Month: October 2021

Authored by Zachary Stieber via The Epoch Times,

A group of teachers on Thursday filed an emergency request with the Supreme Court, asking justices to block New York City’s school COVID-19 vaccine mandate.

Lawyers for the plaintiffs, a group of teachers, said in a 99-page petition that the mandate “threatens the education of thousands of children in the largest public-school system in the country and violates the substantive due process and equal protection rights afforded to all public-school employees.”

The mandate forces teachers and other school workers to get a COVID-19 vaccine to remain employed unless they are approved for a religious or medical exemption.

A federal judge last week granted a temporary injunction against it but a federal appeals panel on Monday decided to let the mandate take effect. The 2nd U.S. Circuit Court of Appeals panel did not explain their ruling.

Thousands of teachers will lose their jobs when the order imposes punishment at 5 p.m. on Oct. 1 even though municipal employees who don’t work for schools can opt-out of a separate mandate by submitting to weekly testing, lawyers for the teachers wrote to Supreme Court Justice Sonia Sotomayor, an Obama nominee.

That amounts to discrimination against public school workers, they argued, appealing for intervention from the nation’s top court.

“Applicants will suffer irreparable harm if their request for injunctive relief is denied,” they said.

Emergency requests can be filed to the Supreme Court by lawyers who think lower courts have ruled wrongly and who believe “irreparable harm” will result if a stay is not granted. The requests are sent to a single judge, who has the power to deny them or to agree, which would temporarily block the mandate and move the matter to the full court for consideration.

Danielle Filson, a spokeswoman for New York City Mayor Bill de Blasio, a Democrat who announced the vaccine mandate, said on social media that the teacher plaintiffs “have no valid claims.”

New York City’s Department of Education “has the authority to implement a mandate that is firmly grounded in science & the expertise of public health officials from across the nation,” she added.

Texas Police officers are apparently not amused with Elon Musk or Tesla’s Autopilot.

In fact, their ire is so sufficient that Tesla has now been named in a $20 million lawsuit over an accident that alleged injured five police officers in Texas.

The Buzbee Law Firm and Muery & Ferrell PC has alleged on behalf of the officers that Tesla hadn’t done enough to address flaws in its Autopilot system. The lawsuit claims that “the five officers were injured while they were performing a drug search on a vehicle they had stopped on the side of the Eastex Freeway and claims that all were badly injured,” according to Carscoops.

The lawsuit says: “Due to the design and manufacturing defects known to Tesla, Tesla’s failure to adequately warn of those defects, and Tesla’s unwillingness to admit or correct such defects, the Autopilot and Tesla’s system safety features failed to detect the officers’ cars or to function in any way to avoid or warn of the hazard and subsequent crash.”

Buzbee told a local news affiliate in Houston: “Upon research, what we have discovered is, this is happening all over the country. In fact, the government has just recently, talking about in the last 30-60 days, has requested of Tesla to turn over information regarding every crash that has occurred involving the Tesla on autopilot that also involves police officers.”

The firm continued: “You’ve probably seen that Elon Musk and Tesla have proudly touted Teslas on autopilot are safer than your everyday driver, that Tesla’s on autopilot there are fewer accidents than they are otherwise. But what we’ve learned is that this information is misleading.”

Recall, earlier in September, we noted that the NHTSA had broadened an ongoing investigation into Tesla’s Autopilot that was spurred by an abundance of crashes with emergency vehicles. 

The agency was likely helped along by a crash in Orlando several weeks ago involving a Tesla that “narrowly” missed hitting a State Trooper. The Tesla driver had the Autopilot engaged during the accident, according to police.

The NHTSA recently said it had opened a formal investigation into the company’s Autopilot feature. It said it is opening a probe into Tesla’s Model X, S, and 3 for model years 2014-2021. The broad range of models and model years means that this could be the broad investigation that Tesla skeptics have been requesting for years. 

By Michael Every of Rabobank

“Secure Supplies at All Costs”

Yesterday was World Maritime Day, an appropriate date on which to launch “In Deep Ship”, which argues global supply-chain snarls are not going to resolve themselves “just like that”, effective ways to resolve them are not even being considered, and stagflation risks are soaring. Moreover, trying to move from “just in time” to “just in case” and “just for me” production risks worse global outcomes before things get better. CNN echoes this in saying “The workers who keep global supply chains moving are warning of a ‘system collapse’.”

