Month: August 2022

By Philip Marey, Senior US Strategist at Rabobank

Speculation about Powell’s speech at Jackson Hole continues to affect markets as the 10 year US treasury yield climbed further yesterday – now hovering around 3.05% – and EUR/USD remains below parity. The S&P500 lost 0.22%. Yesterday, we noted the sharp contrast between the Fed’s consistent message that in the current situation price stability has priority over full employment and the markets’ expectation of an early Fed pivot. By repeating this message during his speech scheduled on Friday, Powell is not likely to convince the markets. As long as he sticks to the Fed’s fairy tale that they can bring down inflation without causing a recession, the markets are likely to cling to the idea that the Fed will cut rates at the first sign of trouble.

In fact, the soft-landing story lacks any economic logic. The claim that wage pressures can be reduced by decreasing the ratio of job openings per unemployed, without substantially increasing unemployment, is wishful thinking on the Fed’s part. This ratio is a reflection of job matching efficiency, which can only be decreased through active labor market policies, such as training, as we explained repeatedly in our FOMC specials. This is outside the scope of the central bank, instead it is the job of federal, state and local governments, or businesses. A recession with a substantial increase in unemployment, terminating the wage-price spiral, is the only way to get inflation back to the Fed’s 2% target. Perhaps brutal honesty could realign Fed plans and market expectations.

Meanwhile, the PMIs provided by S&P Global painted a bleak picture for the global economy. In yesterday’s Global Daily we already noted that the French PMIs for August indicated the first economic contraction in 18 months.

The German manufacturing PMI surprised to the upside and rose to 49.8 in August from 49.3 in July. In contrast, the German services PMI headed deeper into contractionary territory, to 48.2 from 49.7. The composite PMI fell to 47.6 from 48.1. Consequently, S&P Global’s press release was titled “Downturn in German private sector economy deepens in August.” According to S&P Global, “The deepening downturn was linked by surveyed businesses to a combination of factors that included uncertainty, high inflation and rising interest rates, all of which weighed notably on demand.”

The Eurozone PMIs all deteriorated: the manufacturing PMI moved down slightly to 49.7 from 49.8, but there was a more substantial decline in the services PMI to 50.2 from 51.2. As a result, the composite PMI fell to 49.2 from 49.9. S&P Global’s title was “Eurozone business activity down for second month running as service sector growth grinds to a near-halt.” According to S&P Global, “cost of living pressures sapped demand in the service sector, leaving activity only just inside growth territory, while manufacturing remained in a downturn midway through the third quarter of the year.”

The UK PMIs had good and bad news. According to S&P Global, the UK private sector moved closer to stagnation in August, while inflationary pressures cooled slightly. While the services PMI was only slightly lower than last month, falling to 52.5 from 52.6, the manufacturing PMI collapsed to 46.0 from 52.1. Consequently, the composite PMI declined to 50.9 from 52.1. “The rate of expansion was the weakest for 18 months and pointed to only a marginal increase in output. The loss of momentum was often linked by panel members to relatively muted customer demand as well as shortages of both labour and inputs.” However, on the bright side “survey data signalled a further easing in the rate of input cost inflation across the UK private sector.”

The US PMIs were also disappointing. The manufacturing PMI fell to 51.3 from 52.2, but this is still in expansionary territory. However, the services PMI headed deeper into contractionary territory to 44.1 from 47.3. The composite PMI declined to 45.0 from 47.7. According to S&P Global, “US private sector firms signalled a sharper fall in business activity during August. The decrease in output was the fastest seen since May 2020. The rate of contraction also outpaced anything recorded outside of the initial pandemic outbreak since the series began nearly 13-years ago.” To make things worse, US new home sales plunged by 12.6% in July after a 7.1% drop a month earlier. This is yet another data point confirming the weak state of the housing market.

Relatively good news came from Eurozone economic confidence, which unexpectedly improved to -24.9 in August from -27.0 in July. However, this is still worse than the lowest point during the outbreak of COVID (-24.5), which was already below the troughs of the Global Financial Crisis (-22.4) and the Eurozone sovereign debt crisis (-21.4).

In a Q&A session with the Wharton Minnesota Alumni Club, Minneapolis Fed President Kashkari said that the US economy is “at maximum employment and at very high inflation. So this is a completely unbalanced situation, which means to me it’s very clear: we need to tighten monetary policy to bring things into balance.” He added that “when inflation is 8 or 9 percent, we run the risk of unanchoring inflation expectations and leading to very bad outcomes that would have to cause us to have to be very aggressive – Volcker-esque –  to then re-anchor them.”

