“Should We Regulate Foreign Speech?”

The book is available here, and the symposium posts (from many people) are here. Here’s my post, which is also available here:

Rick Hasen’s book identifies a tremendously serious problem; and it offers only modest solutions. And rightly so, I think: As the book correctly points out, more aggressive restrictions (such as bans on supposedly “misleading” advocacy) will likely be cures that are worse than the disease, however serious the disease might be.

I therefore have little quarrel with many of Rick’s suggestions. But I do want to talk briefly about the problem of foreign speech that may influence election campaigns, which Rick suggests should be even more restricted than it is now (see pp. 102-09).

Protecting American self-government from undue foreign influence is of course quite appealing, especially for people (like me) who have a mindset that’s more nationalist than universalist. I don’t view myself as a citizen of the world; I’m a citizen of a particular nation. If I’m stranded in Elbonia, I’m not going to call the UN for help; I’ll call the American Embassy. It is my nation, not the world, that I expect to defend me against peril. In turn, I’d like to see my fellow citizens make political decisions without excessive interference by foreign countries, even friendly ones but especially adversarial ones (such as Russia). “God gave all men all Earth to love / But, since our hearts are small / Ordained for each one spot should prove / Beloved above all.” Our spot, for us to govern; and I’m sure many citizens of other countries think the same of theirs.

At the same time, much important information relevant to American political debates comes from foreign citizens. Some are people living in the U.S. on temporary work or student visas. Many are in foreign countries; they could be ordinary citizens, political activists, scholars, or politicians. They may be able to convey important facts and ideas about the effects of American foreign policy; or about American actions bearing on world problems (such as climate change or telecommunications technology or artificial intelligence or food production); or about foreign problems that might call for American help.

They might offer some information about the foreign activities of American politicians or business leaders. They might be foreign religious figures who want to exhort their American followers to act consistently with their shared religions. They might be journalists for foreign newspapers who are writing about American politics for a world audience, including an American audience. And they might even be foreign government employees (such as academics, much as Rick and I are employees of an American government) or others who are actually or allegedly linked in some way to a foreign government.

The Court has of course recognized the right of American listeners to receive information from foreign sources; the very first case striking down an Act of Congress on First Amendment grounds, Lamont v. Postmaster General (1965), involved a law that barred the delivery of “communist propaganda” from foreign sources (which were understood as generally linked to foreign governments) unless the recipient affirmatively authorized its delivery. Such a law, the Court held, “is unconstitutional because it … [is] a limitation on the unfettered exercise of the addressee’s First Amendment rights.”

Of course, Rick is right (p. 106) that this isn’t the end of the story; perhaps the analysis should be different for laws focused on election-related speech. And of course in Bluman v. FEC (2012), the Court summarily affirmed, without opinion, Judge Kavanaugh’s decision for a three-judge court upholding a ban on foreign citizens (other than permanent residents) “contribut[ing] to national political parties and outside political groups” or “expressly advocating for and against the election of candidates in U.S. elections.” (One might also note Meese v. Keene (1987), which upheld a requirement that expressive materials funded by foreign governments be labeled “political propaganda.”)

But once one gets beyond the narrow zone of contributions or express advocacy with regard to candidates, to “tightening the foreign campaign spending ban” (p. 102), the matter becomes much more complicated, I think. (The Bluman court expressly noted that it did not decide on any broader restrictions, such as on “issue advocacy and speaking out on issues of public policy.”)

And of course if one really wants to deal with foreign attempts to influence elections, one would indeed have go to much beyond “expressly advocating for and against the election of candidates.” Sharp criticisms of a President or Senator who is running for reelection, after all, may well affect the election, even if they are “susceptible of [a] reasonable interpretation other than as an appeal to vote for or against a specific candidate.” Indeed, extensive commentary on issues that are central to an election can affect the election as well, even if it doesn’t mention a particular person, for instance because it “foment[s] American political unrest” (p. 49). And that’s true even when the coverage doesn’t involve advertising, but rather the free distribution of speech that will often have cost money (if only in the form of writers’ salaries) to write or design or videorecord.

No wonder that Rick is at least suggesting (though perhaps not fully endorsing) Congress “proceed[ing] even more broadly and outlaw[ing] all the social media and Internet activity Russians engaged in to influence the 2016 and 2020 elections” (p. 104)—which would presumably extend equally to speech by Swedes or Britons or Israelis or Palestinians that may affect American elections. And while Rick warns that the Supreme Court “could well strike down a law barring foreign entities from running paid ads that stir up unrest on contentious issues such as racial justice, immigration, or gay rights” (p. 105), it seems that he views this as a defect in the Court’s jurisprudence, perhaps one that a more enlightened (because less “libertarian”) Court would correct.

Likewise, Rick has taken the view that it would be a crime for an American campaign to receive “opposition research” on a candidate from a foreign national, on the theory that it is a forbidden contribution of “anything of value” to a campaign. (Again, notice how this doesn’t involve independent expenditures in the sense of buying advertisements for cash.)

So say that, in Summer 2024, when Donald Trump is running again for President, a top Kamala Harris staffer gets a message from a Slovene student at the Wharton School: “I’ve done extensive research on President Trump’s involvement in his Miss Universe organization, and found that Miss Slovenia says that Donald Trump had sexually harassed her. Would you like to get this story?” The staffer says, “I’d love to,” and indeed gets the information, which he then uses in the campaign (and which many American voters presumably find useful).

Under Rick’s theory, it would be a crime for Harris to receive this, on the theory that this is valuable “opposition research.” (It might be possible under this theory that it wouldn’t be a crime if Harris paid for it, since then it wouldn’t be a donation to the campaign, but that would be a very odd rule: We usually frown on paying for incriminating evidence, rather than thinking that paying for such evidence is what makes otherwise criminal conduct legal, plus what would the fair market value of such one-off incriminating evidence even be?) Moreover, if that’s an illegal contribution to a campaign, then presumably the Slovene’s publishing that information online might be treatable as an independent expenditure by a foreign citizen, and thus also constitutionally unprotected.

Rick doesn’t elaborate in detail what he thinks the proper constitutional framework should be for such speech by foreign citizens or organizations (or governments) on matters that might bear, directly or indirectly, on American election campaigns. But I think it would be helpful for us to think about that question, if “the foreign campaign spending ban” is indeed to be tightened, and if a changed Supreme Court were to face a ban on foreign “issue advocacy and speaking out on issues of [American] public policy.” And, again, that’s important not just to define the rights of foreign citizens (including ones who live in America), but also to define the rights of Americans to hear a broad range of views, from all sources, about American political matters.

Now one possible answer that Rick seems to offer (p. 107) is that such speech should be protected if it’s published by foreign “news media” but not by other foreign speakers. (“[D]ifficult as any dispute over an expanded general foreign campaign spending ban might be, any law specifically aimed at shutting down fake news sites run by foreign entities such as Russia’s Peace Data site (described in the last chapter) promises to stir up a hornet’s nest among the Court’s conservatives because of the definition of who counts as the news media.”) As I’ve noted, the Supreme Court has generally held that the Free Press Clause protects “press” in the sense of a technology (the printing press and its technological heirs, which is to say mass media communications) and not “press” in the sense of an industry. And while of course that doctrine might change, any such change would require difficult line-drawing about who is entitled to “free press” rights and who isn’t.

Rick seems to endorse (p. 109) Sonja West’s proposed framework, under which courts would identify the “press” by looking to “four factors”: “(1) recognition by others as the press; (2) holding oneself out as the press; (3) training, education, or experience in journalism; and (4) regularity of publication and established audience.” Presumably an editorial or an article in the Times of London sharply condemning an American political leader who is seeking reelection would thus be “press” and presumably not subject to “shutting down,” whether on “fake news” grounds or campaign spending grounds; but some other online material wouldn’t be “press.”

