they’d go to court, hoping to get probation for simple possession,” Nashville District Attorney Glenn Funk told Reason in 2017. “Their lawyer would then tell them it’s a school zone case, and they’re looking at 15 to 25 years in prison. The state offers them eight years to serve at 30 percent, or a 10-year probationary period or something. If the client persists, the lawyer has to say, ‘Do you feel lucky? Because if you go to trial and lose, you won’t be home for the next couple of decades.'”

Part of Funk’s platform when he ran for district attorney included prosecuting drug-free school zone offenses only in cases that involved child endangerment. 

State lawmakers introduced similar legislation in 2018, but that bill died in committee when district attorneys pulled their support.

Bryant told state legislators that he hopes future bills will include relief for those still incarcerated.

“It’s kind of rough when you’re sitting in prison and your injustice is being used for other people’s justice that haven’t really committed crimes yet,” Bryant said. “I pray there’s some relief for them down the line.

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Will Coronavirus Be the Sweet Matzo Ball of Death?

People say a lot of things about the coronavirus. For instance, that the United States should “lock down our borders” in response, or that the Trump administration has recklessly “gutted” the Centers for Disease Control, or that the rubes have foolishly stopped drinking Corona for health reasons instead of taste reasons.

Nonsense cubed, argue Peter Suderman, Katherine Mangu-Ward, Nick Gillespie, and Matt Welch on a particularly metaphor-crazed Reason Roundtable podcast today. What is the “libertarian response to pandemics”? You’ll have to listen to find out. Other topics coming up for discussion: the unbearable oldness of the Democratic presidential field, the increasing sourness of sci-fi legend William Gibson, and whether baseball, Batman, or The Omega Man provide the surest blueprint for our times.

Audio production by Ian Keyser and Regan Taylor.

Music credit: ‘What It Is’ by Silent Partner.

Relevant links from the show:

No, Trump Didn’t Cut the CDC’s Coronavirus Budget. No, People Aren’t Blaming Corona Beer for the Disease,” by Eric Boehm

Political Opportunists Are Using Coronavirus Fears To Push Whatever Policies They Already Wanted,” by Eric Boehm

Coronavirus: Is It Time To Panic?” by Elizabeth Nolan Brown

Big Biotech Is Hustling To Beat Coronavirus,” by Ronald Bailey

Joe Biden Wins South Carolina Primary, Slowing Bernie Sanders’ Momentum Before Super Tuesday,” by Eric Boehm

Pete Buttigieg Drops Out of Presidential Race Following Poor South Carolina Showing,” by Scott Shackford

Bloomberg Is a Statist, Not a Centrist,” by Matt Welch

Klobuchar’s Tough-on-Crime Past Finally Comes Back to Bite Her,” by Elizabeth Nolan Brown

The Cyberpunk Future That Wasn’t,” by Jesse Walker

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Hillary Clinton Ordered To Give Sworn Deposition After Judge Tosses ‘Preposterous’ Defense

Hillary Clinton Ordered To Give Sworn Deposition After Judge Tosses ‘Preposterous’ Defense

Hillary Clinton has been ordered to give a sworn deposition to Judicial Watch regarding her emails and documents related to the attack on the US consulate in Benghazi, Libya while she was Secretary of State.

The ruling is in response to the conservative legal group’s lawsuit, “Judicial Watch v. U.S. Department of State” – specifically regarding “talking points or updates on the Benghazi attack.”

Judicial Watch famously uncovered in 2014 that the “talking points” that provided the basis for Susan Rice’s false statements were created by the Obama White House. This Freedom of Information Act (FOIA) lawsuit led directly to the disclosure of the Clinton email system in 2015. –Judicial Watch

Discovery in the case began in December, 2018, when Judge Royce C. Lamberth allowed Judicial Watch to explore whether Clinton’s use of a private email server was intended to circumvent the Freedom of Information Act (FOIA). JW also sought to determine: “whether the State Department’s intent to settle this case in late 2014 and early 2015 amounted to bad faith; and whether the State Department has adequately searched for records responsive to Judicial Watch’s request.”

