Month: June 2021

By Ven Ram, Bloomberg reporter and macro commentator

Front-end yields held hostage by central banks around the world have engendered a silent shift in currency pricing: exchange movements are being increasingly influenced by changes in the intermediate and longer segments of the yield curve.

Currencies that were typically more responsive to relative changes in yields at, say, the two-year part of the curve are now responding more and more to shifts at the five- and 10-year segments, with the dollar being a case in point.

The chart above shows how closely the Dollar Index has tracked five-year real yield spreads between the U.S. and Germany (hat tip to J. Paul Knight, assistant portfolio manager of U.S. large-cap equity at the Employees Retirement System of Texas for his observation). Indeed, the correlation between the spreads and the dollar in the past year is running at 0.57, reflecting its influence on the currency. Taken together with 10-year differentials , the two points of the curve delineate the trajectory of the dollar by more than four-fifths.

To be sure, it wasn’t always like this. Take a look at this chart above that encompasses a longer time frame, which shows the Dollar Index ignoring the movement in spreads. That was a time clearly before the pandemic when the U.S. economy was still in the midst of its longest post-war expansion, with central banks not anywhere near controlling the yield curve, de facto or de jure.

It looks like much to the surprise of no one, there’s considerable waste and malfeasance taking place at the perpetually-taxpayer-bailed-out MTA.

A new MTA inspector general’s report has revealed that MTA track engineers – to quote Rep. Al Green talking about Citadel earlier this year – “have been naughty for some time”.

The inspector general is reportedly “furious” after the findings of an 11 month investigation found that seven NYC Transit track inspectors were skipping inspections and falsifying inspection reports. The employees in question have been suspended, according to an RT&S report.

But rather than fire all seven employees – in true taxpayer funded fashion – only one was fired while “six of the track inspectors received a final warning that similar conduct could result in termination and are prohibited from performing track inspections for five years,” the report says.

The MTA Inspector General (OIG) also, as part of the probe, performed an audit to determine how such deception could occur without management’s knowledge. The answer? There could be “significant, systemic issues with how supervisors and managers at NYC Transit oversee the work of track inspectors”.

MTA Inspector General Carolyn Pokorny said: “It is appalling that so many track inspectors, on so many occasions, skipped safety inspections, filed false reports to cover their tracks, and then lied to OIG investigators about it. Management needs to utilize a technology that will ensure supervisors can verify when inspectors do their job – and when they do not.”

You can read the full MTA/OIG report here. Its findings were summarized as follows:

• Supervisors did not verify track inspectors’ walks, either in real time or after the fact. Track supervisors until recently were expected to rely on a series of self-reported status updates from the inspectors to confirm that inspections were occurring daily. Supervisors were not expected to directly observe inspectors in the field and thus did not know that some inspectors were not actually performing their inspections as assigned.
• Interim controls that Track put in place after the OIG investigation report was issued create records that could be analyzed retroactively with much effort but do not provide assurance in real time.
• The new IT application (Infor EAM) rolled out in the first quarter of 2021 for track inspections does not take full advantage of the technology’s capability to quickly place the inspector at a given location at the appropriate time. One limitation is that the application cannot make use of the GPS feature on cellphones to track employees directly due to a pre-existing agreement between management and the union not to do so except for certain circumstances.
• Track’s policies, oversight, and monitoring of workers’ cellphone usage are inadequate.

The inquiry was opened back in January 2020 after reports of track debris large enough to cause damage and injury were reported. The failure to spot the debris had the OIG “concerned that inspectors might not be walking their assigned sections”. A follow up investigation “repeatedly found inspectors, who work with limited oversight, absent from their duties.”

In addition to simply not doing their jobs, track inspectors were also found to be using their personal cell phones when they were supposed to be inspecting, creating a “safety hazard for themselves, other employees, and customers; and further illustrating their lack of attention to their duties”.

And it starts with the tone at the top: track supervisors did not verify track inspectors’ walks, either, the report also revealed.

Looks like it’s time for another fare hike!

