Month: April 2022

Authored by Jack Phillips via The Epoch Times (emphasis ours),

New York City Mayor Eric Adams said that the city would mandate children aged 2 to 4 to continue wearing masks after a judge issued an order in favor of his administration.

“Every decision we make is with our children’s health and safety in mind. Children between 2 and 4 should continue to wear their masks in school and daycare come Monday,” the Democrat mayor said on Twitter on April 1.

It came after State Supreme Court Justice Ralph Porzio earlier that day struck down the city’s mask order for young children. However, an appellate court issued a stay in the lower court’s ruling, allowing the mask mandate to remain intact amid the appeals process.

Porzio stated that the mandate was “absurd” after it was lifted for children aged 5 and older, and characterized it as “arbitrary, capricious, and unreasonable.” That ruling was handed down in response to a lawsuit from a group of parents who sued Adams and New York City agencies.

“Universal masking, therefore, presents one of the strongest, if not the strongest defense against COVID-19 for settings with children ages two to four,” New York City attorneys said in court papers, although numerous studies have shown that young children have exceedingly low COVID-19 death and hospitalization rates compared with other age groups—even compared with older children.

“For these reasons,” the city added, “throughout the pandemic, both the City and New York State had more stringent rules in place for this setting.”

Amid the appeals process, it’s not clear how much longer New York City, which has employed some of the strictest COVID-19 rules in the United States, will keep the mandate intact. Dr. Ashwin Vasan, New York City’s health commissioner, said at a news conference on Friday that officials are “recommending to wait a little bit longer before making masks optional for this age group,” referring to young children.

Over the past several months, federal and state data have shown hospitalizations, cases, and deaths from COVID-19, the illness caused by the CCP (Chinese Communist Party) virus, have fallen dramatically. In response, other Democrat-led states and municipalities have dropped mask and vaccine mandates while some Democrats have even voiced criticism about those rules.

Michael Chessa, an attorney who represents the group of parents suing Adams, said they were pleased when Porzio agreed with their arguments. However, they were disappointed when his ruling didn’t go into effect pending the appeals process, he told Gothamist.

“On Monday morning when parents send their children to school, they won’t have that choice,” Chessa said, adding that the appellate court hasn’t set a date for arguments.

Just days after Germany reported the highest inflation in generation (with February headline CPI soaring at a 7.6% annual pace and blowing away all expectations), giving locals a distinctly unpleasant deja vu feeling even before the  Russian invasion of Ukraine broke what few supply chains remained and sent prices even higher into the stratosphere…

… on Monday, Germany will take one step toward a return of the dreaded Weimar hyperinflation, when according to the German Retail Association (HDE), consumers should prepare for another wave of price hikes for everyday goods and groceries with Reuters reporting that prices at German retail chains will explode between 20 and 50%!

Even before the outbreak of war in Ukraine, prices had risen by about five per cent “across the product range” as a result of increased energy prices, HDE President Josef Sanktjohanser told the Neue Osnabrücker Zeitung on Friday. With Russia’s invasion hitting economies and the supply chain harder, yet another series of price increases is on the horizon.

“The second wave of price increases is coming, and it will certainly be in double figures,” Sanktjohanser warned, cited by The Local.

According to the president of the trade association, the first retail chains have already started to raise their prices in Germany – and the rest are likely to follow.

“We will soon be able to see the impact of the war reflected in price labels across all the supermarkets,” said Sanktjohanser.

Recently, popular retail chains such as Aldi, Edeka and Globus announced that they would be forced to raise their prices. At Aldi, meat and butter will be “significantly more expensive” from Monday due to price hikes from its suppliers.

“Since the start of the Ukraine war, there have been jumps in purchase prices that we have not experienced before,” a spokesperson for Aldi Nord announced on Friday.  

A fortnight ago, Aldi raised the prices of about 160 items, and a week later 20 more items became more expensive. Other supermarket brands quickly followed suit.

In February, Germany’s cost of living rose at the highest level since reunification, with everyday goods increasing by an average of 7.3%. The federal statistics agency Destatis said the jump from January’s figure of 5.1 percent to February’s 7.3 percent reflected the impact of Russia’s invasion of Ukraine, which has sent the price of oil and gas soaring.

According to a recently published survey by the Ifo Institute, almost all companies in Germany’s food retail sector are planning price increases.

Though price increases are a worry for Germany’s hard-hit consumers, industry experts don’t expect there to be a lack of products on the shelves anytime soon. Which, of course, is to be expected when prices surge so high far fewer can afford to buy products.

According to Joachim Rukwied, president of the farming association, the food supply in Germany is assured for at least another year – though after this the forecasts are less certain. With rumors of shortages swirling around, however, supermarket owners have been complaining of the sort of panic-buying not seen since the first months of pandemic.

As previously noted, German supermarkets have even started limiting the purchase of cooking oils and flour in particular to prevent a mad rush to stock up on items that customers believe will run out. In other words, limit the sale of those products which are in highest demand, also known as a “brilliant strategy.”

And now that everyday food product prices are about to surge as much as 50%, it will be interesting to watch how much longer the German population will condone a NATO stance that has been seeking to stoke and perpetuate the war in Ukraine.