The court also authorized discovery into whether the Benghazi controversy motivated the cover-up of Clinton’s email. The court ruled that the Clinton email system was “one of the gravest modern offenses to government transparency.” The State and Justice Departments continued to defend Clinton’s and the agency’s email  conduct. –Judicial Watch

On Monday, Judge Lamberth overruled Clinton and the State Department’s objections to limited additional discovery, writing “Discovery up until this point has brought to light a noteworthy amount of relevant information, but Judicial Watch requests an additional round of discovery, and understandably so. With each passing round of discovery, the Court is left with more questions than answers.”

Lamberth also said that he is troubled by the fact that both Clinton and the State Department want discovery to end.

[T]here is still more to learn. Even though many important questions remain unanswered, the Justice Department inexplicably still takes the position that the court should close discovery and rule on dispositive motions. The Court is especially troubled by this. To argue that the Court now has enough information to determine whether State conducted an adequate search is preposterous, especially when considering State’s deficient representations regarding the existence of additional Clinton emails. Instead, the Court will authorize a new round of discovery -Judge Lamberth

Furthermore, Lamberth found that Clinton’s prior testimony in the case – mostly given through sworn answers, was insufficient. 

The Court has considered the numerous times in which Secretary Clinton said she could not recall or remember certain details in her prior interrogatory answers. In a deposition, it is more likely that plaintiff’s counsel could use documents and other testimony to attempt to refresh her recollection. And so, to avoid the unsatisfying and inefficient outcome of multiple rounds of fruitless interrogatories and move this almost six-year-old case closer to its conclusion, Judicial Watch will be permitted to clarify and further explore Secretary Clinton’s answers in person and immediately after she gives them. The Court agrees with Judicial Watch – it is time to hear directly from Secretary Clinton. -Judge Lamberth

“Judicial Watch uncovered the Clinton email scandal and we’re pleased that the court authorized us to depose Mrs. Clinton directly on her email conduct and how it impacted the people’s ‘right to know’ under FOIA,” said JW President Tom Fitton.


Tyler Durden

Mon, 03/02/2020 – 16:25

via ZeroHedge News https://ift.tt/39iVYvd Tyler Durden

Will Tennessee Finally Reform Its Draconian Drug-Free School Zone Laws?

A bill moving through the Tennessee state legislature would reform the state’s harsh drug-free school zone laws, which were the subject of a 2017 Reason investigation.

The Tennessee House Judiciary Committee advanced a bill last Wednesday, sponsored by Republican state Rep. Michael Curcio, that would reduce the sizes of the zones. They currently cover the area within 1,000 feet of any school, park, library, or day care; the legislation would reduce that to 500 feet. It would also remove the mandatory minimum sentences for drug offenses within the zones and give judges discretion to waive sentencing enhancements in certain circumstances.

Tennessee’s laws blanket large swaths of the cities, turning minor drug violations into mandatory sentences that rival—and sometimes exceed—punishments for rape and murder.

“While this was well-intentioned, unfortunately this policy has not been accomplishing the outcome that the legislature intended,” Curcio said during Wednesday’s committee hearing. “The main reason for this failure is that drug offenders are not often affected by deterrence-based policies.”

“It would also be my argument today that these zones cast far too wide a net in our communities,” Curcio continued. “While 1,000 feet might not sound like a lot, over a quarter of the state’s total land area within city limits are within a zone.”

Curcio cited Reason‘s data showing that more than a quarter of the state’s total land area within city limits is covered by drug-free zones. For example, drug-free zones cover 38 percent of Memphis and 58 percent of East Knoxville.

Drug-free zones spread across all 50 states throughout the 1980s and ’90s, as legislators clamored for ways to keep drugs away from children. But civil liberties groups, and even some prosecutors, say the laws are rarely if ever used in actual cases of dealing drugs to minors. 

In Tennessee the laws apply even when school is out of session, when the defendant is in a private residence, or he or she just happens to be driving through a zone.

“The unintended consequence of such a large zone is that the law affects more individuals than the general assembly meant to target,” Curcio said.

One such case was Calvin Bryant, who at age 20 was sentenced in 2008 to 17 years in Tennessee state prison—15 of them mandatory—for selling ecstasy to a confidential informant out of his Nashville apartment, which happened to be within 1,000 feet of a school.