Authored by Paul Joseph Watson via Summit News,

Malaysian police are using drones which can check temperatures from as high as 20 meters above ground in the latest example of coronavirus population control.

The drones alert authorities if someone has a high temperature reading by emitting a red light, according to Bernama, Malaysia’s state news agency.

“Malaysian police have previously warned they will use drones to enforce earlier travel restrictions, with officers in some areas also stating they would carry out surprise home visits to ensure people were following rules,” reports the Guardian.

There have been numerous previous examples of authorities deploying surveillance drone technology to enforce COVID-19 rules.

Authorities in Spain have used surveillance drones to make sure people who visit beaches are complying with social distancing regulations.

In Brussels, Belgium, police used drones fitted with loudspeakers to bark orders to people to “stay at home.”

Police drones are being used in Brussels to warn the public that lockdown is in force, and that social distancing regulations must be adhered to.

For the latest updates on #coronavirus, click here: https://t.co/nINriV0Bo4 pic.twitter.com/M3JNMNJhCH

— Sky News (@SkyNews) March 23, 2020

In Australia, more expensive drones were used to catch people not wearing masks while also scanning for vehicles that were parked more than 5km from their owner’s home.

Police are preparing to launch their aerial arsenal as part of a crackdown on COVID rule breakers. High powered drones will be used to find people not wearing masks, and cars too far from home. https://t.co/5zYfOfohG3 @tdolling #7NEWS pic.twitter.com/Yy84UBTH0V

— 7NEWS Melbourne (@7NewsMelbourne) August 17, 2020

In the UK, authorities were blasted for using surveillance drones to keep tabs on dog walkers in remote areas to check if they were hiking too far from home.

Despite posts yesterday highlighting issues of people still visiting the #PeakDistrict despite government guidance, the message is still not getting through. @DerPolDroneUnit have been out at beauty spots across the county, and this footage was captured at #CurbarEdge last night. pic.twitter.com/soxWvMl0ls

— Derbyshire Police (@DerbysPolice) March 26, 2020

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Tokyo Police are investigating an apparent suicide on Monday morning (local time) of a senior official at the Japanese Olympic Committee (JOC) who jumped in front of a subway train. 

Nippon TV’s News24 channel reports Yasushi Moriya, who led JOC’s accounting department, apparently ended his own life in the Tokyo Metro system. Police have yet to release details surrounding the death of the official. 

Latest update of Yasushi Moriya’s death from our correspondent Phoebe Amoroso. Yasushi is a senior official of the Japanese Olympic Committee (JOC). #Tokyo2020 https://t.co/DjYGUpZf3C pic.twitter.com/GMQrHJagzi

— CGTN Global Watch (@GlobalWatchCGTN) June 7, 2021

The Tokyo 2020 Olympic Games, which were canceled last summer due to the virus pandemic, are expected to begin on July 23 and end on August 8.

A staff member of #Japan‘s #Olympic Committee died on Monday in a suicide in #Tokyo’s subway, local broadcaster Nippon Television said. Yasushi Moriya, 52, who worked as an accounting manager with the committee, jumped in front of a train from a subway platform in the morning. pic.twitter.com/f60cMcibt6

— China Daily World (@ChinaDailyWorld) June 7, 2021

Despite recent objections from government scientists and prominent business people, Japan is moving forward with the postponed 2020 Summer Games in Tokyo next month. In an interview with the Japanese press, the president of the 2020 Games, Seiko Hashimoto, declared that the event would move ahead as planned, with the Japanese government taking certain precautions to prevent an outbreak of mutant COVID.

“We cannot postpone again,” Hashimoto told the Nikkan Sports newspaper via Reuters. This is happening as a recent rise in Japan’s coronavirus numbers.

Even if the Games are held, the entire event will be a financial disaster for the country who went well over budget to stage it. This is because foreign fans have been barred from entering all sporting events, and those who are eligible to enter will need a negative COVID-19 test or vaccination history. Once inside, spectators might be forbidden from eating, drinking, and cheering. 