Iran’s Foreign Ministry has announced that it has received the White House response to its earlier in the week submission of a finalized nuclear deal text. Al-Arabiya and other regional outlets are reporting that the US has rejected the additional conditions put in place by Iran, meaning there’s no deal.

“It has also said Iran should not be allowed to enrich uranium beyond purity level of 4%, Al-Arabiya reports,” according to early unconfirmed reports. “The US has rejected all the additional conditions requested by Iran, and urged Iran to lift any restrictions on international inspections,” regional source Iran International writes. Oil prices are spiking on the breaking news…

The US State Department earlier announced that “Our review of Iran’s comments on the EU’s proposed final text has now concluded. We have responded to the EU today. We have conveyed our feedback privately to the EU. But we’re not going to detail that feedback today.”

Tehran has further announced it is reviewing the US response and plans to issue formal notification to the European Union once the review is complete. 

As we predicted, it does not appear any final deal is on the horizon this week (or likely ever), given the trajectory of things, including – it should be mentioned – rare US airstrikes on “Iranian-backed” groups in Syria on Tuesday.

As it stands, the longer the can gets kicked down the road, and more and more conditions are made firm and out in the open – most especially the disagreement over international inspections, which Iran has demanded be dropped – the more likely there will continue to be no deal.

#BREAKING The Europeans are in contact with the parties to the Iran nuclear agreement to hold a new round of talks after receiving the US response, Al-Arabiya reports.

— Iran International English (@IranIntl_En) August 24, 2022

And of course, some US allies like Israel and Saudi Arabia are hoping talks will ultimately fail and be cut off completely. As The Wall Street Journal emphasized Wednesday:

As Washington and Tehran edge closer to restoring the nuclear deal, Israeli Prime Minister Yair Lapid on Wednesday slammed the agreement being negotiated, saying it wouldn’t stop Iran developing a nuclear weapon and would hand Tehran a significant financial boon.

A new nuclear deal between world powers and #Iran would allow other nations to avoid sanctions and give Teheran $100 billion a year to destabilise the Middle East, #Israel‘s Prime Minister Yair Lapid said on Wednesday.https://t.co/ok9vZGK4we

— Jason Brodsky (@JasonMBrodsky) August 24, 2022

developing…

BlackRock, BNP Paribas, and Credit Suisse are among the list of firms that Texas has just issued that will now be banned from working with the state due to their hostility to the energy industry.

After almost a year of suspense that cost banks business as Texas municipal-bond issuers avoided firms whose status was unclear amid the probe, Bloomberg reports that Glenn Hegar, the Republican state comptroller, on Wednesday named the firms he will prohibit from entering into most contracts with the state and its local entities after his office found they “boycott” the fossil fuel sector.

More than 150 firms were sent detailed inquiries, requesting information on whether they were shunning the oil and gas industry in favor of sustainable investing and financing goals.

As a reminder, the survey was triggered by a GOP-backed state law that took effect on Sept. 1, 2021, and which limits Texas governments from entering into certain contracts with firms that have curbed ties with carbon-emitting energy companies.

Many firms argued that they were simply reacting to customer demand on ESG strategies, but it appears the nation’s to producer of crude and natural gas saw straight through the ESG scam.

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

Two constitutional lawyers who worked in the Bush and Reagan administrations say that the warrant used to search former President Donald Trump’s Mar-a-Lago residence had no legal basis.

A former president’s right under the Presidential Records Act supersedes the statutes the Department of Justice and FBI used to carry out the raid earlier this month, wrote David Rivkin Jr. and Lee Casey, who both served under Presidents Ronald Reagan and George H. W. Bush.

“The judge who issued the warrant for Mar-a-Lago has signaled that he is likely to release a redacted version of the affidavit supporting it. But the warrant itself suggests the answer is likely no—the FBI had no legally valid cause for the raid,” they wrote in the Wall Street Journal on Tuesday.

Earlier this month, federal Magistrate Judge Bruce Reinhart unsealed the warrant and property receipt, showing that it allowed FBI agents to obtain all “physical documents and records constituting evidence, contraband, fruits of crime, or other items illegally possessed in violation of 18 U.S.C. §§793, 2071, or 1519.”

And the materials that could be seized are “any government and/or Presidential Records created between January 20, 2017, and January 20, 2021,” which encompasses all of Trump’s presidential term.

As a result, the two scholars said that “virtually all the materials at Mar-a-Lago are likely to fall within this category” but “federal law gives Mr. Trump a right of access to them.”

“His possession of them is entirely consistent with that right, and therefore lawful, regardless of the statutes the FBI cites in its warrant,” Rivkin and Casey wrote.