China bellows it with their decree to energy firms last night to “Secure Supplies at All Costs”. We had already heard reports of China outbidding for the odd LNG cargo penciled for Europe. Now it appears the fossil-fuel floodgates will be thrown open to make sure that there are no Chinese repeats of the “yes, we have no petrol” dramas playing out in the UK. The long and the short of this is that China is going to be long, and everyone else short. Expect global energy prices to respond appropriately: then expect global economies to respond appropriately. Of course, China will still have to decide how much of this higher energy price is passed on and how much is subsidized – a trend that the EU had already embraced.

In an related move(?), Reuters is reporting (and Bloomberg carrying the official denial) that “China’s regulators tighten scrutiny of FX dealers”. Reuters already reported numeric forecasts for CNY in China are banned. Now it claims “regulators are tightening control over the inner workings of its currency market, pressuring banks to trade less and in smaller ranges, two banking sources told Reuters, as part of a sweeping push to curb speculation” in a $30trn market. In the eyes of the analysts quoted, this is aimed at “tightening the leash on the yuan at a sensitive time when US policymakers prepare to withdraw monetary stimulus and China seems poised to add more.” Indeed, representatives of China’s SAFE have apparently embedded themselves on FX trading floors to monitor things. This follows the recent clamp-down on speculation in commodity markets, and the ban on crypto.

If you project a surge in energy imports at very high prices, and hypothesize a huge off-balance-sheet subsidy to suppress energy inflation, one can see why the CNY “market” may be about to join other global “markets” in being a political statement rather than a voyage of price discovery. Of course, having an effective pegged exchange rate, capital controls, soft budget constraints, and artificially low energy costs might start to ring a few bells for economic historians.

More so when this week also saw “Chinese regulators vow steady, healthy property market”. Bullish, because of a promise house prices won’t go down? Not when the authorities actually say: “housing should never be used as a short-term stimulus for economic growth.” (Just don’t tell the West, with NZ house prices up 27.8% y/y and Australia up 1.5% m/m!) So another massive Chinese “market” where prices don’t move. Meanwhile, no soaring land sales to developers will leave a gaping hole in local government finances in the same way that subsidizing soaring energy costs hypothetically would for central government. How to resolve this?

Commentary now suggests Beijing doesn’t want “fictional” investment and GDP, i.e., housing, but something “useful”: “Pro-Fund or Profound Revolution?”, published a few weeks ago, noted this is the “fictitious” vs. “productive” investment Marxist theory points to. So where will China be channeling capital – or is its growth rate just going to be much lower ahead? Read on and see.

In DC, the can was kicked on government shut-down, but on all other fronts there appears no progress. The only thing more certain now is that Senator Manchin is only prepared to back a $1.5trn reconciliation bill, vastly lower than the $3.5trn proposed – and it is unclear if Senator Sinema will accept even that figure: in response, AOC asked if $1.5trn was for just one year. With the moderate vs. progressive stand-off, it seems possible the infrastructure bill will fall, if a vote is held, which would then see the reconciliation bill topple in response. Or the can will be kicked again – though to what ultimate purpose remains unclear.

The absence of trillions in fresh US stimulus means less near-term inflationary pressures on strained global logistics systems. On the other hand, the implicit fiscal cliff will mean a sharp drop in income for many Americans at a time when the cost of goods is going to go up regardless due to energy and supply-chain issues. If that means a market sector is no longer viable, then production will stop altogether – creating more unemployment and less demand. Yet that won’t re-set prices lower if supply is physically constrained and energy and shipping costs remain high.

Which might be why US Trade Representative Tai is due to make an announcement at 10:00EST on Monday about the Biden administration’s bilateral trade relationship with China. The rumour is that 1/3 of the US tariffs on Chinese goods will be removed. That might bring the price of some goods down marginally, but will do nothing to increase supply given China cannot get the goods to market, and energy and shipping prices are going to make them more expensive anyway.

Geostrategically, this would be a further US attempt at détente after the Huawei hostage swap, and sit alongside John Kerry’s push for China to co-operate on green issues, even if that means dropping US human rights concerns too. Yet this is all alongside a US military strategy of alliances (Quad, AUKUS) and a rival to China’s BRI. Is that supposed to be a kind of carrot and stick? Or a sticky carrot? Or a carroty stick? Moreover, China’s policy shift towards common prosperity, and away from markets, is clearly continuing regardless. Threading the needle on the internal US logic is hard to do, unless assuming that different parts of the Biden administration are now just doing their own thing, or short-term fire-fighting with no strategy – but I will also note that during the last Cold War we had periods of on/off détente between the US and the USSR; it didn’t matter much in the end.