A recent study by Britain’s Oxford University said the Tokyo Olympics are the most expensive summer games ever. With no foreign fans allowed, the alleged suicide of the JOC’s accounting department head makes you wonder just how bad of investment the Games will turn out to be. 

By Larry McDonald, author of the Bear Traps Report

Imagine sitting in the seat of a central banker in June of 2021. You are looking down the barrel of millions of AMC nutjobs making up 9% of all U.S. equity market option volume on Friday and 8.2 million jobless Americans.

Since Jackson Hole (August 2020) you have been lecturing most of the planet ́s inhabitants that ridding the world of inequality is closest to your heart. Above all your message has been, “we did it all wrong in previous hiking cycles in pulling back accommodation too soon, this time we are going to let it run hot and lift all Americans up into the heavens.”

After the loud song and dance messaging, we have a moral hazard overdose and a job market that won’t normalize at the current pace until October 2022 (837k jobs created the last TWO months vs. 8.2-million-person shortfall in the labor force vs. January 2020 levels).

U.S. central bankers have two choices:

• a) stay dovish and sow the seeds of a Lehman, LTCM event, while manufacturing more Bernie Madoffs and Al Dunlaps monthly or
• b) arrest accommodation and throw your social justice mantra out the window.

You want that job? NO thanks.

Over the last week it looks a lot like last month. Payrolls miss, bonds are bid with a HOT CPI waiting in the wings this coming Thursday. Clients we respect in the Bloomberg chat are talking up the U.S. Rates (lower) vs. Brent Oil (higher) divergence. This speaks to the power of the global re-opening catchup, fleeting American exceptionalism.

We continue to be oil bulls with India and Europe coming on strong with surprise demand upside. Since May 12, the copper – gold ratio has reversed favoring the precious metal. This is important to monitor, right on the 14-month trend line.

What is hyperinflation? From 1993 to 2020, the Fed ́s favorite inflation measure (PCE YoY) has ranged from 0.97% to 2.46%, with no exceptions.

After walking through this long valley, asset prices have been highly conditioned for “beyond tame” data. By this definition, anything near 3.00% is hyper. Today, PCE YoY is at 3.06% with $5T of U.S. GDP (California CA –NY New York), locked down for most of Q1 and Q2.

We see a meaningful inflation shock in the weeks/months ahead. Rents are rising fast across the U.S., and heretofore they have held back CPI and PCE inflation data. A mean-reversion is in the works and will drive inflation expectations higher – gold bullish.

We make the case; 1) wage pressures are vastly underestimated, 2) labor as a political power base is surging, and 3) a colossal secular shift is upon us.

The G7 “Global Minimum Tax” agreement still has some wood left to chop, BUT do NOT underestimate the importance of this trend. There are bills to pay and FAANGMT have a target on their back.

In the growth vs. value tug of war, the former has seen six months of failed rallies with lower highs. We will use pullbacks in commodity sector longs to add to positions and sell tech rallies.

Real Vision managing editor Ed Harrison and senior editor Ash Bennington sit down together on the Daily Briefing to provide their insights into today’s market price action and share their experience at the Miami Bitcoin conference from this past weekend.

A New York parent brought the heat to members of the Carmel Central School District board for ’emotionally abusing’ children by ‘indoctrinating them with communist values.’

In comments at a school board business meeting in Putnam County, NY on Thursday, parent Tatiyana Ibrahim – whose child is a student, slammed the educators for promoting Critical Race Theory (CRT), Black Lives Matter, LGBTQ and anti-police ideologies both on and off campus.

“Stop indoctrinating our children. Stop teaching our children to hate the police. Stop teaching our children that if they don’t agree with the LGBT community that they’re homophobic. You have no idea each child’s life,” she said, adding “You don’t know what their family lifestyle consists of, you don’t know the makeup of their life.”

Watch:

Ibrahim shut down school board members’ objections several times – in between calling out two teachers for posting their political beliefs online. When board members told her she wasn’t allowed to reference people by name, Ibrahim claimed those teachers called “for the death of a former president,” and that students who don’t support Black Lives Matter should be “canceled out.”

