Zen And The Art Of Risk Management

Zen And The Art Of Risk Management

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

“Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.”

Seth Klarman

Growing wealth occurs over a long time horizon, including many bullish and bearish market cycles. While making the most out of bull markets is important, it is equally important to avoid letting the inevitable bear markets reverse your progress.

Making this task much more difficult are extreme market environments and inane investor beliefs at such times. When markets are frothy and grossly overvalued, greed takes over, leading to lofty performance expectations and excessive risk stances. Equally tricky is buying when fear grips the markets.

In both extremes and all points in between, we must maintain investor Zen. The best way to accomplish such mindfulness and awareness of market surroundings is to understand the risks and rewards present in markets. Zen-like awareness allows us to run with the bulls and hide from the bears.

Measuring Risk

The price of every almost every asset represents the cost to receive cash flows in the future. With equities, for instance, we are buying future earnings.

When someone buys Apple stock, they are an owner of Apple. Like every company, public or private, Apple has options with what they can do with their earnings. The decision frequently boils down to paying them out as a dividend or reinvesting them into the company. At times they may hold cash, effectively delaying the decision.

The chart below compares the rolling ten-year average dividend yield and earnings yield for the S&P 500. As shown, half to two-thirds of earnings get paid out as dividends.

When determining the valuation for a company or index, we must understand that future earnings are what we are valuing. The reinvestment or dividend distribution decision is secondary.

Do Valuations Dictate Returns?

Short term price changes of stocks are based solely on liquidity, or the balance of buyers and sellers. Over longer periods, price changes become more dependent on valuations and less on supply and demand. The following scatter plots compare CAPE valuations to subsequent 10-year and 3-month returns to highlight this fact.

The correlation of ten-year forward returns and CAPE is statistically significant with an R-squared of .4803. In other words, valuation matters in the long run. Conversely, there is no correlation between quarterly returns and CAPE. The graph below further highlights valuations become a more critical measure of risk and reward over time. 

The use of valuations is often rebuked because they serve little purpose in daily trading. That is a fair statement. However, whether we are flipping stocks daily or holding for years, valuations provide an essential gauge of risk.

To be clear, just because we may evaluate a company using a long duration doesn’t mean we have to hold it for an extended period.  

Earnings Trends and Expectations

GDP and corporate earnings trend linearly over long periods. That said, short-term earnings fluctuate wildly. It is these vacillations from the trend that makes equity valuation harder than it needs to be.

Since earnings are what we are buying, comparing historical earnings trends to market-implied earnings is a shrewd way to value a company or index. This method allows us to assess if we are paying more or less than what we should expect to receive?

Such a comparison serves well for stable, mature companies. However, it becomes a difficult task for companies whose earnings grow or shrink in a non-linear fashion.

Fortunately, many broad market indexes, such as the S&P 500, have linear earnings growth trends over long periods. This happens because the index’s large sample size and industry diversification reflect broad economic trends.

Implied Earnings

The price to earnings (P/E) ratio of an index or stock coupled with an assumed holding period, is all we need to calculate the market-implied future earnings growth rate. For instance, if the P/E is 20 and we assume a 40 year holding period, we expect earnings growth of 7.78%. Earnings, compounding at a 7.78% rate, entails shareholders will receive enough earnings to pay back their initial investment in 40 years. If 7.78% is an acceptable 40-year return compared to other assets, the stock or index is fairly valued.

The graph below compares five-year rolling S&P earnings growth rates and their trend (dotted blue line) with implied earnings growth rates (orange). More often than not in the last 30 years stock prices have higher implied earnings than the market has delivered.

Current Valuations

Currently, the S&P 500 implies earnings growth of 9.25% over the next 40 years. The actual historical trend earnings growth is 5.85% and trending lower. The last time real earnings growth exceeded the current implied level (9.25%) was in the early 1980s.

Our use of a 40 year duration is subjective. Much of what we have read on the topic prefer shorter periods. The longer the period, the lower the implied growth. As such, we believe our assumption is conservative.

Understanding investors’ lofty expectations is the first step to understanding risk. The second step is to equate it to value and put it into context with prior periods.

The black line in the following graph quantifies how much the S&P 500 would change if implied earnings revert to trend earnings.

The S&P has to fall 73% for implied earnings to equal trend earnings growth. We admit the calculation may be exaggerated. As such, we think it wise to compare the current level versus those in the past. A return to the average change required (green dotted line) still involves a decline of nearly 50%. A 40% decline matches the average of the last 20 years. A drawdown of 40% is not farfetched considering the previous three major drawdowns, 2000, 2008, and 2020 had sell-offs in that neighborhood.

Stop, Sit and Breathe

You may frightfully read the paragraphs above and think about selling immediately. Stop, sit, breathe, and relax. Now is the time for investor Zen.

The market is grossly expensive, but as we stated valuations have poor predictive ability to help gauge what will happen in the next few weeks or months. Despite extreme valuations, we can ride the market higher with other greedy investors. However, unlike most investors, we are aware that the risk of significant losses is not minimal.

Quantifying downside risk allows us to have a plan in place to reduce or hedge risk when technical indicators and other signals alert us to potential changes.

When the market is more reasonably priced, we can be more relaxed, and our finger will not be tightly wound around the trigger. Today, however, valuations provide little cushion to be wrong.

Summary

Stocks are extremely expensive. Regardless of whether you agree with our earnings model or not, drawdown risk is higher today than at almost any other time. The Goldman Sachs table below uses multiple valuation metrics and comes to the same conclusion.

