Political Momentum Slippery Slopes


slippery

[For the last month, I’ve been serializing my 2003 Harvard Law Review article, The Mechanisms of the Slippery Slope, and I’m finishing it up this week.]

Following the passage of the Brady Bill by the House of Representatives in 1991, the pro-gun-control movement was jubilant, not only savoring its victory but anticipating more to come. “The stranglehold of the NRA on Congress is now broken,” said then-Representative Charles Schumer. “[T]hey had this aura of invincibility … and they were beaten.” One newspaper editorialized that “with the post-Brady Bill momentum against guns, we hope fees (including on gun makers) can be increased, and the monitoring of dealers tightened,” thus “reduc[ing] the total number of weapons in circulation.” Decision A (the Brady Bill) was thus seen as potentially leading to a decision B (further gun controls) that may not have been politically feasible before decision A had been made.

Why would people take this view? Say that the gun control groups’ next proposal (B) was a handgun registration requirement, and that right before the Brady Bill (A) was enacted, B would have gotten only a minority of the vote in Congress—perhaps because some members were afraid of the NRA’s political power, which is to say the power of the voters who are influenced by the NRA. Wouldn’t B have still gotten only a minority of the vote even after the Brady Bill was enacted? The conventional explanation for the importance of the NRA’s victory or defeat is “political momentum,” but that’s just a metaphor. What is the mechanism through which this effect might operate (even if it appears in retrospect not to have operated in this particular situation?

The answer has to do with imperfect information. Most legislators don’t know the true political costs or benefits of supporting proposal B; they may spend some time and effort estimating these costs and benefits, but their conclusions will still be guesses. And in this environment of limited knowledge, decision A itself provides useful data: the NRA’s losing the Brady Bill battle is some evidence that the gun-rights movement may not be that powerful, which may lead some legislators to revise downward their estimates of the movement’s political effectiveness. So behind the metaphor of “momentum” lies a heuristic that legislators use to guess a movement’s power: a movement that is winning tends to continue to win.

This phenomenon is different from the political power slippery slope, because it focuses on the movement’s perceived power in the eyes of legislators, not on its actual power. And it’s different from the attitude-altering slippery slope, though both operate as a result of bounded rationality: In an attitude-altering slope, A‘s enactment leads decisionmakers to infer that A is probably a good policy, and thus that B would be good, too. In a political momentum slippery slope, A‘s enactment leads decisionmakers to infer that the pro-A movement is probably quite strong, and thus that the movement will likely win on B, too. And since legislators tend to avoid opposing politically powerful movements, they may decide to vote with the movement on B.

Some legislators, of course, will vote their own views, and others may oppose B despite the movement’s perceived strength, because they know that their own constituents disagree with the movement. But a movement’s apparent strength may affect at least some legislators, and in close cases this may be enough to get B enacted.

Citizens may also change their estimates of a movement’s power based on its recent record. Citizens don’t care as much as legislators do about backing a winner (though backing winners may make them feel good), but potential activists and contributors tend to prefer to spend their time and money on contested issues rather than on lost causes or sure victories. Likewise, voters may be more likely to choose among candidates based on a single issue when that issue seems up for grabs, rather than when success on that issue seems either certain or impossible.

Thus, when a movement’s success in battle A makes the movement seem more powerful and its enemies more vulnerable, and therefore makes the outcome of battle B seem less certain than before, potential activists may be energized. For instance, one history of Prohibition suggests that the 1923 repeal of a New York state prohibition law “gave antiprohibitionists a tremendous psychological lift. The hitherto invincible forces of absolute and strict prohibition”—only four years before, over two-thirds of Congress and three-quarters of state legislatures ratified the Eighteenth Amendment—”had been politically defeated for the first time. Could not other, and perhaps greater, victories be achieved with more determination and effort?”

So it’s sometimes rational for voters and legislators to support or oppose decision A based partly on the possibility that A will facilitate B by increasing the perceived strength of the movement that supports both A and B. For example, those who want to see expansion from a modest gun control to broader controls may take the view that, in the words of a 1993 New York Times editorial: “In these early days of the struggle for bullet-free streets, the details of the legislation are less important than the momentum. Voters and legislators need to see that the National Rifle Association and the gun companies are no longer in charge of this critical area of domestic policy.” And those who oppose the broader downstream controls might likewise try to prevent this sort of momentum by voting against the modest first steps, even if they would have otherwise supported those steps.

This is especially so because movements rarely just disband after a victory. Successful movements often have paid staff who are enthusiastic about pushing for further action, and unenthusiastic about losing their jobs. The staff have experience at swaying swing voters, an organizational structure, media contacts, volunteers, and contributors. It seems likely that they will choose some new proposal to back. {A movement’s victory or defeat in battle A may also affect the movement’s internal power structure: if the movement loses, its leaders may be discredited, and others, either more radical or more moderate, may gain control; if the movement wins, those leaders who most strongly supported the winning strategy may gain more power. The result in A might thus affect the movement’s willingness to back proposal B and not just its political ability to do so—though such effects may be hard to predict, especially for outsiders who know little about the movement’s internal politics.}

This possible slippage seems more likely still if the pro-A movement’s leadership is already on the record as supporting the broader proposal B. For instance, many leaders in the gun control movement have publicly supported total handgun bans, even though their groups are today focusing on more modest controls, and some gun control advocates have specifically said that their strategy is to win by incremental steps. Likewise, if a group’s proposal is so modest that it seems unlikely to accomplish the group’s own stated goals, then we might suspect that a victory on this step will necessarily be followed by broader proposals, which the momentum created by the first step might facilitate. In such cases, foes of B may well be wise to try to block A, rather than wait until the pro-B movement has been strengthened by a success on A.

{Naturally there’s a possible cost to this strategy: sometimes, blocking decision A may make B more likely, for instance if it enrages a public that thinks that something needs to be done. This is a common argument for compromise: let’s agree on the modest concession A (say, a modest gun control) because otherwise voters might demand B (a total gun ban). The discussion of political momentum slippery slopes merely identifies one possible cost (from the anti-B movement’s perspective) of such compromises.}

The post Political Momentum Slippery Slopes appeared first on Reason.com.

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Oil Billionaire Blasts Biden’s Gas-Price Blame-Game, Says Only One Thing Will Fix Inflation

Oil Billionaire Blasts Biden’s Gas-Price Blame-Game, Says Only One Thing Will Fix Inflation

Authored by Tom Ozimek via The Epoch Times,

New York billionaire and refiner John Catsimatidis, who owns hundreds of gas stations, blasted President Joe Biden’s pinning the blame on high prices at the pump on gas station owners, arguing there’s only one solution for inflation – boosting production of crude.

Catsimatidis made the remarks in an interview on Fox News on June 24, after being asked to comment on Biden’s call to gas station owners to “bring down the price you are charging at the pump to reflect the cost you are paying for the product.”

“Do it now. Do it today. Your customers, the American people, they need relief now,” Biden said at a White House press conference on June 23, in which the president called for a federal gas tax holiday, urged oil companies to use their profits to boost refining capacity, and leaned on gas station owners to pass along lower crude oil prices by lowering prices at the pump.

‘Ridiculous to Put It on Us’

Catsimatidis reacted to Biden’s remarks by defending gas station owners, arguing that they’ve been “making the same margin that we’ve been making forever” as they have to cover payroll and pay rent, electricity bills, and other operating expenses.

While the margin gas station owners make fluctuates several cents one way or the other, Catsimatidis said it’s “ridiculous to put it on us. We’re not the ones that created the problem.”

The price of gasoline has nearly doubled since Biden took office, with the president variously blaming oil industry greed, a lack of refining capacity, global supply shortfalls set against a sharp post-pandemic rebound in demand, and the war in Ukraine.

Some experts and industry insiders have argued that the Biden administration’s anti-fossil fuel policies have discouraged companies from investing in refining capacity.

“It’s not the war in Ukraine. It’s really domestically caused constraint on the supply side,” said Ross McKitrick, a professor of economics at the University of Guelph in Ontario and expert on energy and environmental policy, in a recent interview with The Epoch Times.

“Nobody’s willing to invest in expanding refinery capacity because the outlook from everything that the government has said is you won’t get the approvals,” he added.

McKitrick’s view was echoed by Chevron CEO Mike Wirth, who said in a recent interview that he does not believe another oil refinery will be built again in the United States, arguing that government policies are the key factor.