“Why are we not allowed to say names? Why am I not allowed when they purposefully expose themselves on social media, talking about calling for the death of a former president, or saying that any child who doesn’t believe in Black Lives Matter should be canceled out. Is this what my tax dollars are paying for?” she asked.

“You’re emotionally abusing our children and mentally abusing them,” Ibrahim continued. “You’re demoralizing them by teaching them communist values, this is still America, ma’am.”

 

By Tom Ozimek of The Epoch Times

Texas has joined a coalition of what is now 25 states urging the U.S. Supreme Court to repeal a New Jersey law banning the possession of firearms with magazines that hold more than 10 bullets, arguing the prohibition violates the Second Amendment and puts law-abiding citizens less able to defend themselves against dangerous criminals.

Texas Attorney General Ken Paxton announced in a statement that he had signed onto an amicus brief (pdf) which argues that allowing law-abiding citizens to carry firearms with 11-plus capacity magazines benefits public safety, counterbalances the threat of illegal gun violence, and helps “make our streets safer.”

“New Jersey’s law is a blatant violation of the Second Amendment, and its mere existence threatens the rights of law-abiding citizens. This law must be struck down,” Paxton said. “Criminalizing the possession of a magazine that is so commonly used leaves Americans defenseless and vulnerable, especially in high crime areas.”

Under the 2018 New Jersey law, it is illegal to produce, transport, sell, or otherwise dispose of magazines with more than a 10-round capacity, which the law characterizes as a “large-capacity magazine.” The law was upheld by the 3rd Circuit last year after a New Jersey gun association and two individuals challenged the ban. The association asked the full court of the 3rd Circuit to hear the case, but the review was denied in an 8–6 vote.

The coalition of 25 state attorneys general is urging the Supreme Court to review the court decision that upholds New Jersey’s ban on 11-plus gun magazines. The group argues in the amicus brief that “large-capacity” is a misnomer, as many of the most popular firearms owned in the United States come standard with a range of 11 to 15 bullets, and there’s “nothing sinister” about such magazines. The group says 11-plus magazines are permitted in 43 states and are considered “standard equipment for many commonly used handguns designed for self-defense.”

The initial amicus brief, filed on May 28, was spearheaded by Arizona Attorney General Mark Brnovich and Louisiana Attorney General Jeff Landry.

“New Jersey lawmakers are operating in total ignorance of our ability to protect ourselves and our families,” Brnovich said in a statement. “We hope the Supreme Court will hear this case and reverse this misguided attempt to erode our rights.”

The New Jersey attorney general’s office didn’t respond to an earlier request for comment by The Epoch Times.

Besides Texas, other states that signed onto the brief include Alabama, Alaska, Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, West Virginia, and Wyoming.

The Biden administration is seeking to tighten gun restrictions and introduce measures across the country seeking to control the sale and use of guns and firearm parts such as magazines. President Joe Biden has previously declared shootings a “public health crisis.”

The Justice Department on May 7 issued a notice of proposed rulemaking that the department said would “modernize the definition” of frame or receiver and close a regulatory loophole related to “ghost guns.”

Following a mass shooting in San Jose, California, on May 26, Biden issued a statement calling on Congress to take “immediate action and heed the call of the American people, including the vast majority of gun owners, to help end this epidemic of gun violence in America.”

Authored by Jonathan Turley,

Below is my column in the Hill on the future of the filibuster and why this may be the most credible period for the use of such a compromise-forcing rule. There have always been good-faith arguments against the use of such a rule as inhibiting democratic voting. After all, the rule blocks bare majority voting. However, with a razor-thin margin in both houses, the use of such a rule can help force greater dialogue and compromise in Congress, which most voters indicate that they want in polls. It now appears that Sen. Joe Manchin (D., W.V.) will block the federal voting rights legislation even without a filibuster. As a result he was attacked as a “not very bright” aider and abetter and “cowardly, power-hungry white guy” by the left. Sen. Dick Durbin’s press secretary on the Judiciary Committee even curiously declared that democracy should not be “in the hands of a man who lives in a house boat.” The furious response explains why Manchin has been one of just two Democrats willing to demand compromise. The Republicans have roughly the same number willing to push from that side. However, combined these senators are seeking bipartisan agendas in a deeply divided nation. Killing the filibuster will remove the key pressure to seek bipartisan approaches.