In a recent article Bloomberg states: “The so-called Buffett Indicator. Tobin’s Q. The S&P 500’s forward P/E. These and others show the market at stretched levels, sometimes extremely so. Yet many market-watchers argue they can be ignored, because this time really is different. The rationale? Everything from Federal Reserve largesse to vaccines promising a quick recovery.”

If hope that this time is different is your risk management plan carry on. For the rest of us we advise having a strategy with actionable signals.

Find your inner investor Zen!

Tyler Durden
Thu, 04/01/2021 – 11:39

via ZeroHedge News https://ift.tt/3mdeigg Tyler Durden

Amicus Brief in the Student Speech Case

Prof. Jane Bambauer, Prof. Ashutosh Bhagwat, and I just filed an amicus brief in Mahanoy Area School Dist. v. B.L., the Supreme Court’s new student speech case. Many thanks to my colleague Prof. Stuart Banner, who drafted the brief for us, and to his students Tom Callahan and Molly Moore. (I also signed the brief as counsel, together with Stuart.) In case you folks are interested, here is our argument:

Summary of Argument

In Tinker v. Des Moines Indep. Sch. Dist., 393 U.S. 503, 506 (1969), this Court held that “[i]t can hardly be argued that … students … shed their constitutional rights to freedom of speech or expression at the schoolhouse gate.” Yet petitioner argues that students shed much of their freedom of speech even outside the schoolhouse gate, so long as their off-campus speech is reasonably expected to reach campus. This proposal would allow schools to punish students for an enormous range of speech that expresses unpopular or controversial views.

Schools do have legitimate concerns about some off-campus speech, but it is possible to respond to these concerns without giving schools the authority to censor all off-campus speech. Rather, the Court should identify the circumstances under which schools need more control over student speech than the First Amendment would normally allow—rare circumstances, when it comes to speech outside a school-organized activity—and apply the Tinker standard only in those circumstances. In other contexts, particularly where students express unpopular or controversial views, students should have the same freedom of speech as adults.

Argument

[I.] Student speech outside school activities should generally be fully constitutionally protected.

In Tinker, the Court recognized that the school’s authority over student speech generally arises only at the schoolhouse gate. 393 U.S. at 506 (identifying “the schoolhouse gate” as the relevant boundary), 508 (referring to speech “in class, in the lunchroom, or on the campus”), 512-13 (referring to speech “in the cafeteria, or on the playing field, or on the campus during the authorized hours”). The Court restated this distinction between on-campus and off-campus speech more explicitly in subsequent cases. See Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 266 (1988) (“A school need not tolerate student speech that is inconsistent with its basic educational mission, even though the government could not censor similar speech outside the school.”) (citation and internal quotation marks omitted); id. at 271 (describing Tinker as governing “expression that happens to occur on the school premises”); Morse v. Frederick, 551 U.S. 393, 405 (2007) (“Had Fraser delivered the same speech in a public forum outside the school context, it would have been protected.”) (referring to Bethel Sch. Dist. No. 403 v. Fraser, 478 U.S. 675 (1986)).

Technology has of course made the schoolhouse gate into a virtual term as well as a physical one. The “school context” to which Morse referred has long included various online activities as well as off-campus but school-sponsored physical gatherings. Students use the Internet to download and upload assignments; they communicate with their teachers by email and on social media; and they collaborate on school activities with classmates who might be miles away. During the pandemic, the classroom itself has become a virtual space, in which neither the teacher nor any of the students is on school grounds.

But while the school must therefore control virtual classrooms as it does physical ones, it does not follow that it may control online—or offline—speech outside the “school context,” even when off-campus speech has effects on campus. This is so for two reasons.

First, all online speech by students can be expected to reach the school’s campus. Students take their phones and computers everywhere they go, including to school. So do their teachers. Anything a student posts on social media—a preference for one political candidate over another, a statement of religious belief or nonbelief, praise or criticism of a teacher or a fellow student—is likely to be read by someone on campus. Applying the Tinker standard to all online speech would be an enormous expansion of schools’ power to censor the speech of their students. If students do not shed their freedom of speech “at the schoolhouse gate,” Tinker, 393 U.S. at 506, they certainly should not shed their freedom of speech every time they speak online.

Second, when students express unpopular or controversial views off campus, much of their speech deserves full First Amendment protection even if it causes disruption on campus. For example:

  • Student A writes a letter to the editor of the local newspaper in which he argues that the town’s police officers engage in unjustifiable violence against Black suspects. The newspaper posts the letter on its website, where it is read by other students, including some whose parents are police officers. At school the next day, fights break out during the lunch hour and several students are injured.
  • At a church event, Student B expresses her view that same-sex marriage should be unlawful. Several other students are at the event, and one of them summarizes Student B’s remarks in a social media post read by hundreds of other students. At school the next day, classes are repeatedly interrupted by students angrily denouncing Student B’s views.

If the Tinker standard applied to these examples of off-campus speech, both of which could reasonably have been expected to reach campus, the school could punish these students because their speech caused disruption at school.

Yet that would violate students’ First Amendment rights. Students, just like adults, hold opinions about all sorts of matters. Outside of school, they often wish to express themselves in ways that can make their colleagues feel hurt or angry, possibly even to the point of causing disruption back at school. But speech cannot be restricted merely because it causes hurt or anger. Snyder v. Phelps, 562 U.S. 443, 458 (2011); Forsyth Cty. v. Nationalist Movement, 505 U.S. 123, 134-35 (1992); Hustler Magazine, Inc. v. Falwell, 485 U.S. 46, 55 (1988). Even in school, speech “that deviates from the views of another person may start an argument or cause a disturbance. But our Constitution says we must take this risk.” Tinker, 393 U.S. at 508. There should be no heckler’s veto even in school, but there should certainly be none in the world outside.