Yet this seems like a poor basis for a definition that has constitutional significance. Element 1 would involve delegating decisions about who has constitutional rights to unspecified “others,” who will often be self-interested or ideologically motivated. Element 2 would of course just lead advocacy groups to self-label as “news” or “media” or something along those lines. Element 3, if taken at face value, would strip protection from material in opinion magazines, such as The New Republic, National Review, and the like, since much of that speech comes from academics, think tank researchers, policy advocates, and others, who aren’t trained as journalists (and who sometimes write only occasionally, thus lacking much “experience in journalism”). Element 4 would favor established media entities (however biased, deceptive, or foreign-government-influenced) over new upstarts.

Finally, Americans of course routinely comment on foreign politics, including on foreign elections. The U.S. government has long funded speech aimed at influencing citizens of foreign countries. American nongovernmental organizations often engage in such speech as well, on democracy, gay and transgender rights, religious freedom, civil liberties, and much more.

American newspapers, including ones with substantial overseas circulation, comment on foreign countries’ policies, politics, and politicians. And of course American-based search engine companies and social media companies impose their content policies on political speech (as well as other speech) in foreign countries. Perhaps these don’t involve much spending on express advocacy in support of or opposing a particular candidate (I’m not sure), but again it appears that Rick’s suggestion would go beyond that narrow zone.

Now perhaps we should take the view that America and American individuals and organizations should get away with whatever we can along these lines in foreign countries, and at the same time restrict whatever speech we can from foreign countries that would try to influence American political debates. “The strong do what they can and the weak suffer what they must,” like it or not, might be eternal truth; and even if we’ve tried to restrain that principle when it comes to military force, perhaps it makes sense for speech about politics. At the same time, it would be helpful to know if there is some generalizable principle available here, which we would be able to live with when it comes to others restricting Americans’ rights to speak about foreign elections (including about the issues critical to foreign elections) as well to our restricting foreigners’ rights.

In any event, these are just some thoughts on what might be worth considering when it comes to “tightening” existing constraints on foreigners’ speech about American elections.

The post "Should We Regulate Foreign Speech?" appeared first on Reason.com.

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European Markets Freak Out As Odds Of Le Pen Victory In French Presidential Elections Jump

European Markets Freak Out As Odds Of Le Pen Victory In French Presidential Elections Jump

Ahead of last weekend’s Hungarian parliamentary election, the pollsters were predicting a landslide loss for the loathed by the western/EU establishment current president, the pro-Putin Viktor Orban. Well, there was a landslide, just not in the direction the so-called experts predicted (which begs the question: why do people still listen to polls after 2016, but we digress), and in the latest humiliation for Brussels, Orban was re-reelected in a huge victory, steamrolling the opposition alliance. So with all eyes on this weekend’s French elections which pit Davos crowd pet and former Rotschild banker Emanuel Macron against outspoken nationalist Marine Le Pen. Here too, fears are growing that what until recently was seen by the always wrong pollsters as a “done deal” and blowout victory for Macron, suddenly is looking very shaky.

With French voters taking to the polls on Sunday, the race is suddenly wide open because while Macron’s lead over Le Pen had been narrowing in recent weeks, a shock poll released yesterday by Atlas Politico showed that Le Pen (50.5%) now has a slight advantage over Macron (49.5%).

A little background: the first round of the French presidential election will take place on Sunday (April 10). The two candidates gathering the most votes will qualify for the second round of the election, which will take place on Sunday, April 24. Incumbent President Macron still enjoys a comfortable lead in the polls at over 25% of voting intentions, although this is down marginally from the early-March highs. Voting intentions for far-right candidate Marine Le Pen have increased to about 20% (from about 15% a few weeks ago), placing her as the most likely candidate facing Macron in the second round.

Macron, who had sought to put himself at the center of European and US efforts to end the crisis in Ukraine since late last year with dismal results so far, only began campaigning in earnest about a week ago. The calculation was that he’d benefit from the image of peacemaker and seasoned statesman, and that his handling of the pandemic and a strong economic rebound would be enough to keep him in the Elysee.

Until recently, polls suggested that was true… but suddenly the unthinkable appears possible, and a big reason for that is the exploding inflation across France. More on that in a second.

The problem, as Bloomberg notes, is that foreign policy rarely wins elections in France, and an appearance of complacency fueled the perception that Macron is arrogant and out of touch – which of course is true on both counts – is opening the way for Marine Le Pen.

Unlike the caviar-slurping Davos jet-setter, Le Pen realized long ago on that voters already struggling with high energy and food prices were more likely to care about purchasing power or lack thereof. And so, what was a 12 point gap between her and Macron has narrowed dramatically as she toured towns and villages, casting herself as the defender of the “little ones” against Macron’s reputation as the “president of the rich.” She pledged to slash gasoline prices and tax big energy companies.

Of course, this won’t be Le Pen’s first attempt to dethrone Macron. Or second. On her third attempt to clinch France’s top job, Le Pen has become a familiar face. Her efforts to appear more mainstream got an unexpected boost from the candidacy of Eric Zemmour, a far-right former media pundit sanctioned three times for hate speech also known as the French Trump.

People close to Macron have been warning that his victory isn’t assured. “Of course Ms. Le Pen can win,” Edouard Philippe, a former prime minister in Macron’s government, said last week according to Bloomberg. But for that to happen, Le Pen would have to build an anyone-but-Macron coalition in the second round on April 24 and left-wing voters would have to abstain, or vote for her.

To be sure, a Le Pen victory over Macron, the self-styled successor of Angela Merkel, and defender of the European project, would be a shock for the European Union on a par with Donald Trump’s U.S. election victory and the Brexit vote in 2016. Armed with a veto on most EU initiatives, she could bring the bloc to an abrupt halt and could effectively spell the end of the EU, one of the core Western alliances in a thunderous win for Putin.

There’s one more wildcard in this race: Far-left leader Jean-Luc Melenchon. On his third shot at the presidency, he’s polling six percentage points after Le Pen, and could convince left-wing voters to rally behind him on Sunday.

As Bloomberg puts it, “voter support for her means that immigration would remain central to her agenda. A win would cap the far-right in France, pointing the country on a nationalist, nativist path.”

In any case, even if Le Pen doesn’t pull it off, Macron would win by a far smaller margin than last time the two went head-to-head in 2017. The nationalist would emerge empowered in either outcome while Macron will be left with a weak mandate that could make it difficult to implement his economic and social reforms, depending on the outcome of legislative elections scheduled for June.

That said, a victory would be a stunning accomplishment for 53-year-old: it took Le Pen a year to recover from her defeat to Macron in 2017, but she held tight and looked to Viktor Orban, who just won a fourth-straight term as prime minister in Hungary, and Matteo Salvini in Italy for inspiration.

She changed her party’s name to appear less aggressive and also intensified a strategy to soften her image, sharing personal stories about her life as a single mother with three children and her Bengal cats. She dropped a plan to ban dual citizenship – a calling card of the far right – and disavowed Russian President Vladimir Putin after his invasion of Ukraine.

“She’s made progress — she’s opened up to other people and listens to criticism,” said Robert Menard, the mayor of Beziers, who backs her and talks to her once a week. “Before, we didn’t speak, we just argued.”

Le Pen has been focusing on social welfare since taking over her father’s party in 2011, essentially inching the movement that was economically liberal in the 1980s closer to the left, increasingly attracting less well-off people and the young working class.

On March 10, Le Pen cast herself as the candidate of the “little ones” against the “big ones” in the poorer Northern France region, slamming Macron for “giving everything to big companies.” She also pledged that gasoline prices would go down if she’s elected — a key issue for voters in rural areas who rely on their cars — with tax cuts on fuel, and new taxes on oil majors.