Here is the column:

“If you want a friend in Washington, buy a dog,” is a quote often attributed, perhaps erroneously, to President Truman. When it comes to Sen. Joe Manchin, President Biden may be thinking of offering his voracious dog, Major, to the West Virginia Democrat.

Biden has trolled Manchin and Sen. Kyrsten Sinema (D-Ariz.) in public speeches, denouncing both as those “two members of the Senate who vote more with my Republican friends.” In reality, Manchin and Sinema have voted 100 percent with Biden so far, more than such liberal icons as Sens. Elizabeth Warren (D-Mass.) or Bernie Sanders (I-Vt.). That’s why the Washington Post gave Biden three more “Pinocchios” to add to his growing collection.

However, both Manchin and Sinema support preserving the Senate’s filibuster rule, and they are portrayed in the press as fighting for what is being called a “Jim Crow relic.” One reporter asked Sinema how she would respond to what critics are calling a “choice between the filibuster and democracy,” while the Los Angeles Times ran a column titled, “What’s the matter with Kyrsten Sinema?”

In truth, the filibuster is no more racist than any other procedural rule. The irony is that, despite its abusive use in the past, this is arguably the most compelling time for a filibuster rule.

While Democrats and the media have painted anyone supporting the filibuster as anti-democratic, even racist, they overwhelmingly supported the rule when Democrats were in the Senate minority. As a senator, Biden denounced any termination of the filibuster as “disastrous” and declared: “God save us from that fate … [since it] would change this fundamental understanding and unbroken practice of what the Senate is all about.”

Senate Majority Leader Chuck Schumer (D-N.Y.) previously warned the Senate that it was “on the precipice” of a constitutional crisis as “the checks and balances which have been at the core of this republic are about to be evaporated” by a proposed elimination of the filibuster. Likewise, then-Sen. Barack Obama (D-Ill.) denounced those seeking to eradicate the filibuster as trying to change “the rules in the middle of the game so that they can make all the decisions while the other party is told to sit down and keep quiet.” He added: “If the majority chooses to end the filibuster and if they choose to change the rules and put an end to democratic debate, then the fighting and the bitterness and the gridlock will only become worse.”

Back then, the filibuster was the embodiment of “democratic debate” — and those words were echoed in the same newspapers and on the same television programs that now denounce the rule. When Sinema recently made the same defense of the rule as Biden, Schumer and Obama, she was attacked as mouthing specious, racist or reactionary talking points.

In reality, the rule did not originate as a racist device. Indeed, as I have previously written, it is more a “relic” of the Julius Caesar era than the Jim Crow era. In ancient Rome, the filibuster was used to force the Roman senate to hear dissenting voices; Cato the Younger used it to oppose Julius Caesar’s return to Rome and to denounce rampant corruption. It was viewed as protecting minority viewpoints in senate proceedings. In the United States, it can be traced to a procedural argument by former Vice President Aaron Burr to get rid of an automatic end to debate on bills in the early 1800s. It was not created in or for the Jim Crow era — and Cato the Younger was not the junior senator from Alabama.

The rule has been used for different purposes, including, most infamously, to oppose 1950s civil rights legislation. Over the years, it has been modified, as in 1975 when the threshold to end a filibuster was reduced to 60 votes. However, both parties agreed that the rule was needed to force greater consensus in the Senate, which fashions itself “The world’s greatest deliberative body.”