If Tinker were extended to all off-campus speech that could be expected to reach campus, schools could exercise round-the-clock control over the speech of their students, placing a large swath of Americans into the very sort of “enclaves of totalitarianism,” id. at 511, that this Court condemned in Tinker. Only the bravest or most foolhardy student would dare to express an unpopular or controversial opinion online, because students would learn quickly that they could be punished for any disruption their opinion caused at school. The freedom of speech would be like alcohol, legally available only to those above a certain age. Yet this is sharply inconsistent with Tinker‘s recognition that freedom of speech (including speech that might “start an argument or cause a disturbance”) “is [the] sort of hazardous freedom—this kind of openness—that is the basis of our national strength and of the independence and vigor of Americans who grow up and live in this relatively permissive, often disputatious, society.” Id. at 508-09.

The government shares our worry about the wide range of speech that would become punishable under petitioner’s proposal. U.S. Br. 19-22. The government suggests instead that schools should be allowed to discipline students for off-campus speech that “intentionally targets specific school functions or programs regarding matters essential to or inherent in the functions or programs.” Id. at 24. This formulation has the virtue of being narrower than petitioner’s proposal, but it would still empower schools to punish students for speech that deserves full First Amendment protection. For example:

  • Student C truthfully reports on social media that she was sexually assaulted by her softball coach. This information creates turmoil at school. The coach denies the allegation; half the team quits and the remainder of the season is abandoned; for several months the school is bitterly divided between those who believe Student C and those who believe the coach; and for years afterward the school has trouble fielding teams in several sports because girls and their parents are fearful of what participation may entail.
  • Student D posts on social media a respectful but critical discussion of the erratic classroom behavior of his Chemistry teacher, who has been increasingly departing from the curriculum to deliver diatribes about the federal government. For the rest of the school year, the school is besieged by phone calls from angry parents demanding to have their children reassigned to a different Chemistry class.

These students could be punished for their speech under the government’s proposal (and under petitioner’s proposal as well).

Tinker was a modest, cabined exception to the normal protections of the First Amendment. Extending Tinker in the ways proposed by petitioner or the government, by contrast, would be a major abridgment of the ability of students to express unpopular or controversial views, in just about any forum, just about anywhere.

[II.] Tinker should govern only particular categories of student speech outside the school context.

[A.] Applying a categorical approach rather than a universal case-by-case inquiry into “disruption.”

Of course, technological changes have greatly magnified the harms that some kinds of student speech can inflict (as well as the benefits that other kinds of student speech can provide). A mean-spirited criticism of a classmate that would once have been heard by only a handful of friends can now be read by the entire school, including by the person who is criticized. A spontaneous outburst—e.g., “I’m so mad I want to kill everyone”—that would not have been taken literally when it was heard only by a single close friend must be taken much more seriously when it can be read by thousands of people who have no way of knowing whether it is meant as a genuine threat.

The Court may therefore need to allow schools authority to restrict certain categories of speech. But such speech should be defined categorically rather than using a free-floating “disruption” standard. Just as “our society, like other free but civilized societies, has permitted restrictions upon the content of speech in a few limited areas, which are of such slight social value as a step to truth that any benefit that may be derived from them is clearly outweighed by the social interest in order and morality,” R.A.V. v. City of St. Paul, 505 U.S. 377, 382-83 (1992) (cleaned up), so First Amendment law should permit restrictions on student speech in a few additional but limited areas. And all such exceptions should be designed to leave students ample means to express (without fear of administrative discipline) all “speech that can plausibly be interpreted as commenting on any political or social issue.” Morse, 551 U.S. at 422 (Alito, J., concurring).

To be sure, outside the government’s special role as educator, these exceptions are generally defined by “long-settled tradition.” United States v. Stevens, 559 U.S. 460, 469 (2010). But here the relevant tradition is just the general principle that schools do have some (but not unlimited) extra authority over student speech, as this Court recognized in Tinker. The Court should express this tradition in a clear and administrable set of legal rules that minimally intrudes on student speech outside school-sponsored activities—just as the Court developed the First Amendment law of libel, obscenity, fighting words, incitement, and the like by recognizing the existence of traditional exceptions, see, e.g., Roth v. United States, 354 U.S. 476, 484-85 (1957), and then creating administrable rules to implement these exceptions.

[B.] An exception for personal cruelty.

In particular, while schools should not have the authority to punish ideological messages outside the school context—even when those messages might anger classmates—schools need the authority to punish students for saying cruel personal things to or about each other, especially online. There is a broad consensus that children suffer far more than adults when they are the targets of online criticism, which suggests that such speech may be restricted if it is sufficiently disruptive, even though comparable statements by adults to or about other adults would receive full First Amendment protection.

This kind of speech is often called “bullying” or “harassment,” but these terms can be too vague to be useful. Sometimes the expression of a controversial policy view is labelled as bullying or harassment when listeners are especially upset to hear that view. A student who argues that immigration has been disastrous for this country may be considered a bully by fellow students who are themselves immigrants, while a student who condemns religion as superstitious nonsense may be considered a harasser by students who are devout.

There is an important difference, however, between personally insulting someone and expressing a viewpoint with which listeners disagree. Tinker should not govern every form of speech to which the label of “bullying” or “harassment” has been applied, but only what we take to be the core of that category—speech in which one student says cruel personal things to or about another. Statements like these are about the characteristics of individual people, not about broader policy matters, so applying Tinker to such statements would be unlikely to interfere with students’ expression of political ideas. See, e.g., J.C. ex rel. R.C. v. Beverly Hills Unified Sch. Dist., 711 F. Supp. 2d 1094, 1117 (C.D. Cal. 2010) (applying Tinker to a student’s YouTube video calling another student “spoiled,” a “slut,” and “the ugliest piece of shit I’ve ever seen in my life”).

