Month: May 2023

Bryan Caplan on NIMBYism and Economic Ignorance


NIMBY

Regulatory restrictions on the construction of new housing inflict immense harm by cutting off millions of people from housing, educational, and job opportunities. They are also a major affront to property rights. The traditional explanation for such “exclusionary zoning” is that it is driven by the narrow self-interest of “NIMBY” (“not in my backyard”) homeowners. Although society as a whole would benefit from deregulation, the NIMBYs oppose it because it might reduce their property values and allow less affluent people to move into their neighborhoods.

In a recent post, economist Bryan Caplan—a leading academic expert on both housing and public opinion—summarizes evidence challenging the traditional self-interest explanation of NIMBYism. He relies heavily on “Folk Economics and the Persistence of Political Opposition to New Housing,” an important new article by legal scholar Chris Elmendorf and political scientists Clayton Nall and Stan Oklobdzija:

Why is housing regulation so draconian? The conventional answer is self-interested voting. Housing regulation is mostly local; local voters are mostly homeowners; homeowners want high housing prices; homeowners know low supply keeps prices high. Economists are especially staunch in their belief in this classic NIMBY (Not In My Backyard) story.

Part of the reason is that economists like self-interested stories of everything. In daily life, this is a reasonable presumption. But in politics, most economists have yet to realize that theory and empirics stand squarely against what I call the Self-Interested Voter Hypothesis. Since one voter has near-zero effect on political outcomes, there is near-zero reason to vote on the basis of material self-interest. And a mountain of public opinion research confirms that “symbolic attitudes”—especially ideology and group identity—are the main determinants of issue views, partisanship, and voting itself.

But even economists who accept these truths will still probably try to carve out an exception for housing regulation. What ideology urges us to make housing as expensive as possible?! If naked self-interest doesn’t explain draconian regulation, what on Earth does?

My top explanation is sheer economic illiteracy. Much of the public flatly denies that housing deregulation would make housing more affordable. For them, supply-and-demand is the “ideology”—and popular complaints about the downsides of new construction are “common sense.”

Do I have any evidence that economic illiteracy is the foundation of draconian housing regulation? Until recently (with notable exceptions), I only had base rates. Since there is overwhelming evidence of the public’s economic illiteracy, of course they’ll be economically illiterate on housing as well. But in 2022, Clayton Nall, Chris Elmendorf, and Stan Oklondzija (henceforth NEO) ran a large survey on the origins of NIMBY. Their recent paper, “Folk Economics and the Persistence of Political Opposition to New Housing” strongly supports my story.

The rest of Caplan’s post is an insightful summary and analysis of NEO’s important findings. I discussed those findings myself here. I don’t think the NEO paper proves that all NIMBY opposition to housing deregulation is caused by ignorance. In my earlier post on their work, I note some other factors:

Economic ignorance is not the only factor driving NIMBYism. Some people really do oppose new construction based on careful calculations of their narrow self-interest. While current homeowners can often benefit from development in various ways, if you’re an owner who does not have children (or doesn’t care about their housing costs), doesn’t care much about promoting growth and innovation, and wants to ensure that the “character” of your neighborhood changes as little as possible, you might rationally oppose zoning reform, even if you understand its effects perfectly well. Historically, racial and ethnic prejudice has also been an important factor, though it has waned more recently, as education levels have risen and white suburbanites have become more open to integration.

While the NEO paper doesn’t prove that ignorance is the only factor here, it does demonstrate that it is extremely important, probably far more so than the traditional NIMBY story of homeowners carefully calculating their self-interest. At this point in time, I think it’s also more significant than old-fashioned racist hostility to a potential influx of minorities. Among other things, NEO show there are few differences between homeowners and renters on housing deregulation issues, and that many in both groups actually believe that building more housing will increase prices rather than reduce them!

NEO also demonstrate that voters tend to (illogically) blame developers  for increased prices, even though the latter are actually the ones whose activities are likely to reduce them. This is much like blaming high egg prices on farmers’ efforts to increase egg production. But many people believe it, nonetheless.

As Caplan and I emphasize in our respective posts, such ignorance and economic illiteracy is far from unique to this issue. It’s a widespread problem arising from the “rational ignorance” of voters. But it’s especially pernicious in this instance, because of the enormous harmed caused by exclusionary zoning.

In another commentary on the NEO article, Alex Tabarrok (Caplan’s colleague at the George Mason University economics department) summarized it as “look around at the housing market and declare there are idiots“—contrary to economists’ usual assumption that people behave rationally. But, for most voters, being ignorant and biased about public policy is in fact rational, given the very low likelihood that your vote or other activities will have a decisive impact on policy outcomes. You don’t have to be an “idiot” to hold ignorant and foolish views about zoning—just a person who would rather spend his or her time on things other than studying housing policy. That preference is often entirely rational, especially if you have many other demands on your time, you don’t find housing policy interesting, and you know that you are unlikely to have much impact on it, even if you did study it carefully.

Caplan ends on a note of optimism:

Is this good news or bad news? As I’ve argued before, given the existence of awful policies, it’s good news. If the status quo were a durable expression of self-interest, it would be nigh invulnerable. Why? Because (a) human nature won’t change, and (b) the costs of bargaining are plainly too high to reconcile our conflicting self-interests. Otherwise, such bargaining would be common already, and we wouldn’t find ourselves in our current predicament. If the problem is economic illiteracy, however, at least we don’t have to change human nature to dramatically change policy. Perhaps we can just repeatedly hit the public over the head with a friendly sledgehammer of economic education.

I hope this optimism is justified. But I’m not sure it is. Breaking through rational ignorance and bias is possible—but often very difficult. If it were easy, more political leaders would try to combat public ignorance rather than manipulate it to their advantage.  In Chapter 2 of my book Democracy and Political Ignorance, I describe why a an electorate of highly knowledgeable but narrowly self-interested voters might actually be preferable to one that is altruistic, but highly ignorant and biased.

Nevertheless, there have been several successful zoning reform efforts in various states over the last few years, most recently in Montana. Strong are the forces of ignorance. But not invincible.

UPDATE: I have made some minor additions to this post.

The post Bryan Caplan on NIMBYism and Economic Ignorance appeared first on Reason.com.

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Senators Want To Declare Fentanyl a National Security Threat


Sen. Joni Ernst

The spread of the synthetic opioid fentanyl—and associated overdose deaths—has become an endless font of bad policy ideas from government drug warriors. The latest ill-conceived responses come from Sens. Tim Kaine (D–Va.) and Joni Ernst (R–Iowa), who want to declare fentanyl a national security threat.

Kaine and Ernst are angling to add their Disrupt Fentanyl Trafficking Act as an amendment to the National Defense Authorization Act (NDAA) for 2024, reports The Hill:

“Our goal is — I suspect, when we mark that bill up, which is probably around the 17th or 18th in committee, Joni and I will offer it as an amendment,” Kaine said. “We think that we have a real good chance of getting it added.” …

The senators’ idea is to make fentanyl trafficking a priority for the Pentagon by classifying it as a national security threat to the United States.

The legislation would also encourage the Defense Department to use dollars on training and information sharing to support counter-fentanyl efforts.

In addition, it would mandate the Pentagon work with other federal agencies and Mexican defense officials on a strategy to counter drug trafficking, a rule that means Defense Secretary Lloyd Austin would work more closely with Mexico’s military.

A similar proposal is being put forth in the House by Reps. Stephanie Bice (R–Okla.) and Salud Carbajal (D–Calif.). The full text of the bills is not yet available, but Kaine, Ernst, Bice, and Carbajal have been touting their efforts via press release.

This comes in the wake of the House passing two other anti-fentanyl measures—the Preventing the Financing of Illegal Synthetic Drugs Act and the Halt All Lethal Trafficking (HALT) of Fentanyl Act—last week, and amid an array of increasingly insane statements about targeting Mexico for military action.

“Every family in America has been impacted in one way or another by this crisis,” Kaine said in a statement. “If we want to prevent future tragedies, the United States must work with Mexico to counter fentanyl trafficking across our Southern border.”