There are good-faith arguments that filibusters frustrate democratic voting. However, this is arguably a time when the value of the rule is most evident and most compelling as a compromise-forcing legislative device. The Senate is split 50-50, a reflection of the country’s division. (The House is little better off, with a majority of just a handful of votes, the smallest majority since World War II.) That leaves Democrats struggling to pass bills based on the tie-breaking vote of Vice President Harris.

Democrats were able to circumvent the filibuster rule to pass a $1.9 trillion relief bill, with no need to compromise, by using a budget reconciliation tactic. Heavily laden with pork projects and few spending limits, that bill embodied the dangers of enacting legislation on simple “muscle votes.” Now, though, they want to push through non-budget bills that cannot be shoehorned into a budget reconciliation framework.

For example, many senators want to add as many as four new Supreme Court justices to give liberals an instant, controlling majority on the court. There also is a demand to make D.C. the 51st state. Notably, both moves are highly unpopular with a majority of voters. And Democrats are pushing an unprecedented federalization of elections to prevent states from requiring forms of voter identification that are popular with voters.

Pushing through such controversial measures with bare majorities and on straight party lines will only deepen the divisions and increase the rage in this country. So this is precisely a time when the filibuster can play a positive role, by forcing legislation to pass with a modest level of bipartisan support. It requires consensus and compromise at a time of growing, violent division.

Democrats, media figures and activists are aware of the hypocrisy over the filibuster rule and its long defense by Democrats as a positive democratic device. That is why there is a concerted effort to portray support for the filibuster as racist. It is a familiar pattern in silencing an opposing view: Frame the rule as racist, and dismiss the consensus arguments accepted just a few years ago in defense of the rule. You then pass bills on straight party line votes in the name of national unity.

The filibuster has gone through historic controversies through the centuries, from opposing Caesar to opposing civil rights. But as a consensus-forcing rule, its time may have arrived, to the chagrin of many.

Amazon shares tumbled to their lowest levels of the session on Monday amid reports that Amazon would be included in a G-7 deal cemented over the weekend to retool the minimum corporate tax in some of the world’s wealthiest nations (though a US-led movement to force the proposal down the throats of reluctant Ireland, Singapore and other low-tax nations remains very much in doubt).

As we learned over the weekend via a communique from G-7 ministers, a pillar of the deal envisaged that the tax would apply on “profit exceeding a 10% margin for the largest and most profitable multinational enterprises.” Thanks to Amazon’s low-margin e-commerce business, the firm doesn’t technically meet that cutoff, as the Guardian pointed out in a story published earlier today that quoted a bevy of experts who warned that Amazon might be excluded from the new tax regime if some special arrangement weren’t included.

Amazon is one of the largest businesses in the world, with a market value of $1.6tn (£1.1tn) and sales of $386bn in 2020. A Luxembourg subsidiary paid zero corporation tax in 2020 on sales income from across Europe of €44bn (£38bn), making Amazon a prominent target for politicians campaigning for changes to the global tax system.

However, its profit margin in 2020 was only 6.3%. It runs its online retail business at very low profit margins, partly because it reinvests heavily, and partly to gain market share.

Of course, with the Democrats in the driver’s seat, it’s hard to imagine that Bernie Sanders or Elizabeth Warren would allow Amazon, a common target for their populist attacks, to escape the greatest international corporate tax overhaul in 100 years. As Richard Murphy, visiting professor of accounting at the Sheffield University management school, argued to the Guardian, the 10% profits threshold was “inappropriate” because of different business models for different companies. He added that current approaches to reporting profits in each country were “easily gamed.” “This could turn out to be a false hope unless they get the detail right,” he said.

On Monday afternoon, Bloomberg published a report citing two anonymous sources close to the talks that Amazon will be subject to new taxes under the deal, though BBG added that the “particulars” of how this will be accomplished are still being discussed.

But from where things currently stand, it looks like  negotiators are working on a mechanism that will hive off Amazon’s more-profitable businesses (like its AWS cloud computing business) rather than the whole company, whose margins are weighed down by heavy investment and thin margins from its e-commerce and Prime services.

The company’s shares dropped on the news:

As for whether the deal will ever become international law, well, that remains to be seen.