By contrast, Zemmour’s program veers more to the right. He wants the French to retire later, reduce welfare and cut taxes on companies and real estate owners. But at the end of the day, his supporters will likely back Le Pen in a runoff against Macron, according to an analysis by Gilles Ivaldi, a Sciences Po researcher.

“By pushing a social-populist agenda long before the war and increasing her rhetoric after the invasion, Le Pen is gambling,” Ivaldi wrote in a recent opinion piece. “So far, polls appear to be proving her right.”

Indeed they are, and the market is starting to freak out: holders of French debt have been dumping it ahead of what could be a shock outcome this weekend, pushing benchmark yields up to as high as 1.25%, a level last seen in 2015. That took the spread over their German equivalents — a measure of investors’ perception of risk — to the widest since March 2020, the onset of the pandemic.

Consistent with the evolution of polls, further election risk premium has been priced across assets during the course of this week. In our view, the French presidential election has more European rather than domestic implications.

In a note previewing the French election, Goldman strategist Peter Oppenheimer (note available to pro subscribers), writes that consistent with the evolution of polls, further election risk premium has been priced across assets during the course of this week as “the French presidential election has more European rather than domestic implications.”

As Oppenheimer details, “since the invasion of Ukraine by Russian forces, equities and peripheral sovereign spreads have been resilient despite the deterioration of the growth/rate mix and the repricing of tighter monetary policies. Part of this resilience likely lies in the swift and homogeneous response of European leaders in terms of diplomatic and fiscal policies, with President Macron being a key player in proposals for further EU integration.”

But a change in the French presidency or rising odds of a Le Pen victory is likely to trigger market stress, pushing some sovereign risk back to the forefront and raising the equity risk premium.

If Le Pen were to be elected, Goldman expects 10y OAT-Bunds to land at 60-75bp, 10y BTP-Bunds at 180-210bp and EUR/USD to trade 2% lower. In the equity space, the risk premium could rise by 30bp, which implies a 7% price drop for the SXXP. This is consistent with what the equity derivatives market is currently pricing.

In any case, with 2 days to go, President Macron still enjoys a modest lead in most polls, with a handful of exceptions, at over 25% of voting intentions, although this has declined marginally from the early-March highs (Chart 1, left). The recent polls also confirm that the next two leading contenders are far-right candidate Marine Le Pen (Rassemblement National) and far-left candidate Jean-Luc Mélenchon (La France Insoumise). In France, polls this close to the election have tended to be relatively accurate, with mean polling errors shrinking by close to 1pp a fortnight before the first round, and a rematch of the 2017 contest between Macron and Le Pen therefore looks highly likely (Chart 1, right).

Where things get shaky is that second-round polls have recently shown President Macron’s lead over Ms. Le Pen narrowing to historical lows. Although prediction markets still foresee a victory for President Macron, they have repriced Ms. Le Pen’s odds to 20% up from 5%.

In that respect, Goldman argues that the key risk stems from the participation rate of moderate voters. In a simple exercise, assuming that Zemmour voters largely vote for Le Pen and that Pécresse voters equally split on supporting Le Pen, Macron and abstaining in the second round. Varying the participation rate amongst left-wing voters in the second round (i.e., who voted for Mr. Mélenchon, Hidalgo or Jadot in the first round), Goldman finds that 60% of 1st round left-wing voters would need to abstain for Le Pen to be elected president if the far-left was to split itself equally between Macron and Le Pen (Exhibit 2, left).

As such, the bank will carefully monitor (i) unsuccessful candidates’ voting guidelines, if any, and (ii) sub-polls showing 2nd round voting intentions conditional on the 1st round vote. We will also look for major public figures—including former presidents and prime ministers—to persuade 1st round abstainers and voters whose candidates did not advance to regroup behind the mainstream candidate (likely Mr. Macron) so as to form the so-called Front Républicain.

Tyler Durden
Fri, 04/08/2022 – 10:50

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COVID Stimulus Checks Worsened Inflation


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Inflation has surged across much of the developed world in the past year as COVID-19 lockdowns eased and pent-up demand for goods and services collided with ongoing supply chain snafus.

But inflation is running higher in the United States than just about anywhere else right now. Why’s that? According to a new paper from four economists at the Federal Reserve of San Francisco, it’s because the American government was relatively more generous during the pandemic, borrowing and spending trillions of dollars to not only fund COVID-19 relief efforts but to line the pockets of Americans with direct payments that enlarged the money supply and overheated the economy.

“Inflation rates in the United States and other developed economies have closely tracked each other historically,” the economists write in an analysis published this week. “However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence.”

Inflation in the U.S. hit an annualized rate of 7.9 percent in February (data for March will be released by the Bureau for Labor Statistics next week), a 40-year high. Meanwhile, inflation in similar countries like France (3.6 percent), Germany (5.1 percent), and the United Kingdom (5.5 percent) is significantly lower, according to data from the Organization for Economic Cooperation and Development (OECD), a consortium of 38 rich-world governments. (Across the OECD as a whole, the average annual inflation rate is about the same as the U.S., but that’s due to the influence of outliers like Argentina—where prices are up over 52 percent in the past 12 months.)

February’s global price data are not merely a snapshot, but indicative of a worrying trend. The Pew Research Center noted in November of last year that prices in the United States were rising more quickly than almost anywhere else. Between the third quarter of 2019 (the last full economic quarter before COVID-19 was first identified) and the third quarter of 2021, the U.S. inflation rate climbed by 3.58 percentage points—a larger change than in all but two other countries of the 46 nations included in the study.

Governments all over the world spent heavily to combat the pandemic, of course, but few handed out cash directly to citizens as the American government did. The four Federal Reserve researchers track sharp increases in “inflation-adjusted disposable personal income”—in layman’s terms, excess spending cash—reported by American households over the past two years. “Throughout 2020 and 2021, U.S. households experienced significantly higher increases in their disposable income relative to their OECD peers,” they write.

About $817 billion in direct payments to American households were delivered in three rounds during the pandemic, according to the COVID Money Tracker run by the Committee for a Responsible Federal Budget, a nonprofit that advocates for lower deficits. The first round of stimulus checks was worth $1,200 per person and was approved as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. Another round of $600 checks was distributed starting in December of that year.

But the big blow came in early 2021, when the Biden administration pushed through a round of $1,400 checks as part of the American Recovery Plan, passed by Congress in March 2021.

Though each round of direct checks had slightly different parameters for determining who would get the payments, much of that $817 billion landed in the bank accounts of people who had never lost their jobs and were well above the poverty line. Households earning as much as $160,000 in joint income were eligible for the final round of direct payments disbursed during the first half of 2021—and many progressives in Congress thought the cutoff should have been even higher.

We’re now reaping what Congress sowed. All that excess cash is chasing the same number of goods. That’s a recipe for inflation straight out of any economics textbook. The four economists conclude that “U.S. income transfers may have contributed to an increase in inflation of about 3 percentage points by the fourth quarter of 2021.”

This isn’t a novel idea, of course. Larry Summers, one of the Obama administration’s top economic advisers, was warning about rising inflation more than a year ago. Passing another stimulus bill in the spring of 2021, Summers warned in a Washington Post op-ed, “will set off inflationary pressures of a kind we have not seen in a generation.” Other top economists, including a former chairman of the International Monetary Fund, offered similar warnings. The Biden administration and Democrats in Congress did not listen, and now here we are.

The value of this Federal Reserve analysis is that it does not look forward in time and try to project what will happen, but reviews existing data to tell what did in fact happen. Putting more money directly in Americans’ pockets and bank accounts caused inflation to get worse than it otherwise would have been.