If Bryant had been convicted of second-degree murder, he would have been eligible for an earlier release. That crime carries a minimum 15-year sentence but includes a possibility for release within 13.

After serving 10 and a half years in prison, Bryant was released in 2018 after prosecutors struck a deal to release him on time served. Bryant now mentors inner-city youth through a nonprofit organization he started.

“I hold myself accountable for participating in a drug transaction, but do I feel like I should have gotten 17 years?” he testified at Wednesday’s hearing. “I don’t.”

Reason found another case of 20-year-old first-time offender who was sentenced to a mandatory 15 years in prison for selling psychedelic mushrooms to a confidential informant for $80.

Bryant told lawmakers that while he was incarcerated, he and other drug-free school zone offenders were ineligible for classes or other educational programming because of their mandatory minimum sentences.

“There were no chances for me to take classes with this charge because I was serving 100 percent, a mandatory minimum,” Bryant testified. “Due to us not earning good time, we don’t get to participate in classes, so it’s hard to better yourself in that kind of situation.”

Currently, 358 Tennessee inmates are serving sentences for drug-free school zone offenses, according to data from the Tennessee Department of Corrections obtained by Lauren Krisai, a senior policy analyst at the Justice Action Network. (Krisai is also the former criminal justice director of the Reason Foundation, which publishes this website, and she co-authored Reason‘s 2017 investigation.)

That number does not include cases where prosecutors dropped school zone charges in exchange for a guilty plea. The threat of a drug-free school zone charge gives prosecutors enormous leverage to extract plea deals.

“With the enhancement, what was happening was somebody might have a couple grams of cocaine, and they’d go to court, hoping to get probation for simple possession,” Nashville District Attorney Glenn Funk told Reason in 2017. “Their lawyer would then tell them it’s a school zone case, and they’re looking at 15 to 25 years in prison. The state offers them eight years to serve at 30 percent, or a 10-year probationary period or something. If the client persists, the lawyer has to say, ‘Do you feel lucky? Because if you go to trial and lose, you won’t be home for the next couple of decades.'”

Part of Funk’s platform when he ran for district attorney included prosecuting drug-free school zone offenses only in cases that involved child endangerment. 

State lawmakers introduced similar legislation in 2018, but that bill died in committee when district attorneys pulled their support.

Bryant told state legislators that he hopes future bills will include relief for those still incarcerated.

“It’s kind of rough when you’re sitting in prison and your injustice is being used for other people’s justice that haven’t really committed crimes yet,” Bryant said. “I pray there’s some relief for them down the line.

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Will Coronavirus Be the Sweet Matzo Ball of Death?

People say a lot of things about the coronavirus. For instance, that the United States should “lock down our borders” in response, or that the Trump administration has recklessly “gutted” the Centers for Disease Control, or that the rubes have foolishly stopped drinking Corona for health reasons instead of taste reasons.

Nonsense cubed, argue Peter Suderman, Katherine Mangu-Ward, Nick Gillespie, and Matt Welch on a particularly metaphor-crazed Reason Roundtable podcast today. What is the “libertarian response to pandemics”? You’ll have to listen to find out. Other topics coming up for discussion: the unbearable oldness of the Democratic presidential field, the increasing sourness of sci-fi legend William Gibson, and whether baseball, Batman, or The Omega Man provide the surest blueprint for our times.

Audio production by Ian Keyser and Regan Taylor.

Music credit: ‘What It Is’ by Silent Partner.

Relevant links from the show:

No, Trump Didn’t Cut the CDC’s Coronavirus Budget. No, People Aren’t Blaming Corona Beer for the Disease,” by Eric Boehm

Political Opportunists Are Using Coronavirus Fears To Push Whatever Policies They Already Wanted,” by Eric Boehm

Coronavirus: Is It Time To Panic?” by Elizabeth Nolan Brown

Big Biotech Is Hustling To Beat Coronavirus,” by Ronald Bailey

Joe Biden Wins South Carolina Primary, Slowing Bernie Sanders’ Momentum Before Super Tuesday,” by Eric Boehm

Pete Buttigieg Drops Out of Presidential Race Following Poor South Carolina Showing,” by Scott Shackford

Bloomberg Is a Statist, Not a Centrist,” by Matt Welch

Klobuchar’s Tough-on-Crime Past Finally Comes Back to Bite Her,” by Elizabeth Nolan Brown

The Cyberpunk Future That Wasn’t,” by Jesse Walker

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Are Quarantines a Proportionate Response to the Coronavirus?