There’s no doubt that fentanyl—often unbeknownst to users of other drugs with which it is mixed—is a problem in the U.S., leading a surge in overdose deaths in recent years. But fentanyl didn’t become a fixture in America’s illicit drug supply out of nowhere; its proliferation actually stems from drug prohibition policies.

Crackdowns on prescription opioid pills drove addicts to the black market, where many turned to heroin as an alternative. And whether buying black-market opioid pills or heroin, drug users suffered from the same lack of certainty about what exactly was in these substances, leaving many more people vulnerable to overdoses when drugs were cut with much more potent and cheaper synthetic substances like fentanyl.

Fentanyl also became attractive to drug smugglers because of the American war on drugs. The targeting of poppy fields from which natural opioid drugs, like heroin, are derived made synthetic opioids an attractive alternative for drug cartels. Fentanyl can be easier to smuggle into the country than pills or heroin.

Even if the government somehow succeeds in successfully stemming the flow of fentanyl to U.S. markets (a pretty unlikely scenario, given what we know about how the war on drugs has gone over the past 50 years), it’s no guarantee that this will make a dent in opioid smuggling, use, overdoses, or deaths. And if the pills to heroin to fentanyl trajectory of this past decade’s drug crisis is any indication, it will very likely lead to something worse emerging.

In fact, there’s evidence this is already happening.

Facts like these should be enough to make anyone think twice about proposing more and harder drug war as a solution to problems caused by addiction and black markets.

FREE MINDS

The Supreme Court won’t hear a case concerning Reddit and alleged child sex trafficking. Reason covered the case (Doe v. Reddit) back in November, when the U.S. Court of Appeals for the 9th Circuit held that Reddit could not be sued for sex trafficking if it didn’t knowingly permit sex trafficking.

The appeals court held that Section 230 prevented six Jane Does from suing Reddit over sexually explicit images of them as minors that were posted by Reddit users. The case became a test for how the 2018 Allow States and Victims to Fight Online Sex Trafficking Act (FOSTA)—which carved out an exception to Section 230 for sex trafficking claims—might apply in cases like these.

The 9th Circuit recently invoked the Reddit case in a similar ruling regarding Twitter.

The Does appealed the Reddit ruling, asking the Supreme Court to intervene—and giving the Court another opportunity to rule on Section 230, after avoiding the issue in two recent terrorism cases involving Twitter and Google. But SCOTUS on Tuesday declined to hear the case.

FREE MARKETS

Debt deal would lead to more spending on SNAP benefits. Conservatives aren’t the only ones planning to vote against a debt limit deal proposed by President Joe Biden and House Speaker Kevin McCarthy. In addition to earning a gaggle of Republican detractors, the deal will get a no vote from New York Democratic Rep. Alexandria Ocasio-Cortez, her office said said yesterday.

Meanwhile, a Congressional Budget Office (CBO) analysis of the deal says its caps on discretionary spending mean “the agency’s projections of budget deficits would be reduced by about $1.5 trillion over the 2023–2033 period relative to its May 2023 baseline projections” and “as a consequence, interest on the public debt would decline by $188 billion.”

Republicans have touted the deal’s work requirements for food stamp benefits as a win against the welfare state. But CBO notes that the overall changes to benefit rules would mean more spending on the federal Supplemental Nutrition Assistance Program (SNAP) and more people eligible for benefits.

FOLLOW-UP

Family sues over cop shooting child in Mississippi. The family of Aderrien Murry, an 11-year-old boy shot by an Indianola police officer after calling 911 about a domestic disturbance at his home, is now suing the city, the local police chief, and Greg Capers, the officer who shot him. The federal lawsuit filed in the U.S. District Court for the Northern District of Mississippi seeks $5 million in damages and for Capers to be fired.

QUICK HITS

• The 14th Amendment has long been interpreted to guarantee birthright citizenship, meaning that children born in the U.S. automatically get citizenship even if they are born to non-citizens. Former President Donald Trump is vowing to change that if reelected.

• Florida Gov. Ron DeSantis, who is also running for president on the Republican ticket, “presents himself as a champion of individual freedom against overweening government. But as governor of Florida, DeSantis has repeatedly contradicted that stance by blurring the line between state and private action, a distinction that is crucial to protecting civil liberties,” Reason‘s Jacob Sullum writes.

• Alabama expanded its ban on transgender women playing on K-12 sports teams for girls to include college women’s sports teams as well.

• Elon Musk’s brain implant tech, Neuralink, has gotten Food and Drug Administration approval to start human trials.

• Abortion politics are holding up construction of the U.S. Space Command’s headquarters.

• A Tennessee woman was given “a lifesaving emergency hysterectomy, ending her opportunity to give birth to more children, after she says she was denied medically necessary abortion care at a hospital in her home state for life-threatening complications earlier in her pregnancy,” reports ABC News.

• Don’t buy the social housing hype, writes Reason‘s Christian Britschgi.

• “Nevada’s Joe Lombardo on Tuesday became one of the first Republican governors to enshrine protections for out-of-state abortion patients and in-state providers,” notes the Associated Press.

• A Japanese court says that the country not allowing same-sex marriage is unconstitutional.

• Uganda’s president just signed a law assigning the death penalty for “aggravated homosexuality” defined as “serial offenders” of the country’s law against same-sex relations or transmission of a fatal disease through gay sex. The new law also makes promoting homosexuality punishable by 20 years in prison.

The post Senators Want To Declare Fentanyl a National Security Threat appeared first on Reason.com.

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Higher Unemployment Won’t Stop Wages From Rising

Higher Unemployment Won’t Stop Wages From Rising

Authored by Charles Hugh Smith via OfTwoMinds blog,

The net result of these dynamics is official unemployment can soar but employers will still be scrambling to find qualified, willing employees.

The labor market is viewed as a sea of fluid workers. When one industry shrinks and lays off workers, it’s presumed the workers will find employment in an expanding sector. So laid-off construction workers will transition to insurance sales, become waiters, go back to school to train for jobs in the healthcare sector, and so on.

It’s also presumed that young workers will automatically be hired and trained in whatever sectors are expanding. The fresh clay of high school / college graduates will be molded into whatever workers employers need.

This isn’t how the labor market actually works. People have constraints which limit their willingness and / or ability to transition to new kinds of work. These constraints may be physical–many are unable to do demanding physical work–intellectual–they lack the training or mindset needed for demanding knowledge-work–or emotional: high-stress jobs burn people out.

There are social, cultural and financial constraints as well. For example, young people will not take jobs in sectors they have no interest in. Trendy fields attract talent, staid fields are avoided. There may be an expectations gap between what young workers expect in pay and workload and what employers are offering.

Although few seem to have noticed, the pandemic lockdown pushed millions of people into discovering ways to survive without taking fulltime jobs. People get creative when they have to, and as a result of the lockdown, people found they could get by on much less than they once thought. People found nooks and crannies in the economy outside the conventional mainstream of full-time work in government or Corporate America. They have side hustles, work for cash, rent out rooms, live with Grandma and Grandpa (two Social Security checks, yowza), live in a rent-free micro-house and so on.

In other words, there is a vast spectrum of mismatches between what employers want and what the workforce is able to do and willing to do for the pay and work being offered. This has forced employers to loosen conventional demands–for example, offering flex-time for working parents, conceding to remote work, etc.–and offer higher pay and upsides (bonuses, stock options, etc.) to retain workers and poach experienced, willing workers from other employers.

As I noted in Here’s How We’ll Have Labor Shortages and High Unemployment at the Same Time (April 3, 2023), there are also demographic and generational forces in play. Retiring workers are in many cases taking irreplaceable work experience with them, and the replacement workers lack the requisite training and on-the-job problem-solving. Expectations and standards change with each generation.

As I explained in Wages Going Up for Good: Catch-Up and Blowback (May 24, 2023), wages must play catch-up after 45 years of declining purchasing power. A “living wage” in an era of relentlessly higher costs due not just to inflation but to credit-asset bubbles is much higher than it was in previous, lower-cost eras.

Many workers are still earning close to the same hourly rate I made in 1985 ($12/hour) while official inflation has tripled and the cost of housing has risen five or six-fold, along with higher education, childcare, health insurance, etc.