In fairness, the economists also point out that a less robust response to the pandemic may have caused a different kind of economic pain. “Without these spending measures,” they write, “the economy might have tipped into outright deflation and slower economic growth, the consequences of which would have been harder to manage.”

Any serious attempt to grapple with America’s current bout of inflation must be aware of that possible alternate reality—the grass is not necessarily greener on the other side.

But that doesn’t absolve the federal government—from the White House to Congress to the Federal Reserve—of its role in worsening this mess. The whole world is suffering through a period of high inflation, but American policy makers added a uniquely high amount of fuel to the fire.

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Goldman Sachs Destroys An Investing Myth?

Goldman Sachs Destroys An Investing Myth?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Did Goldman Sachs destroy a persistent myth about investing in stocks? Sam Ro recently suggested such was the case for the “sacred CAPE ratio.”

So, what is the persistent myth that is no more?

“While valuations feature importantly in our toolbox to estimate forward equity returns, we should dispel an oft-repeated myth that equity valuations are mean-reverting.” – Goldman Sachs

As Sam notes in his commentary,

“Many market watchers use above-average CAPE readings as a signal that stocks should underperform or even fall as it reverts back to its long-term mean. But CAPE’s mean doesn’t actually have much pull.

However, here is the key sentence from Goldman’s analysis.

“We have not found any statistical evidence of mean reversion,” the Goldman Sachs analysts wrote. “Equity valuations are a bounded time series: there is some upper bound since valuations cannot reach infinity, and there is a lower bound since valuations cannot go below zero. However, having upper and lower bounds does not imply valuations are stationary and revert to the same long-term mean.”

While the analysis is correct, it obfuscates the more important point of valuations and reversions to the mean.

The Mean Has Moved

During extended bull markets, rationalization becomes commonplace to justify overpaying for value. One such rationalization is the permanent shift in valuations higher due to changes in accounting rules, share buybacks, and greater adoption by the public of investing (aka ETFs.)

The chart shows the apparent shift in valuations.

  1. The long-term “median” CAPE is 16.38 times earnings from 1871-Present (all-years)

  2. The “median” CAPE ratio is 15.04 times earnings from 1871-1980.

  3. The “median” CAPE is 23.08 times earnings from 1980-Present.

There are two critical things to consider concerning the shift higher in valuations from 1980-Present.

  1. The shift higher in MEDIAN valuations was a function of falling economic growth and deflationary pressures; and,
  2. Increasing levels of leverage and debt, which eroded economic growth, facilitated higher prices. 

Read “The Permanent Shift In Valuations” for a more detailed explanation.

However, here is the crucial point on valuations, slower economic growth, and debt from Crestmont Capital.

“However, as real economic growth significantly declined over the past two decades, it triggered a series of adjustments that represent the forces behind The Big Shift. Most importantly, the downshift in real economic growth disrupted the financial relationship of profits, future growth, and market value.

Slower growth drives P/E downward for similar reasons that it drives EPS upward.”

Of course, since the “Financial Crisis” lows, much of the rise in “profitability” has come from cost-cutting measures and accounting gimmicks rather than actual increases in top-line revenue. The stock market has returned almost 200% since the 2007 peak, which is more than 7-times the GDP growth and nearly 3.5-times the increase in corporate revenue. (I have used SALES growth in the chart below as it is what happens at the top line of income statements and is not AS subject to manipulation.)

Valuations ARE Mean Reverting

Of course, the surge in the stock market, and valuations, are a function of an $8 trillion-plus increase in the Fed’s balance sheet, several trillion in stock buybacks, tax cuts, and a massive surge in Government liquidity and debt. With price-to-sales ratios eclipsing 3x, a historical record, and median stock valuations near the highest in history, one should question the ability to continue borrowing from the future?

But such explains the step-up in valuations.

While I understand both Sam’s and Goldman Sachs’ views, the flaw in the analysis is using the long-term mean to determine statistical relevance.

A more relevant measure of valuation reversion is by using the exponential growth trend of the valuations over the entire data series. The exponential growth trend captures the economy’s growth, earnings, and inflation over time. Importantly, it also captures the impact of slower economic growth, debt, buybacks, and retail buying in recent years.

Importantly, as shown below, valuations are indeed mean-reverting when it comes to the long-term growth trend of valuations. In particular, very high deviation levels have led to more critical mean-reverting events. (the “Crash of 1929” and the “Dot.com Crisis” in 2000)

Notably, while valuations are currently at the second-highest level on record, the deviation from the long-term exponential growth trend is only the 4th highest. Such suggests that while we may indeed see a mean-reverting event in valuation below the long-term growth trend, we may not see a reversion back to 10x valuations or less. This analysis suggests that sub-10 valuations may not be seen again in our lifetimes.

However, while reversions are essential, there is a vastly more crucial point to understand.

Valuations Do Matter

“Frederick Lewis Allen once wrote, ‘Prosperity is more than an economic condition: it is a state of mind.’ Yet the current boom isn’t just a happiness survey. The numbers back me up here.

The S&P 500 has now hit 58 new all-times since the pandemic bear market ended in March 2020. Housing prices are at all-time highs. People have more equity in their homes than ever before. Wages are rising at the fastest pace in years. Economic growth is going to be at the highest level in decades in 2021.

Add it all up and the net worth of all American households is at all-time highs. But this time it’s not just the top 1% who is benefitting.” – Ben Carlson

Again, Ben is correct. However, comparing the recent liquidity-driven stock market mania to the 1920s is not exactly apples to apples. 

In the short term, over one year or less, political, fundamental, and economic data has very little influence over the market.

In other words, “price is the only thing that matters” in the short term.

Price measures the current “psychology” of the “herd” and is the clearest representation of the behavioral dynamics of the living organism we call “the market.”

But in the long-term, fundamentals are the only thing that matters. Both charts below compare 10- and 20-year forward total real returns to the margin-adjusted CAPE ratio.

Both charts suggest that forward returns over the next decade, or two, will be somewhere between 0-3%.

There are two crucial things you should take away from the chart above concerning the 1920s analogy:

  1. Market returns are best when coming from periods of low valuations; and,

  2. Markets have a strong tendency to revert to their average performance over time.

Reversion To The Mean

As Sir Issac Newton once stated:

“What goes up, must come down.” 

Looking beyond the very short-term overly optimistic view of “this time is different,” the coming unwinding of current speculative extremes will occur after completing the market cycle.

When we look at 10-year trailing returns, there is sufficient historical evidence to suggest that total returns will decline towards zero over the next 5-years from 12% annualized. (These are trailing 10-year total real returns, not forward)

A decline in the next 3-years of only 30%, the average drawdown during a recession, will likely achieve that goal.

Why will a bear market eventually happen? It is a function of time (length of market cycles), math (valuations,) and physics (price deviations for long-term means.)

When will it happen, and what will cause it? No one knows.

While Goldman Sachs suggests there is no evidence of mean reversion, the data clearly shows there is.

Ignoring that data has cost investors dearly.

Tyler Durden
Fri, 04/08/2022 – 10:35

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COVID Stimulus Checks Worsened Inflation


jp-valery-hfrDZAXwb5c-unsplash (2)

Inflation has surged across much of the developed world in the past year as COVID-19 lockdowns eased and pent-up demand for goods and services collided with ongoing supply chain snafus.

But inflation is running higher in the United States than just about anywhere else right now. Why’s that? According to a new paper from four economists at the Federal Reserve of San Francisco, it’s because the American government was relatively more generous during the pandemic, borrowing and spending trillions of dollars to not only fund COVID-19 relief efforts but to line the pockets of Americans with direct payments that enlarged the money supply and overheated the economy.

“Inflation rates in the United States and other developed economies have closely tracked each other historically,” the economists write in an analysis published this week. “However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence.”