[C.] A continuing exception for disruptive speech in a school-sponsored forum.

Likewise, Tinker should continue to apply to speech in a school-sponsored forum such as a class, a school assembly, or a school publication. In most settings, the government may not punish a speaker for insisting that 2+2=5 or that Switzerland is in South America, but a student who says such things on an exam should receive a failing grade. One of the very purposes of a school is to reward or punish students for certain kinds of speech.

This principle is already reflected in the Court’s cases, which rest at least as much on the school’s sponsorship of the forum as on the forum’s physical location.

The outcome of Fraser, for example, would surely have been the same if the school assembly had been conducted online rather than in person. Either way, “schools, as instruments of the state, may determine that the essential lessons of civil, mature conduct cannot be conveyed in a school that tolerates lewd, indecent, or offensive speech.” Fraser, 478 U.S. at 683. The important thing about the assembly was not that it was held on campus but rather that it was a school assembly—a meeting with the imprimatur of the school—as opposed to a gathering of students on their own.

Likewise, the outcome of Kuhlmeier would surely have been the same had the newspaper been produced off campus. The Court observed that schools need heightened authority over “school-sponsored publications, theatrical productions, and other expressive activities that students, parents, and members of the public might reasonably perceive to bear the imprimatur of the school.” Kuhlmeier, 484 U.S. at 271. The important thing was not the paper’s location but that it was a school newspaper—a forum sponsored by the school—as opposed to a newspaper produced by the students on their own.

And likewise, the outcome of Morse would surely have been the same if the “Bong Hits 4 Jesus” banner had not been visible from school grounds. The important thing was not the banner’s location but rather that students displayed it “[a]t a school-sanctioned and school-supervised event.” Morse, 551 U.S. at 396.

[D.] Possible future exceptions.

There may be other specific circumstances, beyond these two, in which schools need heightened authority to punish students for speech (or in which schools running particular programs, such as athletic programs, may need heightened authority to exclude students from these programs). If so, however, the appropriate response will be to carefully define what restrictions are allowed in these specific situations—not to allow schools to punish students for all off-campus speech that causes disruption on campus.

For instance, where a student threatens members of the school community, a school already has ample authority to punish the student because threats are not protected by the First Amendment. See, e.g., D.J.M. ex rel. D.M. v. Hannibal Pub. Sch. Dist. No. 60, 647 F.3d 754, 764 (8th Cir. 2011). Whether or not statements by adults must be intended as threats to be unprotected (a question as to which there is currently some uncertainty, see Perez v. Florida, 137 S. Ct. 853, 854-55 (2017) (Sotomayor, J., concurring in the denial of certiorari)), the nature of school disciplinary rules—which are aimed at establishing and enforcing norms of peaceful, nonthreatening behavior, not chiefly at punishing morally culpable conduct—might allow punishing a student for speech that could be reasonably interpreted as a threat, even if it was not so intended.

Thus, if new concerns emerge, courts have the flexibility to address such concerns one at a time, each on its own merits. There is no need to diminish students’ freedom of speech in all contexts, for instance by categorically applying a “disruptiveness” standard to all off-campus speech. At this point, all the Court needs to do is answer the question presented in this case:

Whether Tinker v. Des Moines Independent Community School District, 393 U.S. 503 (1969), which holds that public school officials may regulate speech that would materially and substantially disrupt the work and discipline of the school, applies to student speech that occurs off campus.

The answer should generally be “no.”

Conclusion

The judgment of the Court of Appeals should be affirmed.

For the current state of K-12 student speech law, watch this:

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Fed’s “Most Important Rate” Falls For First Time Since February

Fed’s “Most Important Rate” Falls For First Time Since February

We previously pointed out that the ongoing flood of reserves and liquidity into the financial system, as the Treasury draws down its cash balance at the Fed to fund the latest Biden stimulus sending cash in the TGA account to just $1 trillion from $1.6 trillion a month ago…

… had hammered overnight and short-term rates, with G/C repo flipping between positive and negative for the past two weeks as the record reserve glut pushes short-term rates to zero and in some cases lower (of note, overnight G/C repo traded first traded at 0.02%, according to ICAP with a bid-ask spread 0.05%/0.03% in early morning trading).

One place where this pressure on short-term funding had been absent, was in what Bloomberg calls the Fed’s “most important rate”, the Effective Fed Funds rate. That changed today, when after more than a month at 0.07%, the Fed Funds rate dipped to 0.06%…

… the result of not only continued pressure on the short-end, but also due to quarter-end window dressing…

… which saw a jump in Fed Reverse Repo facility usage to $134.3BN. That said, usage of the Fed’s overnight reverse repo facility will tumble on Thursday as is customary once quarter-end window dressing is unwound.

As ICAP further notes, market participants had been waiting for a drop in fed funds because “it could signal that the central bank would have to adjust its interest on excess reserves or RRP rates to maintain control of short-term rates.”

Meanwhile, Treasury bills maturing the next three months are yielding between -0.013% and 0.015%.1

Tyler Durden
Thu, 04/01/2021 – 11:20

via ZeroHedge News https://ift.tt/3wgvaYh Tyler Durden

Trump Blasts Biden’s Tax Hike As “Globalist Betrayal”

Trump Blasts Biden’s Tax Hike As “Globalist Betrayal”

Authored by Steve Watson via Summit News,

After Joe Biden proposed a huge tax hike to pay for a $2-3 trillion spending spree, President Trump blasted it as a “globalist betrayal” and a “cruel and heartless attack on the American dream.”