The net result of these dynamics is official unemployment can soar but employers will still be scrambling to find qualified, willing employees. Wages have to rise regardless of unemployment or recession, but few analysts seem to grasp the social and economic forces in play stretch back generations.

New Podcast: Charles Hugh Smith on Getting Ready for a Real Recession (38 min) (38 min)

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Tyler Durden
Wed, 05/31/2023 – 08:30

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ECB Rate-Hike Odds, Euro Tumble After German Inflation Slumps

ECB Rate-Hike Odds, Euro Tumble After German Inflation Slumps

 Germany joined its major euro-zone peers in reporting a dramatic slowdown in inflation as both regional and national CPIs all tumbled to 15-month lows with the headline (preliminary) May German CPI down to 6.1% (from 7.2% in April)…

The retreat came as fuel and heating-oil costs tumbled, and a cheap, nationwide public-transport ticket was introduced.

This follows reports this week that already showed inflation rates dropped more than anticipated in France and Spain, with prices in the latter rising by just 2.9% – the weakest in almost two years. While easing too in Italy, the extent of the retreat there was smaller than analysts expected.

“I could not say that the victory is there so far,” ECB Vice President Luis de Guindos said earlier Wednesday in Frankfurt.

“I think that we are on the correct trajectory and we have to look very carefully at the evolution of core inflation.”

The euro fell to two-month lows on the inflation prints…

Source: Bloomberg

As rate-hike expectations from The ECB declined…

Source: Bloomberg

“There’s a fairly consistent line with the euro-area CPI numbers: it is coming down,” Paul Donovan, chief economist at UBS Global Wealth Management, said on Bloomberg TV. “This whole idea of stickiness, of inflation sticking around, is really being blown out of the water. Interestingly, we’re also getting this confirmed in the regional data in the US.”

Tyler Durden
Wed, 05/31/2023 – 08:21

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Futures Slump On Dismal Chinese PMIs, Rates Slide As European Inflation Stalls

Futures Slump On Dismal Chinese PMIs, Rates Slide As European Inflation Stalls

US equity futures are lower and flirting with 4,200 after another round of very ugly economic data out of China (where both mfg and service PMI missed) which dragged Asian markets lower (the HSEI entered a bear market) and slammed European stocks, while traders closely watched the debt ceiling situation after late last night the House Rule Committee advanced the bill which will now be submitted to a full vote in the House later today. That vote may not come until after market hours (~7pm) so headline risk remains.

At 7:30am ET, S&P futures were down 0.4% at 4,200 while Nasdaq futures dropped 0.2% as NVDA dipped back under $400 and exited the trillion dollar market cap club just as fast as it entered. Treasury yields slumped, dropping to 3.64%, down about 4bps, led by European rates as inflation came in weaker than expected in France and German states, prompting traders to trim bets on the path of future ECB rate hikes. The Bloomberg dollar index gained for the first time in four days whie oil extended losses with WTI crude oil futures dropping more than 2.5% after Tuesday’s 4.4% drop; bitcoin got hammered in overnight trading as usual.

In premarket trading, Nvidia dropped back below $400 and is no longer in the $1TN market cap club after soaring 31% over the past three sessions on optimism surrounding artificial intelligence, a trend that contributed to a blowout revenue forecast for the chipmaker last week. Cryptocurrency-exposed stocks also fell in US premarket trading Wednesday as Bitcoin snapped its longest streak since March. The largest cryptocurrency slid along with US equity futures as China’s economic woes reverberated beyond the country’s domestic markets. Here are some other notable premarket movers:

  • HP Inc shares drop as much as 4.9% in US premarket trading on Wednesday, after the computer hardware firm reported lower-than- expected second-quarter revenue, highlighting the weakness in PC demand. However, the report suggests that the PC market may have bottomed, Bloomberg Intelligence writes.
  • Hewlett Packard Enterprise shares fall as much as 8.4% in premarket trading on Wednesday, after second-quarter revenue and the current-quarter forecast from the information technology services company missed expectations. Analysts note that weakness in the company’s server business offset momentum at its Intelligent Edge unit.
  • Ambarella shares drop 18% in US premarket trading after sales guidance from the maker of semiconductor devices fell short of expectations, prompting a downgrade from KeyBanc.
  • Avis Budget rises 3.2% in premarket trading after Deutsche Bank upgrades the car rental firm to buy from hold, with its call “primarily valuation- centric.”.
  • Chevron Corp. has no sell ratings left after JPMorgan Chase & Co. upgraded the US oil major, saying it is well positioned for a potential downturn.
  • LL Flooring Holdings shares surge as much as 25% in premarket trading after founder Tom Sullivan makes another attempt to buy the home-improvement retailer.
  • Twilio shares advance as much as 5.1% in premarket trading after The Information reported that activist investor Legion Partners had met with the communication software company’s board of directors and managers to suggest changes to the board.
  • Faraday Future shares rise 6% in premarket trading on Wednesday, after the electric-vehicle maker launches an “AI-powered” variant of its FF 91 EV.
  • Box’s fiscal 1Q results were solid, the margin outlook continues to improve and opportunities around AI are starting to come into focus for the software firm, analysts said. This is partially offset by a tougher macro picture, which appears to have got incrementally worse over the course of the quarter, they said. Box shares rose 3.4% in after-hours trading.
  • Sportsman’s Warehouse dropped 7.8% in extended trading after the sporting-goods retailer’s projections for fiscal second-quarter net sales and adjusted EPS fell short of the average analyst estimates at the midpoint of the ranges.

A major cause for the soggy trading sentiment overnight, was China’s NBS manufacturing PMI which fell to a lower-than-expected 48.8 in May from 49.2 in April, below expectations of 49.5, with output sub-index falling the most followed by new orders sub-index. The NBS non-manufacturing PMI moderated to 54.5 in May from 56.4 in April, and also below the 55.2 median estimate, showing ongoing recovery in both the construction and services sectors but at a slower pace. Some more details:

  • The China NBS purchasing managers’ indexes (PMIs) survey suggested manufacturing activity contracted in May. The NBS manufacturing PMI headline index fell to 48.8 in May from 49.2 in April. Among five major sub-indexes, the output sub-index fell to 49.6 from 50.2, the new orders sub-index decreased to 48.3 from 48.8 and the employment sub-index declined to 48.4 from 48.8. The suppliers’ delivery times sub-index edged up to 50.5 in May from 50.3 in April, suggesting faster supplier deliveries. The NBS commented that the drop in the May PMI reading was linked to insufficient demand (especially in chemical fibers, non-metallic mineral products and ferrous metal processing industries).
  • The official non-manufacturing PMI (comprised of the services and construction sectors) moderated to 54.5 in May (vs. 56.4 in April), which was still solid but lower than market expectations, suggesting continued recovery in construction and services sectors but at a slower sequential pace. The services PMI slowed to 53.8 (vs. 55.1 in April). According to the survey, the PMIs of service industries such as airlines, ship and road transport services and telecommunication were above 60 while the PMI in property sector was below 50 in May. The construction PMI moderated to 58.2 in May (vs.63.9 in April) but remained elevated. The NBS noted that construction enterprises were optimistic about the outlook of construction sector.

China’s soft manufacturing data added to concerns about the outlook for global economic growth at a time when central banks are still in tightening mode. Meanwhile, weak price data from Europe on Wednesday prompted traders to curb bets on European Central Bank rate hikes, though worries remain about the region’s prospects as demand from its largest trading partner falters. Hawkish comments from Federal Reserve officials added mix of factors traders have to consider.

“We’re facing quite a lot of headwinds: firstly, the China growth story, clearly that’s been a major disappointment. On top of that, there’s a risk of a US recession, and for the euro region, there’s a likelihood that they’re facing stagnation,” Jane Foley, head of FX strategy at Rabobank, said on Bloomberg TV. “So you’ve got a pretty disappointing outlook for growth, not an environment where you really want to be piling en masse into high-risk assets, and therefore the dollar is likely to do well.” Meanwhile, Fedspeak remains hawkish with bonds pricing in a 66% chance for a hike at the June meeting.