Such a US tariff move would ironically not move CNY today given that kind of thing isn’t allowed at the moment. What it would also not do is incentivise on-shoring of US production, as in Build Back Better, or even closed-loop procurement from US allies in Asia. It would perhaps mean the US buying far-from-green-energy-subsidized Chinese goods, as Beijing boosts “useful / productive” investment in exports, even as the States aims for new green standards and presses for a global level playing field. It would also do nothing to reduce the exposed geoeconomic Achilles’ heel of US reliance on –and yet no commercial control over– global shipping. In short, it would be more of what we have dubbed a “Too Big to Sail” strategy.

But all aboard, regardless? “Secure Supplies at All Costs” is very much the order of the day everywhere, it seems.

With dealer inventories already at record low – as we reported earlier this month, total dealer inventory dipped below 1.0 million in August, down from 2.5 million in August 2020…

… car prices have soared to record highs, and even used car prices – long seen as a key inflection tracker of the “transitory inflation” thesis – are once again rising according to Mannheim.

Unfortunately, any hope for a quick reversal in recent painful trends – if only for those hoping to buy a car – does not look likely if the latest, just reported GM numbers are any indication.

Moments ago, GM reported that in Q3, dealers delivered 446,997 vehicles in the US, down 218,195 units, or almost a third, from a year ago. GM blamed the semiconductor shortage, while also highlighting historically low inventories, too. As Bloomberg notes, this shouldn’t be too surprising since GM told investors that its wholesale volumes in North America in the second half of 2021 would be down about 200,000 units from the first half. GM said that supply disruptions in Malaysia caused by Covid-19 hit hard during the quarter.

Some more details from the quarter, as reported in the press release:

• During the third quarter, GM’s retail share of the full-size pickup segment grew more than 2 percentage points, with the Chevrolet Silverado and GMC Sierra reaching a combined 38 percent share.  GM continues to sell more full-size pickups than any other automaker calendar year to date. Fleet sales of full-size pickup trucks were up 13 percent.
• Almost seven in 10 customers in the full-size SUV segment purchased a Chevrolet Tahoe, Chevrolet Suburban or GMC Yukon. Sales of the Suburban (up 28 percent), Tahoe (up 5 percent) and Yukon (up 24 percent) rose year over year. Sales of full-size SUVs to fleet customers were up 89 percent, with Chevrolet Tahoe PPV sales up 86 percent.
• The Cadillac Escalade increased deliveries by 123 percent and it remains the best-selling large luxury SUV by a double-digit margin.
• The Chevrolet Trailblazer grew sales by 147 percent, and the Buick Encore GX by 3 percent, helping GM maintain leading retail share of the highly competitive small SUV segment.
• The Chevrolet Corvette, the best-selling vehicle in the luxury sport segment, increased sales by 60 percent. The all-new 2023 Corvette Z06 will be revealed on Oct. 26.
• The Chevrolet Silverado medium-duty reported best-ever deliveries for the third quarter and calendar year to date, with total sales up 13 percent, and the Chevrolet Low Cab Forward delivered its best quarter ever with total sales up 53 percent.

While the numbers were very ugly, the company is still affirming its earnings guidance of $5.40 to $6.40 a share for the year, which is likely the result of selling just enough pickups and big SUVs to stay within the guidance.

More importantly, some faint relief may be on the horizon: according to Steve Carlisle, executive vice president and president, GM North America, “the semiconductor supply disruptions that impacted our third-quarter wholesale and customer deliveries are improving.  As we look to the fourth quarter, a steady flow of vehicles held at plants will continue to be released to dealers, we are restarting production at key crossover and car plants, and we look forward to a more stable operating environment through the fall.“

Indeed, a closer look reveals where GM is getting its profit kicker. The Chevy Tahoe large SUV was up 5% and Suburban was up 28%. The Tahoe’s more expensive cousin, the GMC Yukon, saw sales rise 24%. The kingpin of the family, the Cadillac Escalade, more than doubled sales, to over 10,000, or as Bloomberg puts it “Lots of profit there.” Then again, GM sold just 88,306 light-duty Chevy Silverados in the third quarter, an 18% drop from a year ago. But year-to-date, sales are down just 4.6%.

Meanwhile, for those wondering how GM is doing in the sedan market, here is all you need to know: the company sold 269 Chevy Malibus and 27 Impalas the entire quarter.