“We’ve seen refineries closed. We’ve seen units come down. We’ve seen refineries being repurposed to become bio refineries. And we live in a world where the policy, the stated policy of the U.S. government is to reduce demand for the products that refiners produce,” Wirth said.

For his part, Catsimatidis said in the interview on Fox that there’s only one fix for the current inflationary spike—a big part of which is due to soaring energy costs.

“We have 100 years’ worth of oil,” he said. “Open up the spigots.”

“If we open up the spigots and flooded the market with oil, with crude oil, American crude oil, we bring the price of oil back” and “inflation goes away,” Catsimatidis said.

Read more here…

Tyler Durden
Tue, 07/05/2022 – 08:15

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Futures Slide As Recesson Fears Trump Tariff Optimism

Futures Slide As Recesson Fears Trump Tariff Optimism

The rally that pushed stocks well above 3,800 during Monday’s illiquid session when US cash stocks were closed for July 4 amid speculation that Biden was about to rollback many Chinese tariffs (unclear how this would help ease inflation but a move that the market clearly read as risk positive), fizzled as soon as Europe opened this morning and alongside the tumbling euro which plunged to a 20-year-low and approached parity with the USD on growing recession fears, also dragged US equity US futures lower as investors turned their focus back to the looming recession, which outweighed optimism around an improvement in Washington’s ties with Beijing. Contracts on the Nasdaq 100 were down 0.7% by 730 a.m. in New York, while S&P 500 futures slipped 0.6%. The cash market was closed for a holiday on Monday.  10Y TSY yields swung from gains to losses before trading 2bps higher around 2.90% while bitcoin rose, and traded around $20K after dropping below $19K over the weekend.

US markets are set to reopen Tuesday after capping 11 declines in the past 13 weeks as an unprecedented first-quarter contraction boosted the prospects of a recession to near certainty. At the same time, consumer prices are far from peaking with inflation surging to 8.6% in May that left little room for the Federal Reserve to slow monetary tightening.  

Sentiment was lifted on Monday as senior US and Chinese officials discussed US economic sanctions and tariffs amid reports the Biden administration is close to rolling back some of the trade levies imposed by President Donald Trump. While that came as a relief, investors continued to fret over a potential US recession, stubborn inflation and monetary tightening. Economic reports in Europe, including French purchasing managers’ indexes, came in below estimates.

“The Fed will likely remain aggressive in its fight against inflation for now,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “At the same time, European growth is slowing down fast. This just puts additional fire on the growth concerns about the US.”

“The government is very conscious that they need to act on the supply side of the inflation issue because the Fed has been slamming the brakes on the demand side whereas the real issue is on the supply side,” said Deepak Mehra, the head of investments at the Commercial Bank of Dubai. “Trying to fix that issue is giving the market a bit of an ease and comfort that we are finally addressing the problem where it is and not giving the wrong medicine,” he said in an interview with Bloomberg TV.

Among notable moves in premarket trading, cryptocurrency-exposed stocks edged higher as Bitcoin briefly traded above the closely watched $20,000 level.  Recession fears echoed in US premarket trading, where Carnival Corp. and ASML Holding NV dropped more than 4% each. Meanwhile, Morgan Stanley strategists led by Michael Wilson said the US economy is firmly in the middle of a slowdown that’s turning out to be worse than expected amid the war in Ukraine and China’s Covid Zero policy. “Any fall in rates should be interpreted as more of a growth concern rather than as potential relief from the Fed,” they wrote in a note. Here are some other notable premarket movers:

  • Cowen (COWN US) shares jump as much as 14% in US premarket trading, following a report late Friday that Canadian bank Toronto-Dominion was said to be exploring a takeover of the brokerage. Piper Sandler says that a possible combination would be “reasonable” for Cowen at the right price.
  • Antero Resources (AR US) shares rise 2.8% in premarket trading after the stock was upgraded to buy from hold at Truist Securities, with the broker saying that a recent selloff in the oil company is an opportune entry point given gas and natural gas liquids are likely to remain strong.
  • Cryptocurrency-exposed stocks are gaining in US premarket trading on Tuesday as Bitcoin trades above the closely watched $20,000 level. Coinbase (COIN US) +1.4%, Riot Blockchain (RIOT US) +1.9%, Marathon Digital (MARA US) +2.4%, MicroStrategy (MSTR US) +2.8%, Ebang (EBON US) +5.9%
  • Tesla (TSLA US) shares fall 0.8% in premarket trading, though analysts note that the electric vehicle company’s record production in June is a silver lining in an otherwise disappointing quarter of deliveries.
  • Netflix (NFLX US) shares decline 0.8% in premarket trading as Piper Sandler cuts PT to $210 from $293, reiterating neutral recommendations, while estimating that the company’s ad-supported tier, which is expected to launch by year-end, represents a quarterly revenue opportunity of about $1.4 billion.

Most European equity indexes slumped over 1% with miners, autos and insurance names among the worst-performing Stoxx 600 sectors. CAC 40 and FTSE 100 lag, dropping as much as 1.4%. Miners underperformed the broader European market on Tuesday amid concerns over the risks of a global recession and the blow it would deliver to demand for raw materials. Copper fell to the lowest level in 17 months and traded solidly below $8,000 a ton, as sentiment remains sour toward the industrial material used in everything from construction to new energy vehicles. Stoxx 600 Basic Resources sub-index declines 1.6% as of 9:42am in London, led lower by miners like Antofagasta, KGHM and Anglo American, even as iron ore rises after a four-day slide. Broader European benchmark is down 0.4%. The Stoxx 600 energy sub-index slides 1.3% after rising most since May on Monday. TotalEnergies drops 1.6%, BP -1.1%, Shell -1.3%. Shares in renewable fuel producer Neste outperform, rising 1.3%. The Stoxx 600 Automobiles & Parts Index dropped 1.5%, the third-worst performing subgroup in the broader European equity market. Automakers had their worst June sales in decades in the UK, while German new-car registrations also plunged. Here are some of the biggest European movers today:

  • Miners and energy shares underperform the broader European market on Tuesday amid concerns over the risks of a global recession and the blow it would deliver to demand for raw materials.
  • KGHM shares decline as much as 6.7%, Anglo American -4.5%, TotalEnergies -2.5%, Shell -2.2%
  • Rheinmetall shares fall as much as 6.1%; Deutsche Bank expects 2Q at the lower end of the guidance range for the quarter while most-in-focus unit Defence will likely trend above.
  • SAS falls as much as 15% after the company announced it was filing for chapter 11 bankruptcy protection in the US.
  • European media stocks slide after Goldman Sachs slashed earnings forecasts across its media and internet coverage to factor in a more cautious macro outlook. Prosieben drops as much as 9.5%, Publicis -4.5%
  • Uniper shares edged lower, paring earlier gains of as much as 11%, as analysts speculated on what a possible government bailout might look like.
  • Dechra Pharmaceuticals advances as much as 4.5% on Tuesday after RBC upgrades to outperform in note in which it describes the stock as the “pick of the litter.”
  • Cellnex Telecom shares rise as much as 5% following a Bloomberg News report that a KKR-led consortium is emerging as the frontrunner to buy a stake in Deutsche Telekom’s tower unit, beating out a rival bid from Cellnex and Brookfield Asset Management that had been viewed negatively by analysts.
  • Lonza Group climbs as much as 3.8% after it got upgraded to buy from neutral at Citi, citing the market’s under-appreciation of demand for biologics manufacturing.
  • PGS shares soar as much as 20% as Pareto Securities upgrades the oilfield services firm to buy following a period under review, with the broker saying that “the future is looking brighter” for the company.

The euro extended its losses, tumbling to the lowest level since 2002 against the dollar. It also slid to the weakest since January 2015 against the Swiss franc.

Earlier in the session, Asian equities were modestly higher Tuesday as China’s stocks gave back early gains after initial enthusiasm about the country’s improving ties with the US waned.  The MSCI Asia Pacific Index rose as much as 0.8% before narrowing the advance to 0.2% as of 6:14 p.m. in Singapore. Energy and health care shares were among the gainers.  Chinese shares fell, after the province of Anhui reported more than 200 Covid cases for Monday and market participants assessed whether the potential scrapping of US tariffs on Chinese goods would help address global inflation concerns. The US 10-year Treasury yield trimmed an intraday advance over recession worries, giving tech shares a slight boost.