Inflation in the U.S. hit an annualized rate of 7.9 percent in February (data for March will be released by the Bureau for Labor Statistics next week), a 40-year high. Meanwhile, inflation in similar countries like France (3.6 percent), Germany (5.1 percent), and the United Kingdom (5.5 percent) is significantly lower, according to data from the Organization for Economic Cooperation and Development (OECD), a consortium of 38 rich-world governments. (Across the OECD as a whole, the average annual inflation rate is about the same as the U.S., but that’s due to the influence of outliers like Argentina—where prices are up over 52 percent in the past 12 months.)

February’s global price data are not merely a snapshot, but indicative of a worrying trend. The Pew Research Center noted in November of last year that prices in the United States were rising more quickly than almost anywhere else. Between the third quarter of 2019 (the last full economic quarter before COVID-19 was first identified) and the third quarter of 2021, the U.S. inflation rate climbed by 3.58 percentage points—a larger change than in all but two other countries of the 46 nations included in the study.

Governments all over the world spent heavily to combat the pandemic, of course, but few handed out cash directly to citizens as the American government did. The four Federal Reserve researchers track sharp increases in “inflation-adjusted disposable personal income”—in layman’s terms, excess spending cash—reported by American households over the past two years. “Throughout 2020 and 2021, U.S. households experienced significantly higher increases in their disposable income relative to their OECD peers,” they write.

About $817 billion in direct payments to American households were delivered in three rounds during the pandemic, according to the COVID Money Tracker run by the Committee for a Responsible Federal Budget, a nonprofit that advocates for lower deficits. The first round of stimulus checks was worth $1,200 per person and was approved as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. Another round of $600 checks was distributed starting in December of that year.

But the big blow came in early 2021, when the Biden administration pushed through a round of $1,400 checks as part of the American Recovery Plan, passed by Congress in March 2021.

Though each round of direct checks had slightly different parameters for determining who would get the payments, much of that $817 billion landed in the bank accounts of people who had never lost their jobs and were well above the poverty line. Households earning as much as $160,000 in joint income were eligible for the final round of direct payments disbursed during the first half of 2021—and many progressives in Congress thought the cutoff should have been even higher.

We’re now reaping what Congress sowed. All that excess cash is chasing the same number of goods. That’s a recipe for inflation straight out of any economics textbook. The four economists conclude that “U.S. income transfers may have contributed to an increase in inflation of about 3 percentage points by the fourth quarter of 2021.”

This isn’t a novel idea, of course. Larry Summers, one of the Obama administration’s top economic advisers, was warning about rising inflation more than a year ago. Passing another stimulus bill in the spring of 2021, Summers warned in a Washington Post op-ed, “will set off inflationary pressures of a kind we have not seen in a generation.” Other top economists, including a former chairman of the International Monetary Fund, offered similar warnings. The Biden administration and Democrats in Congress did not listen, and now here we are.

The value of this Federal Reserve analysis is that it does not look forward in time and try to project what will happen, but reviews existing data to tell what did in fact happen. Putting more money directly in Americans’ pockets and bank accounts caused inflation to get worse than it otherwise would have been.

In fairness, the economists also point out that a less robust response to the pandemic may have caused a different kind of economic pain. “Without these spending measures,” they write, “the economy might have tipped into outright deflation and slower economic growth, the consequences of which would have been harder to manage.”

Any serious attempt to grapple with America’s current bout of inflation must be aware of that possible alternate reality—the grass is not necessarily greener on the other side.

But that doesn’t absolve the federal government—from the White House to Congress to the Federal Reserve—of its role in worsening this mess. The whole world is suffering through a period of high inflation, but American policy makers added a uniquely high amount of fuel to the fire.

The post COVID Stimulus Checks Worsened Inflation appeared first on Reason.com.

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Alabama Makes It a Felony To Offer Transition-Related Care for Trans Kids


dreamstime_l_244902089

Taking templates from Texas, Florida, and other Republican-led states, Alabama seems to be embracing all the worst anti-LGBTQ trends—and in some cases taking them one step further. This week, the state passed a bill making it a felony to provide transition-related medical care to transgender minors and mandating prison time for those who provide what’s come to be known as “gender-affirming care.”

Under the bill—S.B. 184, passed by the Alabama House on Thursday after clearing the state’s Senate in February—providing hormone therapy or puberty blockers to someone under age 18 would be a Class C felony, punishable by at least one year in prison and up to 10 years. “The legislation also bans gender-affirming surgeries on transgender youth, though that is already not standard practice among doctors,” notes Politico.

S.B. 184 also states that “no nurse, counselor, teacher, principal, or other administrative official at a public or private school attended by a minor shall…withhold from a minor’s parent or legal guardian information related to a minor’s perception that his or her gender or sex is inconsistent with his or her sex.”

The bill is now with Alabama Gov. Kay Ivey, who has not indicated whether she will sign it into law.

Another measure (H.B. 322) passed by Alabama lawmakers on Thursday would ban transgender students from using sex-segregated bathrooms and locker rooms that match their gender identity. And an amendment to the bill limits school-based discussions about gender identity or sexual orientation (in the manner of a recent Florida law that opponents dubbed the “Don’t Say Gay” bill).

“What this amendment does it just prohibits classroom instruction or discussion on sexual orientation or gender identity for students in kindergarten through fifth grade,” said state Sen. Shay Shelnutt (R–Trussville), who introduced the amendment.

H.B. 322 has also been delivered to the governor.

Laws like these are flooding Republican-controlled legislatures right now, notes the American Civil Liberties Union (ACLU). The ACLU has identified variations on the Alabama gender care measure in 19 states (setting them up for a conflict with the U.S. Department of Justice).

“Last summer a federal court blocked Arkansas from enforcing a law that made it the first state to prohibit doctors from providing gender-confirming hormone treatment, puberty blockers or sex reassignment surgery to anyone under 18 years old,” notes The New York Times. And “in Arizona, Gov. Doug Ducey signed legislation last month blocking some forms of gender-affirming care for minors. Tennessee legislators also approved a bill this year that would ban providing hormone-related medication to children before puberty. But those measures stop short of being considered felony-level offenses.”

“A bill in Idaho that would have also made providing gender-affirming care to transgender children a felony passed out of the House last month but was blocked by Republican Senate leaders, who said the policy ‘undermines parental rights,'” notes Politico. (More on that here.)

Meanwhile, in Texas, Attorney General Ken Paxton has directed authorities to start investigating parents who approve gender-affirming care for their children, calling it a form of child abuse.

Following in the footsteps of a Florida law limiting instruction around sexual orientation and gender identity, Ohio and Georgia have introduced similar measures.

The Ohio measure would apply to private as well as public schools. “This is not a bill that supports parents’ rights to control and influence their children’s education. It is the exact opposite—it’s just coming from social conservatives rather than progressive gender and race activists,” writes Reason‘s Scott Shackford.

These measures come alongside ongoing attacks on transgender students using facilities that correspond to their gender identities. Such measures are currently active in three states (Minnesota, Oklahoma, and South Dakota) aside from Alabama, according to the ACLU.

The ACLU, ACLU of Alabama, Lambda Legal, and the Transgender Law Center have already vowed to fight Alabama’s transgender medical care measure should it become law. “If Alabama lawmakers insist on passing this cruel, dangerous, and unconstitutional legislation into law, the state will immediately have a lawsuit to deal with,” Carl S. Charles, a senior attorney for Lambda Legal, said in a statement.