Now that COVID-19, the coronavirus disease that has infected an estimated 89,000 people worldwide, seems to spreading within the United States, we will hear more discussion of coercive measures aimed at curtailing it, including increased use of quarantines and mandatory cancellation of large-scale public events. In principle, an actual epidemic—as opposed to metaphorical “epidemics” of self-endangering behavior—can justify the use of force to protect the public against a potentially deadly threat that moves from person to person. But deciding whether a particular intervention is appropriate requires weighing several factors.

How easily is the disease transmitted?

While some pathogenic microorganisms, such as the Ebola virus, spread primarily through direct contact with the blood, bodily fluids, and skin of infected individuals, COVID-19, like the common cold, can be transmitted via airborne particles. According to the U.S. Centers for Disease Control and Prevention (CDC), COVID-19 “is thought to spread mainly from person to person” through “close contact,” defined as prolonged proximity within six feet. The virus also can spread through respiratory droplets generated by coughs and sneezes. The CDC adds that “it may be possible that a person can get COVID-19 by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes, but this is not thought to be the main way the virus spreads.”

Although COVID-19 is easier to catch than Ebola, it is far less contagious than, for example, measles. “Measles is so contagious,” the CDC says, “that if one person has it, up to 90% of the people close to that person who are not immune will also become infected.” According to commonly cited estimates, the average measles carrier can be expected to infect 12 to 18 people in a susceptible population. The World Health Organization estimates that the corresponding number for COVID-19 is between 1.4 and 2.5, compared to roughly 1.3 for influenza.

How deadly is the disease?

The current estimate of fatalities caused COVID-19 is about 3,000 out of 89,000 identified cases, which suggests a death rate of 3.4 percent. But there is a lot of uncertainty about the denominator, since not all cases are confirmed and many cases in asymptomatic individuals probably have not been detected yet. A study of more than 72,000 COVID-19 patients in China, reported in The Journal of the American Medical Association, puts the fatality rate at 2.3 percent, essentially the same as the rate among 355 cruise ship passengers infected with the virus, according to a study published in the International Journal of Infectious Diseases.

The vast majority of cases (more than 80 percent in the China study) involve mild symptoms, and the death rate varies widely by age. In the China study, the death rate was 8 percent for patients in their seventies and nearly 15 percent for patients 80 or older. The death rate also was especially high among people with pre-existing medical conditions: 10.5 percent for cardiovascular disease, 7.3 percent for diabetes, 6.3 percent for chronic respiratory disease, 6 percent for hypertension, and 5.6 percent for cancer. No deaths among children 9 or younger were reported.

The 2.3 percent overall case fatality rate (CFR) for COVID-19 is much lower than the rates for the SARS (severe acute respiratory syndrome) outbreak of 2003 (9.6 percent) and the ongoing MERS (Middle East respiratory syndrome) outbreak (34.4 percent). Estimated CFRs for the 2009 influenza pandemic vary widely, with some studies reporting rates as high as 10 percent. The CFR for the 1918 Spanish flu pandemic, which affected about one-third of the world population and caused some 50 million deaths, was somewhere between 2 percent and 5 percent.

How long is the incubation period?

The World Health Organization says someone can be infected by COVID-19 for up to 14 days without showing symptoms.

How severe is the proposed intervention?

The Chinese government imposed a quarantine on the area around Wuhan, a city of 11 million that was at the center of the COVID-19 outbreak. It also imposed travel restrictions that have affected around 780 million people. In the United States—where 90 cases have been reported so far, including six fatalities—such interventions have been much more narrowly tailored, limited to restrictions on foreign visitors, isolation of hospitalized COVID-19 patients, mandatory quarantines of travelers returning from areas affected by the epidemic, and voluntary home quarantines of people who have been infected but do not require treatment.