Australia’s main index edged higher as the domestic central bank met market expectations by raising interest rates a half-percentage point and suggesting that inflation may peak this year. Benchmarks in the Philippines and South Korea led gains in Asia, with each rising at least 1.8%.  “The easing of tariffs — if confirmed — comes at the dream timing to save its economy from the endless virus battle,” said Hebe Chen, an analyst at IG Markets, referring to the China. “Even though it may not stop the downtrend, it could at least slow the pace and restore the world’s confidence in the second-largest economy.” Meanwhile, Thailand’s gauge was the latest to enter a technical correction. Asian stocks have been stuck in range-bound trading since the end of April as markets digest higher interest rates, the possibility of a recession in advanced economies and continued virus flareups in China. The MSCI regional gauge is down more than 18% this year

In Australia, the central bank raised its key interest rate as expected to 1.35%. It’s among more than 80 central banks to have raised rates this year. The nation’s dollar weakened after the decision.

Key equity gauges in India pared early advances to close lower as worries over an economic recession weighed on the sentiments.  The S&P BSE Sensex dropped 0.2% to 53,134.35 in Mumbai, while the NSE Nifty 50 Index also dropped by the same magnitude. Stocks rose earlier in the day, tracking advances in Asian peers on the possibility of US rolling back some levies on China. A fast progress of monsoon rainfall, which waters most farmland in India, along with quarterly earnings for top companies that start this week added to the sentiment.   Consumer goods maker ITC was the biggest drag on the Sensex, falling 1.7%. Seven of BSE Ltd.’s 19 sectoral sub-gauges declined, led by information technology companies.    Asia’s biggest software exporter Tata Consultancy Services, will kickoff the April-June earnings season for companies on Friday

In FX, the Bloomberg Dollar Spot Index advanced for a third day as the greenback gained against all of its Group-of-10 peers. Treasuries were mixed. The single currency fell as much as 0.9% to 1.0331, its weakest level since December 2002, with losses compounded by poor liquidity and selling in euro-Swiss franc. German bond curve bull steepened and money markets trimmed ECB tightening bets to less than 140 basis points this year after French services PMI was revised lower. That’s down from more than 190 basis points almost three weeks ago, widening the interest-rate differential with the Federal Reserve. Scandinavian currencies were also dragged down by the euro sell-off and were leading G-10 losses against the greenback. Cable fell amid broad- based dollar strength. Bank of England rate-setter Silvana Tenreyro speaks later Tuesday and the BOE will issue its financial stability report. The Australian dollar extended a slump on the back of the broad-based US dollar strength. The Aussie had already given up gains after the RBA increased its cash rate to 1.35% as expected. It had risen earlier amid reports the US will roll back tariffs on some Chinese goods. The yen pared an Asia session loss as risk sentiment worsened.

In rates, Treasuries were off session lows reached during Asia session, remain under pressure as US markets reopen after Monday’s holiday, giving back a portion of Friday’s steep gains. Five- and 10-year yields remain below 50-DMA levels while 2- and 30-year are back above. Yields higher by as much as 6bp at short end vs ~3bp at long end after rising as much as 13bp and 9bp, respectively. 2s10s curve is slightly positive after briefly inverting for first time since mid-June; 5s30s spread ~22bp after reaching widest level since May 31 on Friday. Short-end Germany richens over 10bps, outperforming gilts. Cash USTs fade Asia’s gains. Peripheral spreads widen to core with short-end Italy underperforming.

In commodities, brent crude swung between gains and losses, last trading Brent down 1.5% near $111.78, while WTI rose after a long holiday weekend in the US with investors weighing still-strong underlying market signals against concerns a recession will eventually sap demand. Most base metals trade in the red; LME aluminum falls 2.8%, underperforming peers. Spot gold falls roughly $5 to trade near $1,803/oz.

Bitcoin resides underneath the USD 20k mark and at session lows of 19.4k amid the broader risk tone. BoE Financial Stability report said falling crypto markets expose vulnerability, but not stability risk overall.

To the day ahead now, and data highlights include the global services and composite PMIs for June, as well as the ISM services index from the US. Otherwise, there’s French industrial production for May and US factory orders for May. From central banks, the BoE will be releasing their Financial Stability Report and we’ll also hear from the BoE’s Tenreyro.

Market Snapshot

  • S&P 500 futures down 0.3% to 3,814.75
  • STOXX Europe 600 down 0.3% to 408.04
  • MXAP up 0.3% to 157.72
  • MXAPJ up 0.2% to 521.38
  • Nikkei up 1.0% to 26,423.47
  • Topix up 0.5% to 1,879.12
  • Hang Seng Index up 0.1% to 21,853.07
  • Shanghai Composite little changed at 3,404.03
  • Sensex up 0.3% to 53,387.68
  • Australia S&P/ASX 200 up 0.3% to 6,629.33
  • Kospi up 1.8% to 2,341.78
  • German 10Y yield little changed at 1.27%
  • Euro down 0.8% to $1.0338
  • Brent Futures up 0.4% to $114.01/bbl
  • Gold spot down 0.3% to $1,803.33
  • U.S. Dollar Index up 0.64% to 105.81

Top Overnight News from Bloomberg

  • Senior US and Chinese officials discussed US economic sanctions and tariffs Tuesday amid reports the Biden administration is close to rolling back some of the trade levies imposed by former President Donald Trump
  • UK automakers had their worst June sales in decades in the UK as ongoing components shortages kept them from meeting demand. New-car registrations declined by 24% to 140,958 vehicles, the lowest for the month since 1996, according to data from the Society of Motor Manufacturers and Traders
  • Italy declared a state of emergency in five northern and central regions devastated by a recent drought, as a severe heat wave takes its toll on agriculture and threatens power supplies

A more detailed summary of global markets courtesy of newsquawk

Asia-Pac stocks traded mostly positive amid a pick-up from the holiday lull although Chinese markets faltered. ASX 200 was led by the tech and commodity-related sectors with further support from a lack of hawkish surprise from the RBA. Nikkei 225 was propelled by a weaker currency but pulled back from early highs after hitting resistance around the 26,500 level and following softer-than-expected wages data. Hang Seng and Shanghai Comp. were both initially lifted following reports US President Biden could make a decision on rolling back some China tariffs as soon as this week and with Vice Premier Liu He said to have had a constructive exchange with US Treasury Secretary Yellen on the economy and supply chains. Furthermore, participants also welcomed the strong Caixin Services and Composite PMI data, although the advances in the mainland were then pared as the central bank continued to drain liquidity and amid lingering COVID concerns.

Top Asian News

  • PBoC injected CNY 3bln via 7-day reverse repos with the rate at 2.10% for a CNY 107bln net drain.
  • China is to set up a CNY 500bln state infrastructure investment fund and will issue 2023 advance local government special bonds quota in Q4, according to Reuters sources.
  • Chinese Premier Liu He spoke with US Treasury Secretary Yellen regarding the economy and supply chains, while the exchange was said to be constructive and both sides believed in the need to strengthen communication and coordination of macro policies between China and the US, according to Reuters.
  • US Treasury Department confirmed Treasury Secretary Yellen held a virtual meeting with China’s Vice Premier Liu He as part of efforts to maintain open lines of communication, while they discussed macroeconomic and financial developments in both China and US, as well as the global economic outlook and food security challenge. Furthermore, Yellen raised issues of concern including the impact of Russia’s war against Ukraine on the global economy and “unfair, non-market PRC economic practices”, according to Reuters.
  • RBA hiked the Cash rate Target by 50bps to 1.35%, as expected, while it reiterated that the board expects to take further steps in the process of normalising monetary conditions with the size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market. Furthermore, the central bank noted that Australian inflation was high but was not as high as in other countries and it forecast inflation to peak this year before declining back towards the 2-3% range next year.

European bourses are pressured across the board, Euro Stoxx 50 -0.8%, as a broader risk-off move takes hold despite a relatively constructive APAC handover and limited newsflow in European hours. A move that has impaired US futures, ES -0.4%, as we await the lead from stateside participants re-joining after the long-weekend with a quiet schedule ahead. European sectors are predominantly in the red, though the clear defensive bias is keeping the likes of Food and Healthcare afloat.