By Eric Peters, CIO of One River Asset Management

“The great thing about equities is that they’re not bonds,” bellowed Biggie Too, global chief strategist for one of Wall Street’s too-big-to-fail affairs.

“The best thing about US stocks is that they’re not European or Asian or emerging equities,” barked Biggie.

“The terrific thing about equities is that they’re nominal,” said Too, repeating the lyrics traders are chanting as stocks rise in defiance of today’s inflationary hiking cycle.

“That’s where we’re at right now,” said Biggie.

“The market is trading like we gotta suck ’em all in, maybe pop to new all-time highs.”

And Biggie closed his eyes, smiling, a golden grin.

“Sell new highs, because the story we’re gonna be talking about soon is recession.”

Financial markets devalued industrialists and inflated industrial design. Consider Taiwan Semi, an important manufacturer of Apple’s ideas. Markets briefly rewarded industrialists after the March 2020 pandemic swoon. Taiwan Semi’s share price surged. The company responded with a $100bln capital spending plan, equivalent to the previous decade of investment. Apple’s share price is up nearly 40% in the past 12mths, Taiwan Semi is down almost 20%. This is a microcosm of our current macro frictions. Taiwan Semi is charged with the task of making phones faster and more energy efficient, not Apple. And they are not rewarded. The degrading of industrialists misaligns investment incentives, leading to shortages that restore balance through a pernicious vessel – inflation.

No Capacity:

The global economy faces capacity constraints. Everywhere. Every industry covered in the ISM survey described the lack of capacity to meet demand last month. The “supply chain is still unstable” in primary metals. There is “no letup yet in supply chain challenges” in electronics. The “supply situation getting worse” in general manufacturing. The resulting macro picture is wholly unfamiliar. Demand is weakening sharply with inflation running hot; new orders plunged in March while inventory, supplier delivery times, and prices were near record highs. The resulting rises in industrial profits lead to stronger fixed investment. But given the disregard toward industrialists, it may take a much longer period or political support for industrialists to become convinced. Just ask Taiwan Semi.

How do economies respond to capacity constraints? They recess by force, by necessity, by math. Monetary policy is a footnote here. Physical constraints to production are cleared with higher prices rationing demand. The Fed is unknowingly being dragged into the new reality, having greatly reduced its real GDP estimates for 2022 with higher inflation and virtually no change to nominal GDP projections. This means a larger share of the income pie is migrating to a narrow group of goods producers. The signs are everywhere – planes, trains, automobiles. Global light vehicle production was 81mm units last year, only 5% higher than 2020 and still 10% lower than 2019. S&P Global Mobility just slashed production estimates for 2022 to be roughly unchanged from last year because of supply constraints. It is all about supply.

Details matter. Palladium is used almost exclusively for cars with 85% of supplies being the key input to converters that limit pollutants from exhaust. The world’s largest producer, Norilsk, is in Russia, and its enterprise value has vaporized. Palladium production stagnated for the decade leading into the war – the conflict is exposing globalization’s fault-lines. Ukrainian wire-harnesses are a key automotive input – disrupted. China produces 85% of global magnesium – it’s in a production deficit and impairing aluminum output. Supply-constrained inputs go to the highest bidder. It is a supply-side hot potato – capacity limitations push the burden to the most vulnerable, the economy’s weakest players. The shortages in vehicle production are symptomatic of a broader supply challenge, from food to frisbees.

Awkward outcomes follow. Higher prices and less demand. It’s already clear in US car sales. New vehicle consumer prices surged to an annual inflation rate of 18%. Since 1955, vehicle inflation has never been above 8%. Today’s situation is beyond an outlier. It’s a new order, and requires fresh thinking, alternative analyses. And total vehicle sales have slumped severely to an annualized rate of 14.5mm units. That was the volume of sales in three of the past four recessions – the exception being the 2001 downturn when sales were substantially stronger than now.

Rand’s Cure

There’s no doubt in the power of market forces to adjust incentives to solve these problems. Equally, consumers and governments will be forced into harsh changes in behavior. Austerity may not be welcomed any longer in elite policy circles. But orthodoxy is being imposed nevertheless, by market forces.

Secretary of State Antony Blinken’s message to the Sunday news talk shows this weekend was that Russia has already seen a “strategic defeat” in its invasion of Ukraine, which follows what’s widely considered in the West to have been greatly ‘stalled’ progress of its forces amid a fiercer than expected Ukrainian resistance. 

“If you step back and look at this, this has already been a dramatic strategic setback for Russia, and I would say a strategic defeat,” Blinken told CNN’s Dana Bash on “State of the Union”. Blinken was asked at the start of the segment about the potential for further sanctions on Russia in the interview.

He explained that the Kremlin’s “special operation” can be considered a failure given the three stated goals of Moscow going into it on Feb.24. 

“They had three aims going into this. One was to subjugate Ukraine to Russia’s will, to take away its sovereignty and independence. The second was to assert Russian power. The third was to divide the west and NATO. On all three fronts, its already lost,” Blinken assessed.

“Ukraine, its sovereignty and independence is gonna be there a lot longer than Vladimir Putin is gonna be on the scene, the Russian military has dramatically underperformed, its economy is reeling, and the west, NATO are more united than any time I can remember,” he explained. 