The legal authority for such measures is broad. The Public Health Service Act empowers the secretary of health and human services to “to make and enforce such regulations as in his judgment are necessary to prevent the introduction, transmission, or spread of communicable diseases from foreign countries into the States or possessions, or from one State or possession into any other State or possession.”

In Washington, the first state to see signs of COVID-19 transmission within the local community, the state board of health is charged with writing “rules for the imposition and use of isolation and quarantine.” Under the board’s rules, a local health officer, “at his or her sole discretion,” can issue “an emergency detention order causing a person or group of persons to be immediately detained for purposes of isolation or quarantine” when he “has reason to believe” that they are infected by a “communicable disease” and that they “would pose a serious and imminent risk to the health and safety of others if not detained for purposes of isolation or quarantine.”

A health officer also can seek an ex parte court order to enforce isolation or quarantine, which the court “shall issue” if there is a “reasonable basis to find that isolation or quarantine is necessary to prevent a serious and imminent risk to the health and safety of others.” Those orders last up to 10 days but can be extended up to a month by a court, based on “clear, cogent, and convincing evidence that isolation or quarantine is necessary to prevent a serious and imminent risk to the health and safety of others.”

There are several restrictions on that authority. The health officer must first make “reasonable efforts, which shall be documented, to obtain voluntary compliance” or else determine, “in his or her professional judgment,” that “seeking voluntary compliance would create a risk of serious harm.” The rules also specify that “isolation or quarantine must be by the least restrictive means necessary to prevent the spread of a communicable or possibly communicable disease to others.” The health status of individuals subject to orders “must be monitored regularly to determine if they require continued isolation or quarantine,” and they “must be released as soon as practicable” when the health officer determines that they no longer pose a threat. Quarantined or isolated individuals have a right to petition for release, with the assistance of court-appointed counsel, in which case the government has to “show cause” for their continued detention.

Is the intervention likely to be effective?

It remains controversial whether China’s quarantine of the Wuhan area and the associated travel restrictions did much to slow the spread of COVID-19. Critics of the Chinese quarantine argued that it entailed a massive violation of civil liberties and was in some respects counterproductive.

“There have, in fact, been numerous, and in some cases fatal, unintended knock-on effects of the quarantine,” Sharon Begley noted last month in a STAT News story. “People were unable to reach sick, elderly parents in Wuhan, let alone take them out of the city for treatment of heart disease, cancer, diabetes, and other illnesses. This week, UNAIDS announced that one-third of people in China who are living with HIV reported that because of lockdowns and travel restrictions they were at risk of running out of their HIV medications within days. And China’s economy has slowed to a crawl.”

Nor is it clear that the more targeted approach in the United States will have much of an impact. “A substantial proportion of secondary transmission may occur prior to illness onset,” three researchers at Japan’s Hokkaido University wrote in an analysis published last month. “Pre-symptomatic transmission…may even occur more frequently than symptomatic transmission.” Quarantine and isolation cannot reach carriers who do not seem to be sick and have no known risk factors, such as visiting the Wuhan area or interacting with COVID-9 patients.

Are quarantines a proportionate response to the threat that COVID-9 poses in the United States? “I don’t think that we have seen enough proof, in any cases, that quarantine is necessary for this particular virus,” bioethicist Kelly Hills told Business Insider last month. “It doesn’t meet what we would consider the minimum standards necessary for violating somebody’s civil rights.”

In a Journal of the American Association commentary published last month, bioethicists Lawrence Gostin and James Hodge argued that “quarantines of passengers arriving from mainland China appear excessive and are inconsistent with available epidemiologic data.” They noted that “thousands of US residents who have returned from China are already sheltering at home,” adding that “home quarantine orders are lawful, effective, and more respectful of individual rights to liberty and privacy than restrictive, off-site measures.”

The Cato Institute’s Alex Nowrasteh argues that “extreme options like travel and immigration bans” would be more expensive than can be justified based on what we currently know about COVID-9. “The cheapest and most effective way to combat the transmission of flu-type viruses is proper hand hygiene,” he notes, recommending increased use of hand sanitizers, especially at airports and nursing homes.