“Our representatives have been hearing from medical experts, parents, transgender youth, and other advocates for the past three years in an attempt to stop this harmful bill from passing. But despite this strong opposition, the Legislature seems determined to move ahead with this shameful effort to prevent parents and kids from deciding the best course of treatment for themselves,” said Kaitlin Welborn, a staff attorney with the ACLU of Alabama. “If the state moves forward in passing this unconstitutional bill, we’ll see them in court.”


FREE MINDS

Ketanji Brown Jackson has been confirmed to the U.S. Supreme Court. In a 53–47 vote, the Senate voted to confirm Jackson, who will become the first black woman to serve on the Supreme Court. She will be sworn in this summer after Justice Stephen Breyer’s retirement.

Most Senate Republicans opposed Jackson’s nomination. But Democrats were joined by GOP Sens. Susan Collins (Maine), Mitt Romney (Utah), and Lisa Murkowski (Ala.) in voting to confirm.

“While GOP senators had every right to oppose Jackson, the reasons many of them gave were dubious, at best,” notes law professor and Volokh Conspiracy blogger Ilya Somin. During the confirmation hearings, “Senate Republicans opted to zero in on topics that carry political currency and play well with the cameras but do little to undermine or inform how Jackson would preserve constitutional rights from the country’s highest court,” wrote Reason‘s Billy Binion last month.

See more of Reason‘s coverage of Jackson and her confirmation hearings here.


FREE MARKETS

MiamiCoin’s mixed start. Miami was the first U.S. city to try offering and making money from its own digital currency, dubbed MiamiCoin. So far, the results are mixed, The Wall Street Journal reports. The city has earned about $5.25 million in revenue from the project. But “buyers of the digital token have had a rockier experience: MiamiCoin’s value has fallen by half since it made its debut last summer.” And NYCCoin has seen a similar descent:

MiamiCoin began trading at around half a cent on Aug. 26 and was a little more than a quarter of a cent as of April 5, according to CoinMarketCap. The coin’s value briefly rocketed to 5 cents twice, in its first month of trading.

NYCCoin has also fallen from close to half a cent at the beginning of February to about a quarter of a cent, according to CoinMarketCap.


FOLLOW-UP

U.S. District Court Judge Trevor McFadden issues another ruling friendly to a January 6 defendant, after finding a man who entered the Capitol and was charged by the feds not guilty. “McFadden issued an order on Thursday granting florist Jenny Cudd’s request to lift a term of her probation that forbade her to own or possess any ‘firearm, ammunition, destructive device, or dangerous weapon,'” reports Politico:

The judge’s ruling was a rebuke to prosecutors, who opposed the change, and it was the latest setback for prosecutors dealt by McFadden, who was appointed by former President Donald Trump. The decision further cements the judge’s reputation as the most skeptical member of the D.C. District Court bench about the stance prosecutors have taken in the wake of the Capitol riot.

McFadden’s latest decision is here.


QUICK HITS

• The U.S. Court of Appeals for the 5th Circuit has upheld President Joe Biden’s vaccine mandate for federal workers because the employees bringing the lawsuit did not first go through the federal government’s internal complaint process. “The plaintiffs could have challenged an agency’s proposed action against them before filing this suit and certainly before getting vaccinated,” wrote the judge.

• In defense of online anonymity.

• Minnesota’s attorney general says the cop who killed Amir Locke was just defending himself. But Locke was also just defending himself.

• Texas Gov. Greg Abbott is using migrants as political pawns again.

• “The economies around trauma are both bizarre and decadent,” writes Jay Caspian Kang in an excellent critique of certain elite university policies.

• New research explores how the saturated fatty acids found in butter and full-fat dairy may be beneficial to human health. Called C15:0, it “has been linked to health benefits such as lower risk of heart disease, diabetes, and fatty liver disease,” reports Insider.

• The Knox County District Attorney’s Office is blaming a driver killed by police for getting hit by the cops who were driving up to 90 miles per hour without their sirens on.

• New York is backtracking on criminal justice reform.

• Starting salaries for Walmart truck drivers are now between $95,000 and $110,000, as the industry struggles to attract and retain truckers.

• The Tennessee Senate has voted to make ivermectin available over the counter.

• “Artificially restricting the opportunity of the students on the top will never truly help those on the bottom,” writes Freddie deBoer in a post condemning school districts that forbid eighth-graders from taking algebra.

• “Buses-as-flights”:

The post Alabama Makes It a Felony To Offer Transition-Related Care for Trans Kids appeared first on Reason.com.

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NATO Member Slovakia Announces Transfer Of S-300 Anti-Air System To Ukraine

NATO Member Slovakia Announces Transfer Of S-300 Anti-Air System To Ukraine

In a hugely provocative announcement, Slovakia on Friday has said the NATO country has donated its S-300 air defense system to Ukraine to “help it defend against Russia’s aggression,” according to a statement from Prime Minister Eduard Heger.

The official Slovakia in NATO Twitter account also confirmed that it is “stepping up its support to Ukraine” by sending the “S-300 air defense system to Ukraine, so it can defend itself against ongoing Russian aggression. 

Slovakia’s defense ministry even published video of what appears to be a mobile S-300 unit being readied and pulling out of a military base. So far it appears a single unit will be given to Ukrainian forces.

Prime Minister Eduard Heger had said his country “donated” its Soviet-era defense system to Ukraine. The announcement came as he visited the Ukrainian capital with top EU officials, just before a meeting with President Zelensky. 

And so it appears NATO is inching little by little toward a potential ‘no fly zone’ over Ukraine, given the S-300 is precisely the type of major equipment that would be needed. Russia’s reaction will without doubt be fierce, given this initial somewhat symbolic first step toward that possible end.

The Associated Press is noting this comes in direct response to Zelensky urging the west to “close the skies” for Russian aircraft over Ukraine

Zelenskyy mentioned S-300s by name when he spoke to U.S. lawmakers by video last month, appealing for defense systems that would allow Ukraine to “close the skies” to Russian warplanes and missiles.

The action also comes after foreign ministers of NATO met in Brussels Thursday where they reportedly agreed to give Ukraine “new and heavier weapons” – though without defining which precise weapons systems under consideration. 

Russia has vowed that it’s ready to attack as “legitimate targets” any external weapons shipments intercepted from outside powers. S-300 transfers certainly bring NATO and Russia on a more direct collision course, and it’s unclear the degree to which other NATO allies signed off on this provocative delivery.

Tyler Durden
Fri, 04/08/2022 – 10:15

via ZeroHedge News https://ift.tt/J7DVxow Tyler Durden

S&P, Nasdaq Break Key Support As Goldman Says “Significantly” Higher Rates Needed

S&P, Nasdaq Break Key Support As Goldman Says “Significantly” Higher Rates Needed

The morning has not started well as yesterday afternoon’s BTFD ripfest has been erased with Nasdaq leading the charge lower….

This plunge has pushed the S&P back below its 200DMA (and key 4500 ‘gamma’ support) and Nasdaq is back below its 50DMA…

Yields are higher once again with 10Y back above 2.70%…

And gold is bid…

No major catalysts for this selling pressure but some desks are pointing to comments from Goldman’s  Chief Economist Jan Hatzius that The Fed may need to raise interest rates “significantly” higher than it currently expects to cool an overheated U.S. economy…

“If the economy does not slow and if we, in particular, don’t get a pretty substantial slowdown in employment growth, then you’d be looking at something that could go significantly higher, to the 4%-plus range,” he said in an interview on Bloomberg Television.

Good luck with that!

Tyler Durden
Fri, 04/08/2022 – 09:59

via ZeroHedge News https://ift.tt/tn6kLTf Tyler Durden

Alabama Makes It a Felony To Offer Transition-Related Care for Trans Kids


dreamstime_l_244902089

Taking templates from Texas, Florida, and other Republican-led states, Alabama seems to be embracing all the worst anti-LGBTQ trends—and in some cases taking them one step further. This week, the state passed a bill making it a felony to provide transition-related medical care to transgender minors and mandating prison time for those who provide what’s come to be known as “gender-affirming care.”