Now reaching day 40, the invasion has thus far resulted in the major city of Mariupol in the southeast coming under complete Russian control. While other smaller towns and some regions in the East have fallen, over the past days Russian forces have reportedly drawn down from near Kiev and the northern city of Chernihiv. 

Blinken’s current words look very different from his warnings of years past…

Before he helps ship off more US weapons to Ukraine, @SecBlinken should listen to @SecBlinken from March 2015:

“If you’re playing on the military terrain in Ukraine, you’re playing to Russia’s strength, because Russia is right next door.” pic.twitter.com/Y92M7BCkyJ

— Aaron Maté (@aaronjmate) March 3, 2022

Russian sources have pointed to the military’s intentional avoidance of deploying major air power against Ukrainian cities, in order to spare civilians. However, President Zelensky on Sunday charged Russian forces with committing “genocide” – following alleged massacres in a town near Kiev:

Zelensky’s remarks follow statements from Ukrainian officials about executions in areas surrounding Kyiv that Russian forces have drawn away from in recent days.

Officials pointed to photos of bodies on a street in Bucha, a town northwest of Kyiv. One person photographed has a white cloth tying their hands behind their back.

“Indeed, this is genocide,” Zelensky told moderator Margaret Brennan on CBS’s “Face the Nation.”

Meanwhile, the past days have seen Russia appear to focus its main military efforts toward the ‘liberation’ of the Donbas region, in the east. Many Western analysts now believe Moscow has decided to limit the scope of its operations due to bigger than expected casualties over the first five weeks.

Authored by Hannah Wolfman-Jones via BitcoinMagazine.com,

The academic community must make the choice of honest intellectual consideration of Bitcoin or continued deliberate ignorance.

Bitcoiners are not welcome in academia.

Academics, including economic professors, overwhelmingly do not understand Bitcoin and represent it unfavorably (if they mention it at all). University professors are prone to favor Keynesian fiat economic systems due in part to a revolving door between academia and the IMF, World Bank, World Economic Forum (WEF), the Federal Reserve and more. Universities and professors are also financially incentivized through grants and financial support to promulgate economic theories in favor of more government control. Economics departments enforce group-think by selectively hiring professors who are less likely to dispute their fiat economic theories. I discussed all of this in my previous article.

This is not to say that individual academics supporting Keynesian economics are corrupt; most arrived at their positions through honest and legitimate work. However, academia fails to acknowledge that professors are very often the central planners and thus benefit both financially and in prestige/power from more central planning. Therefore, a reasonable person would expect there to be a pervasive bias in favor of centrally controlled fiat economic systems among the professoriate. Not acknowledging this systemic bias is hugely dishonest.

In fact, there is systemic exclusion of Bitcoiners from academia. It has been done through a combination of university policies, socially enforced viewpoint-conformity and strong bias towards the fiat system and official narrative.

A long list of views — many held by the majority of the population outside academia’s small ideological bubble — are now forbidden by the increasingly ideologically possessed students, professors and staff within academia. It is now common for students, professors and staff to shut down, defame, threaten and sometimes even be violent towards people expressing opinions deemed too offensive. Often under the banner of “saving lives” or “social justice” or (most ironically) “protecting democracy,” speakers and opinions get barred from campuses. It is rare for a university president to stand up to a woke mob. Bitcoiners in particular are prone to run afoul of the ever-changing woke pieties so rigorously enforced.

The viewpoints shown in the table below are frequently held and often quite important to Bitcoiners, including many of the foremost Bitcoin educators/experts. However, they are repressed in academia to varying degrees of severity. This leads to a systemic exclusion from academia of those who understand and value Bitcoin. The result, unsurprisingly, is widespread ignorance on all matters Bitcoin among the professoriate tasked with teaching students about the economy, human rights, geopolitics and the world. No Bitcoiner holds all the views shown in the table below, but most hold several of them. These views are held by Bitcoiners at much higher rates than the general public or academia.

Not only do Bitcoiners often hold “cancelable” views that would bar them from university positions, but they tend to be unusually willing to express said disfavored views.

Links for: “COVID vaccines” “Most colleges” “conspiring to control every aspect of our lives” “a revolving door with the WEF” “Toxic Bitcoin Maximalists” “huge percentage” “battle misinformation through social media censorship and behavioral economic theory”

Links for: “pronouns” “violent and intimidatingundefinedtactics.” “frequently fired” “health” “Fat Studies”

Links for: “not bow to COVID theater.” “Christian values.” “Bitcoin is halal” “capitalist systems are best” “if you want to climb up in the hierarchy of academia you need to be careful about criticizing ideas, especially ideas of people who are at the top of their fields, who make decisions…”

CAN ACADEMIA CONSIDER DIFFERENT VIEWS?

While the picture I painted above may be bleak, academic institutions have had a big role in expanding the knowledge and intellect of humanity for centuries. Their continued contributions to knowledge, arts and education cannot be denied. However, academia needs to acknowledge that their rampant ideological conformity and exclusion of reasonable views is a huge disservice to their students and in conflict with the honest pursuit of knowledge.

Excluding Bitcoiners from the academy and dishonestly degrading Bitcoin is a mistake. The result is a failure to fully prepare the student body for the economy and world of tomorrow.