Despite promising not to raise taxes for middle class Americans, Biden’s latest Spending proposal will likely effect people at the earning threshold of $200,000 per year, with the White House now suggesting that the previously announced $400,000 threshold for tax increases applies only to families, and not individuals.

Trump labeled the hike as “a massive giveaway to China, and many other countries, that will send thousands of factories, millions of jobs, and trillions of dollars to these competitive Nations.”

Trump continued, “Biden’s ludicrous multi-trillion dollar tax hike is a strategy for total economic surrender. Sacrificing good paying American jobs is the last thing our citizens need as our country recovers from the effects of the Global Pandemic.”

Trump concluded “This tax hike is a classic globalist betrayal by Joe Biden and his friends: the lobbyists will win, the special interests will win, China will win, the Washington politicians and government bureaucrats will win — but hardworking American families will lose.”

Trump also took part in an interview Wednesday with his daughter-in-law Lara, which was swiftly erased from Facebook and other social media sites.

During the interview, he suggested that he may soon hold a huge rally ” just to let everybody know that there’s hope in the future.”

“I love doing them,” Trump said of the rallies.

Watch:

 

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Tyler Durden
Thu, 04/01/2021 – 11:00

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Oil Tumbles As OPEC+ Leaks Begin

Oil Tumbles As OPEC+ Leaks Begin

WTI has given up its overnight gains… again… after the now standard leak headlines “from an anonymous delegate” spooked the market.

Most members are reportedly giving support to a one-month extension, but the outcome isn’t decided and delegates say there are some countries that would prefer to increase production.

“The situation is not clear yet,” one delegate cautions.

OPEC+ nations are discussing not just what to do in May, but also about the next few months.

Oil demand is expected to grow significantly during the northern hemisphere summer. It will also grow in the Middle East, where countries like Saudi Arabia consume vast amounts of crude to run power plants harder and meet air-conditioning demand. So,as Bloomberg’s Javier Blas notes, we may have a two-pronged OPEC decision, with one message for May and another one for June and after.

And the delegates are now debating a proposal for gradual output hikes.

This sent WTI back below $60 and into the red for the day…

As Bloomberg’s Julian Lee notes, in theory, the group can make three more increases of 500,000 barrels a day before it has restored the full 2 million barrels that it originally planned to return in January. But Russia and Kazakhstan have already had most of their shares of that increase. Russia’s target can only increase by another 115,000 barrels a day and Kazakhstan’s by just 18,000 barrels until they’ve had their full shares of the original increase of 2 million barrels a day.

That’s going to mean they’ll soon have to watch others getting increases they don’t share in, or that the others will have to agree to lift Russia and Kazakhstan’s shares of the group’s collective output – something that’s always been difficult for OPEC in the past.

Tyler Durden
Thu, 04/01/2021 – 10:48

via ZeroHedge News https://ift.tt/3fxsQ9x Tyler Durden

“Nightmare”: Los Angeles DA ‘To Dissolve Or Downsize’ Hardcore Gangs, Major Narcotics Units

“Nightmare”: Los Angeles DA ‘To Dissolve Or Downsize’ Hardcore Gangs, Major Narcotics Units

Los Angeles County District Attorney George Gascón (D) is planning to “severely downsize or outright dissolve” the office’s Hardcore Gang and Major Narcotics units as early as next month, according to Fox11 LA, citing multiple sources within the DA’s office.

Los Angeles County District Attorney George Gascón

What we’re hearing is that the Hardcore Gang Unit will be dissolved,” said one of the DA’s prosecutors, who spoke on condition of anonymity.

“My understanding is there’s going to be a dissolution of the unit either April 1 or April 2,” said a second prosecutor, who say they feel they’ve been “hamstrung by Gascón’s decision to ban them from using gang and gun enhancements, and they feel that disbanding the unit will be a disaster waiting to happen, given the violent crime surge across Los Angeles,” according to the report.

“We can already hear in jail calls and interviews with officers on the street telling us that the gang members are laughing at them, I mean it’s undermined the credibility of law enforcement in its entirety,” one of the prosecutors told Fox11.

The Hardcore Gangs unit – responsible for prosecuting the most “heinous and complex gang-related crimes in the county” – is currently juggling 700 active cases, according to FoxLA‘s Bill Melugin. What’s more, “the LA DA Office’s Major Narcotics unit had a meeting with upper management at 3pm and were informed that their unit will be cut by as much as half.”

Meanwhile, Black Lives Matter activists are cheering the rumor.

He is simply doing what the people have been asking for. That’s why he was elected,” said BLM activist “Akili,” adding “We have called for the disbandment of that unit because we saw how it was abusive, how it was used to criminalize people in neighborhoods, and we saw that it was ineffective. Now he’s simply saying, let’s just swing it back to where it should be.”

The Hardcore Gang unit prosecutors disagree – and say dissolving it will hurt marginalized communities the most.

“The misnomer with my cases, because I do all gang violence cases, gang murder particularly, is that all of my victims are rival gang members, and that’s not true. They miss their targets and they get their enemies wrong fully because of the way they look, whether that’s a Hispanic male with a shaved head or a Black male standing on the corner at the wrong place at the wrong time.”

We think we’ve seen this one before…

Tyler Durden
Thu, 04/01/2021 – 10:30

via ZeroHedge News https://ift.tt/3dqpcvl Tyler Durden

Rabo: Is $2.25 Trillion Even Much Money Anymore?

Rabo: Is $2.25 Trillion Even Much Money Anymore?