And another bizarre statistic: sales of the Chevy Bolt and larger Bolt EUV fell only 20.5% to 4,500 vehicles. That means GM was making them early in the quarter, which implies that the plant in Michigan was getting some chips. More to the point, the cars were recalled over a burning battery issue going back to November 2020 and people were still buying them. So maybe folks aren’t scared off of EVs due to the risk of conflagration.

And one for the EV fans: GM says production of the Hummer EV, sold at GMC dealerships, begins later this year at GM’s Factory Zero in Detroit-Hamtramck.

Looking at the income statement, GM continues to make up for the volume shortfall with pricing, by charging an arm and a leg: the average vehicle went for a whopping $47,467, prompting Bloomberg to ask just “how many people can afford a new set of wheels these days” and reminds us that not long ago, the average vehicle sold went for $10,000 less than that.

Another highlight: as Bloomberg’s Gabrielle Coppola writes, one way automakers have been coping with the lack of chips is simply leaving out certain chip-laden features: In the Ram pickup trucks, for example, the company will sell a truck without a feature that’s supposed to come standard, like blind-spot detection, and then give you a discount to make up for the missing tech.

Looking at the market’s reaction, carmaker shares are mostly in the red now, even though the S&P 500 Index is having a hard time making its mind up. Auto supplier stocks, meanwhile, are faring better. We’ll see how this shakes out as more car companies report numbers.

Authored by Steve Watson via Summit News,

Democratic Senator Dianne Feinstein has introduced legislation that would see Americans forced to be vaccinated or to provide a negative COVID test in order to travel within their own country.

Feinstein’s  “US Air Travel Public Safety Act” would “require the Department of Health and Human Services and the Federal Aviation Administration to develop standards for airlines to verify that a person has either been vaccinated, tested negative for COVID-19 or has fully recovered from a coronavirus infection to be able to fly,” The Hill reports.

Feinstein’s office released a statement that claims “Ensuring that air travelers protect themselves and their destination communities from this disease is critical to prevent the next surge, particularly if we confront new, more virulent variants of COVID-19.”

The statement adds that “It only makes sense that we also ensure the millions of airline passengers that crisscross our country aren’t contributing to further transmission, especially as young children remain ineligible to be vaccinated.”

Given that the Biden administration is intent on mandating vaccines and punishing people who wish to stick with the option of tests, and given that DHHS head Xavier Becerra has labeled those who choose natural immunity over vaccines as “flat earthers,” it seems likely that those options would be removed from any legislative action.

If this ‘show your papers’ legislation did pass, would Feinstein herself follow her own rules, or would she continue to demonstrate that authoritarian subjugation is purely for the American public?

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Ready for a rerun of August 2011?

As a reminder, just over 10 years ago, S&P downgraded the US after that year’s debt ceiling debacle prompted the rating agency to do the unthinkable and lob an A from the untouchable AAA US rating (prompting a very unhappy response from both the market and the then-Obama administration). Well, moments ago Fitch lobbed the first official warning shot across the bow of the world’s reserve currency, writing that with the Drop-Dead Date in just 17 days, any debt-cap “brinkmanship” between Democrats and Republicans may put pressure on Fitch’s AAA rating of the US.

In the statement, Fitch said that the failure of the latest efforts to suspend the U.S. federal government’s debt limit indicates that the current stand-off could be among the most protracted since 2013. Additionally, the rating agency believes that the debt limit will be raised or suspended in time to avert a default event, but if this were not done in a timely manner, political brinkmanship and reduced financing flexibility could increase the risk of a U.S. sovereign default.

“It’s unfortunate when Congress uses this as a negotiating tactic, it’s a bad scenario overall,” said Randy Frederick, managing director of trading and derivatives for Schwab Center for Financial Research.

“Eventually, foreign creditors might be unwilling to buy U.S. debt and if that happens, rates are going to go sharply higher and if rates shot up because people were unwilling to buy treasuries that would have a very negative impact on the market.”

And, as we have explained previously, Fitch also pointed out that prioritization of debt payments, assuming this is an option, would lead to non-payment or delayed payment of other obligations, which would likely further undermine the U.S.’s AAA status.

To be sure, the bond market is already paying close attention, although with three more weeks to go, the “kink” in T-Bills remains somewhat subdued compared to prior debt ceiling episodes.

As for stocks, while it is difficult to attribute the continued drop in today’s market to the Fitch warning, it certainly did not help when it came out just minutes after the cash open.