However, there are plenty of reasons to have hope for academia yet. I recently had the immense honor and pleasure of presenting to the HxEconomics Community, a group facilitated by Heterodox Academy, a nonpartisan organization of university professors, administrators, students and staff “committed to enhancing the quality of research and education by promoting open inquiry, viewpoint diversity and constructive disagreement in institutions of higher learning.”

As a testament to living their values, the economics discussion group graciously invited me, an unknown nonacademic without any special credentials, to give a presentation titled, “Overlooked Orthodoxy, Academia’s Bias Against Bitcoin.” In the fruitful informal discussion that followed, the small group of professors and students agreed my thesis was likely true. So now I ask Heterodox Academy and the academics everywhere who give a damn about intellectual integrity: Do you think there is an anti-Bitcoin orthodoxy in academia? Do my two articles and presentation have any ring of truth?

Unfortunately, it appears the Heterodox Academy membership — sizable as it may be at 5,000+ — are the decided minority in academia in caring about open discussions these days. They have their work cut out for them in breaking up the pervasive ideological conformity sweeping academia and subverting the rigor of study in subjects from math to public policy to medicine.

So academia, you have a choice: start honestly teaching and studying Bitcoin or become increasingly irrelevant as an obvious intellectual fraud. Many of your students have been learning from Bitcoiners for free online for years. They spot your ignorance or dishonesty immediately when you inflate Bitcoin’s energy use, downplay its utility, omit the inequality and fragility in fiat from your curricula, ignore the violence of the petrodollar and completely demonize Bitcoin as an economic system. Please open your minds to Bitcoin and the currently locked doors of the ivory tower to Bitcoiners.

The large NATO ‘eastern flank’ country of Poland now says it’s “open” to hosting nuclear weapons as a deterrent against Russian aggression. A fresh weekend statement from Deputy Prime Minister of Poland Jaroslaw Kaczynski urged a tougher united Western stance against Moscow.

Specifically he said Poland stands open and ready to deploy US nuclear weapons on its soil. This is the same ruling party politician who previously called for a NATO ‘peacekeeping’ mission in Ukraine, which other Western leaders have rejected given it would mean a direct shooting war with Russia. 

“The eastern flank must be much better protected in the future than before,” Kaczynski told Germany’s Welt Am Sonntag newspaper. He also explained the need for America to increase its troops presence in the region by at least half. 

In perhaps the most provocative section of the interview, he said: “Let’s face it: The soldiers of the U.S. nuclear power are the strongest stopping Russia from attacking NATO countries and provide us with the greatest security.”

He went to comment the following on tactical nukes on Polish soil, as reported in Newsweek:

Asked if he thought the U.S. should deploy tactical nuclear weapons to Eastern Europe, Kaczynski said he had discussed the idea with American senators while still in opposition with his Law and Justice Party.

“Back then, they thought it was possible. If the Americans asked us to store American nuclear weapons in Poland, we would be open to it,” Kaczynski told Welt Am Sonntag.

He explained the rationale by saying “This would significantly strengthen deterrence [against Moscow]… At the moment, this issue does not arise, but it may change soon. The initiative would have to come from the Americans. In principle, however, it makes sense to extend nuclear weapons sharing to the eastern flank.”

Addressing the US troop presence, he said, “Poland would be pleased if the Americans increased their presence in Europe from the current 100,000 soldiers up to 150,000 in the future due to Russia’s increasing aggressiveness.”

The Center for Arms Control and Non-Proliferation has estimated that NATO currently has about 100 US nuclear weapons in Europe, which it says is “stored in five NATO member states across six bases: Kleine Brogel in Belgium, Büchel Air Base in Germany, Aviano and Ghedi Air Bases in Italy, Volkel Air Base in the Netherlands, and Incirlik in Turkey.”

Moving any of these into Poland, just across the border from where the Russian military is operating in Ukraine – and so close to what Moscow sees as its own ‘backyard’ – would certainly result in Russia escalating its own nuclear posture. A big part of Russia-NATO tensions underlying the current Ukraine crisis is precisely related to missile placement in Europe, with both sides having expressed a prior desire to work out an agreement, but which now looks more distant than ever.

By Philip Marey of Rabobank

Summary

• Yield curve inversions are often seen as warning signals of a recession, but a statistical analysis based on a logit model suggests that these signals should be interpreted with care.

• If we consider a reasonable lag between inversion and recession, the yield curve has given false signals in the past. To a certain extent, we can remedy this by estimating threshold levels for inversions.

• However, it still remains the case that an inversion beyond the threshold should be interpreted in terms of probabilities; it only means that the probability of a recession is larger than 50%.

• For 3m–10y and 12m–10y spreads the threshold is not statistically different from zero. However, for the 2–10y spread an inversion does not raise the recession probability above 50% until the spread is below –16bps.

• The current spreads indicate that the probability of a recession is still below 50%, but we provide the thresholds that would indicate a probability higher than 50% for each spread of choice. While the 2–10 has inverted again, the empirical evidence suggests that a 2–10 inversion should be taken with a grain of salt, of about 16 bps.

Introduction

Currently, several segments of the US treasury yield curve are inverted, which many observers interpret as a signal of an impending recession. Today, a strong Employment Report supporting Powell’s view that 50 bps rate hikes are feasible, led to a re-inversion of the 2-10 segment of the yield curve. Is this a valid signal or not?