In Europe, the Stoxx Europe 600 index headed for its lowest close since March, with China-exposed luxury-goods makers LVMH and Richemont among the biggest laggards, while Swedish landlord SBB plunged to an all-time low after its CEO said his holding company had deferred interest payments on a loan. Software and telecommunications stocks advanced, led by Capgemini SE after the Paris-based firm said it expanded a partnership with Google Cloud in data analytics and artificial intelligence. Here are some other notable European movers:

  • B&M gains as much as 6.6% after the UK retailer reported FY results that met market expectations. The results are encouraging, given the current macroeconomic environment, Shore Capital said
  • JD Wetherspoon shares jump as much as 6.3%, with Mitchells & Butlers up as much as 3.2%, after HSBC said the UK pub and restaurant sector still looks cheap despite a recent rally
  • Huuuge gains as much as 6.1% after the Warsaw-listed mobile games developer announced a $150m share buyback priced at a premium to Tuesday’s close following a first-quarter earnings beat
  • LVMH shares fall drop as much as 2.3% on Wednesday, as concerns over China’s economy pummeled luxury stocks exposed to the world’s second economy, with Kering and Hermes both falling 2.7%
  • Entain shares decline as much as 3.8% after the UK-based gambling company said an HMRC investigation will likely lead to a “substantial financial penalty”
  • SBB shares fall as much as 11%, reaching both all-time intraday lows and on track for their worst close on record, after the embattled landlord’s CEO said his holding company has deferred interest payments
  • Impax Asset Management shares sink as much as 11%, hitting the lowest since January, with analysts flagging a hit to profits from hiring by the ESG fund manager
  • Heineken shares fall as much as 3% after Femsa’s offering to sell more of its shares in the Dutch brewer at a ~4% discount to Tuesday’s close

The euro slumped to a two-month through against the dollar after French inflation eased more than anticipated, reaching its lowest level in a year. Data from Germany’s states also signaled inflation may be falling more quickly than expected in the region’s biggest economy, prompting traders to trim bets on future European Central Bank interest-rate increases. European bonds rallied, with the German 10-year yield down about 9 basis points.

“There’s a fairly consistent line with the euro-area CPI numbers: it is coming down,” Paul Donovan, chief economist at UBS Global Wealth Management, said on Bloomberg TV. “This whole idea of stickiness, of inflation sticking around, is really being blown out of the water. Interestingly, we’re also getting this confirmed in the regional data in the US.”

Earlier in the session, Asian equities fell, led by shares listed in Hong Kong, as weaker-than-expected manufacturing data showed the Chinese economy continues to struggle. The MSCI Asia Pacific Index dropped as much as 1.4%, set for its biggest decline since March 14, with a gauge of Chinese stocks in Hong Kong as well as the city’s benchmark index headed for bear markets. Data Wednesday showed China’s manufacturing activity contracted for a second month in May, offering the latest proof that the post-Covid recovery is stalling. Broad weakness also pulled Korean stocks lower, after they briefly headed for a bull market amid foreign demand for the nation’s chipmakers.

“Cyclically, the recovery in China is on a much weaker footing,” Timothy Moe, chief Asia Pacific equity strategist at Goldman Sachs, told Bloomberg Television. For Korea, investors are looking past the earnings trough expected this year to a rebound in the chip sector in 2024, he said.  Declines were broad-based, with gauges in Japan, Australia and Thailand also falling. An energy sub-gauge dropped the most as crude prices fell.  The broader MSCI Asia gauge is down about 7% from a peak in January as China’s faltering economic recovery and worries about a recession in the US damp sentiment.

  • The Hang Seng and Shanghai Comp. declined with Hong Kong dragged lower by notable weakness in the local blue-chip tech stocks and following disappointing Manufacturing and Non-Manufacturing PMI data in which the former printed at a second consecutive month in contraction territory and its weakest reading YTD.
  • Japan’s Nikkei 225 was pressured by data releases in which Industrial Production printed a surprise contraction and Retail Sales missed forecasts, with early jitters also from North Korea’s failed satellite launch.
  • Australia’s ASX 200 was led lower by underperformance in the commodity-related sectors with energy the worst hit after oil prices slumped by more than 4% yesterday and with the mood not helped by firmer-than-expected monthly CPI.
  • Indian stocks posted their sharpest drop in two weeks on Wednesday as most Asian markets declined after China reported weaker-than-expected manufacturing data.   The S&P BSE Sensex fell 0.6% to 62,622.24 as of 03:45 p.m. in Mumbai, while the NSE Nifty 50 Index declined 0.5%. The drop was their biggest decline since May 17.   Reliance Industries contributed the most to the Sensex’s decline, decreasing 1.8%. Out of 30 shares in the Sensex index, 11 rose, while 19 fell.

In FX, the Bloomberg Dollar Spot Index rises 0.3% with the largest gains for the greenback seen against the Norwegian krone and kiwi. EUR/USD fell as much as 0.7% to 1.0662, the lowest since March 20, as euro-area bond yields dropped; German two- and five-year bond yields fell as much as 10 basis points before paring the move; 10-year yield is down 9bps to 2.25%.

  • The Norwegian krone underperformed its Group-of-10 peers for a second day, down 0.8% versus the dollar and 0.2% against the euro
  • The Australian and New Zealand dollars fell after a contraction in China’s manufacturing activity, which brought weak long stops onto the radar, according to an Asia- based FX trader

In rates, treasuries extended this week’s gains, with yields richer by ~4bp across the curve, led by bunds: the German 10-year yields are down 9bps after regional prints point to soft German CPI due at 8am New York time, while French inflation slowed more than expected. US session includes four Fed speakers and JOLTS job openings. Treasury gains are led by belly of the curve, tightening 2s5s30s fly by 1.5bp on the day after almost 6bp of tightening Tuesday; 10-year yields around 3.65% with bunds outperforming and trading 5bp richer in the sector.  IG issuance slate includes Hong Kong 3Y/5Y/10Y; five deals priced $11.3b Tuesday, with final order books said to be more than four times covered. US economic data slate includes May MNI Chicago PMI (9:45am), April JOLTS job openings (10am) and May Dallas Fed services activity (10:30am)

In commodities, crude futures decline with WTI falling 1.2% to trade below $69. Spot gold is little changed around $1,958. Bitcoin drops 2.4%, sliding below $27,000. 

Looking to the day ahead now, and data releases include the May CPI releases from Germany, France and Italy, along with German unemployment for May. In the US there’s also the JOLTS job openings for April, as well as the MNI Chicago PMI for May. From central banks, we’ll hear from the Fed’s Collins, Bowman, Harker and Jefferson, the ECB’s Villeroy and Visco, and the BoE’s Mann. In addition, the Fed will release their Beige Book, and the ECB will release their Financial Stability Review.

Market Snapshot

  • S&P 500 futures down 0.3% to 4,203.50
  • MXAP down 1.3% to 158.39
  • MXAPJ down 1.3% to 501.13
  • Nikkei down 1.4% to 30,887.88
  • Topix down 1.3% to 2,130.63
  • Hang Seng Index down 1.9% to 18,234.27
  • Shanghai Composite down 0.6% to 3,204.56
  • Sensex down 0.7% to 62,521.87
  • Australia S&P/ASX 200 down 1.6% to 7,091.31
  • Kospi down 0.3% to 2,577.12
  • STOXX Europe 600 down 0.3% to 455.30
  • German 10Y yield little changed at 2.26%
  • Euro down 0.6% to $1.0670
  • Brent Futures down 0.6% to $73.08/bbl
  • Gold spot down 0.1% to $1,958.09
  • U.S. Dollar Index up 0.36% to 104.54

Top Overnight News from Bloomberg

  • China’s economic recovery weakened in May as manufacturing activity continued to slump, prompting investors to dump stocks and call for more stimulus measures to boost growth
  • The debt- limit deal struck by President Joe Biden and Speaker Kevin McCarthy is heading toward a vote Wednesday in the House of Representatives after clearing a crucial procedural hurdle with just days remaining to avoid a US default
  • French inflation eased to its lowest level in a year, though Italy overshot analyst expectations, underlining the challenge for the European Central Bank as it nears the end of its unprecedented campaign of interest-rate hikes.
  • Japan’s biggest life insurers have ramped up their use of longer-dated currency hedges to a record to escape sky-high costs, suggesting they’re buying more riskier securities that benefit from protection.