Full Fitch statement below:

Fitch Ratings: Debt Limit Brinkmanship Could Put Pressure on US ‘AAA’ RatingFitch Ratings: Debt Limit Brinkmanship Could Put Pressure on US ‘AAA’ Rating

Fitch Ratings-London/New York-01 October 2021: The failure of the latest efforts to suspend the U.S. federal government’s debt limit indicates that the current stand-off could be among the most protracted since 2013, Fitch Ratings says. Fitch believes that the debt limit will be raised or suspended in time to avert a default event, but if this were not done in a timely manner, political brinkmanship and reduced financing flexibility could increase the risk of a U.S. sovereign default. Prioritization of debt payments, assuming this is an option, would lead to non-payment or delayed payment of other obligations, which would likely undermine the U.S.’s ‘AAA’ status.

The U.S. Senate on Monday failed to advance a Democratic proposal to both suspend the debt limit and avoid a government shutdown on 1 October. On Thursday, Congress passed a continuing resolution that averted a government shutdown but did not raise the debt limit. Meanwhile, Treasury Secretary Janet Yellen wrote to Congressional leaders with an updated estimate of 18 October for the date at which the federal government would be likely to exhaust the scope of extraordinary measures used to meet its obligations without incurring new debt (the X-date).

The debt limit impasse reflects a lack of political consensus that has hampered the U.S.’s ability to meet fiscal challenges for some time, and which is reflected in the Negative Outlook on the U.S.’s ‘AAA’ rating since July 2020. The scope for bipartisan cooperation appears to have narrowed since Congress passed several Covid-19 relief bills with support from both sides of the House and Senate. The Republicans strongly oppose the Democrats’ ‘Build Back Better’ plans while Democratic lawmakers have yet to agree on the size of their budget reconciliation package, currently USD3.5 trillion.

The Republicans argue that the Democrats can and should amend their reconciliation bill to raise the debt limit by a dollar amount rather than suspend it. Democrats have been unwilling to do this, arguing that the majority of the increase in debt during the two-year suspension that ended on 1 August took place under a Republican administration as a result of measures that passed with bipartisan support. Amending the reconciliation bill appears the most viable option for raising the debt limit, but the process would take some time in the Senate.

We view reaching the Treasury’s X-date without the debt limit having been raised as the principal tail risk to the U.S. sovereign’s willingness and capacity to pay. If this appeared likely we would review the U.S. sovereign rating, with probable negative implications. In 2013, Fitch placed the U.S. rating (which was on Negative Outlook) on Rating Watch Negative (RWN) on 15 October, two days before the announced X-date. Although the debt limit was suspended on 16 October, this suspension lasted less than four months, and we maintained the RWN to assess the implications for the U.S. sovereign rating.

The Treasury would still have limited capacity to make payments beyond the X-date but these would depend on volatile revenue and expenditure flows. Cash at the Treasury was USD172.9 billion on 28 September, compared with monthly spending of USD439 billion in August, including USD58 billion on gross interest payments. The Federal Reserve and Treasury reportedly discussed prioritization of interest and debt repayments as part of their contingency planning in 2011 and 2013. Prioritization could reduce the immediate risk of a missed payment, but also reduce the urgency among lawmakers to resolve the debt ceiling impasse ahead of the X-date.

As Fitch has said previously, the economic impact of debt prioritization and the potential damage to investor confidence in the full faith and credit of the U.S. (which enables its ‘AAA’ rating to tolerate such high public debt) may not be compatible with an ‘AAA’ rating.

Interest payments of about USD8 billion are payable on 1 November. The Treasury may be able to roll over T-bills and other maturing debt during this period, but the cost of doing so could rise.

In the event of a missed payment, Fitch would downgrade the U.S. sovereign IDR to ‘Restricted Default’ (RD) until it judged the default event was cured. On obligation ratings, Fitch would downgrade only the affected instruments to a default rating level, while non-defaulted instruments that continued to perform would retain their then-current ratings. The Country Ceiling would likely remain ‘AAA’. This treatment would be consistent with Fitch’s approach to previous sovereign default events in which a limited number of debt instruments have defaulted while other instruments continue to perform.

Once the default was cured, the U.S. sovereign IDR would reflect Fitch’s assessment of the U.S. government’s credit profile, with consideration given to willingness to pay, the effectiveness of government and political institutions, the coherence and credibility of economic policy, the potential long-term impact on the government’s cost of funding and cost of capital for the economy as a whole, and the implications for long-term economic growth. We would also continue to assess the prospects for future fiscal measures to contain government deficits in the face of long-term spending pressures and to place public debt on a downward path over the medium to long term.