In this special we look at the empirical evidence for using inversions to forecast recessions. We focus on three inversions that have received most attention as harbingers of inflation: the spread between 3 month Treasury bills and 10 year Treasury notes, the spread between 12 month Treasury bills and 10 year Treasury notes, and the spread between 2 year and 10 year Treasury notes. For each spread we estimate a logit model that explains recessions (as dated by the NBER) as a function of a specific yield spread.

The results confirm that a lower spread is associated with a higher probability of a recession. However, our estimation results show that simply looking at whether a spread is positive or negative can be misleading and that we can use the estimation results to derive thresholds that are specific to each spread of choice. For example, it turns out that the 2-10 spread turning negative is not sufficient to signal a recession. We also explain that while the forecast of the yield curve is binary in terms of its outcome (recession or no recession), we should think in terms of the probabilities of these outcomes when we forecast a recession. In particular, the recession probability rises with the size of the inversion.

False signals

If a yield curve inversion takes place, we should expect a recession with a plausible time lag. The academic literature which investigates the relationship between inversions and recessions usually takes a one year horizon. But if a recession follows much later, we should conclude that an inversion gave a false signal. What is the track record of yield curve inversions of preceding a recession within a reasonable time frame? Consider three spreads that have been investigated in the academic literature, the spread between 3 month Treasury bills and 10 year Treasury notes, the spread between 12 month Treasury bills and 10 year Treasury notes, and the spread between 2 year and 10 year Treasury notes. Note that currently, only the 2-10 segment has inverted, the other two spreads have remained positive.

Consider the spread between 2 and 10 year US treasury notes. Indeed we see the spread turning negative before each recession. However, let’s take a closer look at the period leading up to the 2001 recession. The 2-10 spread turned negative from 2 February 2000 thru late December 2000. The subsequent recession was dated by the NBER to have started in April 2001. So the February 2000 inversion took place 14 months in advance, which is in line with standard thinking that inversions precede recessions by about a year.

However, there was also an earlier inversion, in most of June and July 1998, 2 years and 10 months in advance. The largest inversion was -7 bps on 25 June. This is well beyond the 12 month horizon that is often used in practice. In business cycle terms, this looks like a false signal. Also note that the 2-10 spread came close to negative even earlier, in late December 1994, when the spread was only 9 bps. This suggests that the 2-10 spread may give false signals. This is important to keep in mind if we interpret the current inversions.

Now let’s turn to the spread between 3 month Treasury bills and 10 year Treasury notes. It is clear that this spread gave a similar false signal prior to the 2001 recession. In September 1998 there was a premature inversion (the largest was -13 bps on 21 September 1998), only later in April and most of the second half of 2000 did we see an inversion that can plausibly predict the recession of 2001. So this spread may also give misleading recession signals.

Finally, we take a look at the 12 month-10 year spread, the spread between the 12 month and 10 year US treasury yield. There was an inversion that started on 20 March 2000, about 12 months prior to the recession. But on 21 September 1998 and 5 October 1998 there were also brief inversions (one day) of just -2bps. So this spread also gave false signals, albeit much smaller in size and duration.

Thresholds

The possibility that yield curve inversions may give false signals does not make the yield curve useless as a forecasting tool for recessions. What is also clear from Figure 1-3 is that the premature inversions were much smaller than the later inversions. Consequently, we may improve our forecasting performance by applying thresholds. So we should not a priori see zero as the critical value, but we should think of a threshold below zero. Or more generally, we should think of the threshold as something to be estimated statistically.

To get a first idea, we could look at the false signals of 1998 to get an idea of the thresholds (Table 1). In terms of realized false signals: if no thresholds are applied the 12m-10y spread comes out as the most reliable: the false inversion was much closer to zero than the other two spreads.

However, if we estimate the threshold with a logit model (Table 2), we find that the threshold for 3m-10y and 12m-10y is not statistically different from zero. In contrast, the threshold for 2-10y is -16 bps. This means that an inversion of the 2-10 segment forecasts a recession only if the spread is below -16 bps (it’s currently -8bps after first inverting just two days earlier). For the other two spreads we can continue to use a critical value of 0, but now we know this is supported by the data.

How do we interpret a yield curve inversion for 3m-10y and 12m-10y? When the spread reaches zero, the probability of a recession is exactly 50%. Hence a small inversion only raises this probability above 50%. This explains why we saw small inversions in 1998 without a recession occurring in a reasonable timeframe. So even if the threshold is zero, an inversion does not imply a recession with certainty. It only raises the probability above 50%. So a recession is more probable than no recession. However, false signals are to be expected. In fact, if we take the statistically established thresholds, the 2-10 actually did not give a false signal. Only if we look at outright inversions, would this have been a false signal. In other words, with a proper statistical analysis the 2-10 spread can be turned into a more reliable signal, by accounting for a nonzero threshold.

Where are we now?

If we take a statistical approach, we can attach a probability of recession to each value of a yield spread. Based on our logit model and the spreads observed at the end of March, we can assign the following recession probabilities in Table 4.