A more detailed look at global markets corutesy of Newsquawk

APAC stocks were mostly lower following the mixed handover from Wall St where sentiment was clouded as hardliners voiced opposition to the debt ceiling bill, while risk appetite was subdued overnight as participants digested a slew of data releases heading into month-end including disappointing Chinese official PMIs. ASX 200 was led lower by underperformance in the commodity-related sectors with energy the worst hit after oil prices slumped by more than 4% yesterday and with the mood not helped by firmer-than-expected monthly CPI. Nikkei 225 was pressured by data releases in which Industrial Production printed a surprise contraction and Retail Sales  missed forecasts, with early jitters also from North Korea’s failed satellite launch. Hang Seng and Shanghai Comp. declined with Hong Kong dragged lower by notable weakness in the local blue-chip  tech stocks and following disappointing Manufacturing and Non-Manufacturing PMI data in which the former printed at a second consecutive month in contraction territory and its weakest reading YTD.

Top Asian News

  • US imposed sanctions on Chinese and Mexican entities to combat the opioid crisis, according to FT.
  • China’s NBS said the economic activity level in China declined slightly in May which indicates the need to strengthen the foundation for recovery and development, according to Reuters.
  • Japan’s METI said the decline in semiconductors and flat panel manufacturing equipment were the main contributors pushing down Japan’s industrial output in April and noted that official business sentiment remains bearish as overseas economies continue to weaken.
  • RBA Governor Lowe said they are in data-dependent mode and there is not a single variable that drives their decisions, while he added that monetary policy is in a restrictive environment and that they are on a narrow path with success not guaranteed

European bourses are mostly in the red, Euro Stoxx 50 -0.4%, following the soft APAC handover and despite the generally softer inflation data from European nations thus far. Sectors are lower across the board, with Luxury names lagging after the weak Chinese PMI figures. Stateside, futures are all in the red though only modestly so, ES -0.1%, with the NQ in-line with broader action today and NVIDIA pulling back a touch from its recent upside, -1.5% in the pre-market.

Top European News

  • Netherlands Senate approved a wide-ranging reform of the Dutch pension system, according to Reuters.
  • ECB’s Muller says core inflation shows no signs of slowing yet, very likely that the ECB will hike by 25bp more than once; probably too optimistic to see ECB rate cut in early 2024.
  • ECB’s de Guindos says we have to adjust liquidity requirements to modern world; inflation data today and yesterday was positive; victory over inflation is not there but the trajectory is correct; markets are absorbing QT smoothly and positively.
  • ECB’s Visco says longer-term inflation expectations remain in line with the definition of price stability; now that rates are in restrictive territory, must proceed with the correct degree of graduality.
  • ECB Financial Stability Review: says financial stability outlook remains fragile.
  • Spain’s People’s Party (PP) leader says they will reduce public debt if they win the snap election and will reduce electric bill for small consumers and certain companies.

FX

  • Yuan’s post-PMI pain revives Greenback fortunes with hawkish Fed’s Mester also boosting the Buck; USD/CNY and USD/CNH top 7.1100 and 7.1300 respectively, while DXY sets new w-t-d peak at 104.630.
  • Aussie retreats through 0.6500 irrespective of stronger than forecast CPI, but AUD/NZD remains elevated on RBA rate hike expectations.
  • Euro undermined by mostly weaker than expected EZ inflation data, as EUR/USD eyes Fib support just above 1.0650.
  • Franc hit by feeble Swiss retail sales and Pound weighed down by decline in Lloyds UK business barometer; USD/CNF above 0.9100 and Cable probing 1.2350
  • Yen treading water near 140.00 amidst softer Treasury yields and debt ceiling deal jitters.
  • PBoC set USD/CNY mid-point at 7.0821 vs exp. 7.0764 (prev. 7.0818)

Fixed Income

  • Debt elevated approaching month end with added impetus via weak Chinese PMIs and mostly cooler than forecast EZ inflation data.
  • Bunds, Gilts and T-note all hovering just below best levels between 136.39-135.31, 96.97-37 and 114-14+/00 bounds.
  • 2029 German supply reasonably well sponsored with collapse in crude and other commodities supporting the disinflation narrative.
  • Germany sells EUR 2.504bln vs exp. EUR 3.00bln 2.10% 2029 Bund: b/c 2.30x (prev. 2.50x), average yield 2.23% (prev. 2.22%) & retention 16.53% (prev. 15.00%).

Commodities

  • Crude benchmarks continue to slip following Tuesday’s marked pressure and subdued settlement. Renewed pressure comes after soft Chinese data, broader risk-aversion and ahead of the June 4th OPEC+.
  • Currently, WTI Jul and Brent Aug are towards the lower end of respective USD 68.60-69.69/bbl and USD 72.68-73.95/bbl parameters.
  • Base metals are dented following the mentioned Chinese data while spot gold is proving relatively resilient to the firmer USD and is only incrementally softer, given the broader underlying tone and its haven status.
  • Iraqi cabinet approved USD 417mln for the construction of a third offshore export pipeline.
  • Norway Police are responding to report of a gas leak at Equinor’s (EQNR NO) Melkoeya LNG facility.
  • Hungary asked the EU to extend import restrictions on grains from Ukraine for five eastern-European states until at least end-2023.
  • EU Executive VP Dombrovskis says the EU-US steel and raw material deals are both making progress.

Geopolitics

  • A fire broke out at an oil refinery in Russia which was likely due to a falling drone, according to RIA citing the local Governor; subsequently, drone crashed on Ilsky oil refinery in Russia’s south, no damages to infrastructure and no casualties, according to RIA citing local taskforce
  • South Korean military said North Korea fired a space satellite, while Japan’s Defence Ministry said North Korea fired what could be a ballistic missile and Japan’s government issued a shelter-in-place order for residents in Okinawa, according to Reuters. Japan’s government later stated that the missile did not fly into Japanese territory and it lifted the evacuation warning, while South Korea said a previous warning by Seoul city was an error. Furthermore, North Korea said an accident occurred during its satellite launch and that it will verify grave defects, as well as conduct a second launch soon, while South Korea’s military said the North Korean projectile was more likely to be a space vehicle rather than a missile.
  • US, Japan and South Korea strongly condemned North Korea’s launch, while South Korea said the launch was a serious provocation and a grave violation of UN resolutions, according to Reuters.
  • US military said a Chinese fighter pilot performed an unnecessary aggressive manoeuvre during an intercept of a US jet over the South China Sea on May 26th, in which it flew directly in front of the nose of a US air force jet, according to a statement.
  • US President Biden’s senior Middle East adviser discussed with Oman a possible outreach to Iran on the nuclear program earlier this month, according to sources cited by Axios.

US Event Calendar

  • 07:00: May MBA Mortgage Applications -3.7%, prior -4.6%
  • 09:45: May MNI Chicago PMI, est. 47.2, prior 48.6
  • 10:00: April JOLTs Job Openings, est. 9.4m, prior 9.59m
  • 10:30: May Dallas Fed Services Activity, prior -14.4
  • 14:00: Federal Reserve Releases Beige Book

DB’s Jim Reid concludes the overnight wrap

The AI hype continued to help push the NASDAQ (+0.32%) to another YTD high yesterday, even if the mood was more subdued elsewhere. For instance, a sizeable majority (296/502) of the S&P 500 (unchanged) actually fell on the day, with the index only treading water thanks to tech. Nvidia climbed +2.99% to a market cap of $991bn, tantalisingly close to the trillion mark which it’s crossed intraday. Otherwise, the weak economic backdrop meant commodity aggregates fell to their lowest levels in nearly two years. And on top of that, sovereign bonds staged a big rally as concern about the outlook resurfaced as the debt ceiling distortions started to wane. So despite some of the headline gains, the last 24 hours have seen several warning lights under the surface, including multiple recession indicators that are flashing with growing alarm. The highlight today might be German, French and Italian CPI after Spain’s surprise fall yesterday (see below).