By Michael Every of Rabobank

Learn Your Lines

The Biden infrastructure plan has been rolled out, and it seems the Washington Post was kept in darkness by its source: the total was ‘only’ $2.25 trillion. Is $2.25 trillion even much money anymore? I ask that in all seriousness seeing the sums thrown around us daily.

The plan speaks about the lines associated with infrastructure. Yet US politicians are already repeating their own ones: “None shall pass,” from Republicans over a corporate tax hike from 21% to 28%, and making some firms pay some tax; “Double or quits,” from progressive Democrats, who may have been the ones leaking to the Washington Post about the USD4 trillion figure.

Markets also used their own lines on screens to try to guess where the largesse of the government might flow: Cement? Steel? Paint? Solar panels? Electric batteries? Belts, to prevent builders’ usual brand of décolletage? US 10-year yields are at 1.75% at time of writing and the DXY was slightly down on the day, as the market peruses what this all means. It still isn’t quite sure.

I have long flagged we would end up moving to a world where markets would have to listen to politicians, not central banks, to know where the goodies will flow in the economy. Yet in that regard, for me the most important part of the package is not in the details. Rather, it’s in the packaging of *why* it’s needed, which I think represents where far more money will ultimately have to flow. First of all, we see this from the text of the American Jobs Plan:

“Like great projects of the past, the President’s plan will unify and mobilize the country to meet the great challenges of our time: the climate crisis and the ambitions of an autocratic China.”

So American jobs and unity are immediately linked to the climate and Beijing. Which they are in many ways, but saying so has huge implications as neither are going away. Second, we see this:

“By ensuring that American taxpayers’ dollars benefit working families and their communities, and not multinational corporations or foreign governments, the plan will require that goods and materials are made in America and shipped on US-flag, US-crewed vessels. The plan also will ensure that Americans who have endured systemic discrimination and exclusion for generations finally have a fair shot at obtaining good paying jobs and being part of a union.”  

If the Trump White House had released this, would it have looked much different in key areas? Yes, there is a *huge* difference between word and deed. A large slice of the plan is for ‘social infrastructure’, for example, which is not the same as bridges and ports, etc. And could global supply chains really be shifted to the US? Even in the text above there lies a question: if new capital goods are to be made in America, why do they need to be shipped on US-flagged, US-crewed vessels?

Yet against the backdrop of the Republicans transforming into a working class party, this Biden plan sees *both* competing more for Blue Collar voters. That means being anti-free trade, or at least far more Hamiltonian; and competing on who is the more vociferously anti-China. Stimulus will ultimately come; and stimulus will ultimately mean more US decoupling – or at the very least, global realignment of shipping lines away from China and towards others the US prefers for national security reasons. It’s a trend already underway: politics simply shows it will accelerate.

How rapidly? While taking no normative stance, and knowing that tax hikes are political anathema – yet MMT is always available! – what I can say is that an infrastructure spend, especially if sold as national-security related, is probably going to be popular with voters.

Part of that view is admittedly personal: the last time I was State-side pre-Covid, a business trip from New York to DC involved a train that broke down in-between trundling along like those in southern Thailand (but without the charm of hordes of food vendors getting on and off at every stop to help you get diabetes – you had to do that at the New York station, and then wait four hours to do it again in DC); and then a much-delayed flight back through an over-crowded 1980’s-vintage airport with straining air-con, manned by sullen staff offering awful service (who can’t get the tips needed to boost their low wages, of course, so it was hard not to sympathize with them). My honest impression was that this was an alternative timeline where the USSR had won the Cold War. Logically, that makes it hard for the US to win a new one.

Against that backdrop, other lines remain in focus.

  • The BBC yesterday announced its China correspondent will be based in Taiwan from now on for his own safety, which makes a statement – yet US defence voices are wondering how long it will be before his next move might be required;

  • Note the BBC didn’t opt for Hong Kong. Because as Bloomberg says “Hong Kong Police Warn residents to Avoid Red Lines on Politics”, including the quote from a police officer “Do not tempt the law – it’s simple. A healthy attitude is to say ‘How can I be a responsible citizen and just make sure that I contribute to the overall harmony and peace and security of this place,’ rather than say ‘Hmm, let me see how far I can push this envelope, so that I can almost touch the red line, but you can’t touch me. This isn’t how we want to police Hong Kong.”;

  • There are reports of a Russian troop build-up on the border with Ukraine, which will see the EU respond with immediate mobilisation of a working group to decide on the voting system to be used in a committee that discusses the matter; and

  • The blockage of the Suez Canal has seen renewed interest in a building a Med-Red ‘Suez Canal 2’ along the Israel/Gaza/Egyptian borders – at least this time the plan isn’t to use nuclear weapons to do it. If the US now gets serious about its own Belt and Road Initiative, perhaps with US-sourced capital goods to build it, shipped on US-manned and flagged ships, then all this duplication of lines on maps will get even more interesting.

But back to (housing) markets to close. The RBNZ will be unhappy to see that Kiwi house prices rose 16.1% y/y in March, up from 14.5%. Why? Because now it’s openly their job to do something about it: what, exactly? Aussie house prices also went up 2.8% m/m in March, says CoreLogic, or 33% annualised, and investor home loans jumped 4.5% in the month vs. 9.4% the month prior. Yet we all know what the RBA are going to do about it: and it’s the total absence of any kind of plan at all.

Tyler Durden
Thu, 04/01/2021 – 10:13

via ZeroHedge News https://ift.tt/31D4H9f Tyler Durden

US Manufacturing Surveys Soar As Supply Chain Disruptions Spark Surge In Prices

US Manufacturing Surveys Soar As Supply Chain Disruptions Spark Surge In Prices

Despite tumbling ‘hard’ economic data, US Manufacturing survey data continues to suggest everything is awesome… almost as awesome as it has ever been.