As of March 31, these three popular spreads still indicate that the probability of a US recession is below 50%. However, in Table 2 we have shown which thresholds to use to raise this probability to 50% or higher. While the 2-10 has inverted again today, the empirical evidence suggests that a 2-10 inversion should be taken with a grain of salt, of about 16 bps. Looking at the current inversion, a zero 2-10 spread corresponds with a 35.1% probability of a recession. So today’s re-inversion of the 2-10 segment is not enough to raise the probability of a recession above 50%.

Conclusion

The recent yield curve inversions are cause for concern, but should be interpreted with care. In this report we explained that each spread may have its own threshold. What’s more, an inversion beyond this threshold only raises the probability of a recession above 50%. It is not a certainty. The probability of a recession rises with the depth of the inversion.

Having established that a reliable signal of recession has not yet been given by the current yield curve inversions, the question is whether these are still in store. Given the flattening impact of the Fed’s rate hikes on the yield curve, the hawkish tone of Powell’s NABE speech on March 21 suggests that it is only a matter of time before we see the inversions that do signal a recession probability above 50%.

President Biden wants his Attorney General Merrick Garland to prosecute former President Donald Trump and people within his orbit over the January 6 Capitol Riot, and has expressed frustration in private over the AG’s lack of action on the issue.

“As recently as late last year, Mr. Biden confided to his inner circle that he believed former President Donald J. Trump was a threat to democracy and should be prosecuted, according to two people familiar with his comments,” the New York Times reported Saturday. “And while the president has never communicated his frustrations directly to Mr. Garland, he has said privately that he wanted Mr. Garland to act less like a ponderous judge and more like a prosecutor who is willing to take decisive action over the events of Jan. 6.”

That said, it’s unclear what exactly Trump would be prosecuted for – though the Democrat-led House committee investigating the riot has claimed that Trump and his team violated the law in their efforts to overturn the 2020 US election.

As the Washington Examiner notes;

In a recent court filing for John Eastman, a Trump-linked conservative lawyer, the panel said it has evidence to show Trump may have engaged in a criminal conspiracy to defraud the United States and illegally impede Congress’s counting of electoral votes.

Nevertheless, the House committee can only make a criminal referral, leaving the onus on the Justice Department.

Responding to the Times report, White House spokesman Andrew Bates said that Biden believed Garland had “decisively restored” the independence of the DOJ, adding “President Biden is immensely proud of the attorney general’s service in this administration and has no role in investigative priorities or decisions.”

Other Congressional Democrats such as Rep. Adam ‘more than circumstantial‘ Schiff (CA), as well as lame-duck Rinos such as Adam Kinzinger, also want Garland to do more.

“We are upholding our responsibility. The Department of Justice must do the same,” said Schiff, a member of the J6 committee.”

“Attorney General Garland, do your job so we can do ours,” said Rep. Elaine Luria (D-VA).

Republican Rep. Adam Kinzinger, who along with Rep. Liz Cheney is one of two GOP members of the Democrat-led committee, defended Biden. “I think the president has every right to signal. I think he has every right to make it clear where the administration stands,” he said.

Democratic Rep. Jamie Raskin, also a member of the Capitol riot committee, similarly defended Biden’s push to get the DOJ to prosecute subpoena defiers.

“I also don’t have a problem with him, as a citizen like me, saying he hopes the Department of Justice will aggressively enforce the law so people don’t get away with committing crimes like this,” he said at the time. -Washington Examiner

DOJ spokesman Anthony Coley told the Washington Examiner, however, that “The Department of Justice will make its own independent decisions in all prosecutions based solely on the facts and the law. Period. Full stop.”

Following Biden’s comments, outgoing White House spox Jen Psaki attempted to backpeddle – telling reporters “He believes it’s an independent decision that should be made by the Department of Justice, and they’ll make that decision.”

In March, Garland said that he DOJ investigation into the Capitol riot is the “most urgent” in the department’s history – which Republican lawmakers latched onto in order to compare the DOJ’s milquetoast response to the violent riots of 2020, as well as a decision by the agency to shutter an initiative to investigate threats coming from China.

As Jonathan Turley concludes, the leaking of the President’s demand puts Garland in an even more difficult position. The clear intent of the leak is to let Garland know what the President expects from him. Yet, Garland has already been criticized by some of us for refusing to appoint a special counsel in the Hunter Biden scandal.

What is most striking, however, is the absence of any concern from the same legal experts who denounced such statements from Trump. These are statements made to aides that were then leaked to the media to get to Garland. That allows the media to say that Biden never said it directly to Garland, but the message was delivered by the media.

For Garland to yield to such pressure – after his predecessor refused to do so on investigations ranging from the Mueller investigation to the election investigation to the Hunter Biden investigation – would raise concerns over the Justice Department pursuing a political rather than a legal agenda — the very danger that Garland pledged to avoid when he stressed “I am not the president’s lawyer. I am the United States’ lawyer.”

Authored by Nouriel Roubini and Brunello Rosa via Project Syndicate,

Like the COVID-19 pandemic, Russia’s war in Ukraine has contributed to the stagflationary pressures in the United States and other advanced economies. While fiscal and monetary authorities currently have the situation under control, they are likely to run up against the limits of their policy options as conditions change.

The global economy has suffered two large negative supply-side shocks, first from the COVID-19 pandemic and now from Russian President Vladimir Putin’s invasion of Ukraine. The war has further disrupted economic activity and resulted in higher inflation, because its short-term effects on supply and commodity prices have combined with the consequences of excessive monetary and fiscal stimulus across advanced economies, especially the United States but also in other advanced economies.