Top European News

  • UK faces its first national train drivers’ strike in 25 years with the head of the UK train drivers’ union warning of ‘massive’ disruption as members vote on their first strike since 1995, according to FT.
  • BoE Financial Stability Report (July): will raise the counter-cyclical capital buffer rate to 2% in July 2023. Click here for more detail.
  • Ukraine Latest: Turkey Renews Threat to Veto NATO Expansion
  • Bunds Bull Steepen, ECB Hike Bets Pared After French PMI Revised
  • UK Train Drivers Would Make Threatened Strikes National: Union

FX

  • DXY sets new 2022 best above 106.000 after taking time out to mark US Independence Day, reaches 106.24 before waning marginally.
  • Euro slumps to fresh multi-year lows as EGBs rebound strongly and risk appetite evaporates; EUR/USD probes 1.0300, EUR/CHF sub-0.9950 and EUR/JPY below 140.00.
  • Aussie underperforms irrespective of 50bp RBA rate hike as accompanying statement sounds less hawkish on inflation; AUD/USD under 0.6800 from close to 0.6900 overnight and AUD/NZD cross retreats through 1.1050.
  • Pound down regardless of upgrades to final UK services and composite PMIs as Buck rallies broadly and BoE’s FSR flags material deterioration in global economic outlook, Cable beneath 1.2050 from circa 1.2125 peak.
  • Yen holds up better than others amidst Greenback strength on risk and rate grounds; USD/JPY eyes support into 135.50 vs 136.00+ at the other extreme.

Fixed Income

  • Bonds on course for a turnaround Tuesday after marked retreat from pre-weekend peaks on Independence Day.
  • Bunds back above 150.00 from 148.72 low and Friday’s 151.65 high, Gilts reclaim 115.00+ status within 116.58-114.60 range and 10 year T-note above 119-00 between 119-20+/118-23 parameters.
  • UK 2051 and German 2033 linker supply reasonably well received, but yields considerably higher.

In commodities

  • Crude benchmarks were fairly resilient to the broader risk tone, but have most recently succumbed to the pressure and are at the lower-end of a USD 3-4/bbl range.
  • Reminder, the lack of settlement due to the US market holiday is causing some discrepancy between WTI and Brent, though they are directionally moving in tandem.
  • UAE’s ADNOC set Murban crude OSP for August at USD 117.53/bbl vs prev. USD 109.68/bbl in July, according to Reuters.
  • Norway’s Lederne union said the strike in the Norwegian oil sector had begun, according to Reuters.
  • Saudi Aramco has increased all oil prices for customers in August; sets Aug light crude OSP to Asia at +9.30/bbl vs Oman/Dubai average, according to Reuters sources; NW Europe set at +USD 5.30 vs. ICE Brent; US set at +USD 5.65 vs. ASCI.
  • Russian Deputy Chair of the Security Council Medvedev says the Japanese proposal to cap Russian oil prices would lead to higher global prices, oil prices could increase to over USD 300-400/bbl, via Reuters.
  • Chile’s Codelco copper output fell 6.3% Y/Y in May to 142.9k tonnes, while Chile’s Collahuasi mine copper output fell 15.4% to 49k tonnes and Chile’s Escondida copper output rose 26% to 106.9k tonnes, according to Cochilco cited by Reuters.
  • Russian billionaire Potanin says he is ready to discuss a possible merger of Nornickel with Rusal, via Reuters citing RBC TV; UK sanctions on him do not target Nornickel, Co. is still working under pressure.
  • Spot gold is impaired by the rampant USD action, pressure seen in base metals as well on such dynamics and LME copper now below 8k/T.

 

US Event Calendar

  • 10:00: May -Less Transportation, est. 0.7%, prior 0.7%
  • 10:00: May Cap Goods Ship Nondef Ex Air, prior 0.8%
  • 10:00: May Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 0.5%
  • 10:00: May Factory Orders Ex Trans, prior 0.3%
  • 10:00: May Factory Orders, est. 0.5%, prior 0.3%
  • 10:00: May Durable Goods Orders, est. 0.7%, prior 0.7%

DB’s Jim Reid concludes the overnight wrap

I can only apologise in advance for the next few weeks! The Global Institutional Investor Awards will open later this afternoon and not to put it too bluntly we’d like to do well. So if you value our research please vote if you can. More details to follow when the poll opens.

It’s been a quieter 24 hours for markets thanks to the US holiday, but the market remains confused about how to price fixed income in an environment where a recession is coming at some point. We’ve seen a big yield sell-off to start the week even if equities have stabilised, with a fresh rise in energy prices only adding to concerns about how different economies (particularly in Europe) will fare this winter if Russia cuts off the flow of gas. Overnight the US 2s10s curve has inverted again, the RBA has hiked 50bps as expected and Chinese PMI data has massively beat expectations so a few things going on even in a quieter trading period.

We’ll start with markets in Europe since they were open yesterday. The biggest story there was a sizeable selloff among sovereign bonds as they gave up some of their gains over the last couple of weeks. Yields on 10yr bunds were up +10.1bps, but they were one of the better performers given the risk-off tone and yields on 10yr OATs (+12.7bps) and BTPs (+15.8bps) saw even larger rises, which followed comments from Bundesbank president Nagel who said that it was “virtually impossible to establish for sure whether or not a widened spread is fundamentally justified”. Nevertheless, Nagel did not entirely rule out an anti-fragmentation instrument but said that this “can be justified only in exceptional circumstances and under narrowly-defined conditions.”

This question of how the ECB will deal with a potential widening in spreads is set to come increasingly to the fore as they almost certainly embark on their first hiking cycle in over a decade this month. And yesterday we heard some further comments from ECB officials on that hiking cycle, with Estonia’s Muller pushing back against the calls from others to start with a 50bps hike, saying that it was appropriate to begin with a 25bps move in July, and then 50bps in September as they’ve signalled. In line with the rise in sovereign bond yields, overnight index swaps priced in a slightly more aggressive series of hikes from the ECB, with the rate implied by December up by +7.1 bps on the day.

Whilst the ECB is set to hike rates, their life is being made significantly more difficult by the ongoing energy shock that’s creating increasingly stagflationary conditions. Unfortunately, there was more bad news on that front yesterday, with natural gas futures up by another +10.26% to €163 per megawatt-hour, which is their highest rate since early March and more than double their recent low in early June. Matters haven’t been helped by a planned strike in Norway that puts around 13% of Norway’s daily gas exports at risk, according to the Norwegian Oil and Gas Association, which comes ahead of next week’s scheduled maintenance of the Nord Stream pipeline, which will last from July 11-21.

When it came to equities, the main European indices mostly managed to advance, although as mentioned at the top that was partly a catch-up to the late rally on Friday afternoon in the US, and the STOXX 600 was up +0.54% thanks to a strong performance amongst energy stocks. By contrast, futures on the S&P 500 were lower throughout European trading even if they have flipped higher this morning (futures +0.36%). One similarity between the US and Europe was a slightly more hawkish path for central bank rates being priced, with Fed funds futures taking the Dec-2022 implied rate up by +3.8 bps after last week’s declines. This fits with what Henry mentioned in his latest newsletter yesterday (link here), in which he points out that the recent repricing of the hiking cycle in a more dovish direction is inconsistent with the historic pattern whereby the Fed has always taken rates above inflation as they hike. This morning, yields on US 10yrs (+6.6bps) and 2yrs (+10.8bps) are catching up the global move after the holiday leaving 2s10s very slightly inverted as we go to press.

Speaking of inflation, it was reported by Dow Jones yesterday that President Biden could ease some tariffs on Chinese imports soon, with the article saying that a decision could be announced this week. As discussed in the article and other media reports, this has apparently been a divisive issue inside the administration, since although their removal could help ease inflation, it would also give up leverage in obtaining concessions from China, so there’s geopolitical as well as economic factors at play here.

Asian equity markets are mostly trading higher this morning partly on the tariffs story above and partly on better data overall. Across the region, the Kospi (+1.13%) is leading gains followed by the Nikkei (+0.82%) and the Hang Seng (+0.41%). Bucking the trend are the mainland Chinese markets with the Shanghai Composite (-0.20%) and CSI (-0.95%) both slipping as I type, perhaps on less stimulus hopes after a big beat in the Caixin PMI (see below). Outside of Asia, US and European equities are set to follow the Asian trend with futures on the S&P 500 (+0.36%), NASDAQ 100 (+0.47%) and DAX (+0.60%) moving higher.