  • Markit US Manufacturing PMI printed at 59.1 in final March data (meeting expectations) after dipping to 58.6 in February.

  • ISM Manufacturing crushed expectations with a 64.7 print (higher than the highest forecast, median forecast was 61.5)

Source: Bloomberg

This places the Markit survey near its record highs (and ISM at its highest since 1983)

Supply chain disruptions dominated narratives from survey respondents as manufacturers signalled the greatest deterioration in vendor performance since data collection began in May 2007.

Shortages of semiconductors have been particularly disruptive to the auto industry, where production in recent months has been restrained due to the lack of supply. On Wednesday, Ford Motor Co. announced it was idling plants that make its best-selling F-150 pickup truck because of chip shortages.

And that disruption – combined with stimulus-check-driven demand left prices paid at extreme highs…

Chris Williamson, Chief Business Economist at IHS Markit said:

March saw manufacturers struggle to cope with surging inflows of new orders. Although output continued to rise at a solid pace, capacity is being severely strained by the combination of soaring demand and supply chain disruptions: supply chain delays and backlogs of uncompleted orders are growing at rates unprecedented in the survey’s 14-year history, meaning inventories of finished goods are falling at a steep rate.

Pricing power has risen accordingly as demand outstrips supply: raw material prices are increasing at the sharpest rate for a decade and factory gate selling prices have risen to a degree not seen since at least 2007.

“The fastest rates of increase for both new orders and prices was reported among producers of consumer goods, as the arrival of stimulus cheques in the post added fuel to a marked upswing in demand as the economy continued to pull out of the malaise caused by the pandemic.

“With business expectations becoming even more optimistic in March, further strong production growth looks likely in the second quarter, but the big question will be whether rising price pressures also become more entrenched.”

But, hey, we shouldn’t worry – The Fed says it has everything under control and any inflationary impulse is transitory.

“Things are now out of control. Everything is a mess, and we are seeing wide-scale shortages.” (Electrical Equipment, Appliances & Components)

Many readers may not recall, but one such instance of “transitory” inflation that proved to be anything but and led to the infamous Volcker Fed and its double digit rate hikes, was the price of oil which took off in the Arab oil embargo and then refused to come back for over a decade.

The Powell Fed, however, is eager to brush aside any analogues to previous episodes of runaway inflation which it sees as having a demand component, and merely ascribes what is taking place to unprecedented supply chain disruptions – i.e., collapse in supply – as a result of both the trade war with China and, more recently, the covid pandemic, which have unleashed chaos among traditional supply-chain intermediaries.

Tyler Durden
Thu, 04/01/2021 – 10:04

via ZeroHedge News https://ift.tt/3cH9Tzm Tyler Durden

Endeavor Group Nominates Elon Musk To Be On Its Board Of Directors

Endeavor Group Nominates Elon Musk To Be On Its Board Of Directors

When we think about effective corporate governance, the name Elon Musk comes to mind.

Endeavor Group – the company that owns both UFC and the Miss Universe concept – must have felt similarly situated, because they have nominated Elon Musk to join their board of directors, according to CNBC this week. Endeavor started as a talent agency run by agent Ari Emanuel. 

And who better to have overseeing a company than a man who has taunted regulators over dogecoin and confidently told the SEC to “SEC” just months after being accused of committing securities fraud for faking a nearly $100 billion buyout of his company?

Endeavor wrote in its IPO filing: Mr. Musk was selected to serve on our board of directors because of his professional background and experience running a public company, his previously held senior executive-level positions, his service on other public company boards and his experience starting, growing and integrating businesses.”

Musk has yet to be elected and is still allowed to serve on the board of other companies, despite this 2018 settlement with the SEC that resulted in him stepping down as Tesla’s chairman. 

Endeavor’s Emanuel family has worked with Musk for years, including having put down one of the first reservations for Tesla’s production Roadster. Ari Emanuel’s siblings include Rahm Emanuel, who famously gave a contract to Musk’s Boring Company in 2018. Musk has been a regular on Joe Rogan’s podcast, as well. Rogan is managed by Endeavor.

Endeavor had filed for an IPO two years ago but had to call off plans due to weak demand. Last year, the company generated $3.48 billion in sales and posted a net loss – something we know Musk is familiar with – of $625.3 million last year.  

Elliott Management and Silver Lake Partners, two large investors in Endeavor, confirmed Musk’s nomination was not an April Fool’s Joke.

Because it’s always a good sign when you have to assure and re-assure the public that you’re not, in fact, joking…

Tyler Durden
Thu, 04/01/2021 – 09:45

via ZeroHedge News https://ift.tt/39xMU7Y Tyler Durden

Violent Crime in Baltimore Plunges After City Ditches Prosecution of Prostitution, Drug Possession, Other Minor Offenses


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Decarceral experiment in Baltimore gets results. After a year of foregoing prosecution of certain nonviolent misdemeanor crimes, Baltimore has seen a serious drop in violent crimes and property crimes, too. Between March 2020 and March 2021, violent crime in Baltimore dropped 20 percent and property crime dropped 36 percent. Homicides were also down slightly (13 fewer compared to the previous year).

Baltimore State’s Attorney Marilyn Mosby announced in March 2020 that her office would dismiss all pending charges for drug possession, prostitution, trespassing, open container, public urination, paraphernalia possession, attempted distribution of drugs, and minor traffic offenses. It would also stop prosecuting new cases for these offenses—a decision born out of the desire to thwart COVID-19 spreading through jails.