Putting aside the war’s profound long-term geopolitical ramifications, the immediate economic impact has come in the form of higher energy, food, and industrial metal prices. This, together with additional disruptions to global supply chains, has exacerbated the stagflationary conditions that emerged during the pandemic.

A stagflationary negative supply shock poses a dilemma for central bankers. Because they care about anchoring inflation expectations, they need to normalize monetary policy quickly, even though that will lead to a further slowdown and possibly a recession. But because they also care about growth, they need to proceed slowly with policy normalization, even though that risks de-anchoring inflation expectations and triggering a wage-price spiral.

Fiscal policymakers also face a difficult choice. In the presence of a persistent negative supply shock, increasing transfers or reducing taxes is not optimal, because it prevents private demand from falling in response to the reduction in supply.

Fortunately, the European governments that are now pursuing higher spending on defense and decarbonization can count these forms of stimulus as investments – rather than as current spending – that would reduce supply bottlenecks over time. Still, any additional spending will increase debt and come on top of the excessive response to the pandemic, which accompanied a massive fiscal expansion with monetary accommodation and de facto monetization of the debts incurred.

To be sure, as the pandemic has receded (at least in advanced economies), governments have embarked on a very gradual fiscal consolidation, and central banks have begun policy-normalization programs to rein in price inflation and prevent a de-anchoring of inflation expectations. But the war in Ukraine has introduced a new complication as stagflationary pressures are now higher.

Fiscal-monetary coordination was the hallmark of the pandemic response. But now, whereas central banks have stuck with their newly hawkish stance, fiscal authorities have enacted easing policies (such as tax credits and reduction in fuel taxes) to soften the blow from surging energy prices. Thus, coordination seems to have given way to a division of labor, with central banks addressing inflation and legislatures tackling growth and supply issues.

In principle, most governments have three economic objectives:

1. supporting economic activity,

2. ensuring price stability, and

3. keeping long-term interest rates or sovereign spreads in check through persistent monetization of public debt.

An additional goal is geopolitical:

• Putin’s invasion must be met with a response that both punishes Russia and deters others from considering similar acts of aggression.

The instruments for pursuing these objectives are monetary policy, fiscal policy, and regulatory frameworks.

Each is being used, respectively, to address inflation, support economic activity, and enforce sanctions.

Moreover, until recently, re-investment policies and flight-to-safety capital flows had kept long-term interest rates low by maintaining downward pressure on ten-year Treasury and German bond yields.

Owing to this confluence of factors, the system has reached a temporary equilibrium, with each of the three objectives being partly addressed. But recent market signals – the significant rise in long-term rates and intra-euro spreads – suggest that this policy mix will become inadequate, producing new disequilibria.

Additional fiscal stimulus and sanctions on Russia may feed inflation, thus partly defeating monetary policymakers’ efforts. Moreover, central banks’ drive to tame inflation via higher policy rates will become inconsistent with accommodative balance-sheet policies, and this could result in higher longer-term interest rates and sovereign spreads, which are already drifting sharply upwards.

Central banks will have to continue juggling the incompatible objectives of taming inflation while also keeping long-term rates (or intra-eurozone spreads) low through balance-sheet maintenance policies. And all the while, governments will continue to fuel inflationary pressures with fiscal stimulus and persistent sanctions.

Over time, tighter monetary policies may cause a growth slowdown or outright recession. But another risk is that monetary policy will be constrained by the threat of a debt trap. With private and public debt levels at historic highs as a share of GDP, central bankers can take policy normalization only so far before risking a financial crash in debt and equity markets.

At that point, governments, under pressure from disgruntled citizens, may be tempted to come to the rescue with price and wage caps and administrative controls to tame inflation. These measures have proved unsuccessful in the past (causing, for example, rationing) – not least in the stagflationary 1970s – and there is no reason to think that this time would be different. If anything, some governments would make matters even worse by, say, re-introducing automatic indexation mechanisms for salaries and pensions.

In such a scenario, all policymakers would realize the limitations of their own tools. Central banks would see that their ability to control inflation is circumscribed by the need to continue monetizing public and private debts. And governments would see that their ability to maintain sanctions on Russia is constrained by the negative impacts on their own economies (in terms of both overall activity and inflation).

There are two possible endgames.

1. Policymakers may abandon one of their objectives, leading to higher inflation, lower growth, higher long-term interest rates, or softer sanctions – accompanied perhaps by lower equity indices.

2. Alternatively, policymakers may settle for only partly achieving each goal, leading to a suboptimal macro outcome of higher inflation, lower growth, higher long-term rates, and softer sanctions – with lower equity indices and debased fiat currencies then emerging.

Either way, households and consumers will feel the pinch, which will have political implications down the road.

Are the Ukrainians escalating their attacks on Russian territory?

Two days after Ukrainian forces blew up a fuel depot during the first cross-border attack on Russian territory, yet another attack has been reported in Belgorod.

During the previous strike, two helicopters purportedly belonging to the Ukrainian air force destroyed a Rosneft fuel depot in an attempt to cripple Russian logistics. To be sure, the Ukrainian high command has denied any involvement in the attack, insinuating instead that it was a ‘false flag’ operation planned by Moscow to justify further brutality in Ukraine.