Early morning data showed that Japan’s services activity accelerated at the fastest pace since October 2013 as the Jibun Bank services PMI advanced to 54.0 in June from 52.6 in May. Meanwhile, Japan’s real wages (-1.8% y/y) extended its decline in May, notching its biggest contraction in two years compared to an upwardly revised -1.7% decline in April. At the same time, cash earnings rose +1.0% y/y in May (vs +1.5% market consensus, and +1.3% in April), thus adding downside risk to a consumption driven rebound in 2Q22 GDP. Moving to China, growth in the nation’s services sector surprisingly beat as the Caixin services PMI jumped to 54.5 in June, its highest level in nearly a year from 41.4 in May as Covid curbs eased. Elsewhere in the region, South Korea’s CPI rose +0.6% m/m in June (v/s +0.5% expected) and against a +0.7% increase in the prior month.

As widely anticipated, we did see policy tightening by the RBA as the central bank raised its cash rate by 50bps to 1.35% as it moves to tame strengthening inflation. This is the third consecutive increase of the cash rate. The AUD/USD pair was little changed in an immediate reaction.

There wasn’t a massive amount of data yesterday, although we did get German trade figures that showed the country had a monthly trade deficit in goods in May for the first time since 1991. That was thanks to higher import costs as a result of the recent commodity shocks, alongside disruptions to trade from factors including sanctions on Russia, which left the monthly deficit at €1.0bn.

To the day ahead now, and data highlights include the global services and composite PMIs for June, as well as the ISM services index from the US. Otherwise, there’s French industrial production for May and US factory orders for May. From central banks, the BoE will be releasing their Financial Stability Report and we’ll also hear from the BoE’s Tenreyro.

Tyler Durden
Tue, 07/05/2022 – 08:03

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Political Momentum Slippery Slopes


slippery

[For the last month, I’ve been serializing my 2003 Harvard Law Review article, The Mechanisms of the Slippery Slope, and I’m finishing it up this week.]

Following the passage of the Brady Bill by the House of Representatives in 1991, the pro-gun-control movement was jubilant, not only savoring its victory but anticipating more to come. “The stranglehold of the NRA on Congress is now broken,” said then-Representative Charles Schumer. “[T]hey had this aura of invincibility … and they were beaten.” One newspaper editorialized that “with the post-Brady Bill momentum against guns, we hope fees (including on gun makers) can be increased, and the monitoring of dealers tightened,” thus “reduc[ing] the total number of weapons in circulation.” Decision A (the Brady Bill) was thus seen as potentially leading to a decision B (further gun controls) that may not have been politically feasible before decision A had been made.

Why would people take this view? Say that the gun control groups’ next proposal (B) was a handgun registration requirement, and that right before the Brady Bill (A) was enacted, B would have gotten only a minority of the vote in Congress—perhaps because some members were afraid of the NRA’s political power, which is to say the power of the voters who are influenced by the NRA. Wouldn’t B have still gotten only a minority of the vote even after the Brady Bill was enacted? The conventional explanation for the importance of the NRA’s victory or defeat is “political momentum,” but that’s just a metaphor. What is the mechanism through which this effect might operate (even if it appears in retrospect not to have operated in this particular situation?

The answer has to do with imperfect information. Most legislators don’t know the true political costs or benefits of supporting proposal B; they may spend some time and effort estimating these costs and benefits, but their conclusions will still be guesses. And in this environment of limited knowledge, decision A itself provides useful data: the NRA’s losing the Brady Bill battle is some evidence that the gun-rights movement may not be that powerful, which may lead some legislators to revise downward their estimates of the movement’s political effectiveness. So behind the metaphor of “momentum” lies a heuristic that legislators use to guess a movement’s power: a movement that is winning tends to continue to win.

This phenomenon is different from the political power slippery slope, because it focuses on the movement’s perceived power in the eyes of legislators, not on its actual power. And it’s different from the attitude-altering slippery slope, though both operate as a result of bounded rationality: In an attitude-altering slope, A‘s enactment leads decisionmakers to infer that A is probably a good policy, and thus that B would be good, too. In a political momentum slippery slope, A‘s enactment leads decisionmakers to infer that the pro-A movement is probably quite strong, and thus that the movement will likely win on B, too. And since legislators tend to avoid opposing politically powerful movements, they may decide to vote with the movement on B.

Some legislators, of course, will vote their own views, and others may oppose B despite the movement’s perceived strength, because they know that their own constituents disagree with the movement. But a movement’s apparent strength may affect at least some legislators, and in close cases this may be enough to get B enacted.

Citizens may also change their estimates of a movement’s power based on its recent record. Citizens don’t care as much as legislators do about backing a winner (though backing winners may make them feel good), but potential activists and contributors tend to prefer to spend their time and money on contested issues rather than on lost causes or sure victories. Likewise, voters may be more likely to choose among candidates based on a single issue when that issue seems up for grabs, rather than when success on that issue seems either certain or impossible.

Thus, when a movement’s success in battle A makes the movement seem more powerful and its enemies more vulnerable, and therefore makes the outcome of battle B seem less certain than before, potential activists may be energized. For instance, one history of Prohibition suggests that the 1923 repeal of a New York state prohibition law “gave antiprohibitionists a tremendous psychological lift. The hitherto invincible forces of absolute and strict prohibition”—only four years before, over two-thirds of Congress and three-quarters of state legislatures ratified the Eighteenth Amendment—”had been politically defeated for the first time. Could not other, and perhaps greater, victories be achieved with more determination and effort?”

So it’s sometimes rational for voters and legislators to support or oppose decision A based partly on the possibility that A will facilitate B by increasing the perceived strength of the movement that supports both A and B. For example, those who want to see expansion from a modest gun control to broader controls may take the view that, in the words of a 1993 New York Times editorial: “In these early days of the struggle for bullet-free streets, the details of the legislation are less important than the momentum. Voters and legislators need to see that the National Rifle Association and the gun companies are no longer in charge of this critical area of domestic policy.” And those who oppose the broader downstream controls might likewise try to prevent this sort of momentum by voting against the modest first steps, even if they would have otherwise supported those steps.

This is especially so because movements rarely just disband after a victory. Successful movements often have paid staff who are enthusiastic about pushing for further action, and unenthusiastic about losing their jobs. The staff have experience at swaying swing voters, an organizational structure, media contacts, volunteers, and contributors. It seems likely that they will choose some new proposal to back. {A movement’s victory or defeat in battle A may also affect the movement’s internal power structure: if the movement loses, its leaders may be discredited, and others, either more radical or more moderate, may gain control; if the movement wins, those leaders who most strongly supported the winning strategy may gain more power. The result in A might thus affect the movement’s willingness to back proposal B and not just its political ability to do so—though such effects may be hard to predict, especially for outsiders who know little about the movement’s internal politics.}

This possible slippage seems more likely still if the pro-A movement’s leadership is already on the record as supporting the broader proposal B. For instance, many leaders in the gun control movement have publicly supported total handgun bans, even though their groups are today focusing on more modest controls, and some gun control advocates have specifically said that their strategy is to win by incremental steps. Likewise, if a group’s proposal is so modest that it seems unlikely to accomplish the group’s own stated goals, then we might suspect that a victory on this step will necessarily be followed by broader proposals, which the momentum created by the first step might facilitate. In such cases, foes of B may well be wise to try to block A, rather than wait until the pro-B movement has been strengthened by a success on A.

{Naturally there’s a possible cost to this strategy: sometimes, blocking decision A may make B more likely, for instance if it enrages a public that thinks that something needs to be done. This is a common argument for compromise: let’s agree on the modest concession A (say, a modest gun control) because otherwise voters might demand B (a total gun ban). The discussion of political momentum slippery slopes merely identifies one possible cost (from the anti-B movement’s perspective) of such compromises.}

The post Political Momentum Slippery Slopes appeared first on Reason.com.