Nowaresteh also notes that mass quarantines can backfire. “It’s difficult to know who is sick and who is not, so quarantines end up locking many sick people in with many healthy people,” he writes. “Healthy people and those who think they are healthy understand accurately that they would reduce their chance of becoming ill if they emigrate. By doing that, some people transmit the disease. Under some scenarios, the stricter the quarantine, the more people invest in emigrating. Sometimes, this behavioral response results in wider transmission of the disease.”

In a society that values civil liberties, forcibly detaining people who may be carrying a disease that is readily transmissible but has a relatively low case fatality rate is not a step that should be taken lightly. And assuming it can be justified, the burdens it imposes should be mitigated as much as possible.

The New York Times recently highlighted the case of Frank Wucinski, a Pennsylvania native who was evacuated from Wuhan with his 3-year-old daughter in early February. They spent 14 days in quarantine, including two mandatory stays at a children’s hospital near San Diego. Afterward Wucinksi was billed about $4,000 for medical services he was forced to receive. People deprived of their freedom for the benefit of the general public through no fault of their own should be indemnified against such costs.

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Panic-Buying Sends Dow To Best Point-Gain Ever On Hopes Of Intervention

Panic-Buying Sends Dow To Best Point-Gain Ever On Hopes Of Intervention

The BoJ bought a bucketload of ETFs overnight,and lifted Japanese stocks. The PBOC‘s National Team performed miracles lifting Chinese stocks amid collapsing PMIs. The IMF/World Bank promised “help” and everyone is now anticipating the G7 – because they’ve always been so great at agreeing on a unifying action!

And all of that (along with Jay Powell‘s brief statement on Friday and Kudlow/Mnuchin’s calls for an emergency rate cut) was enough to lift US stocks, but a ton of worsening US virus headlines sparked some weakness as the day wore on, only to be rescued by Trump’s optimistic tone on vaccines and treatments…

Notably, S&P and Nasdaq broke above critical technical levels in the last few panic-buying minutes…

The market priced in 75bps of cuts in March earlier today, but slipped back to 50bps as stocks rallied…

Source: Bloomberg

Chinese markets were aggressively bid last night by someone…

Source: Bloomberg

And Japanese markets went vertical after the Sunday night open…

European markets were mostly higher today (ex Italy)…

Source: Bloomberg

S&P topped 3,000; Dow topped 26,000 (and led the day). Trannies were unable to stay positive…

This was The Dow’s biggest percentage gain since March 2009 (QE1 announced) AND bigger than the last time the PPT saved the world in Dec 2018 (Dow +1086 points that day)…

AAPL helped lift markets today with its buyback program raising the stock 7%!!

The big banks bounced after their bloodbath…

Source: Bloomberg

But while airlines bounced off opening lows, they ended red again (7th down day in a row, 11th drop in last 12)…

Source: Bloomberg

 

 

Source: Bloomberg

 

 

Source: Bloomberg

 

 

 

Source: Bloomberg

VIX fell today by the most since XIVmageddon in Feb 2018…

Stocks notably decoupled from bonds today, until the last hour when it seemed like more pension rebalancing sparked bond-selling, stock-buying…

Source: Bloomberg

Treasury yields collapsed today – led by the short-end, before blowing out late on…

Source: Bloomberg

The long-end bond yields broke a 7-day compression streak…

 

Source: Bloomberg

Yield curve

 

Source: Bloomberg

The Dollar was clubbed like a baby seal today, plunging most since Sep 2019…

Source: Bloomberg

Bitcoin rallied for the first day in the last 8…

Source: Bloomberg

 

 

 

Source: Bloomberg

Commodities were all higher as the dollar plunged with crude soaring and PMs barely clinging on…

Source: Bloomberg

Gold slipped back below $1600 after breaking above it earlier…

Source: Bloomberg

WTI roared over 4% back above $47 after opening down over 3% at around $43.25…

Notably stocks and crude were tick for tick today…

Source: Bloomberg

Finally, we’re not cheap!

Source: Bloomberg

And The Hindenburg Omen struck again…

Source: Bloomberg


Tyler Durden

Mon, 03/02/2020 – 16:01

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