Mosby’s office dismissed 1,423 pending cases and dismissed 1,415 warrants related to these offenses between March 2020 and March 2021. Now, the change will be permanent.

“The police are going to follow what they’ve been doing for the past year, which is not arresting people based on the offenses I mentioned,” Mosby said at a March 26 press conference. “Clearly, the data suggest there is no public safety value in prosecuting low-level offenses.”

Of course, it doesn’t necessarily follow that halting prosecution of some nonviolent offenses actually caused Baltimore’s widespread drop in violent and property crimes. For instance, the pandemic and business and school shutdowns alone could explain the decline. But the fact that the pandemic and shutdowns have corresponded to rising violent crime rates in many other U.S. cities casts doubt on their power to explain Baltimore’s decrease in both nonviolent and violent offenses.

In any event, Baltimore authorities are keen to continue the experiment. “We leave behind the era of tough-on-crime prosecution and zero tolerance policing and no longer default to the status quo to criminalize mostly people of color for addiction,” said Mosby in a statement. “We will develop sustainable solutions and allow our public health partners to do their part to address mental health and substance use disorder.”

Mosby’s office will be partnering with Baltimore Crisis Response, Inc. and other community groups, including the Sex Workers Outreach Project (SWOP) Baltimore, to help provide a range of services to those who need them.

“The decision not to prosecute drug and nonviolent misdemeanor crimes meant a huge paradigm shift for police, Commissioner Michael Harrison said in an interview,” according to The Washington Post. “Officers who made drug arrests saw prosecutors dismissing the charges at the jail, and so the arrests mainly stopped. Mosby said there were 80 percent fewer arrests for drug possession in Baltimore in the past year.”

Overall incarceration in the city of Baltimore “is down 18% during COVID and the data reveals there has been a 39% decrease in people entering the criminal justice system compared to this time last year,” the city says.

A study from the Baltimore City State’s Attorney’s Office and Johns Hopkins University researchers found that of the 1,431 people whose charges or warrants were dismissed at the start of Baltimore’s criminal justice experiment, only five were rearrested for any crime. In addition:

The data showed that 911 calls about drug use, public intoxication and sex work (a proxy for public concern) did not increase following the policy; rather, from March – December 2020, there was a 33% reduction in calls mentioning drugs and a 50% reduction in calls mentioning sex work compared to the prior 2 years.

Professor Susan Sherman of Johns Hopkins says, “The fact that we saw drops in 911 calls and recidivism for these offenses shows us that communities are less impacted by these announcements than one might assume. The trend is different for other offenses during that time period. The policy is therefore making a positive impact on communities.”


FREE MINDS

The Institute for Justice (IJ) can move forward with a case challenging cash seizures at airports by Transportation Security Administration (TSA) and Drug Enforcement Administration (DEA) agents. From IJ:

When travelers go online to find out whether it is legal to fly with cash, the government tells them that there are no restrictions on traveling with any amount of money on domestic flights. What it does not tell flyers is that, upon seeing cash, Transportation Security Administration (TSA) screeners will detain them and turn them over to law enforcement, who will take their money without any cause for suspicion and without filing any criminal charges.

Now, a Fourth Amendment, class action lawsuit filed by the Institute for Justice (IJ) to end these unconstitutional practices by the TSA and the Drug Enforcement Administration (DEA) will move forward in federal court after a judge rejected the government’s motion to dismiss.


FREE MARKETS

President Joe Biden’s “infrastructure plan” is just another omnibus spending and regulation measure. The $2 trillion proposal from the president would “force non-union workers to pay union dues even in states that have explicitly said that’s not mandatory,” as Eric Boehm pointed out in yesterday’s Reason Roundup. It would allocate $10 billion for a Civilian Climate Corps, $174 billion in subsidies for electric vehicles, $12 billion for community colleges, and $25 billion “to help upgrade child care facilities and increase the supply of child care in areas that need it most.” Some $5 billion would go to violence prevention initiatives. And that’s only some of the spending unrelated or tangentially related to infrastructure.

In terms of spending on infrastructure, Biden’s plan is less concerned with what works and more concerned with launching a massive jobs creation program, as Reason‘s Christian Britschgi notes:

The president said in his speech today that his American Jobs Plan would replace the 10 most economically significant bridges in the country, but otherwise omitted details about what specific projects he’d like to fund.

Biden’s transportation infrastructure plans are “vague because the focus is all on the second-order effects of transportation, not on actual transportation,” says Adrian Moore, vice president of research at the Reason Foundation. “It’s all about what’s going to happen for equity or climate change or suburban development.”

Indeed, one can see that in the very name of the American Jobs Plan, the title of which does not mention infrastructure. That’s more than a rhetorical point. The focus on jobs, and particularly unionized American jobs, means that Biden’s $2 trillion spending plan will buy a lot less infrastructure than it otherwise could.


QUICK HITS

• More on the Matt Gaetz saga, from me, from the Washington Examiner, and from The Daily Beast.

Reason‘s Peter Suderman serves up weird, delicious cocktail recipes:

• New York Gov. Andrew Cuomo signed the state’s new marijuana legalization measure into law yesterday.

Washington Post Fact Checker Glenn Kessler corrects the record on a repeated Biden claim about the new Georgia voting law:

• “Police investigators say Michael Forest Reinoehl, a Portland, Oregon, activist wanted for killing another man during ongoing street battles in that city last summer, likely shot at police before he was killed by a fugitive task force in Lacey, Washington, last September,” reports Reason‘s C.J. Ciaramella.

• Psychology professor Kevin Nadal and the Anti-Defamation League’s Steven Freeman debate hate crime laws on the excellent Jane Coaston podcast, The Argument.

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