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The Chillingly Realistic Path To Rate Cuts This Year

The Chillingly Realistic Path To Rate Cuts This Year

Authored by Jeffrey Snider via The Epoch Times,

Consumer confidence has plummeted already. With gasoline and food prices weighing on far more than American sentiment, it’s no wonder much of the public may have come around to the idea of recession. Politicians and economists are another matter. Nothing in life—let alone the economy—is inevitable, but the entire global system may have passed that point of no return some time ago before anyone (outside of markets) had realized it.

Treasury yields and eurodollar curves have been forecasting contraction not inflation for well over a year already. Starting out as small relative probabilities, as longer-term yields buckled and the eurodollar curve distorted, this was just the markets’ way of signaling a higher degree of confidence in this pessimism.

It all broke wide open, so to speak, once already shameful gasoline prices took a step too far around the beginning of March. In all likelihood, that was the point of no return.

Since then, these same markets after having moved on from “if” to “when” are now thinking especially hard about “how bad.” And this is where recent data fits in.

Unfortunately, various major and minor economic statistics around the world have rather unsurprisingly confirmed these market suspicions. First, a slowdown rather than acceleration in the middle of last year when the public’s attention was exclusively fixed on what “everyone” said was big inflation.

That slowing was a warning it had only ever been “inflation” (supply shock, not excess money) which meant it all came with an expiration date (yes, transitory). This unappreciated 2021 downturn was picked up in all the data, too, including U.S. (and overseas) real GDP.

Then, like curves, GDP changed for the worse during 2022’s first quarter. In America, the Bureau of Economic Accounts (BEA) said output adjusted for prices (real) fell rather alarmingly in those three months. The final revisions to Q1 were released just now and were even weaker than previously thought (below).

To begin with, sales of goods were revised downward, while at the same time inventory accumulation was revised upward; basically, the BEA now thinks fewer goods were sold leaving more stuck in the hands of retailers who other data (Census Bureau) conclusively shows are already drowning in stuff, and are increasingly desperate to get out from under it all.

The inevitable result should be a near-term future of discounting and liquidations (falling prices, at least outside of energy for now) of that inventory pile to go along with canceled, cut, and desisted new orders for producers all around the world, domestic and foreign. We’ve seen this take shape already (PMIs have uniformly shown rapid declines in manufacturing order activity).

Here’s the truly concerning part.

All of these things, bad enough already, have developed and transpired under a relatively benign backdrop. What I mean is, the labor market— therefore jobs— hasn’t thus far been seriously stressed. By most measures, it might appear to be doing rather well.

Confidence has crashed and spending in real terms is decelerating to modestly falling, and yet there are only tangential indications of employment difficulties (the BLS’s CPS, or Household Survey, turned negative in April and didn’t bounce back in May, otherwise most labor data might outwardly appear practically terrific).

What happens if—or when—the aggregate labor situation actually does become meaningfully worse?

We’re already in rough, possibly recessionary shape. Should employers begin to actively cut workers with any sort of serious determination, this could turn a mild recession into, well, what market curves are shaping as some real downside risk just ahead.

All it would take is the very thing that turns the labor market from uncertain and concerning into outright awful: falling corporate profits.

That very situation was included within the update to the bad GDP news for Q1 2022. Along with revised estimates for spending and investment across the U.S. economy, the BEA also produced profit estimates that fell by nearly 5 percent from the fourth quarter (first chart below). Like overall GDP and output, company bottom lines had previously been pressured throughout the second half of 2021 before this.

Much, maybe most, of the prior 2020-21 profit “growth” had been due to Uncle Sam’s various “rescue” schemes including all those PPP “loans” which immediately (corruption at America’s finest) became “grants.” It was an enormous transfer from the Treasury market via the federal government to corporations that were supposed to maintain and then add back their workforces.

The latter didn’t happen, not as much.

As a reminder, there are fewer jobs (CES) today than there had been in February 2020, well more than two years ago. Obviously, the grant-making scheme didn’t play all the way out as it was meant to (and there are honest arguments about whether the economy would’ve been much worse had it not been done).

In short, Uncle Sam massively boosted corporate earnings and these companies responded rationally to what was a temporary, one-time gift. They were cautious about rehiring (which is why jobs overall still lag so far behind, not some ridiculous Great Resignation excuse) because the “transitory” supply shock phenomenon isn’t the same thing as real and actual recovery.

It’s sure not overheating.

There is, as you’d expect, a pretty tight correlation between the rate of hiring economy-wide and bottom lines (specifically, between BEA’s corporate profit series and BLS’s Establishment Survey). With companies already more likely to have pocketed last year’s windfall than to have acted on it, and with profitability like the overall economy starting to go down already, what might this propose about this quarter right now before, then, the second half of this year?

It is shaping up to be a perfect storm of negative factors, only some of which have been thus far fully unleashed: strained consumers at their limits; overfilled retailers and wholesalers demanding mercy from producers by fast-canceling orders; global manufacturers and industry now dealing with fewer orders while struggling from input costs such as commodities; a pernicious lack of overall economic strength for about a year, despite so much talk about red-hot macro and inflation.

On top of all that existing woe, then comes the more-than-hypothetical hammer blow—very real prospects for widespread layoffs. In point of fact, it may not take that many to push it all over the edge, just further lack of a jobs rebound.

If consumers are already in the dumps when jobs aren’t disappearing, think ahead to what happens to all the above if they do start going away.

That’s what has happened on these curves.

All the preconditions for nasty have been set, met, and made plain by the flow of recent data. Therefore, taking curves more literally, exactly the way in which the inflation-fighting certitude and aggression from the FOMC becomes the meek, embarrassing U-turn (or “pivot,” as the Fed’s apologists prefer) into rate cuts.

This year.

Tyler Durden
Tue, 07/05/2022 – 07:20

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Bezos’ $500 Million Superyacht Trapped At Dutch Shipyard 

Bezos’ $500 Million Superyacht Trapped At Dutch Shipyard 

Jeff Bezos’ massive superyacht was built by Oceanco, a Netherlands-based custom yacht builder, and informed the city of Rotterdam it would scrap the request to dismantle a historic bridge to accommodate the Amazon founder’s vessel, according to the Dutch news website Trouw

Bezos’ new yacht, codenamed Y721, will have to pass under the Koningshaven Bridge, known locally as De Hef. The landmark bridge can only rise 130 feet into the air, but this isn’t far enough to accommodate the yacht’s 127-meter schooner and its three massive masts. 

Oceanco built the $500 million vessel for Bezos, and the plan was to have Rotterdam temporarily take apart the bridge — though now, the shipbuilder abandoned its plans to dismantle the bridge following public outcry earlier this year. 

“As a result of the reports, shipyard employees feel threatened and the company fears vandalism,” Trouw reported. 

Rotterdam politician Stephan Leewis recently tweeted Bezos’ request was a “bridge too far.” 

“This man has earned his money by structurally cutting staff, evading taxes, avoiding regulations and now we have to tear down our beautiful national monument?” Leewis said.

It’s unclear how Y721 will now be transported to the North Sea. The superyacht remains at the shipbuilder yard until Rotterdam grants Oceanco permits to dismantle the historic bridge. Residents have said if the possible tear-down occurs, they would organize huge protests against the billionaire and bombard the vessel with rotten eggs as it passes by the bridge. 

Tyler Durden
Tue, 07/05/2022 – 06:55

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Saudis Unwilling To Upset Putin As Biden Begs For More Crude

Saudis Unwilling To Upset Putin As Biden Begs For More Crude

By Tsvetana Paraskova of Oilprice.com

The world’s largest crude oil exporter, Saudi Arabia, continues to keep close ties with Russia while the top oil consumer, the United States, pleads with major producers—including the Kingdom—to boost supply to the market and help ease consumers’ pain at the pump.  While the U.S. and its Western allies are sanctioning Moscow and banning oil imports from Russia, U.S. President Joe Biden is also turning to Saudi Arabia to ask it to pump more oil as Americans pay on average $5 a gallon for gasoline.  

The Saudis prefer to keep close ties with Russia in oil policy as the OPEC+ pact and the control over a large portion of global oil supply has benefited both OPEC+ leaders—the Kingdom and Russia—over the past half a decade. Saudi Arabia, however, could use a little thaw in Saudi-U.S. relations under President Biden, who is no longer talking about the world’s top crude exporter as a “pariah” state. 

The Saudis are carefully maneuvering to keep Russia as an ally in the OPEC+ group and possibly improve relations with the United States. 