As a minimum this will be the highlight until the debt ceiling votes comes through. We’re expecting that the House of Representatives to be voting on the deal agreed by President Biden and Speaker McCarthy tonight. That deal is formally called the Fiscal Responsibility Act, and yesterday saw it pass through the House Rules Committee despite the opposition of two Republican members and all Democrats to pass 7-6, meaning it can now be voted on by the full chamber today.

In terms of the prospects for today, investors seem relatively relaxed that this is going to pass. There has been reports overnight that over 150 GOP members would vote to approve the bill, with the balance needed to pass the House coming from Democrats. So things seem on track. Indeed, one of the good news stories from yesterday was that T-bill yields around the X-date fell back to more normal levels again, with the bill expiring June 8th seeing yields fall -75bps to 5.05, after having briefly traded with a 7 handle last week. Also the 1M US Treasury yield is trading at the same level of swaps for the first time since early May, and at the same time 5yr CDS spreads for the US dropped back to their lowest level since March, which shows how fears of default have continued to ebb over recent days. Bear in mind that this deal has the backing of the Biden Administration as well as the Republican leadership in the House and Senate, even if a minority of members have already said they’ll vote against it.

Of course, the event that’s still scars a lot of people is what happened with the first TARP vote in September 2008, which for younger readers was the $700bn bailout package proposed by the Bush Administration at the height of the GFC. Much like today’s deal, it also had the support of leaders in both parties, but it was rejected in the House on its first vote by a 228-205 margin, sparking what was then the biggest one-day decline in the S&P 500 (-8.79%) since Black Monday in 1987. Now clearly we’re not at the height of a once-in-a-generation financial crisis today, but markets have been taken by surprise on these votes before, even if all might look OK for the time being.

Against that backdrop, there was a big rally among sovereign bonds yesterday, with yields on 10yr Treasuries falling -10.8bps to 3.69% (3.68% in Asia). And similarly in Europe, yields on 10yr bunds (-9.2bps), OATs (-9.8bps) and BTPs (-12.6bps) all moved notably lower for a second day. One factor supporting that was good news on the inflation side, since the Spanish CPI print for May came in at just +2.9% using the EU-harmonised measure (vs. +3.3% expected), which was the slowest it’s been since July 2021. Now of course that’s just one country, but it often attracts outsize interest since it’s one of the first to report inflation each month, so is seen as a potential leading indicator for what will happen elsewhere. We will find out more from the EU big-3 CPI prints today. Another supportive factor was that the relentless commodity decline of recent months showed no signs of abating, leaving Bloomberg’s Commodity Spot Index (-1.75%) at its lowest closing level in just over 22 months.

But on top of that, we also had another batch of weak economic data over the last 24 hours, which helped raise concern about the outlook heading into H2. For instance in the US, the Dallas Fed’s manufacturing index fell to -29.1 (vs. -18.0 expected), which is a new low for this cycle. And over in Europe, the European Commission’s economic sentiment indicator for May fell to a 6-month low of 96.5 (vs. 98.8 expected). All that came as various recession indicators continued to worsen, with the 2s10s Treasury yield curve (-4.5bps) closing at a post-SVB low of -76.8bps.

For equities, as we discussed at the top, tech led the way with the FANG+ Index (+1.54%) up to a new YTD high that now leaves its gains for 2023 at a massive +62.68%. It was a similar story for the NASDAQ (+0.32%), which also hit a new YTD high of +24.37%. However, elsewhere the story was mostly one of declines, with the equal-weighted S&P 500 -0.20%. Europe’s STOXX 600 shed -0.92%.

Asian equity markets are trading sharply lower this morning as disappointing factory activity in China is denting sentiment across the region. As I type, the Hang Seng (-2.33%) is leading losses, tumbling to a new low for 2023 while the mainland Chinese markets are also sliding with the CSI (-1.09%) and the Shanghai Composite (-0.73%) trading in the red as the economic recovery in the world’s second biggest economy is losing steam (more below). Elsewhere, the Nikkei (-1.12%) is also trading lower with the KOSPI (-0.20%) reversing earlier gains. Outside of Asia, US equity futures are slightly negative with those on the S&P 500 (-0.23%) and NASDAQ 100 (-0.13%) edging lower.

Coming back to China, the official manufacturing PMI came in at 48.8 (v/s 49.5 expected), the lowest reading since December 2022 and compared to 49.2 in April, rekindling concerns over a slowing Chinese economy. Additionally, the service sector activity expanded at the slowest pace in four months in May, with the official non-manufacturing PMI falling to 54.5 from 56.4 in April. The downbeat PMI surveys have again bolstered expectations that the policymakers may need to roll out stimulus measures to stimulate growth.

In Japan, retail sales surprisingly contracted -1.2% m/m in April (v/s +0.5% expected), following a downwardly revised increase of +0.3%. Separately, Japan’s industrial production also unexpectedly shrank -0.4% m/m in April (v/s +1.4% anticipated) as against last month’s +1.1% increase. Elsewhere, Australia’s inflation accelerated to +6.8% y/y in April (v/s +6.4% expected; +6.3% in March), mainly led by a jump in energy prices, thus increasing pressure on the Reserve Bank of Australia (RBA) to raise interest rates again when they meet next Tuesday.

Finally, there were a few other US data releases yesterday, such as the Conference Board’s consumer confidence measure. That fell to 102.3 in May (vs. 99.0 expected), but from an upwardly revised 103.7 in April. Nevertheless, there were other signs of softness, and the share describing jobs as plentiful fell to a 2-year low of 43.5%. Otherwise, we had some more backward-looking housing indicators, with the S&P CoreLogic Case-Shiller 20-City home index up by +0.45% in March (vs. unch expected), marking its strongest monthly growth since May 2022.

To the day ahead now, and data releases include the May CPI releases from Germany, France and Italy, along with German unemployment for May. In the US there’s also the JOLTS job openings for April, as well as the MNI Chicago PMI for May. From central banks, we’ll hear from the Fed’s Collins, Bowman, Harker and Jefferson, the ECB’s Villeroy and Visco, and the BoE’s Mann. In addition, the Fed will release their Beige Book, and the ECB will release their Financial Stability Review.

Tyler Durden
Wed, 05/31/2023 – 08:09

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

Goldman Sachs Prepares For Third Round Of Layoffs As M&A Activity Slumps

Goldman Sachs Prepares For Third Round Of Layoffs As M&A Activity Slumps

As macroeconomic headwinds mount, merger and acquisition trends are pressured downward. The Federal Reserve’s ongoing policy of interest rate hikes to combat the highest inflation seen in decades has created less-than-optimal conditions for dealmaking. Consequently, such a challenging environment will result in Goldman Sachs Group carrying out its third round of job cuts in less than a year. 

Sources familiar with the upcoming layoffs told The Wall Street Journal that a wide range of employees, including managing directors and other senior executives, will be let go. The person said about 250 employees would be slashed but wasn’t sure when the announcement would be made. 

If announced, this would be Goldman’s third round of job cuts in less than a year. In September, the investment bank cut hundreds of jobs, followed by a massive 3,200 layoff, or about 6% of all employees, in January.  

At the end of the first quarter, Goldman had a total workforce of about 45,400. The bank has been reducing its headcount since peaking at 49,000 in the third quarter of 2022. 

“The new cuts are largely the result of a dealmaking environment that remains in the doldrums,” WSJ noted. 

Besides Goldman, Morgan Stanley and Lazard have recently announced headcount reductions due to a continued decline in dealmaking activity this year. 

Tyler Durden
Wed, 05/31/2023 – 07:45

via ZeroHedge News https://ift.tt/kha2d3O Tyler Durden

Central Banks Are Buying Gold At Record Pace, What Does That Mean For Inflation?

Central Banks Are Buying Gold At Record Pace, What Does That Mean For Inflation?