According to Reuters, which cited two witnesses, explosions were heard in the Russian city border city. The source of the blasts wasn’t immediately clear.

Two blasts were heard in the Russian city of Belgorod near the border with Ukraine on Sunday, two witnesses told Reuters, days after Russian authorities accused Ukrainian forces of striking a fuel depot there.

The cause of the blasts was not immediately clear. One witness said the blasts were so powerful that they rattled the windows of her home in Belgorod.

The blasts come days after Russia’s defence ministry said two Ukrainian helicopters struck a fuel depot in the city, some 35 km (22 miles) from the border with Ukraine, after entering Russia at extremely low altitude in the early hours of Friday.

The Kremlin said the incident could undermine peace efforts, while a top Ukrainian security official denied responsibility.

Locals also reported another blast in a nearby village (although they claimed nobody was hurt).

A local official from the region around Belgorod said there had been a blast in the village of Tomarovka on Sunday but that no one had been hurt and no property damaged.

“There was a bang, debris fell onto the ground,” Oleg Medvedev, head of the Yakovlevsky city district outside Belgorod, wrote on the Telegram messenger application.

He did not elaborate on the nature of the debris nor on the cause of the blast. It was unclear if the blast described by Medvedev was one of the blasts heard by the witnesses.

Western military analysts were quick to parse the original strike in Belgorod in a manner that celebrated the Ukrainian’s tactical achievements (per @MarkHertling):

Ukraine’s strike of the fuel depot at Belgorod was MUCH more than a bold tactical move.

While 1.5 M gallons of fuel is certainly a critical target & will be significant in this logistics war…there’s more.

This is what’s called a “deep strike” in US military parlance. 1/6

— Mark Hertling (@MarkHertling) April 2, 2022

Hertling continues…

Ukraine’s strike of the fuel depot at Belgorod was MUCH more than a bold tactical move.

While 1.5 M gallons of fuel is certainly a critical target & will be significant in this logistics war…there’s more.

This is what’s called a “deep strike” in US military parlance.

A deep strike is meant to cause physical damage to the enemy, but it’s also designed to cause increased fear, a feeling that no where is safe, & it sends the message ” we will come after you everywhere, especially when you’re not expecting it.”

The Russians believed Belorus and RU territory were safe havens. They’re now less confident of that.

The RUs believed they could return to bases in Belarus – to the motor pools they once occupied – and reconsolidate and they would be untouched. No more.

A deep strike doesn’t directly or immediately affect the front line troops …but it does have a significant effect on the troops in the rear (the logistics folks, and those returning from the fight).

That’s a big deal, and it has huge psychological implications.

Beyond being bold & audacious, this UKR strike into Belgorod required more than just 2 helicopters striking a target…

It required analysis of target set, planning of the mission, preparation of the routes, jamming of the enemy radars, and a precise strike ability.

The fact that the UKR leaders will not “confirm or deny” they did the strike is also – to me – an exclamation point.

It says to me “yeah, we did it, and when we get a chance we’ll do it again.”

That’s panache. Ukraines got it going on.

Of course, that presumes that the Ukrainians were indeed behind the strikes.

Here is what the map of the area of operations looks like today:

• The yellow circle is roughly the area where the outcome of this battle will be decided.

• The small black arrow represents the likely Ukrainian effort to send in reinforcements

• The big black arrow represents the move away from Kiev and towards the Donbass by Russian forces

But, as The Saker clarifies, while the maps do, more or less, show the military reality on the ground, they do not show the political realities the same way.  The truth is that there are plenty of towns and cities which are blocked/surrounded by Russian forces, but which are still run by the “old” authorities.

The Saker believes this means the following:

• The Russians need to take the Ukrainians much more seriously and if that means having early warning aircraft and interceptors on combat air patrol 24/7 – then that is what the Russians should do.  A pair of MiG-31BM on constant high altitude CAP over the central Ukraine would be a good start.

• While the outcome is not in doubt, the Russians need to be very careful and assume that the Ukrainians will fight with skills and courage.

• I don’t like making predictions, even less so, time-related ones, but I think that we need to prepare ourselves for a major battle lasting several weeks, possibly even a month.

• Have have to assume that the PSYOPs of the Empire of Lies will go in full attack mode, and since it will be very hard to make sense of what will be going on, we have to ready for a major attack on our minds.

• Once that Ukrainian force in the Donbass is defeated this will basically mean the end of the 2nd phase of this Special Military Operation (SMO) and the very best and combat capable Ukrainian will have disappeared and a 3rd phase will begin, probably by an attack on the Nikolaev and Odessa regions.

Still, we need to remember that all wars are political in nature and that while the military “pain dial” is turned up quite high for the Ukrainians, the US PSYOPs are still telling the Ukrainians that they are winning and soon the first Ukie tanks will enter Moscow.  The de facto fall of Mariupol (as evidenced by the desperate attempts to evacuate the Azov leaders by helicopter) is already a major blow for the Ukrainian narrative.  But this blow pales in comparison to what will happen when the best forces the Ukraine has will simply disappear from the maps of the Donbass.  At that point, no amount of hot air, grand statements or other lies will make a difference – such a defeat is impossible to conceal, it will make the news.