President Biden—desperate to see relief for American drivers ahead of the midterm elections—has made a U-turn on Saudi Arabia and is expected this month to visit the Kingdom, which he said on the campaign trail would be treated as a “pariah” state during his presidency. But U.S. gasoline prices at $5 a gallon and the loss of part of the Russian supply have made President Biden reconsider and meet with Crown Prince Mohammed bin Salman.

Saudi Arabia has publicly reiterated its “warm” ties with Russia on several occasions since Putin invaded Ukraine, and considers keeping Russia in the OPEC+ alliance an important part of its oil policy. With Russia leading a dozen non-OPEC producers in the pact, Saudi Arabia has more sway over global oil markets with the larger OPEC+ group than with OPEC alone. 

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman have discussed their countries’ cooperation in the OPEC+ oil production pact in a few telephone conversations since February, and have vowed to continue their cooperation. 

Last month, Russian Deputy Prime Minister Alexander Novak said that Russia could continue its participation in the OPEC+ agreement even after it officially expires at the end of this year. Novak was speaking after a meeting in St Petersburg with Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, who made a surprise appearance at a Russian economic forum. 

During that meeting, the Saudi minister said that Saudi-Russian relations were “as warm as the weather in Riyadh.” 

Two weeks before that meeting, Russia’s Foreign Minister Sergey Lavrov visited Riyadh and met with his Saudi counterpart Prince Faisal bin Farhan Al Saud. The two ministers said that the OPEC+ alliance is solid, with the level of cooperation within it strong.

The recent OPEC+ decision to accelerate the production increase and roll back all cuts in August, a month earlier than initially planned, was pushed by Saudi Arabia amid U.S. pressure. But the Kingdom had to check with Russia first before proposing the redistribution of the September increase in July and August, sources with knowledge of the behind-the-scenes diplomacy told Reuters this week. 

Both the Saudis and Russia benefit from the OPEC+ deal, so Riyadh wants to keep Russia on board, the sources say. 

“The Saudis are enjoying high prices while the Russians need guaranteed support from OPEC+ in the current circumstances,” a source familiar with Russian thinking told Reuters. 

“No one is interested in a market collapse,” added the source. 

After the production cuts are completely rolled back next month, a more difficult decision for OPEC+ looms: what to do next as Russia is more than 1 million bpd behind target and could lose more supply as the EU embargo on its oil begins at the end of this year. 

Neither is OPEC+ as a group anywhere close to reaching its target production, nor has Saudi Arabia much spare capacity left to boost production further, as the U.S. and other major consumers want. Per the OPEC+ deal, the Saudi target (as well as Russia’s) is at 11.004 million bpd for August. The Kingdom has rarely reached this level, and not for a sustained period of time. So, it’s not certain that the Saudis have the ability to pump 11 million bpd or more on a sustainable basis. It’s even less certain that the Kingdom can quickly tap—if it wanted to—into the 12.2 million bpd production capacity it claims it has.  

Tyler Durden
Tue, 07/05/2022 – 06:30

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Sensitivity Readers Are the New Literary Gatekeepers


feature_Rise-of-the--Sensitivity-Reader

Alberto Gullaba Jr. was the type of author that publishers dream of having in their catalogs. A first-generation college grad, a child of working-class immigrants, and the recent recipient of a Master of Fine Arts degree from the prestigious University of California, Irvine, program, Gullaba was a debut novelist with a gift for visceral and vivid prose. His first book, University Thugs, had all the makings of a smash hit. A work of character-driven literary fiction steeped in immersive vernacular, it tells the story of a young black man named Titus who is trying to make his way at an elite university in the wake of a criminal conviction—all while the school is being rocked by racial scandals, not unlike the racial reckoning that consumed so many American institutions in the summer of 2020.

Gullaba’s agent knew he had something special, and he was excited for a big submission push. But on the eve of sending the manuscript out to publishers, the agent suggested Gullaba update his bio to emphasize his racial identity. Publishers, he reasoned, would be excited to support a young black writer fresh on the literary scene.

There was a problem: Gullaba is Filipino.

“We had never met in person,” he tells me, laughing. “I guess you can’t really judge who’s black or not based on a name like Alberto, and Gullaba is just ethnically ambiguous enough that it could be from Africa? I don’t know.”

What was clear, immediately, was that something had changed. The agent wasn’t excited anymore. Actually, he seemed downright nervous, and he started asking for significant changes to the manuscript.

“The guy’s frightened,” Gullaba says. “God bless him, that’s the reality of that world.”

At first, Gullaba was asked to add an Asian character—east Asian, specifically, perhaps a Pacific Islander. Then it was suggested that Titus’ wingman, the biggest secondary character, should also be assigned an Asian identity. And there was one more bizarre twist: Another agency employee, who we’ll call Sally, was brought in at the eleventh hour to read the book and provide additional feedback.

“My agent was like, ‘I don’t want to do this, it makes me very uncomfortable,'” Gullaba says. “But then he says it.”

Sally, the agent explained, was black.

Known as sensitivity readers, or sometimes authenticity readers, consultants like Sally are a growing part of publishing, hired to correct the pre-publication missteps of authors who don’t share the same traits—or “lived experience,” to use a favored buzzword—as their characters.

The sensitivity reader’s possible areas of expertise are as varied as human existence itself. One representative consultancy boasts a list of experts in the usual racial, ethnic, and religious categories, but also in such areas as “agoraphobia,” “Midwestern,” “physical disability, arms & legs,” and (perhaps most puzzlingly) “gamer geek.” Another one lists individual readers with intersectional qualifications: Depending on the content of your novel, you might hire a white lesbian with generalized anxiety disorder or a bisexual, genderfluid, light-skinned brown Mexican with a self-diagnosis of autism. Every medical condition, every trauma, every form of oppression: Sensitivity readers will cover it all.

Unsurprisingly, the rise of sensitivity readers has proved controversial. Those who support it insist that they’re no different from subject matter experts, not unlike the physician who proofreads a medical thriller to make sure the science is right. Critics, on the other hand, balk at the idea that being a member of a given demographic automatically conveys special knowledge about how everyone else in that group thinks or feels. (In Gullaba’s case, his sensitivity reader had been born in the Caribbean and raised in the U.K. The idea that she could speak to the “authenticity” of a young, black ex-convict’s experience at an American university was comical.) At a moment of ascendant identitarianism in so many institutions, sensitivity reading seems part of a larger, insidious trend in the arts: one that stigmatizes imagination and would, taken to its logical conclusion, make fiction itself categorically impossible.

Whatever else sensitivity readers are, they’re a recent development—born in the small but influential corner of the literary world known as young adult (Y.A.) publishing. The Y.A. literary scene has always been a reliable incubator for incoming moral panics, dating back at least as far as 1975’s puritanical spasm over sexual content in Judy Blume’s Forever…: It’s always been easy to get people amped up if you can invoke the specter of a vulnerable young person being harmed by a naughty book. In this case, you can see the seeds of the great media diversity eruption of summer 2020 in a Y.A. controversy from six years earlier.

In 2014, the same year Michael Brown’s death in Ferguson, Missouri, helped spark the first wave of the Black Lives Matter movement, a survey by the publisher Lee & Low revealed that just 10 percent of the books published for young readers included multicultural content. The Y.A. community was scandalized, and authors rushed to address the issue.

Suddenly, every other book deal announced that year seemed to involve a multiracial cast of characters repping the whole rainbow of sexual orientations, alternative gender identities, and physical and mental disabilities. But rather than solving the problem, the new enthusiasm for diverse characters fueled a new outrage: No matter how multiracial the characters, the authors were still a bunch of white ladies, as were the editors, the marketing folks, the designers, and the publicists. It was white people all the way down.

Publishing is a longtime bastion of liberalism, but it is also an elite profession, largely inaccessible to all but the independently wealthy (or at least those with the means to live in one of America’s most expensive cities on less than $40,000 a year). Between the notoriously low salaries and the limited opportunities for advancement, publishing houses had struggled for decades to attract and retain minority employees, a problem for which they were generally apologetic without ever embarking on the kind of bottom-up industry renovation that might actually fix it. But now they were being scrutinized by a new, young activist cohort—and the demands for change, amplified by social media, were starting to get loud.

Enter the sensitivity reader.