Under the bill—S.B. 184, passed by the Alabama House on Thursday after clearing the state’s Senate in February—providing hormone therapy or puberty blockers to someone under age 18 would be a Class C felony, punishable by at least one year in prison and up to 10 years. “The legislation also bans gender-affirming surgeries on transgender youth, though that is already not standard practice among doctors,” notes Politico.

S.B. 184 also states that “no nurse, counselor, teacher, principal, or other administrative official at a public or private school attended by a minor shall…withhold from a minor’s parent or legal guardian information related to a minor’s perception that his or her gender or sex is inconsistent with his or her sex.”

The bill is now with Alabama Gov. Kay Ivey, who has not indicated whether she will sign it into law.

Another measure (H.B. 322) passed by Alabama lawmakers on Thursday would ban transgender students from using sex-segregated bathrooms and locker rooms that match their gender identity. And an amendment to the bill limits school-based discussions about gender identity or sexual orientation (in the manner of a recent Florida law that opponents dubbed the “Don’t Say Gay” bill).

“What this amendment does it just prohibits classroom instruction or discussion on sexual orientation or gender identity for students in kindergarten through fifth grade,” said state Sen. Shay Shelnutt (R–Trussville), who introduced the amendment.

H.B. 322 has also been delivered to the governor.

Laws like these are flooding Republican-controlled legislatures right now, notes the American Civil Liberties Union (ACLU). The ACLU has identified variations on the Alabama gender care measure in 19 states (setting them up for a conflict with the U.S. Department of Justice).

“Last summer a federal court blocked Arkansas from enforcing a law that made it the first state to prohibit doctors from providing gender-confirming hormone treatment, puberty blockers or sex reassignment surgery to anyone under 18 years old,” notes The New York Times. And “in Arizona, Gov. Doug Ducey signed legislation last month blocking some forms of gender-affirming care for minors. Tennessee legislators also approved a bill this year that would ban providing hormone-related medication to children before puberty. But those measures stop short of being considered felony-level offenses.”

“A bill in Idaho that would have also made providing gender-affirming care to transgender children a felony passed out of the House last month but was blocked by Republican Senate leaders, who said the policy ‘undermines parental rights,'” notes Politico. (More on that here.)

Meanwhile, in Texas, Attorney General Ken Paxton has directed authorities to start investigating parents who approve gender-affirming care for their children, calling it a form of child abuse.

Following in the footsteps of a Florida law limiting instruction around sexual orientation and gender identity, Ohio and Georgia have introduced similar measures.

The Ohio measure would apply to private as well as public schools. “This is not a bill that supports parents’ rights to control and influence their children’s education. It is the exact opposite—it’s just coming from social conservatives rather than progressive gender and race activists,” writes Reason‘s Scott Shackford.

These measures come alongside ongoing attacks on transgender students using facilities that correspond to their gender identities. Such measures are currently active in three states (Minnesota, Oklahoma, and South Dakota) aside from Alabama, according to the ACLU.

The ACLU, ACLU of Alabama, Lambda Legal, and the Transgender Law Center have already vowed to fight Alabama’s transgender medical care measure should it become law. “If Alabama lawmakers insist on passing this cruel, dangerous, and unconstitutional legislation into law, the state will immediately have a lawsuit to deal with,” Carl S. Charles, a senior attorney for Lambda Legal, said in a statement.

“Our representatives have been hearing from medical experts, parents, transgender youth, and other advocates for the past three years in an attempt to stop this harmful bill from passing. But despite this strong opposition, the Legislature seems determined to move ahead with this shameful effort to prevent parents and kids from deciding the best course of treatment for themselves,” said Kaitlin Welborn, a staff attorney with the ACLU of Alabama. “If the state moves forward in passing this unconstitutional bill, we’ll see them in court.”


FREE MINDS

Ketanji Brown Jackson has been confirmed to the U.S. Supreme Court. In a 53–47 vote, the Senate voted to confirm Jackson, who will become the first black woman to serve on the Supreme Court. She will be sworn in this summer after Justice Stephen Breyer’s retirement.

Most Senate Republicans opposed Jackson’s nomination. But Democrats were joined by GOP Sens. Susan Collins (Maine), Mitt Romney (Utah), and Lisa Murkowski (Ala.) in voting to confirm.

“While GOP senators had every right to oppose Jackson, the reasons many of them gave were dubious, at best,” notes law professor and Volokh Conspiracy blogger Ilya Somin. During the confirmation hearings, “Senate Republicans opted to zero in on topics that carry political currency and play well with the cameras but do little to undermine or inform how Jackson would preserve constitutional rights from the country’s highest court,” wrote Reason‘s Billy Binion last month.

See more of Reason‘s coverage of Jackson and her confirmation hearings here.


FREE MARKETS

MiamiCoin’s mixed start. Miami was the first U.S. city to try offering and making money from its own digital currency, dubbed MiamiCoin. So far, the results are mixed, The Wall Street Journal reports. The city has earned about $5.25 million in revenue from the project. But “buyers of the digital token have had a rockier experience: MiamiCoin’s value has fallen by half since it made its debut last summer.” And NYCCoin has seen a similar descent:

MiamiCoin began trading at around half a cent on Aug. 26 and was a little more than a quarter of a cent as of April 5, according to CoinMarketCap. The coin’s value briefly rocketed to 5 cents twice, in its first month of trading.

NYCCoin has also fallen from close to half a cent at the beginning of February to about a quarter of a cent, according to CoinMarketCap.


FOLLOW-UP

U.S. District Court Judge Trevor McFadden issues another ruling friendly to a January 6 defendant, after finding a man who entered the Capitol and was charged by the feds not guilty. “McFadden issued an order on Thursday granting florist Jenny Cudd’s request to lift a term of her probation that forbade her to own or possess any ‘firearm, ammunition, destructive device, or dangerous weapon,'” reports Politico:

The judge’s ruling was a rebuke to prosecutors, who opposed the change, and it was the latest setback for prosecutors dealt by McFadden, who was appointed by former President Donald Trump. The decision further cements the judge’s reputation as the most skeptical member of the D.C. District Court bench about the stance prosecutors have taken in the wake of the Capitol riot.

McFadden’s latest decision is here.


QUICK HITS

• The U.S. Court of Appeals for the 5th Circuit has upheld President Joe Biden’s vaccine mandate for federal workers because the employees bringing the lawsuit did not first go through the federal government’s internal complaint process. “The plaintiffs could have challenged an agency’s proposed action against them before filing this suit and certainly before getting vaccinated,” wrote the judge.

• In defense of online anonymity.

• Minnesota’s attorney general says the cop who killed Amir Locke was just defending himself. But Locke was also just defending himself.

• Texas Gov. Greg Abbott is using migrants as political pawns again.

• “The economies around trauma are both bizarre and decadent,” writes Jay Caspian Kang in an excellent critique of certain elite university policies.

• New research explores how the saturated fatty acids found in butter and full-fat dairy may be beneficial to human health. Called C15:0, it “has been linked to health benefits such as lower risk of heart disease, diabetes, and fatty liver disease,” reports Insider.

• The Knox County District Attorney’s Office is blaming a driver killed by police for getting hit by the cops who were driving up to 90 miles per hour without their sirens on.

• New York is backtracking on criminal justice reform.

• Starting salaries for Walmart truck drivers are now between $95,000 and $110,000, as the industry struggles to attract and retain truckers.

• The Tennessee Senate has voted to make ivermectin available over the counter.

• “Artificially restricting the opportunity of the students on the top will never truly help those on the bottom,” writes Freddie deBoer in a post condemning school districts that forbid eighth-graders from taking algebra.