Authored by Mike Shedlock via MishTalk.com,

A reader wanted to know if central bank buying gold at a record pace adds to inflation. Let’s crunch the numbers then look at the true meaning of the buying spree…

Warren B. Mosler noted central bank are buying gold at a record pace and that adds to global inflation. 

A second reader asked if I agreed.

Inflation Meaning

Q. What does central bank buying of gold mean for inflation?

A: Not much, per se, especially in the amount of purchases.

The Math

A metric ton of gold is 2204.62 pounds. There are 14.5833 troy ounces to a pound. That means there are 32,150.7 troy ounces per metric ton. 

As of 11:45 PM on 2023-05-29, gold is $1952 per troy ounce. 

One metric ton is worth 2022.62 * 14.5833 * $1952 per ounce = $62,701,106. Multiply that by 120 tons (lead chart) and you get $7,524,132,720. 

With monstrous US deficits, and US debt approaching $32 trillion, $7.5 billion is not enough to matter in and of itself.

Stagflation Right Now, But What’s Ahead?

On April 28, I noted forces for inflation and deflation.

For discussion, please see Worst of Both Worlds, Stagflation Right Now, But What’s Ahead?

Understanding the Real Point

Buying gold has no direct impact on inflation. However, it’s important to note that the record pace is a result of US measures to weaponize the dollar.

Weaponizing the US dollar refers to actions by the US to confiscate Russia’s dollar reserves in response to the war in Ukraine.

Regardless of how one feels about the war or Putin, this was an unprecedented and illegal action by the US. 

No Man’s Land

Weaponization of the US dollar will matter at some point, but it is difficult to say when because dollar avoidance itself is very difficult (see the first of two links below).

Weaponizing the Dollar

The second point pertains to US actions regarding failed US banks in 2023 that further weaponized the dollar. 

Weaponizing the dollar is a serious mistake, and it’s a Rubicon that cannot be undone. 

So far, however, we are witnessing symbolic actions that eventually spell a currency crisis, but we are all guessing when that is.

*  *  *

Like these reports? I hope so, and if you do, please Subscribe to MishTalk Email Alerts.

Tyler Durden
Wed, 05/31/2023 – 07:20

via ZeroHedge News https://ift.tt/ViM6fgw Tyler Durden

House Committee Advances Debt Ceiling Deal To Full Vote

House Committee Advances Debt Ceiling Deal To Full Vote

Update (2245ET): The deal to raise the debt ceiling cleared a critical hurdle Tuesday night, after the House Rules Committee voted 7-6 to advance the bill to the full House for a consideration, with every Democrat on the committee voting against the bill – as did GOP Freedom Caucus members Chip Roy of Texas and Ralph Normal of South Carolina.

Prior to clearing the Rules Committee, speculation swirled over whether Rep. Thomas Massie (R-KY) would vote to approve the measure. A ‘no’ vote would have killed the bill.

Thomas Massie Photographer: Ting Shen/Bloomberg

“My purpose in being on this committee was not to imprint my ideology,” said Massie, who has repeatedly said he wouldn’t use his position on the Committee to legislate his beliefs.

As Bloomberg reports, House Democratic leader Hakeem Jeffries said on Tuesday; “We are going to make sure the country does not default,” adding “We will be able to get this bill over the finish line tomorrow.”

*  *  *

Update (1700ET): As many expected, Rep. Thomas Massie – who sits on the Rules Committee, signaled late Tuesday afternoon that he ‘anticipates’ voting to move the debt deal forward.

Massie, a libertarian, was the deciding vote sitting on the 9-4 GOP-controlled panel over whether to move the legislation forward. He had previously told Bloomberg that he wouldn’t use his position to decide the matter (as noted this AM by Punchbowl News):

“Over the past 10 years, I’ve been an advocate of regular order and trying to make things work, try to make this place work right. And I would be reluctant to try to use the Rules Committee to achieve a legislative outcome, particularly if it doesn’t represent a large majority of our caucus.”

And so, it moves forward.

*  *  *

Update (1550ET): Republican lawmakers have threatened to exact revenge on House Speaker Kevin McCarthy for what they say is a terrible debt deal.

Rep. Dan Bishop (R-NC) told reporters on Tuesday that he plans to formally initiate the process, saying the “motion to vacate has to be done.”

He declined to answer questions on whether he would seek to mount his challenge before Wednesday’s scheduled debt-limit vote, leaving unclear whether it would upend the House’s plan to act on the deal. “Every course of action is available,” he said.

McCarthy dismissed that threat and told reporters Tuesday he is confident his job is secure. Supporting the debt limit deal is “an easy vote for Republicans,” he said.

The debt-limit agreement struck by McCarthy and President Joe Biden is in a crucial final stretch with less than a week to win congressional approval before a June 5 default deadline. Biden and McCarthy have both expressed confidence the measure will pass and spent much of the Memorial Day holiday lobbying members of their respective parties. -Bloomberg

As a reminder, McCarthy was only voted in as speaker after forging an alliance with Republican hard-liners, who he agreed to placate. He could be easily ousted if just a few Republicans back his removal, unless McCarthy could rally several Democrats to his side.

*  *  *

Update (1230ET): The House Freedom Caucus assembled for a presser on Tuesday, where Rep. Chip Roy (R-TX) said: “Not one Republican should vote for this deal. It is a bad deal. No one sent us here to borrow an additional 4 trillion dollars to get absolutely nothing in return,” adding “There will be a reckoning about what just occurred unless we stop this bill.”

Watch:

The Freedom Caucus has left open the possibility of filing a motion to vacate McCarthy’s chair if he pushes the deal through.

More via the DC Enquirer:

McCarthy reached the deal with Biden on Saturday night, claiming that the deal had the largest spending cuts for the IRS in the history of the nation, per the DC Enquirer. The bill did not end up being everything the House Speaker claimed it to be nor even close to that. The lopsided deal has caused many Republicans to come out in droves against the bill, despite McCarthy’s claim that 95 percent of Republicans in Congress support it.

Rep. Matt Rosendale (R-MT) slammed the deal on Twitter, writing, “The DC Swamp has proposed the largest debt ceiling increase in our nation’s history – $4 trillion!!” The representative then added all the different negatives of the agreement, such as failing to eliminate the 87,000 IRS agents that the Biden administration added or curtailing Biden’s student loan forgiveness plan. 

*  *  *

With a US default projected for Monday, House Speaker Kevin McCarthy (R-CA) has precious little time to convince several GOP holdouts to come around and vote for a debt ceiling deal that’s been widely panned by several conservatives.

McCarthy’s team thinks they can avoid disaster at today’s House Rules Committee at 3pm ET today, however Reps. Chip Roy (R-TX), Ralph Norman (R-SC), and Thomas Massie (R-KY) – three conservatives who serve on the panel – may not vote for the rule which allows the Fiscal Responsibility Act to come to the floor, Punchbowl News reports.

All three have expressed reservations about the bill – however Massie may still back the rule, making him the ‘key figure in today’s drama,’ according to Punchbowl. Of note, there are nine Republicans and four Democrats on the panel – so if Roy and Norman vote ‘no’ then Massie needs to vote ‘yes’ for the bill to survive.

Keep in mind this fascinating exchange Massie had with reporters four months ago. Our friend Erik Wasson of Bloomberg asked the Kentucky Republican if he would be “a firewall” on the Rules Committee to make sure a clean debt-limit increase never made it onto the floor. Here’s Massie:

Meanwhile, House Freedom Caucus Chair Scott Perry (R-PA) is holding a press conference today too.

Here’s the schedule of events.

12:00ET – The conservative hard-liners in the House Freedom Caucus will hold a news conference outside the Capitol to rally opposition to the deal

15:00ET – The House Rules Committee will meet to prepare the bill for floor action.

18:30ET – The House will hold votes on unrelated bills, giving whips in both parties their first chance to count votes in person.

19:30ET – House Republican leaders will host a closed-door conference meeting, where they will discuss the debt deal. GOP leadership feels that the preliminary CBO score – $2.1 trillion in savings over the six-year life of the included caps – is something they can get behind. That said, after two years, the remaining four years of caps can be waived.