“Those statutes are general in their text and application. But Mr. Trump’s documents are covered by a specific statute, the Presidential Records Act of 1978,” they said, adding that a Supreme Court decision in 1974 affirms their argument. “The former president’s rights under the [Presidential Records Act] trump any application of the laws the FBI warrant cites.”

The 1978 law, which was passed two years after former President Richard Nixon resigned, “lays out detailed requirements for how the archivist is to administer the records, handle privilege claims, make the records public, and impose restrictions on access,” they added. “Notably, it doesn’t address the process by which a former president’s records are physically to be turned over to the archivist, or set any deadline, leaving this matter to be negotiated between the archivist and the former president.”

In their opinion piece, the authors stated that because the FBI and Justice Department were satisfied with an additional lock being installed on a Mar-a-Lago storage room, the federal agencies “could and should have sought a less intrusive” method than a search warrant.

Read more here…

President Biden on Wednesday is expected to announce the cancellation of up to $10,000 in student debt for millions of American borrowers who earn less than $125,000 per year, and $20,000 in debt for Pell grant recipients, according to Bloomberg, citing people familiar with the matter. 

The administration will also pause student loan payments for four more months through Dec. 31, with sources indicating that it would be the “final pause” backed by Biden (the 7th since the Covid-19 pandemic began in March 2020) – just in time for midterms.

In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023.

I’ll have more details this afternoon. pic.twitter.com/kuZNqoMe4I

— President Biden (@POTUS) August 24, 2022

The plan will cost between $300 billion and $980 billion over 10 years, while the majority of relief will go to borrowers in the top 60% of earners according to an analysis by Penn Wharton.

According to Goldman, it’s a middle and upper class hand-out.

The Penn Wharton budget group, run by a former George W. Bush Treasury official, estimated that: “between 69% and 73% of any debt forgiven would accrue to households that rank in the top 60% of the US’s income distribution,” (via Bloomberg).

In recent weeks, Biden administration officials have been discussing forgiving a higher amount of debt for low-income borrowers who received Pell grants. Previous discussions included forgiveness for Americans who made less than $150,000 in the previous year, or $300,000 for married couples filing jointly.

The issue has sharply divided Democratic lawmakers and policy experts who are influential in the administration – with advocates saying Biden should fulfill a campaign promise, and critics who are concerned that it will exacerbate inflation while mostly benefiting high-income college graduates who don’t need the help.

During his 2020 election campaign, Biden urged Congress to forgive $10,000 in student loan debt – while far-left lawmakers such as Elizabeth Warren, and advocacy groups such as the NAACP, have pressured Biden to push for at least $50,000 in forgiveness.

Goldman Sachs found “would discharge around $300bn (1.2% of GDP) of debt but would boost consumption by less than by less than 0.1% of GDP over the year following implementation.”

2020:
“I’ve saved all my money. [My daughter] doesn’t have any student loans. Am I going to get my money back?”

Warren: “Of course not.”

“So you’re going to pay for people who didn’t save any money and those of us who did the right thing get screwed.”pic.twitter.com/Z19hR5Vsdg

— Daily Wire (@realDailyWire) August 23, 2022

Biden is expected to give a speech at 2:15 p.m.

Authored by Jonathan Turley,

“Tricky.”

Over the course of 110 pages in a federal complaint, that one descriptive word seemed to stand out among the exchanges between social media executives and public health officials on censoring public viewpoints. The exchange reveals long-suspected coordination between the government and these social media companies to manage a burgeoning censorship system.

Twitter just reportedly suspended another doctor who sought to raise concerns over Pfizer Covid records. Former New York Times science reporter Alex Berenson is also suing Twitter over his suspension after raising dissenting views to the CDC. In the meantime, Twitter is rolling out new procedures to combat “misinformation” in the upcoming elections — a move that has some of us skeptical.The recently disclosed exchange between defendant Carol Crawford, the CDC’s Chief of digital media, revealed a back channel with Twitter and other companies to censor “unapproved opinions” on social media.  The “tricky” part may be due to the fact that, during that week of March 25, 2021, then CEO Jack Dorsey was testifying on such censorship before Congress and insisting that “we don’t have a censoring department.”

It seems that any meeting on systemic censorship with the government would have to wait until after Dorsey denied that such systemic censorship.

The exchange is part of the evidence put forward by leading doctors who are alleging a systemic private-government effort to censor dissenting scientific or medial views. The lawsuit filed by Missouri and Louisiana was joined experts, including Drs. Jayanta Bhattacharya (Stanford University) and Martin Kulldorff (Harvard University). Bhattacharya objected this week to the suspension of Dr. Clare Craig after she raised concerns about Pfizer trial documents.