• “Buses-as-flights”:

The post Alabama Makes It a Felony To Offer Transition-Related Care for Trans Kids appeared first on Reason.com.

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Rabo: “We Just Had A Former Fed President Say What He Was Not Allowed To When In Office”

Rabo: “We Just Had A Former Fed President Say What He Was Not Allowed To When In Office”

By Michael Every of Rabobank

That ‘there are none so blind as those that will not see’ is an English idiom inspired by the Bible –Matthew 13:13 (“Therefore I speak to them in parables: because they seeing see not…”). or Jeremiah 5:21 (“Hear now this, O foolish people, and without understanding; which have eyes, and see not…”)– but is not actually seen in it word for word. Like all old wisdom, it rings true.

We just had a former Fed president say what he was not allowed to when in office — which itself would be worthy of comment if our financial commentators were worth their salt — that the Fed needs to push down stocks to get inflation under control. We then had a current Fed member say he wants the Fed Funds rate at 3.50% by the end of this year. Yet US stocks decided to stage a late rally yesterday, closing up on the session.

Bloomberg, typically myopic, puts it thus: ‘Steadying: Markets Stabilise as Traders Mull Fed Comments’. No, markets are blindly refusing to see what they are being told by the people they spend all their time apparently deferring to. They are being told clearly they can no longer have their cake, and everyone else’s cake, and eat it and fit in their jeans. And they are ignoring it.

This isn’t to say the US can push rates to 3.50% this year and not see USD/JPY well over 130, EUR/USD at parity, and USD/CNY back towards 7, etc.; or a deeply inverted US yield curve following a bear steepening; or a US recession. In all likelihood that would all hypothetically happen if the Fed tried. Yet that is what was just flagged. And markets are apparently ‘mulling’.

To be fair, within an hour Bloomberg had someone with better vision rewrite the headline to ‘Time Correction: Investors Face ‘Maximum’ Angst as Markets Stay Flat’. Then, shortly afterwards, it was rewritten again to ‘Aggressive Move: Fed’s Bullard Favours Raising Interest Rates Sharply’. Yet that just shows you there are none so blind as those that will not see anything other than Bloomberg headlines. Do your own thinking and reading!

That ‘aggressive’ proposed Fed tightening is what sacrosanct former Fed Chair Volcker did to stabilize markets and inflation in his day: stocks still guzzle at the trough he, globalized supply chains, and Greenspan’s permanent liquidity bailouts built. Of course, 2022 is not 1982, and today it may prove a policy error.

Yet are stocks at least echoing St Augustine in imploring, “Lord, make me chaste – but not yet!”? No: they are arguably acting like the short-tempered, incredibly spoiled child one dreads being trapped in any room or vehicle with as its pathetic parents feebly try to discipline it with a series of constant bribes. From the eschatological to the scatological, we are dealing not with high priests of finance, but a singular multi-trillion Eric Cartman from South Park.   

Of course, the Fed are blind too – but that should not reassure any blasé markets. US trucking statistics are suddenly looking grim – just as the Fed’s Bostic says it will take far longer to resolve US supply-chain issues than he had expected. He clearly didn’t read ‘In Deep Ship’ and felt everything would mean revert with a lag or bounce back to a 50- or 200-day moving average, like lines on screens. That is not and will not be the case. Logjams will be cured by recession, driven by either inflation or rate hikes, or both, or by a Grand Strategy encompassing fiscal and monetary policy and new geopolitical supply chains, or not at all.  

China’s ports are choking with vessels as it refuses to back away from Zero Covid despite the economic cost of trying to contain a staggeringly transmissible virus: workers are de facto locked into offices or factories, and people into their homes even in ‘liberal’ Shanghai. Yes, that means US port backlogs will ease ahead – and it also means far fewer people will be getting their orders from China at all. And this disruption might be structural if it is going to be China’s policy response to a virus that now appears endemic and increasing in transmissibility with each new mutation. Moreover, the EU just passed a ban on Russian coal, and is closer to a ban on Russian ships and lorries; and the US Congress just voted to revoke Russia’s “most favored nation” trade status, allowing steeper tariffs for any Russian goods still coming in.

If you think this is going to end soon, “because markets”, read Russian Orthodox Patriarch Kirill’s sermon to his deeply-religious country from the Cathedral of the Armed Forces. He addressed the leaders of Russian forces and troops: stated Russia was fighting fascism, as in WW2; that its soldiers are “laying down their lives for a friend.”; blamed “various forces” (i.e. the West) that emerged in the Middle Ages for a false division between Russia and Ukraine; and didn’t acknowledge Ukrainians as existing, referring to them as “Holy Russians.” In short, the speech endorsed religiously sanctioned militaristic imperialism and cultural genocide. But Kirill is not on Bloomberg, and their latest survey shows a majority think Russian bonds are cheap. As are US bonds, apparently, just as the Fed talks about 325bp of rate hikes. There are none so blind as those that will not see.

Not unrelated, Finland may be close to NATO membership, prompting Russian lawmaker Vladimir Dzhabarov to state: ”If the leadership of Finland goes for it, it will be a strategic mistake. Finland, which has been successfully developing all these years thanks to close trade and economic ties with Russia, would become a target. I think it [would be] a terrible tragedy for the entire Finnish people.” More threats – as seen from both sides.

Meanwhile, the UN General Assembly suspended Russia from the UN Human Rights Council, with an interesting selection of countries voting for, against, or abstaining. China was against, and Brazil, India, and Mexico all abstained. Finland and France stay on the UNHRC… as do China, Eritrea, Sudan, and Somalia: sleep soundly knowing human rights are guarded by angels. The UN vote split may get people shouting about ‘Bretton Woods III’ despite there being no clear indication of what that catchy title actually means. Then again ‘BRICs’ meant nothing either, and only one brick is not now facing structural problems clouding its growth path, yet it was career-defining. A revelation to new believers, however, is how badly other FX will fare if the ‘So Bretton Woods II’ US dollar sees Fed Funds hiked to 3.50%.

Relatedly, and with a hint of Martin Luther’s 95 Theses, billionaire Peter Theil lashed out at billionaire Warren Buffet and billionaire Larry Fink as being ‘Finance Gerontocracy’ for opposing Bitcoin. The billions aren’t the problem, the way they make them is: make way for the new plutocrats! And the revolution rolls on, and over us, all over:

  • Canada, following the freezing of bank accounts without a court order and the closing off residential housing sales to foreigners, announced a 1.5% tax hike for banks and insurers on profits over C$100m and a one-time 15% tax on taxable income over $1bn for the last tax year the government is calling a Canada Recovery Dividend.

  • In Australia, the market is pricing in a massive series of rate hikes – 8 this year and more in 2023. Imagine what that will do to a political economy where rising property prices are the established religion. The RBA’s Financial Stability Review today helpfully managed to avoid doing any serious reviewing of financial stability, instead telling banks to maintain lending standards –after APRA walked away from the previous attempts to enforce them when the housing market wobbled– and underlining that it is worried about high household debt levels – which it encouraged with its low, low rates. All very St. Augustine, as the RBA no longer gets inflation cover from the globalisation it was not responsible for in any way but took to be written in stone.

  • Indeed, an ex-BOJ official is suggesting Japan will have to abandon its policy of yield curve control and let them rip, in which case perhaps it is yields higher that will move and not JPY lower: but something is going to move a lot.

I won’t claim to be able to see all that is coming: but I am not wilfully blind to the fact that a large part of it is going to be very uncomfortable for many markets.

Happy Friday.

Tyler Durden
Fri, 04/08/2022 – 09:44

via ZeroHedge News https://ift.tt/CdmsR78 Tyler Durden