TOMORROW •    09:00ET – House Democrats will meet in a closed-door caucus meeting where they will hear from White House officials.

McCarthy’s plan will be to argue that no other bill can save the federal government as much money as the current package, and that Biden never wanted to negotiate in the first place.

Assuming the legislation makes it to the floor, “it’s all about the math,” reports Fox News‘ Chad Pergram, who one GOP source said things are “not that great right now.”

Pergram was told that there are quite a few undecided votes, but that Republicans should be able to score well over a majority of their majority. That said, fewer Republicans ‘yes’ votes of course means that Democrats will need to make up the difference – which is a big if.

Needless to say, Rep. Clyde is a ‘no’ at this point.

Chiming in on the debt deal was Florida Governor and 2024 Presidential candidate Ron DeSantis, who told Fox and Friends that it was “totally inadequate.”

“Prior to this deal, Kayleigh, our country was careening toward bankruptcy and after this deal, our country will still be careening toward bankruptcy,” DeSantis told guest host Kayleigh McEnany. “To say you can do $4 trillion of increases in the next year and a half, I mean, that is massive amount of spending.”

“I think that we’ve gotten ourselves on a trajectory, really since March of 2020 with some of the COVID spending and totally reset the budget and they are sticking with that and I think that is totally inadequate to get us in a better spot.”

More via Punchbowl:

Senate Democratic communications directors were briefed on messaging strategy by the White House Monday night, we’re told.

The briefing emphasized that “not everyone gets what they want,” according to one readout, a bid to counter progressive ire. A big focus was the White House’s view that Biden’s negotiators successfully blocked the most dangerous GOP provisions from getting into the legislation.

The Senate is in a holding pattern until the House sends the bill over following the Wednesday vote. In the meantime, it’s worth remembering that Senate Majority Leader Chuck Schumer might have to relent to demands to hold amendment votes in order to speed passage of the bill.

Case in point: Sen. Tim Kaine (D-Va.) is filing an amendment to strip the controversial Mountain Valley Pipeline approval from the legislation. A Kaine spokesperson said the provision, sought by Sen. Joe Manchin (D-W.Va.) and Republicans, “is completely unrelated to the debt ceiling.”

No. 5: Rep. Raúl Grijalva of Arizona, the top Democrat on the House Natural Resources Committee, sent lawmakers a “fact sheet” sharply criticizing the permitting reform provisions in the debt-limit bill.

It’s unusual, to say the least, to have a senior member of the president’s own party criticize a package he crafted in such a public way. But as we noted, a lot of progressives don’t like this bill.

As for the Treasury market, the Fear-o-Meter is down and holding, however the T-bill curve still has some indigestion as things come down to the wire. 

Check back for updates…

Tyler Durden
Wed, 05/31/2023 – 06:11

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“Appeasement”? Or, Avoiding Error?

I appreciate the invitation to blog, here at The Volokh Conspiracy, about a recent (short!) paper of mine, “Justice Breyer and the Establishment Clause.” I set out the background and context for the paper in an earlier post. In this one, I summarize my account of what I regard as the first of the three distinctive features of Justice Breyer’s judicial legacy with respect to the First Amendment’s no-establishment rule.

Scholars and informed commentators know that the just-so story about the Supreme Court in which most cases are decided along ideological or partisan lines is misleading. That said, it cannot be denied that the Court’s cases involving the Establishment Clause are regularly resolved by close votes that track familiar “liberal” and conservative” classifications.

Justice Breyer’s record, though, is interesting. He was confirmed in the summer of 1994, replacing Justice Harry Blackmun, just a few weeks after the Court handed down a splintered 6-3 ruling in the Kiryas Joel case, holding that New York had violated the Establishment Clause by creating a new school district that tracked the boundaries of a village inhabited entirely by Satmar Hasidim. Just one year later, Justice Breyer revealed his reservations about inflexible judicial policing of a strict form of public secularism: In Capitol Square, he joined concurring opinions by Justices Sandra Day O’Connor and David Souter rejecting the claim that it unconstitutionally “endorsed” religion for an official body to permit a private group to display a cross during the Christmas season in Columbus, Ohio’s Capitol Square. On the same day, he dissented, with Justice Souter and two other “liberal” justices, in Rosenberger, insisting that the Free Speech Clause did not require, and the Establishment Clause did not permit, the University of Virginia’s Student Activities Fund to pay the printing expenses of a Christian newspaper.

There are other examples, going in each direction. The best-known instance and illustration of Justice Breyer’s church-state intuitions is his concurring opinion in Van Orden v. Perry, the Texas Ten Commandments case. Having joined Justice Souter and three other justices in concluding that two displays of the Ten Commandments on the walls of Kentucky courthouses lacked a “secular purpose” and so violated the Establishment Clause, he then concurred with an entirely different group of four colleagues’ determination that a six-feet-tall Ten Commandments monument on the grounds of the Texas State Capitol did not.

A reasonable question is whether the mere fact that he voted as he did amounts to a “distinctive” feature of his judicial work relating to the Establishment Clause. Two leading scholars of American law and religion, Micah Schwartzman and Nelson Tebbe, have proposed a reading of that work in which Justice Breyer’s defections from “liberal” colleagues’ strict-separationist dissents are evaluated as instances of “appeasement.” “Appeasement”, in their analysis, is “a sustained strategy of offering unilateral concessions for the purpose of avoiding further conflict, but with the self-defeating effect of emboldening the other party to take more assertive actions.” They suggest that “appeasement carries particular risks in judicial decision making: Not only can it “affect outcomes”, it also “can influence constitutional legitimacy by “lend[ing] credence” to a “conservative” majority’s decision, “thereby weaken[ing] dissenting views.” Appeasement, they contend, “may also impact the range of constitutional interpretations that are taken seriously at a given time, by lending “plausibility” to “[a]rguments that might have been considered extreme” and by weakening the force of a “powerful” dissent that can “provide a counterweight to efforts by a majority to alter the boundaries of accepted constitutional argument.”

I am not convinced. First, the “appeasement” characterization builds on claims about the alleged appeasers’ intent: “[A]ppeasement . . . depends on an actor’s intent or motivation. Appeasement cannot be undertaken entirely by mistake; instead, it requires a deliberate course of conduct.” In my judgment, however, Tebbe and Schwartzman have not convincingly refuted the competing possibility to “appeasement”, namely, that Justice Breyer voted as he did in religious-freedom and church-state cases “on the basis of constitutional principle and precedent, according to [his] own interpretation[].”

A second, related, reservation: It is a premise of the “appeasement” argument that the “conservative” Establishment Clause decisions Justice Breyer joined when he parted company with other “liberal” justices were not only wrongly decided, but “assertive”, “aggressive”, and even “off the wall.” His colleagues’ rejected dissents are characterized glowingly, as “powerful”, “ringing”, “principled”, and so on. As I see it, though, the decisions in question were correct and the dissenters who were left “isolate[d]” were wrong. That is, in each case that Justice Breyer rejected the argument that a particular practice, action, or policy violated the Establishment Clause, he was not engaging in a “risky”, error-enabling strategy or undermining supposedly “powerful” dissents; he was, instead, correctly answering the question presented. This is true even if, in some of these cases, doing so involved re-fashioning, clarifying, limiting, or even abandoning some “preexisting”, but misguided, “doctrine[s].”

For a few decades, the Supreme Court’s doctrines and holdings relating to the First Amendment’s Establishment Clause often reflected an ahistorical, impractical, and morally unsound understanding of church-state separation. This understanding continues to be taken for granted by many, particularly in the American legal academy. More recently, though, the justices have been gradually correcting the Court’s earlier mistakes. This development is regularly characterized as the work of the Court’s “conservative” justices; it is seen by some scholars, including Tebbe and Schwartzman, as a “collapse”, rather than a correction. The latter interpretation is the better one, though, and it is part of Justice Breyer’s legacy that he understood that the First Amendment neither authorizes nor requires aggressive judicial revision of longstanding practices or the unyielding imposition and enforcement of an abstract public secularism.

The post "Appeasement"? Or, Avoiding Error? appeared first on Reason.com.

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