Those doctors were the co-authors of the Great Barrington Declaration, which advocated for a more focused Covid response that targeted the most vulnerable population rather than widespread lockdowns and mandates. Many are now questioning the efficacy and cost of the massive lockdown as well as the real value of masks or the rejection of natural immunities as an alternative to vaccination.      Yet, these experts and others were attacked for such views just a year ago. Some found themselves censored on social media for challenging claims of Dr. Fauci and others.

The Great Barrington Declaration was not the only viewpoint deemed dangerous. Those who alleged that the virus may have begun in a lab in China were widely denounced and the views barred from being uttered on social media platforms. It was later learned that a number of leading experts raised this theory with Fauci and others early in the pandemic.

Fauci is accused of quickly scuttling such discussion and critics point to his own alleged approval of gain-of-function research at the Wuhan lab. Fauci and other leading experts now admit that the lab theory is a real possibility, even if they do not agree that it is the best explanation.      Social media companies like Facebook declared that the previously banned “conspiracy theory” would now be allowed to be discussed. Yet, some in the media continued to push the media to avoid discussing it. The New York Times science writer Apoorva Mandavilli declared theory “racist” even as Fauci and others were saying that it is now considered a possible explanation.

Indeed, many of the views that the media attacked as conspiracy theories or debunked are now again being seriously considered. That includes claims of adverse responses to the vaccines, natural immunity protection, and the psychological costs from masking or isolation, particularly among children. None of these views are inviolate or beyond question — any more than the official accounts were at the time. Rather, they were systemically “disappeared” from social media – pushed to the far extremes of public and academic discourse.

The First Amendment is designed to prevent the government from censoring speech. While the new lawsuit will face legal challenges, it has already forced previously unknown government-corporate coordination into the public view.      While the CDC now admits that it made serious mistakes during the pandemic, it allegedly worked with companies to ban opposing views. Those who sought to raise these experts found their accounts suspended.

That brings us back to the “tricky” part.

The request for the meeting was made on March 18, 2021.

That week, Dorsey and other CEOs were to appear at a House hearing to discuss “misinformation” on social media and their “content modification” policies. I had just testified on private censorship in circumventing the First Amendment as a type of censorship by surrogate. Dorsey and the other CEOs were asked about my warning of a “little brother problem, a problem which private entities do for the government which it cannot legally do for itself.” Dorsey insisted that there was no such censorship office or effort.

The new lawsuit sheds new light on that testimony. It now appears that the CDC was actively feeding disapproved viewpoints to these companies, including a list of tweets that the CDC regarded as misinformation. In one email, Twitter senior manager for public policy Todd O’Boyle asked Crawford to help identify tweets to be censored and emphasized that the company was “looking forward to setting up regular chats.”

Facebook also received lists of “offensive” posts to be “dealt with.” Facebook trained government officials in using its “CrowdTangle” system used by “health departments [to] flag potential vaccine misinformation” to allow the company to review and possibly remove it. It added that “this is similar to how governments and fact-checkers use CrowdTangle ahead of elections….”

That was another eye-raising reference since these companies were criticized for killing the Hunter Biden laptop story before the election. The story was blocked as presumed “Russian disinformation,” a move that Dorsey admitted in the March hearing was a mistake. Now, a year later, story is accepted not just as legitimate but potentially a serious threat for the Biden Administration.

Whatever the outcome of the litigation, the filing raises, again, whether our concept of state censorship and a state media are outmoded. The last few years have seen a striking uniformity in the barring of certain political and policy viewpoints, including dissenting medical or scientific views that could potentially protect lives. That occurred without any central ministry of information or coercive state laws. It was done by mutual agreement and shared values between the government and these companies.

What was not known were the moving parts in what has been arguably the most successful censorship system in our history. To some extent, no direction was needed beyond the periodic announcements of figures like Fauci or the CDC, which were treated as gospel and not to be challenged. Even when Fauci was criticized for reversing himself on key issues like the wearing of masks or their efficacy, it did not change the concerted effort to suppress opposing views.

The “tricky” part for the public is how to deal with the circumvention of the First Amendment in a system of censorship by surrogates. Outsourcing the suppression of opposing views threatens the same core values in our government. Just as the CDC overstepped its bounds in mandatory moratoriums on evictions, it should not be allowed to exercise control over free speech, directly or indirectly. It’s mandate to ensure “a Healthy World–Through Prevention” should not apply to unhealthy thoughts.