To understand why publishing would go all-in on a practice that not only interferes with an author’s creative autonomy but traffics in crude stereotyping to boot, you need to know one crucial fact about sensitivity readers: They’re cheap. The average cost of a sensitivity read is a few hundred dollars per manuscript, and it’s a freelance job. This made it a godsend to publishers who wanted to merely look like they were giving people of color a seat at the table but didn’t want to go to the trouble of buying all those additional chairs. Retaining a freelance stable of racial, ethnic, and sexual minorities created the appearance of diversity for a fraction of the cost.

Within the writing community, the practice was more complicated. In theory, sensitivity readers were a way to write outside your identity without causing offense by “getting it wrong.” But the emerging consensus, especially in Y.A., was that it was even more wrong to stray outside your lane in the first place. In a particularly revealing 2018 feature on the culture website Vulture, a sought-after sensitivity reader expressed profound contempt for the authors whose manuscripts she was paid to vet.

“These writers think they’re doing the world a service. Like, ‘Look at me, I’m showing up for the social-justice movement.’ But the problem is that they’re showing up and they’re taking a seat,” she said.

The implications were clear: If you were a white author writing black characters, you were taking up space that could have gone to a more deserving marginalized writer. If you needed a sensitivity reader, then was this really your story to tell?

These questions don’t serve as a deterrent for everyone. In the intervening years, sensitivity readers have become de rigueur—in young adult fiction, but also, increasingly, in work for adults. Sometimes a publisher will insist on this extra step; sometimes, a conscientious writer will seek it out on his own. The prevalence of the practice is more sensed than studied—there’s no data on what percentage of books go through this sort of vetting—and it’s highly variable depending on the writer’s own genre and community; the ultra-woke author of prestigious literary fiction is a lot more likely to request or receive a sensitivity read than, say, a hard-boiled crime novelist.

Those who put stock in sensitivity reads seem to mostly imagine that the practice offers a form of insurance, preempting allegations of this -ism or that -phobia, although it rarely pans out that way.

When The Men, Sandra Newman’s sci-fi novel in which everyone with a Y chromosome suddenly vanishes from the face of the earth, came under fire for what critics termed the “transphobic” implication that people with Y chromosomes are men, one of the chief questions was whether the author had engaged a trans sensitivity reader. But when Newman said that yes, she had, the outrage only multiplied. Why had she hired only one sensitivity reader? Did she think this was an excuse?

“That only makes it WORSE,” one commenter wrote, “because you’re claiming you KNOWINGLY did this.”

Indeed, not even the professionally sensitive are safe when a cancellation comes calling. In 2019, sensitivity reader Kosoko Jackson frantically pulled his own Y.A. debut novel after he was called out for setting a gay romance against the backdrop of the Kosovo War. (As is typical of these controversies, it’s hard to parse exactly what Jackson did wrong, but the complaints mainly focused on the offense of “centering” the wrong identity category—in this case, two American boys—in a story set amid a real-life tragedy that mainly affected people of another identity category.)

And yet, despite the rampant toxicity and the inconsistency in which books get canceled and why, some writers have come to see sensitivity reads as simply part of the process, a thing you do to check the boxes for both “good writer” and “good person.” (“Just got my sensitivity read edits back, and it was…eye-opening,” reads a recent, cheerful email from a friend who was self-publishing a Y.A. novel. “Turns out I’m your typically oblivious white man!”) And while I’ve never used sensitivity readers for my own work as a novelist, I have agreed to perform the service for someone else who wanted a woman’s perspective on a novel-in-progress—which ironically turned out to be exactly the sort of imaginative exercise that sensitivity readers are meant to obviate. My job was not to offer my take on the book, as a woman. It was to scrutinize the text from the perspective of a woman who was not me, someone far more sensitive and prone to taking offense than myself—a person whose perspective, thought, and feelings I could only imagine. But per the rules of sensitivity reading, I was allowed to do this, while the author, due to lacking the proper chromosomal and/or genital configuration, was not.

At the time, I felt the fundamental tension, even absurdity, inherent to what I was doing: suggesting edits that would take all the teeth out of the story, all for the sake of placating the type of person who would invariably just find something else to be offended by.

Sensitivity readers are still most prevalent in Y.A. publishing, but the ideology that fueled their rise is beginning to crop up elsewhere. Sensitivity reading is becoming more commonplace in adult books, as the belief that it’s dangerous to draw too far outside the lines of your own experience takes hold not just among authors but in publishing houses and media; one much-discussed 2019 article in Vulture interrogated 10 authors about the decision to write diversely, under the querulous headline, “Who Gave You the Right to Tell That Story?” Hollywood and academia are in the midst of similar spasms. Can a nondisabled actor be permitted to play Richard III? Does Scarlett Johansson have the right to take the role of gender-bending gangster Dante Gill from a more deserving, more authentic trans man? Can an academic study and publish on black urban feminist ideology if she’s neither urban nor black? Invariably, what begins as a call to consult with members of a given identity group before telling stories about them evolves into the suggestion that you should just sit this one out. Imagining the interior life of someone from another identity group? That’s appropriation. That’s literary blackface. That’s not yours.

In one recent controversy from north of the border, documentary filmmaker Barry Avrich used an award acceptance speech to make an urgent call for more black stories, saying, “It doesn’t matter who tells them; we just need to tell them.” The response was swift, and severe: “We absolutely agree with Barry when he says there are so many stories to tell, it’s just like, why are you the one that has to tell them?” quipped the executive director of Canada’s Black Screen Office.

At the moment, it’s unclear how obligatory all of this is at the major publishing houses. There are whispered rumors of this or that author having a contract canceled when a sensitivity reader declared the work unacceptable. (I tried unsuccessfully to get one of these writers to talk to me for this piece.) There was a first-person account from author Kate Clanchy, who parted ways with her publisher after concluding that her sensitivity readers only wanted to “create a book that would play better on Twitter, not one that is better written.” But given that it’s tantamount to outing oneself as the author of work too offensive to publish, those who have books canceled for “sensitivity” issues remain unlikely to say so publicly.

More broadly, the rise of sensitivity reading seems to reflect an obsession with policing language in service of a hypothetical person who is not only maximally sensitive but also not very smart. We’ve even seen the advent of the first artificial intelligence sensitivity reader, as Google Docs rolled out a new feature designed to help users tailor their work to be more “inclusive.” The results were amusingly disastrous; among other things, the bot repeatedly scolded writers for the publication Motherboard to consider changing the publication’s name. But the A.I. will eventually learn restraint, as long as users duly let it know when it’s overstepping. Human sensitivity readers, on the other hand, will surely be motivated to find increasingly esoteric forms of offense, in accordance with the very human desire to keep themselves in business.

In the meantime, we can be grateful for the constitutional rights that protect our written expression, because sensitivity reading reflects exactly the kind of sprawling, big-budget bureaucratic ethos that government actors would love to impose everywhere if they could: the love child of George Orwell’s fictional Ministry of Truth and Ibram X. Kendi’s fantasy Department of Antiracism, tasked with monitoring all public expression for expressions of wrongthink (though perhaps they’d call it “misinformation”).

The irony is that sensitivity reading is, in itself, an exercise in exactly the kind of offensive generalizing it purports to help authors avoid—not just in the way it traffics in crude stereotypes about how people of a given race, gender, or sexual orientation move through the world, but in whose interests it ultimately serves. This is a practice driven primarily by the fears of privileged editors, agents, and publishers, and that is who it protects, too often at the expense of the diverse authors whose work they claim to champion. Writers such as Alberto Gullaba Jr. are sidelined, sandboxed, scolded away from taking creative risks, by oblivious white people whose own imaginations can only extend as far as the next cancellation.

As for Gullaba, the quest to racialize every character in the book so that it matched the author’s identity eventually reached its inevitable conclusion when his agent asked him to make Titus Filipino.

“We’re playing this horse trading game, with races, with little woke beats,” Gullaba recalls. “Eventually he broaches the idea of, this needs to be your story. Your identity. The Filipino experience.”

In the end, he chose to release University Thugs independently and pseudonymously, in its original incarnation. (The book is now available on Amazon.) He is now at work on his second novel. If an agent suggests a sensitivity read, he intends to decline.

“Realizing it came from good intentions,” he says, “I want to be gracious, and politely and confidently refuse.”

The post Sensitivity Readers Are the New Literary Gatekeepers appeared first on Reason.com.

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